### NON-CONSIDERATION OF VITAL EVIDENCE VITIATES ARBITRAL AWARD ON GROUNDS OF PATENT ILLEGALITY AND PERVERSITY

The Petitioners (property owners) entered into a Collaboration Agreement (CA) dated 10.05.2019 with the Respondent for the re-construction of a residential building

The Respondent paid an advance of Rs. 35 lacs as per Clause 15 of the CA but failed to complete construction within the stipulated 20-month period

Consequently, the Petitioners terminated the CA on 04.09.2022

During the subsequent arbitration, the Arbitrator upheld the termination as legal and rejected most of the Respondent's monetary claims but directed the Petitioners to refund the Rs. 35 lacs advance payment, noting a lack of forfeiture clauses in the CA

The Petitioners challenged this specific portion of the award under Section 34 of the Arbitration and Conciliation Act, 1996

1. Whether the arbitral award directing the refund of Rs. 35 lacs was perverse or vitiated by patent illegality for ignoring vital evidence

2. Whether a severable part of an arbitral award can be set aside under Section 34 of the Act while preserving the remainder

The court applied Section 34 of the Arbitration and Conciliation Act, 1996, which governs the setting aside of arbitral awards.

It relied on the principle from PSA Sical Terminal Pvt. Ltd. v. Board of Trustees and Associate Builders v. DDA that an award which ignores vital evidence or is based on no evidence is "perverse" and constitutes "patent illegality"

It further applied the doctrine of omne majus continet in se minus (the greater power includes the lesser) as interpreted in Gayatri Balasamy v. ISG Novasoft Technologies Ltd., which permits courts to sever and set aside only the invalid/severable portions of an award

The High Court found that the Arbitrator ignored a crucial letter dated 14.03.2021 (Document No. 12) in which the Respondent expressly volunteered that the Rs. 35 lacs advance be forfeited if they failed to meet a new 12–15 month completion schedule

The Court noted that while the Arbitrator referred to this document when deciding other claims, he ignored its relevance regarding the forfeiture of the advance, leading to a finding that "there was no provision of forfeiture"

By disregarding this vital piece of evidence which directly contradicted the core reasoning of the award, the Arbitrator’s decision was characterized as perverse and patently illegal

The Court reasoned that since the refund direction was independent of other findings on construction costs or termination validity, it was a severable part of the award that could be set aside without nullifying the entire proceedings

Applying the principle of severability, the Court set aside only the portion of the arbitral award dated 29.07.2024 that directed the refund of Rs. 35 lacs to the Respondent