Election to Affirm Contract Post-Discovery of Alleged Misrepresentation Bars Subsequent Challenge to Agreed Contractual Rates

The Appellant (Licensee) and Respondent (Licensor) entered a Leave and License Agreement in 2006 for premises in New Delhi at a monthly fee of ₹6,73,500.

The Agreement was renewed twice, and an Addendum was signed in 2009 with a 5% fee increase.

The Licensee later withheld payments, alleging the Licensor misrepresented the premises as commercially usable.

An Arbitral Tribunal (AT) found misrepresentation and reduced the license fee to an "industrial rate" of ₹20/sq. ft. for the period 2006–2011.

On challenge under Section 34, a Single Bench (SB) of the High Court set aside this reduction, restoring the contractual rates.

The Licensee appealed this modification under Section 37 of the Arbitration and Conciliation Act, 1996.

1. Whether the Single Bench, while exercising power under Section 34, exceeded the permissible scope of interference by modifying the Arbitral Award regarding the rate of license fees.

2. Whether the Arbitral Tribunal’s decision to rewrite the contractual fee based on alleged misrepresentation constituted "patent illegality".

The Court applied Section 28(3) and Section 34 of the Arbitration and Conciliation Act, 1996, which mandate that an Arbitral Tribunal must decide in accordance with the terms of the contract.

It relied on Associate Builders v. DDA, establishing that an award is "patently illegal" if it contravenes the substantive law of India or the terms of the contract.

The Court further applied Section 19 of the Indian Contract Act, 1872, holding that a party cannot rescind a contract for misrepresentation if they affirm it through their subsequent conduct.

Reference was also made to Gayatri Balasamy v. M/S. ISG Novasoft Technologies Ltd. regarding the doctrine of severability in arbitral awards.

The Court observed that the Arbitral Tribunal (AT) committed a "patent illegality" by rewriting the financial terms of the contract without legal authorization or proof of actual pecuniary loss.

The AT ignored that the Licensee, despite discovering the alleged lack of commercial sanctions, chose to renew the agreement and sign an Addendum, thereby affirming the contract under Section 19 of the Contract Act.

The Court reasoned that the SB did not "re-appreciate evidence" but correctly identified that the AT’s view was one no reasonable adjudicator could take as it permitted the Licensee to enjoy commercial usage while paying only industrial rates.

The intervention by the SB was deemed a legitimate excision of a severable, illegal portion of the award rather than an impermissible merit-based review.

The Court dismissed the appeals and upheld the Single Bench's judgment, confirming the restoration of the contractual license fee as a valid exercise of jurisdiction to correct a patent illegality.