Arbitral Tribunal Is Master of Evidence, Delhi High Court Upholds Award Against Railways

The bench held that that the Arbitral Tribunal is the master of evidence and a findings of fact arrived at by an arbitrator is on an appreciation of the evidence on record are not to be scrutinised as if the Court was sitting in appeal (referred to State of Jharkhand v. HSS Integrated Sdn).

Brief Facts:

The matter pertained to an appeal filed by the Ministry of Railways under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 challenging the judgment passed by the Commercial Court. The Commercial Court dismissed the petition filed by the Railways under Section 34 of the Arbitration Act which sought to set aside the Arbitral Award. Initially, the appeal was dismissed in default. The Railways subsequently sought to restore the appeal filing an application for the condonation of a 96-day delay. The delay was condoned by a Coordinate Bench which restored the appeal. Aggrieved by this order, M/s Parishudh Machines Pvt. Ltd. (Respondent) filed a Special Leave Petition (SLP) before the Supreme Court. The Supreme Court disposed of the SLP directing that all contentions including those regarding the delay in the restoration application be considered on their merits by the High Court.

The facts of the case revolve around a contract awarded to Parishudh by the Railways for the supply of a CNC Twin Spindle Chucker machine. The contract required delivery within 300 days to the Diesel Locomotive Works in Varanasi. The delivery period was extended twice, first to 06.06.2016 and then to 31.01.2017. Parishudh requested a further extension, which was denied by the Railways, leading to the termination of the contract by a letter dated 29.03.2017. The dispute was referred to arbitration with a sole arbitrator appointed by the competent authority at COFMOW.

During arbitration, Parishudh made several claims including the cost of the partially manufactured machine and interest on the delayed payment. The Railways contended that the contract was rightfully terminated due to Parishudh's failure to deliver the machine on time and that the cancellation was accepted by Parishudh without protest. The Railways argued that no payment was due as the machine was not inspected or completed according to the contractual terms. The Arbitral Tribunal however found in favor of Parishudh and awarded a sum equivalent to 70% of the machine's cost along with interest while rejecting Parishudh's claim for loss of profit.

The Railways, dissatisfied with the Award, approached the Commercial Court under Section 34 of the Arbitration Act and argued that the Tribunal erred in its findings. They also alleged bias on the part of the arbitrator. The Commercial Court dismissed these contentions and noted that the arbitrator was appointed by the Railways themselves and that the Award was well-reasoned and free from procedural defects.

Before the High Court, the Railways argued that the Tribunal's decision to award 70% of the machine's cost to Parishudh was without evidence as the machine was neither completed nor inspected. It contended that the Tribunal's conclusions were based on irrelevant evidence and that the terms of the contract were ignored. Parishudh, on the other hand, argued that the appeal should not be entertained due to the delayed filing and lack of sufficient cause for the delay. It further defended the Award and contended that the arbitrator's findings were based on a thorough examination of the evidence and should not be interfered with by the court.

Observations by the High Court:

The primary contention raised by the Railways before the High Court centered on allegations of bias within the Arbitral Tribunal. The Railways argued that the Tribunal was biased in favor of Parishudh because documents submitted by Parishudh during the final arguments were considered in the Award.

The contract between the parties included a clause that designated a sole arbitrator, a gazetted Railway officer, to be appointed by the Chief Administrative Officer of COFMOW (Railways). The contract stated that the arbitrator would not have had prior involvement with the issues at hand ensuring impartiality. Parishudh, in its Statement of Claim, clarified that the appointed arbitrator was a senior Railway official and former Controller of Stores possessing the necessary technical expertise to adjudicate the dispute.

During the arbitral proceedings, no objection was raised by the Railways regarding the jurisdiction or authority of the Tribunal. It was only before the Commercial Court that the Railways raised the issue of bias and argued that the acceptance of documents submitted by Parishudh during the final arguments indicated a lack of impartiality.

The Arbitral Tribunal allowed the submission of the additional documents noting their fundamental importance to the resolution of the dispute. The Tribunal's decision to consider these documents was made with full reasoning and the High Court found no error in this approach. Consequently, the High Court dismissed the Railways' allegations of bias.

The Railways also argued that Parishudh substantially delayed the performance of the contract which led to its termination. The Railways argued that the time was of the essence in the contract relying on specific clauses within the contract documents that provided for liquidated damages in the event of delays. The Railways contended that despite the delays, the Tribunal did not impose damages on Parishudh and instead awarded amounts in its favor.

The High Court noted that Clause 0400 stated that liquidated damages were pre-estimated at 2% of the total contract value for each month of delay, up to a maximum of 10%. Clause 1000 reinforced that time was of the essence for the delivery, and Clause 1002 allowed for the contract's termination and recovery of damages in the event of delays. Clause 1003 provided for an extension of time for delivery if justified by circumstances, potentially reducing or waiving damages.

The Railways invoked Section 55 of the Indian Contract Act, 1872 and argued that Parishudh's failure to perform within the stipulated time should result in liability for delay. Section 55 makes a contract voidable at the promisee's discretion if time is of the essence and performance is delayed. However, the High Court noted that the Tribunal considered the entire contract and the circumstances surrounding its execution including significant delays attributable to the Railways.

Parishudh demonstrated that the Railways delayed the approval of drawings, site handover, and provision of necessary components, all of which contributed to the delay in delivery. The Tribunal found that these delays were caused by the Railways and therefore, Parishudh could not be held solely responsible for the delay. Consequently, the High Court found no fault in the Tribunal's decision not to impose liquidated damages on Parishudh and rejected the Railways' arguments to the contrary.

Therefore, the High Court held that the Arbitral Tribunal thoroughly examined the contract terms and the purpose of the machine. The Tribunal, familiar with the machine's technical specifications, scrutinized the correspondence and documents between the parties and held that the technical clarifications requested by Parishudh were not provided by the Railways. As a technical expert, the Arbitral Tribunal held that the machine in question required close collaboration between Parishudh and the Railways in its design and manufacture.

The High Court held that it has limited scope of interference with an Arbitral Award under Sections 34 and 37 of the Arbitration Act. The High Court referred to precedents, including PSA SICAL Terminals Pvt. Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and MMTC Limited v. Vedanta Limited which underline that interference is only warranted in cases of patent illegality that are arbitrary, capricious, or perverse, or when the court's conscience is shocked. The High Court noted that the Arbitral Tribunal is the master of evidence, and its findings, if based on a reasonable interpretation of the evidence, should not be scrutinized as if the court were sitting in appeal.

The High Court noted that the courts should not routinely interfere with well-reasoned arbitral awards that present a plausible view. The High Court held that while judges may naturally lean towards correction, such a lens is inappropriate under Sections 34 and 37 of the Act. Errors in contract interpretation are considered within the arbitrator's jurisdiction, and judicial interference should be minimized to maintain the finality and binding nature of the arbitrator's decision.

Consequently, the High Court dismissed the appeal and all pending applications.

Case Title: Union Of India Vs M/S Parishudh Machines Pvt. Ltd.

Citation: 2024 LiveLaw (Del) 943

Case Number: FAO (COMM) 59/2021 & CM APPL. 25418/2023

For Appellant : Ms Pratima N. Lakra, CGSC with Mr Chandan Prajapati and Ms Yashika Garg, Advs.

For Respondent : Mr Sanjeev Agarwal and Mr Ekansh Agarwal, Advs.

Date of Judgment: 12.08.2024

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