1 June 2021
INTRODUCTION:
Recently, in NTPC v. M/s Deconar Services Pvt. Ltd.[1], a three judge bench of the Supreme Court has, in line with the settled principle of minimum interference in arbitral awards, inter alia reiterated that in order to succeed in a challenge against an arbitral award, the party challenging the award must show that the arbitrator’s award suffered from perversity; or an error of law; or that the arbitrator had otherwise misconducted himself. The Court highlighted that merely showing that there is another reasonable interpretation or possible view on the basis of the material on record is insufficient to allow interference by the Court.
FACTUAL BACKGROUND:
NTPC (the “Appellant”) had issued two tenders for the construction of certain quarters, namely (i) 100 units of A and B type quarters (“First Project”); and (ii) 68 units of B, C and D type quarters (“Second Project”), (together the “Contracts”). M/s Deconar Services Pvt. Ltd. (the “Respondent”) had participated in the said tenders and had made an offer to provide a 16% rebate on the price for completing the First Project, in the event it was awarded both the Contracts. On June 29, 1998, the Appellant awarded both the Contracts to the Respondent based on the said offer.
A delay on the part of the Appellant in handing over the sites to the Respondent led to a consequent delay in the completion of the construction of quarters under both the Contracts. In the course of time, disputes arose between the parties regarding the final payment due to the Respondent. Accordingly, the Respondent sought arbitration under the dispute resolution clause and an arbitrator was appointed.
Deciding the disputes in favour of the Respondent, the learned arbitrator, vide awards dated July 7, 2000, granted relief to the Respondent under different heads of the Contracts (“Awards”). The Arbitrator awarded a sum of Rs 23,89,424/- along with an interest at 18% per annum pendente lite and 21% future interest, with respect to the First Project. With respect to the Second Project, the arbitrator awarded Rs 24,36,532/- at 18% per annum pendente lite and 21% future interest to the Respondent.
Aggrieved by the Awards, the Appellant filed objections before the Delhi High Court under Sections 30[2] and Section 33[3] of the Arbitration Act, 1940. The learned Single Judge of the Delhi High Court vide separate orders dated December 16, 2009, (i) dismissed the objections of the Appellant (except to the extent of modifying the interest rate granted by the Arbitrator); (ii) imposed a cost of Rs 50,000/-; and (iii) made the Awards an order of the Court (“Orders”). Thereafter, the Appellant preferred an appeal before the Division Bench of the Delhi High Court under Section 39[4] of the Arbitration Act, 1940, challenging the Orders. The said appeal was dismissed vide a common judgment dated April 9, 2010, along with a cost of Rs 10,000/- (the “Impugned Judgment”). Aggrieved by the same, the Appellant preferred an appeal (by way of a Special Leave) against the Impugned Judgment before the Supreme Court.
ARGUMENTS BY THE PARTIES
The Appellant inter alia submitted that (i) the Arbitrator erred in holding that the rebate was a conditional one, as the terms of the offer by the Respondent and the letter of award did not indicate the same; (ii) the Arbitrator erred in granting escalation of prices when the Contracts expressly indicated that the “quoted price shall remain firm during the execution of the contract”; and (iii) the forums below should have interfered with the award passed by the Arbitrator as the same was passed contrary to the terms of the contract between the parties.
The Respondent ,while supporting the Impugned Judgment, inter alia submitted that (i) there were concurrent findings against the Appellant who had only been prolonging the litigation; (ii) the scope of interference in an arbitral award was limited, as the Court did not sit in appeal over an award; and (iii) as long as the Arbitrator had taken a reasonable view, the Court should not interfere in the same.
Accordingly, the three main issues before the Court pertained to (i)the refund of the rebate agreed upon by the parties; (ii) the grant of escalation of charges for work done beyond the scheduled period; and (iii) the costs imposed on the Appellant by all the forums below the Supreme Court.
FINDINGS & ANALYSIS
Taking note of the scope of interference by Courts in arbitral awards passed under the Arbitration Act, 1940, and relying upon the findings in Kwality Manufacturing Corporation v. Central Warehousing Corporation[5], the Court 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. Furthermore, the Court stated that from a catena of other judgments[6] passed by the 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 iterated 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. Keeping in mind the above principles, the Court observed that the question before it was whether the Awards in question were assailable on any of the available grounds. While deciding this, the Court stated that due regard must also be given to the fact that both the learned Single Judge, and subsequently the Division Bench of the Delhi High Court had concurrently held against the Appellant.
