Arbitral award upheld where service tax liability became academic and supplementary claims failed for lack of contractual basis and proof.

An arbitral award was upheld where the tribunal treated the remaining service tax dispute on non-compete fee as academic after the underlying demand had already been quashed in tax proceedings. The High Court found no jurisdictional error, excess of reference, patent illegality, or public policy violation because Section 34 review is limited and the award did not contradict the contract or the Arbitration Act. It also held that rejection of supplementary claims for pre-deposit expenses, borrowings interest, litigation costs, arbitral costs, and related Section 23(3) applications caused no interference, since those claims were not contractually fastened on the respondent and were unsupported by evidence.

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Issues: (i) Whether the arbitral award was liable to be set aside for travelling beyond the scope of reference, being based on extraneous considerations, or for patent illegality and violation of public policy; (ii) Whether the rejection of the supplementary claims and the applications under Section 23(3) of the Arbitration and Conciliation Act, 1996 vitiated the award.

Issue (i): Whether the arbitral award was liable to be set aside for travelling beyond the scope of reference, being based on extraneous considerations, or for patent illegality and violation of public policy.

Analysis: The dispute arose from the service tax demand raised on the non-compete fee paid under the contractual arrangements between the parties. The assessment demand had already been quashed in tax proceedings, and the arbitral tribunal treated the remaining issue of service tax liability as academic. The High Court held that the tribunal did not commit jurisdictional error by relying on the tax adjudication, because once the service tax demand itself no longer survived, there was no live controversy requiring a further declaration as to inter se liability. The award was examined on the limited grounds available under Section 34, and no contravention of the fundamental policy of Indian law or patent illegality was found.

Conclusion: The challenge to the award on the grounds of excess of jurisdiction, extraneous consideration, patent illegality, and public policy failed.

Issue (ii): Whether the rejection of the supplementary claims and the applications under Section 23(3) of the Arbitration and Conciliation Act, 1996 vitiated the award.

Analysis: The supplementary claims were for pre-deposit expense, interest on borrowings, litigation costs, and arbitral costs arising from the service tax proceedings. The High Court held that these expenses were not shown to be contractually fastened on the respondent, and the petitioners could not recover costs incurred in defending a demand raised in their own name merely because the demand had been challenged successfully. The tribunal's finding that the claims were not established by evidence was not amenable to reappreciation under Section 34. The dismissal of the applications under Section 23(3) was therefore not found to be illegal or arbitrary.

Conclusion: The rejection of the supplementary claims and the connected applications did not furnish any ground to interfere with the award.

Final Conclusion: The award was upheld and the Section 34 petition failed, as no ground for judicial interference with the arbitral decision was made out.

Ratio Decidendi: In a Section 34 proceeding, an arbitral award will not be interfered with merely because one party disputes the tribunal's treatment of a claim as academic or its assessment of evidence, unless the award is shown to be contrary to the contract, the Arbitration Act, or the limited public policy grounds for challenge.

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