The Bombay High Court has held that the Arbitrator cannot apply principles of equity in absence of authorization of parties. Moreover, it has also held that the doctrine of severability can also apply to arbitral awards.

In this case, both parties were aggrieved by the impugned Award. One party was aggrieved by the rejection of the prayer of specific performance while the other party was aggrieved by the direction to pay Rs. 6,50,000/- along with 8% interest p.a.

John Peter Fernandes, the petitioner/applicant entered into an agreement with respondents no. 1 and 2 to purchase a property with the intention of opening a restaurant. After a dispute arose, the same was referred to arbitration. The Arbitral Tribunal passed an Award directing the respondents to pay Mr. Fernandes a sum of Rs. 11,50,000/-

The respondents challenged the Award by filing a petition under section 34 of the Act. The petition was allowed and the Award was set aside. Aggrieved by the same, Mr. Fernandes filed an appeal under section 37. The Division Bench remanded the matter to the Single Judge to hear it afresh.

The Arbitrator rejected Mr. Fernandes’ prayer asking for specific performance but directed the respondent to pay an amount of Rs. 6,50,000/- with 8% interest p.a. Aggrieved by this Award, both the parties approached the High Court.

The HC held that directing refund of the truncated amount to Mr. Fernandes was ultra vires the contract. The relationship between the parties was determined by the contract and the learned Arbitrator couldn’t have gone beyond it. Therefore, the direction for refund was in the teeth of the terms of the contract.

Under section 28(2) of the Act, an arbitrator can decide ex aequo et bono or as amiable compositeur only if the parties expressly allow him to do so and in this case it cannot be done as the parties hadn’t expressly allowed him to do so. The learned Arbitrator could not have invoked the principle of equity in favour of the Petitioner.

The Bombay HC held that the doctrine of severability could be applied and the award was partially set aside.