An arbitral award based on no evidence is vitiated by patent illegality.

The State of West Bengal challenged, under Section 37 of the Arbitration and Conciliation Act, 1996, the Commercial Court’s order dated 30 March 2022 dismissing its Section 34 petition against an arbitral award dated 18 February 2019.

The dispute arose from a contract awarded to M/s. A.J. Sarkar & Co. for construction of a bridge over Gomani Khal. The work was to be completed by 21 September 2011, but execution was suspended because of land-acquisition and site-related difficulties.

The respondent raised five claims, including ₹1,59,53,853 for work allegedly performed and other dues, ₹8,00,000 as damages for prevented performance, interest, other contractual dues, and arbitration costs.

The Arbitrator allowed Claims 1 and 2, awarded interest at 9% per annum from 24 June 2013, and awarded arbitration costs.

1. Whether the arbitral award was vitiated by patent illegality because Claim 1 was allowed on the basis of unilateral measurement statements and other evidence that did not adequately prove the quantum of work or the amount claimed.

2. Whether the Arbitrator’s award of compound interest, followed by further simple interest, was unsupported by the contract or by reasons and therefore legally unsustainable.

3. Whether the Arbitrator failed to consider the alleged frustration or impossibility of performance arising from the land-acquisition and site problems, and the respondent’s failure to mitigate its losses.

4. Whether the unexplained delay of more than one year and eight months in making and publishing the award adversely affected its validity.

5. Whether the Commercial Court failed to exercise its jurisdiction properly under Section 34, warranting interference under Section 37.

The Court applied Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, holding that Section 37 jurisdiction is narrower than Section 34 jurisdiction and does not permit re-appreciation of evidence or substitution of a preferred factual view.

However, an award based on no evidence, unsupported by reasons, contrary to the contract or substantive law, or manifestly irrational may be set aside for patent illegality, particularly under Section 34(2A).

Under Associate Builders v. DDA, an arbitrator is ordinarily the final judge of the quality and quantity of evidence, but an award based on no evidence is vulnerable to challenge.

Kochar Construction v. Union of India establishes that a bare cost-analysis chart, without supporting evidence, does not prove a claim.

The principles concerning documentary and hearsay evidence discussed in Madholal Sindhu, Rashmi Housing, and Kalyan Kumar Gogoi require reliable proof of the contents of documents and favour production of the best available evidence.

Under Satyabrata Ghose, frustration operates automatically upon supervening impossibility, distinct from termination for breach or repudiation.

A.T. Brij Paul Singh permits a broad assessment of damages, while Lancor Holdings holds that delay alone does not invalidate an award unless its adverse effect on the decision is apparent; unexplained delay may nevertheless contribute to patent illegality or conflict with public policy.

The Court found that Claim 1 was allowed without adequate evidentiary foundation. The alleged work was supported principally by unilateral measurements prepared by an engineer engaged at the respondent’s behest; the measurements were not accepted by the State and were not corroborated by the contractually relevant measurement book or other independent evidence.

The Arbitrator gave no reasons for preferring those measurements or for rejecting the absence of the measurement book. Consequently, the award on Claim 1 was treated as resting on no sufficient evidence and as disclosing patent illegality.

The Court further held that the Arbitrator had incorporated compound interest into the claim amounts without identifying any contractual or legal basis, and then awarded additional interest at 9% per annum on the inflated amounts, effectively granting interest on interest.

This was unexplained and, in the context of a public bridge-construction project, shocking to the conscience of the Court.

The Court also noted the Arbitrator’s failure to address the land-acquisition problem, the possibility of frustration or impossibility, and the respondent’s duty to mitigate its losses.

Although delay in pronouncing an award is not independently decisive, the unexplained delay here, together with the award’s non-application of mind and irrational interest methodology, supported the conclusion that the award had been adversely affected.

The Commercial Court therefore failed to properly exercise its Section 34 jurisdiction.

The Commercial Court’s order dated 30 March 2022 was set aside, the arbitral award dated 18 February 2019 was quashed, and FMAT (ARBAWARD) 35 of 2022 was disposed of without any order as to costs.