This article is written by Yukta Joshi pursuing Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.
Table of Contents
The Arbitration & Conciliation Act, 1996, works on the scheme with the least interference by courts. The reason why Arbitration was preferred is its expeditious proceedings. It is a well-known fact that court proceedings continue for many years and sometimes the delayed relief even if granted is of no use. Many times, the victim no longer remains on earth till the relief is granted. Especially in India, courts are over-burdened with cases. In this, arbitration comes at the rescue of the courts and business persons. That is the reason, court proceedings arising out of the arbitration or matters connected thereto are highly discouraged by the courts. Indian courts have maintained this stance for a long time.
In a recent decision in NTPC Ltd. v. M/s Deconar Services Pvt. Ltd.1, the Hon’ble Supreme Court reiterated that the courts do not sit in appeal over the arbitral award and must give way to a possible view taken by the arbitrator. In this article, the author briefly lays down the background of the case and analyses the findings by the Hon’ble Supreme Court based on the contentions of the parties relating to the issue of non-interference as mentioned above.
Brief facts of the case
Two contracts were concluded between the appellant and respondent with respect to the two tenders issued by the appellant for the construction of 100 units of quarters and 68 units of quarters respectively. The appellant decided to award both the contracts to the respondent because of the offer of a 16% rebate proffered by the respondent on the prices for completing the first project. The two letters of the award were issued on 29 June 1988 to the respondent.
The appellant delayed the handing over of the land to the respondent on which the construction was to occur. Consequently, the construction of quarters in both projects was delayed. The disputes arose amongst the parties relating to their respective obligations under both contracts. Subsequently, the respondent sought an arbitration according to the dispute resolution clause in the contract, and an arbitrator was appointed.
Following the arbitral proceedings, the award was passed on 07.07.2000 in favour of the Respondent. The Respondent was awarded a sum of 23,89,424 and INR 24,36,532 for the first and second contract respectively with an interest of 18% per annum pendete lite and 21% future interest on both the contracts.
Discontented by the decision of the arbitrator, the appellant approached the Delhi High Court under Section 30 and 33 of Arbitration Act, 1940 (“1940 Act”), which provided grounds for setting aside the arbitral award and challenging its validity. The learned Single Judge dismissed the objections raised by the appellant and ordered a cost of Rs. 50,000. The award was thus made under the order of the High Court and could be enforced.
The appellant, however, preferred an appeal against the order of the Single Judge before a Division Bench of the High Court under Section 39 of Arbitration Act, 1940, which was also dismissed by a common judgment dated 9 April 2010 with a cost of Rs. 10,000. Being aggrieved, the appellant filed a Civil Appeal by way of a Special Leave Petition (SLP) before the Hon’ble Supreme Court of India.
Contentions of the parties
The appellant made the following contentions:
- The rebate of 16% agreed to be given by the respondent on the prices for completing the first project was unconditional.
- The grant of escalation of charges by the arbitrator for the work done and the delay was beyond the contractual terms. The appellant referred to the case of New India Civil Erectors (P) Ltd., wherein the court refused the claim for escalation of prices during the period of delay.
- The costs imposed by the single judge and the division bench of Delhi High Court were not justified.
In light of the above contentions, the appellant in the SLP argued that the High Court should have had interfered with the award since it was contradictory to the terms of the contract between both parties.
The respondent emphasized the limited scope of court intervention in the matters pertaining to an arbitration award. It argued that the court did not sit in an appeal over an award under the 1940 Act and as long as the view taken by the arbitrator is a reasonable and a possible view, the court should not interfere with the same.
Further, the respondent argued that the appellant was intentionally prolonging the litigation.
Issue of law raised
- Whether the awards in question were available on any of the available grounds under the Act?
Analysis of the judgement
The Hon’ble Supreme Court acknowledged the contentions of the respondent and emphasised that “this Court has consistently held that it does not sit in appeal over an award passed by an arbitrator”. The court iterated that it is a settled proposition that where the arbitrator has taken a possible view, although a different view may be possible on the same evidence, it would not interfere with the award. Further, the court stated that from a catena of other judgments passed by this court, it was clear that in order to succeed in its challenge against arbitral awards, the appellant must show that the award of the arbitrator suffered from perversity or an error of law or that the arbitrator had otherwise misconducted himself. The court recapitulated that merely showing that there is another reasonable interpretation or possible view on the basis of the material on record is insufficient to allow for the interference by the court.