The Court observed that it was an admitted fact that there was substantial delay attributable to the Appellant in handing over the sites to the Respondent. Further, with respect to the issue of refund of rebate, the Court observed that the Arbitrator interpreted the rebate as a conditional one on analysing the documents on record. The Court noted that the Arbitrator had 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 by delaying the handing over of the sites, the Appellant had breached the condition for the grant of rebate, entitling the Respondent to a refund of the same.
Further, the Court observed that the Appellant sought to canvas an alternate interpretation regarding the rebate, stating that the same was granted merely for the awarding of both the Contracts to the Respondent. While the Court agreed with the Appellant that such an interpretation was possible, the Court was of the opinion that it was not sufficient to interfere with the award passed by the arbitrator as the Court does not sit as an Appellate Court over the decision of an arbitrator, and cannot substitute its views for that of the arbitrator as long as the arbitrator had taken a possible view of the matter. The Court agreed with the Arbitrator’s views regarding its reasoning on the interpretation of the contract between the parties. The Court noted that the Courts below had rightly refused to interfere with the holding of the Arbitrator on the first issue.
The Court further noted that the arbitrator had only allowed a part of the claim made by the Respondent. The Court observed that the Arbitrator had also noted that the Appellant had accepted the work undertaken by the Respondent beyond the period of the Contracts without objections. The Court observed that the arbitrator had also carefully assessed the period of delay attributable to the Appellant and awarded escalation to the Respondent only for the same. With respect to the question of law, as to whether the arbitrator could order such an escalation, the bench stated that this Court had, in a catena of judgments, upheld the same.
It also held that it was clear to the Court that any decision regarding the issue of whether an arbitrator could award a particular claim or not, would depend upon the construction of the contract, the evidence placed before the arbitrator and other facts and circumstances of the case. The Court held that no general principle could be evolved as to whether a certain claim could be granted or not. In view of the above, the Court held that the Appellant was neither able to point out any error apparent on the face of the record, nor was otherwise able to make out a case for interference with the award by the Arbitrator with respect to this issue.
With respect to the imposition of costs on the Appellant by the forums below, the Court was not inclined to interfere with the same, since the Appellant had not pressed the same. In view of the above, the Court held that it saw no reason to interfere with the Impugned Judgment and accordingly dismissed the Civil Appeals filed by the Appellant.
CONCLUSION:
As is apparent from the multitude of arbitration centric judgments passed in the recent years, the Supreme Court has time and again supported and maintained its pro-arbitration stance. Delineating the contours of interference in arbitral awards by reiterating the “minimum interference” principle, the Court’s decision would provide a further fillip to making India a global arbitration hub.
For further information, please contact:
Aditya Mehta, Partner, Cyril Amarchand Mangaldas
aditya.mehta@cyrilshroff.com
[1] Judgment dated 4th March 2021
[2] Section 30 – Grounds for setting aside award: An award shall not be set aside except on one or more of the following grounds, namely:-
(a) that an arbitrator or umpire has misconducted himself or the proceedings
(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35;
(c) that an award has been improperly procured or is other- wise invalid.
[3] Section 33 – Arbitration agreement or award to be contested by application: Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits: Provided that where the Court deems it just and expedient, it may set down the application for hearing on other evidence also, and it may pass such orders for discovery and particulars as it may do in a suit.
[4] Section 39 – Appealable orders: (1) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order:- An order-
(i) superseding an arbitration;
(ii) on an award stated in the form of a special case;
(iii) modifying or correcting an award;
(iv) filing or refusing to file an arbitration agreement;
(v) staying or refusing to stay legal proceedings where there is an arbitration agreement;
(vi) setting aside or refusing to set aside an award;
Provided that the provisions of this section shall not apply to any order passed by a Small Cause Court.
(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court. CHAP MISCELLANEOUS CHAPTER VII MISCELLANEOUS
[5] (2009) 5 SCC 142
[6] 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
