India: Interference By The Courts In Arbitral Awards: Supreme Court Reiterates The Minimal Intervention Principle

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. The present article briefly examines the findings rendered by the Hon'ble Supreme Court in the matter mentioned above.

Brief Facts

The appellant in the instant matter had issued two tenders for the construction of certain quarters in which the respondent had participated. After negotiations, the appellant decided to award both the contracts to the respondent based on an offer of a 16% rebate on the prices for completing the first project. The two letters of award were issued on 29 June 1988 to the respondent. However, the appellant caused some delay in handing over the land on which the construction was to occur. Consequently, there was a delay in the completion of the construction of quarters in both projects.

As disputes emerged amongst the parties, the respondent sought arbitration under the dispute resolution clause, and an arbitrator was appointed. With respect to the first contract, the arbitrator awarded a sum of INR 23,89,424 with an interest of 18% per annum pendete lite and 21% future interest to the respondent. Similarly, for the second contract, the arbitrator awarded INR 24,36,532 along with 18% interest per annum pendente lite and 21% future interest to the respondent.

Aggrieved by the aforementioned awards, the appellant filed objections against the same before the Delhi High Court (High Court) under Sections 30 and 33 of the Arbitration Act, 1940 (1940 Act). The Single Judge of the High Court dismissed the appellant's objections with costs except to the extent of modifying the interest rate granted by the arbitrator. Thus, the award was made an order of the Court. The appellant thereafter challenged the decision of the Single Judge before the High Court's Division Bench under Section 39 of the 1940 Act, which was dismissed by a common judgment dated 9 April 2010 with cost.

Arguments on both sides

The appellant primarily made three submissions. Firstly, the appellant contended that the rebate of 16% agreed upon by the parties was not a conditional one as held by the arbitrator. Secondly, the grant of escalation of charges for work done was beyond the contractual terms. Thirdly, the appellant also argued against the costs imposed by the Single Judge and the Division Bench of the High Court.

On the other hand, the respondent argued that the scope of interference in an arbitral award was limited, as a court did not sit in an appeal over an award under the 1940 Act. As long as the arbitrator had taken a reasonable view, the respondent submitted that the Court should not interfere with the same.

Held

At the outset, the Hon'ble Supreme Court referred to the decision in Kwality Manufacturing Corporation v. Central Warehousing Corporation² to highlight 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 reappreciate evidence while dealing with a challenge to an arbitral award. The only question that arose for a Court was whether there was an error apparent on the face of the award and whether the arbitrator misconducted himself during the proceedings.

The Hon'ble Supreme Court then referred to the position laid in Arosan Enterprises Ltd. v. Union of India³ wherein 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. Merely showing that there is a reasonable alternative interpretation or possible view based on the material on the record is insufficient to allow for the interference by the Court.⁴

On the escalation charges being granted beyond the contractual terms, the Hon'ble Supreme Court referred to the decision in Assam State Electricity Board v. Buildworth Private Limited.⁵ In the Assam State case, the Apex Court was faced with almost identical circumstances where 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. Accordingly, the Apex Court opined that the decision in the Assam State case applied to the instant matter.

On the delay in the instant matter, the Hon'ble Supreme Court held that substantial delay was attributable to the appellant in handing over the sites for the two contracts, which the appellant did not contest. Accordingly, the appellant was held in breach of the condition for the grant of the rebate.

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.

Comment

The instant judgment adds to the line of judicial precedents that have held that the arbitrator's decision shall not be interfered with if the Courts find that the same is a possible view. 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. While the Courts, on the other hand, would benefit from the reduction in the litigation bringing some relief to the otherwise overburdened system.

* The author would like to acknowledge the research and assistance rendered by Harshvardhan Korada, a student of the Amity Law School, Delhi.

Footnotes

1. NTPC Ltd. v. M/s Deconar Services Pvt. Ltd., Civil Appeal No. 6484 of 2014.

2. Kwality Manufacturing Corporation v. Central Warehousing Corporation, 2009 5 SCC 142.

3. Arosan Enterprises Ltd. v. Union of India, 1999 9 SCC 449.

4. State of U.P. v. Allied Constructions, 2003 7 SCC 396; Ravindra Kumar Gupta and Company v. Union of

India, 2010 1 SCC 409; Oswal Woollen Mills Limited v. Oswal Agro Mills Limited, 2018 16 SCC 219.

5. Assam State Electricity Board v. Buildworth Private Limited, 2017 8 SCC 146.

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