Arbitral Awards Based on Unproved CA Certificates Amount to ‘No Evidence’ and Are Liable to Be Set Aside
Introduction
The Hon’ble Delhi High Court in the case of Delhi Transco Ltd. v. KEC International Ltd. has reaffirmed the principle that arbitral awards must be supported by cogent evidence and cannot rest merely on unsubstantiated documents such as Chartered Accountant (CA) certificates. This judgment not only strengthens the evidentiary standards in arbitral proceedings but also underscores the limited yet vital scope of judicial intervention under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
Factual Background
The dispute arose between Delhi Transco Ltd. (“DTL”) and KEC International Ltd. (“KEC”) regarding claims for losses, idling charges, and overheads in relation to a transmission project. The Arbitral Tribunal awarded compensation to KEC on the basis of CA certificates produced to substantiate its claims for loss of profit and idle resources.
Aggrieved, DTL challenged the award under Section 34 of the Act before the District Judge (Commercial Court), which dismissed the challenge. DTL then filed an appeal under Section 37 before the Delhi High Court.
Issues Before the Court
1.Whether an arbitral award based on CA certificates, without further proof or corroboration, can be sustained?
2. Whether such reliance amounts to a case of “no evidence,” rendering the award perverse and liable to be set aside?
3. The extent of judicial interference permissible under Section 37 when the award is challenged on evidentiary grounds.
Court’s Reasoning
The Delhi High Court allowed the appeal and set aside the award, holding:
- Evidentiary Value of CA Certificates: The Court emphasized that a CA certificate, without examination or corroboration, cannot by itself constitute proof of the claims advanced. It may at best be treated as a piece of evidence requiring substantiation.
- Doctrine of ‘No Evidence’: Where the arbitral tribunal bases its conclusions solely on documents that are unproved or incapable of substantiating the claim, the award suffers from the vice of perversity. Such an award is equivalent to being based on “no evidence.”
- Judicial Review under Section 37: While courts ordinarily refrain from reappraising evidence, intervention is justified where the award is patently illegal or perverse, such as when material relied upon has no evidentiary worth.
- Loss of Profit and Idling Claims: The Court highlighted that such claims require strict proof—through contemporaneous records, accounts, or expert testimony—and cannot be granted merely on the basis of unverified certificates.
Key Takeaways
1.CA Certificates Not Conclusive Proof: Parties cannot rely on unproved CA certificates as the sole basis for monetary claims in arbitration.
2. High Threshold for Loss of Profit/Idling Claims: Such claims demand strict evidence, aligning with established jurisprudence that mere estimates are insufficient.
3. Limited Judicial Intervention, But Not Powerless: Courts under Sections 34 and 37 may step in where awards are perverse or based on no evidence, ensuring arbitral process integrity without substituting their own fact-finding.
4. Message to Tribunals: Arbitral tribunals must scrutinize the evidentiary value of documents before awarding compensation, to avoid awards being vulnerable to challenge.
Conclusion
The judgment reinforces a critical balance in arbitration law: while respecting arbitral autonomy, courts will not hesitate to strike down awards that fail the test of evidentiary sufficiency. By holding that unproved CA certificates cannot by themselves sustain arbitral awards, the Delhi High Court has provided much-needed clarity for both arbitrators and litigants. This decision is a reminder that arbitral discretion must be exercised within the framework of legal and evidentiary principles, ensuring that awards are both fair and legally sustainable.
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