Gujrat High Court Sets Aside Order Of District Judge Which Interfered With Arbitration Award

Brief Facts:

The matter pertained to disputes arising from a construction contract for Multi-storied "D-Type" residential units for ONGC Township at Vadodara. ONGC (Appellant), who invited tenders for the project and subsequently entered into an agreement with David Parker Construction Ltd (Respondent), contested claims made by the contractor through various legal proceedings which ultimately resulted in arbitration.

In the arbitration proceedings, the Respondent filed a claim, and both parties presented their cases, including a counter-claim by the Appellant. The arbitrator partially upheld the claims of the Respondent while also granting the Appellant's counter-claim on certain grounds, including liquidated damages and overpayment related to price escalation. Dissatisfied with aspects of the award, the Respondent filed a petition to set aside the award, which was subsequently allowed by the 7th Additional District Judge, Vadodara. The Appellant challenged the decision of the District Judge and approached the High Court.

The Appellant argued that the District Judge erred in setting aside the award on grounds that are not recognized under Section 34 of the Arbitration Act. It contended that the arbitrator's decisions were based on valid contractual interpretations and evidence, particularly highlighting that measurements and payments were duly acknowledged by the Respondent.

Observations by the High Court:

Regarding the defence of limitation raised by the Respondent, the High Court held that the arbitrator correctly rejected this defence. It held that there was an ongoing civil suit pending in the Civil Court related to the claims which justified the timeliness of these claims. The Arbitrator duly considered clauses 7 and 8 of the contract, which govern the measurement and billing process. It held that the Respondent didn't adhere to the procedural requirements outlined in these clauses, particularly concerning the timely submission of bills and the resolution of disputes within a stipulated period.

The High Court noted that the Arbitrator found no substantiation for the Respondent's escalated claims. Despite multiple opportunities, the Respondent failed to produce adequate evidence, such as financial records or vouchers, to support the claim of increased costs. It held that the Arbitrator rightfully held that without such substantiation, the claims could not be upheld under the contract terms.

The High Court held that the District Judge overstepped the bounds of judicial review under Section 34 of the Arbitration Act. It noted that the scrutiny by the District Judge amounted to an impermissible re-evaluation of evidence, contrary to the statutory framework governing arbitration. It held that judicial interference in arbitral awards is limited strictly to grounds prescribed by law, such as instances of patent illegality or violation of public policy.

The High Court held that the awards which contain reasons, when interpreting the contractual terms, are not to be interfered with lightly. It held that reappreciation of evidence is not permissible.

Therefore, the High Court found no fault in the award rendered by the arbitrator. It held that the Arbitrator's decisions were reasoned, grounded in the terms of the contract, and supported by the evidence presented during arbitration proceedings. Therefore, the High Court allowed the appeal and overturned the judgment of the lower court.

Case Title: Oil & Natural Gas Corporation Ltd Versus David Parker Construction Ltd C/O I B Patel (P A Holder) & Anr.

LL Citation: 2024 LiveLaw (Guj) 80

Case Number: R/FIRST APPEAL NO. 322 of 2010

Advocate for the Appellant: Ajay R Mehta

Advocate for the Respondent: PR Thakkar and JP Thakkar

Date of Judgment: 12/06/2024

Click Here To Read/Download Order or Judgment