Interpretation Of Agreement By Arbitrator Cannot Be Interfered Merely Because Another View Could Have Been Taken: Himachal Pradesh High Court

Brief Facts:

The Respondent was contracted for the construction of a link road from Sitalpur to Nanowal, with a stipulated work period of one year commencing by the Petitioners. However, the Respondent completed the work on 28.12.2008. Subsequently, the Respondent asserted a claim for compensation for additional costs incurred due to project prolongation, citing defaults on the part of the Petitioners.

Upon invocation of the arbitration clause, the Respondent presented several claims, including one for Rs.21,58,775.39 on grounds of price escalation. This escalation was attributed to alleged delays caused by the Petitioners, such as the non-handover of the construction site within the stipulated work period, alongside other impediments that hindered timely project execution, consequently inflating construction costs.

The Arbitrator's ruling rejected all other claims by the Respondent save for the claim of price escalation, awarding Rs.15,46,250/- and an 8% per annum interest rate for the pre and pendente lite period. Feeling aggrieved, the Petitioners approached the Himachal Pradesh High Court (“High Court”) and challenged the award. The Petitioners argued that it surpasses the confines of the agreement between the involved parties.

Observations by the High Court:

The High Court referred to the decision of the Supreme Court in UHL Power Company Ltd. versus State of Himachal Pradesh, 2022 LiveLaw (SC) 18, noted that the scope of interference under Section 34 of the Arbitration and Conciliation Act, 1996 is limited. The High Court noted that the role of the judiciary in arbitral matters is limited and circumscribed, particularly emphasizing that courts should refrain from acting as courts of appeal when reviewing arbitral awards.

The High Court held that there is a narrow jurisdiction conferred upon courts under Section 34 of the Arbitration Act. Further, in MMTC Ltd. v. Vedanta Ltd., the Supreme Court held that courts do not sit in appeal over such awards. It reaffirmed that interference is permissible only on specific grounds, such as if the award contravenes public policy, which includes violations of fundamental Indian legal principles, interests of India, justice, morality, or the existence of patent illegality. The High Court held that as long as the arbitrator's interpretation is plausible and within the realm of possibility, courts should refrain from interference merely because an alternative view could have been taken.

Upon examination of the impugned award, the High Court found no grounds for interference. It noted that the arbitrator's findings attributed delays in the implementation of the agreement to the Petitioners. The High Court observed that the Petitioners failed to demonstrate any material indicating that the arbitrator's findings were patently illegal or perverse.

Regarding the compensation awarded to the respondent/contractor for price escalation during the work period, the High Court found no illegality in the exercise of jurisdiction by the arbitrator. It pointed to the relevant clauses of the agreement, particularly Clause 40 dealing with compensation events and Clause 38.1(e) allowing for the inclusion of variations and compensation events.

Therefore, the High Court held that the compensation granted to the Respondent was neither unreasonable nor exorbitant.

Case Title: State of Himachal Pradesh & Anr vs M/s Asphalt Carpet Constructions Co

Citation: 2024 LiveLaw (HP) 20

Case Number: Arb. Case No.74 of 2014

Advocate for the Petitioner: YPS Dhaulta

Advocate for the Respondent: JS Bhagol and Satish Sharma

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