Ignoring contractual written-notice requirements and shifting the burden of proof renders an arbitral award patently illegal.

The petitioner provided security and surveillance services for mobile-tower sites.

Under the Service Agreement dated 18 February 2019, the petitioner was to provide surveillance services at 978 sites in Maharashtra at ₹12,152 per site per month, under Schedule II.

The agreement permitted the respondent to alter the scope of work or number of sites only through a written intimation under Clause 1.6.

Following Memoranda of Understanding concerning manpower optimisation, the respondent made payments based on progressively fewer sites from July 2019 onwards.

The respondent did not, however, issue a written communication formally reducing the number of sites.

The petitioner claimed unpaid service charges, interest, damages, GST, differential minimum wages and gratuity.

The arbitral tribunal rejected the claims, holding, inter alia, that the petitioner had failed to prove that services were rendered at all 978 sites.

The petitioner challenged the award dated 10 August 2023 under Section 34 of the Arbitration and Conciliation Act, 1996, contending that the arbitrator had wrongly shifted the burden of proof and had disregarded Clause 1.6 and Schedule II of the Service Agreement.

1. Whether the respondent had validly reduced the number of Maharashtra sites from 978 by invoking Clause 1.6 of the Service Agreement, despite not issuing written intimation to the petitioner?

2. Whether the arbitrator erred in placing upon the petitioner the burden of proving that surveillance services were rendered at all 978 sites, instead of requiring the respondent to prove the alleged reduction in sites?

3. Whether the MoUs relating to manpower optimisation, the reduced invoices and the subsequent agreements established waiver or estoppel against the petitioner’s claim for payment for 978 sites?

4. Whether the arbitral award suffered from patent illegality under Section 34 of the Arbitration and Conciliation Act, 1996 by disregarding the contractual terms and containing contradictory findings?

The Court applied Section 34 of the Arbitration and Conciliation Act, 1996, under which a domestic arbitral award may be set aside for patent illegality, including where the arbitrator ignores vital evidence, adopts a perverse or impossible interpretation, or fails to act in accordance with the contract.

Section 28(3) requires the arbitral tribunal to take into account the terms of the contract.

An arbitrator, being a creature of contract, must decide within the contractual framework; failure to act in accordance with express contractual terms constitutes patent illegality, as held in Indian Oil Corporation Ltd. v. Shree Ganesh Petroleum Rajgurunagar, (2022) 4 SCC 463, State of Chhattisgarh v. Sal Udyog (P) Ltd., (2022) 2 SCC 275, and Bharat Coking Coal Ltd. v. Annapurna Construction, (2003) 8 SCC 154.

The general evidentiary principle under Sections 101–102 of the Evidence Act, 1872 is that the party asserting a fact bears the burden of proving it; a negative burden cannot ordinarily be imposed on the opposing party.

Sections 58, 91 and 92 of the Evidence Act do not assist a party where the alleged admission is not conclusive and where the contractual issue must be determined from the agreement itself.

Waiver requires a conscious and intentional relinquishment of a known right, while estoppel requires a representation, reliance and alteration of position, as explained in Kalpraj Dharamshi v. Kotak Investment Advisors Ltd., (2021) 10 SCC 401, and Chhaganlal Keshavlal Mehta v. Patel Narandas Haribhai, (1982) 1 SCC 223.

Clauses 1.6 and 2.1, read with Schedule II, required payment for 978 Maharashtra sites at the agreed rate unless the respondent reduced the sites through written intimation.

The Court found that the respondent admittedly issued no such written communication.

The MoUs dealt with manpower optimisation and did not mention any reduction in the number of sites; payment of ₹60,000 per manpower transition concerned settlement with removed employees and did not alter the consideration payable under the Service Agreement.

The respondent’s assertion that the petitioner had provided services only at the sites reflected in the reduced invoices was an affirmative assertion that the respondent had to establish.

The arbitrator therefore erred in shifting the burden to the petitioner to prove performance at all 978 sites, particularly when the contractual power to reduce the sites belonged to the respondent and had not been exercised in the prescribed manner.

The reduced invoices did not conclusively waive the petitioner’s contractual entitlement.

Nor did the execution of subsequent agreements, without insisting on immediate payment of earlier dues, establish conscious waiver or the elements of estoppel.

The award was additionally internally inconsistent: it recognised that payment was to be made on an on-site basis, yet relied on manpower optimisation and an email suggesting payment based on retained manpower.

By disregarding the express contractual mechanism for reducing sites and by shifting the burden of proof, the arbitrator acted contrary to the Service Agreement.

This amounted to patent illegality warranting interference under Section 34.

The arbitrator wrongly placed the burden on the petitioner and adopted findings contrary to the contractual payment structure.

The award dated 10 August 2023 was therefore held to be patently illegal and was set aside.

The petition was allowed and all pending applications were disposed of.