Arbitration Award Not Vitiated by Patent Illegality Where Interpretation of Limitation and Evidence Is Plausible

The Petitioner, a distributorship concern for LPG cylinders, entered into three successive Distribution Agreements (DAs) with the Respondent dated 1st August 2002, 1st August 2007, and 1st August 2012.

The Petitioner alleged that the Respondent engaged in arbitrary price hikes and suddenly stopped supplies in December 2015.

Arbitration was invoked on 28th July 2016.

A Section 16 application by the Respondent, claiming the Tribunal lacked jurisdiction over the 2002 and 2007 DAs, was dismissed on 28th November 2019, holding the agreements were in continuation.

The Sole Arbitrator’s final award dated 25th March 2021 rejected most claims (totaling approx. ₹40 Crores) on grounds of limitation and lack of evidence, awarding only ₹5,62,500/- for loss of earnings during the 2012 DA period.

The Petitioner challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996.

1. Whether the findings on limitation were barred by the principle of "internal res judicata" due to the prior Section 16 order.

2. Whether the claims arising from price hikes between 2002 and 2012 constituted a "continuing wrong" under Section 22 of the Limitation Act.

3. Whether the arbitral award was vitiated by patent illegality or perversity regarding the assessment of damages and interpretation of pricing clauses.

The court applied Section 34 of the Arbitration and Conciliation Act, 1996, which limits judicial interference to grounds of "patent illegality" appearing on the face of the award and conflict with "public policy," excluding re-appreciation of evidence.

The court relied on Nusli Neville Wadia v. Ivory Properties, which distinguishes jurisdictional power from the merits of limitation.

The court applied State of Gujarat v. Kothari and Associates, which clarifies that successive breaches do not constitute a "continuing wrong" for limitation purposes.

The court also applied the principle from Ssangyong Engg. & Construction Co. Ltd. v. NHAI, holding that an arbitrator’s plausible interpretation of a contract is not subject to interference even if an alternative view exists.

The court found that the Section 16 order only established the Tribunal's jurisdiction to hear claims from all three DAs and did not finally adjudicate the merits of limitation, thus "internal res judicata" did not apply.

Applying Section 22 of the Limitation Act, the court held that each price hike and invoice was a complete and distinct act; therefore, there was no "continuing wrong," and claims prior to July 2013 were correctly held time-barred.

Regarding pricing, the court determined the Arbitrator’s finding—that the Petitioner waived its right to protest by accepting prices and renewing contracts for over a decade—was a plausible interpretation of fact and contract.

On the issue of damages, the court held that "honest guesswork" cannot replace the requirement to prove the factum of loss; since the Petitioner failed to produce tax returns or books of accounts, the Arbitrator’s rejection of the ₹40 Crore claim was not perverse.

The court affirmed that the Arbitrator is the sole judge of the quality and quantity of evidence.

The finding that claims under the 2002 and 2007 DAs were barred by limitation was upheld.

The award of ₹5,62,500/- based on Respondent's data was sustained as the only reliable evidence on record.

No order as to costs was made.