Further, it noted that due regard must be given to the fact that both the learned Single Judge and the Division Bench of the Delhi High Court had concurrently held against the appellant.
On the merits, the court observed that it was proved that the substantial delay in handing over the sites to the Respondent was attributable to the appellant. Further, concerning the issue of refund of the rebate, the court observed that the arbitrator interpreted the rebate as a conditional one on analysing the documents on record. The arbitrator has held that the intention of the parties was to complete the work together, which would have enabled the respondent to reduce its costs and optimise its charges, thereby allowing it to grant the 16% rebate to the appellant. The court also observed that the appellant had breached the condition for the grant of rebate by causing substantial delay, thereby entitling the Respondent to a refund of the same. In the instant case, since the view taken by the arbitrator was a possible one, the Hon’ble Supreme Court held that it saw no reason to interfere with the impugned judgment. Accordingly, the civil appeals filed by the appellant were dismissed.
In light of the above observation, the Supreme Court has in the present matter replicated and upheld the long old stance and the principle of least court intervention in arbitration matters.
Similar judgement on this issue of law
There are a plethora of judgments on this issue of non-interference by courts:
Kwality Manufacturing Corporation v. Central Warehousing Corporation
This judgment highlighted the limited scope of intervention by the courts under Section 30 or 33 of the 1940 Act. It was held that a court did not sit in appeal over the findings and decision of the arbitrator. Moreover, the courts could not reassess or re-appreciate evidence while dealing with a challenge to an arbitral award. The only question that arose here was whether there was an error apparent on the face of the award and whether the arbitrator misbehaved during the proceedings.
Arosan Enterprises Ltd. v. Union of India
In this case, it was held that, where the arbitrator had taken a possible view, even if a different view could be possible on the same evidence, the court would not interfere with the award. The phrase “error apparent on the face of the record” did not by itself mean and imply closer scrutiny of the merits of the documents and materials on record. The objector/appellant in order to succeed in their challenge against an arbitral award must show that the award of the arbitrator suffered from perversity or an error of law or that the arbitrator has otherwise misconducted himself. Merely showing that there is another reasonable interpretation or possible view on the basis of the material on the record is insufficient to allow for the interference by the Court.”
Assam State Electricity Board v. Buildworth Private Limited (Assam State case)
In this case, the Apex Court observed that the arbitrator had granted escalation charges above what was permissible under the contract. Upholding such an award, the Hon’ble Supreme Court held that the arbitrator had correctly taken the view that the provision for price escalation would not bind the claimant beyond the scheduled date of completion. The court held as under;
“…. Matters relating to the construction of a contract lie within the province of the Arbitral Tribunal. Moreover, in the present case, the view which has been adopted by the arbitrator is based on evidentiary material which was relevant to the decision. There is no error apparent on the face of the record which could have warranted the interference of the court within the parameters available under the Arbitration Act, 1940. The arbitrator has neither misconducted himself in the proceedings nor is the award otherwise invalid.”
Recently, in the case of Megha Enterprises, the Delhi High Court had observed a similar ratio, wherein it was held that the court cannot interfere with an award on the ground of inference drawn by the arbitral tribunal from the evidence on record. Therefore, these decisions certainly aid in the fostering of the arbitration regime in the right direction.
The instant judgment adds to the catena of judicial precedents that highlight the principle of non-interference of arbitrator’s decision by courts on the ground of alternative interpretations or possible views. The arbitrator is free to take a reasonable and a possible view and decide the case based on evidence on record. Merely showing that there is another reasonable alternative or possible view which the arbitrator did not take, would not entail judicial intervention. Minimal intervention in the arbitral process would instil confidence amongst parties seeking to arbitrate and allow them to attain a final, binding decision in a shorter timeline. The courts also, on the other hand, would benefit from the reduction in the litigation and case workload.
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