Court Cannot Sit In Appeal Over Arbitral Award And Re-Examine The Merits: Gujarat High Court Dismisses Section 34 A&C Appeal

The Gujarat High Court division bench of Chief Justice Sunita Agarwal and Justice Aniruddha P. Mayee held that Court cannot sit in appeal over the arbitral award and re-examine the merits. It held that it is not permissible for a court to reappreciate the evidence on record.

Further, it held that the arbitral award cannot be interfered with where on interpretation of any contract or document, two views are possible, and the Arbitrator has accepted one view.

Brief Facts:

The Appellant awarded a contract to the Respondent No.1 through a work order, with a stipulated timeline of 12 months for completion. Upon completion, the Appellant requested the Respondent No.1 to prepare the final bill, which led to a dispute. A sole arbitrator was appointed to adjudicate the matter, and on 29.6.2013, the arbitrator issued an award directing payment of Rs.11,10,000/- along with 6% p.a. interest until the date of payment.

Aggrieved by the award, the Appellant filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), challenging the arbitrator's decision. The Additional District Judge dismissed the application. Feeling aggrieved, the Appellant dismissal of the application in Gujarat High Court (“High Court”).

The Appellant contended that the Respondent No.1 raised 21 claims for the reclamation work, and the arbitrator allowed only three claims, which were contested by the Appellant. It argued that the reasoning provided by the arbitrator for allowing these claims was contrary to the agreed-upon terms and specifications of the contract. It alleged that the award violated Section 28(3) of the Arbitration Act, which mandates adherence to the contract terms, and Section 31(3), which requires the arbitrator to state the reasoning behind the award.

In contrast, Respondent No.1 asserted that the arbitrator provided cogent reasons for allowing the three claims. It contended that the arbitrator stayed within the scope of the agreement and the terms of the contract, with certain decisions based on on-site visits and proper interpretation. It argued that the grounds for interference under Section 34 of the Arbitration Act are limited, and the trial court rightly dismissed the petition, emphasizing that the Appellant failed to raise valid grounds as required by the Arbitration Act.

Observations by the High Court:

The High Court held that it cannot sit in appeal over an arbitral award and re-examine the merits of the case. It emphasized that it is impermissible to re-appreciate the evidence on record in a Section 34 application. It highlighted the limited scope of interference under Sections 34 and 37 of the Arbitration Act. Further, it held that interference is not warranted when two possible views on the interpretation of a contract or document exist, and the arbitrator has accepted one view.

The High Court held that the Appellant failed to establish any case regarding illegality in the arbitral award. It held that the Appellant didn't make a case concerning the contravention of any law related to public policy or public interest, or any patent illegality in the arbitral award. Addressing the Appellant's contention regarding a violation of Sections 28(3) and 31(3) of the Act of 1996, it found no supporting evidence in the records. The Appellant's counsel also could not demonstrate how the arbitrator exceeded the conditions of the agreement or terms of the contract for the allowed claims. Therefore, it held that the arbitrator's findings were based on the proper appreciation and interpretation of prevailing conditions, site inspections, and documented evidence.

Consequently, the appeal was dismissed.

Case Title: Board Of Trustees Of Deendayal Port Through Executive Engineer (H) Vs M/S. Shantilal B. Patel & Anr.

LL Citation: 2024 Livelaw (Guj) 22

Case Number: R/FIRST APPEAL NO. 4628 of 2023 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2023 In R/FIRST APPEAL NO. 4628 of 2023.

Advocate for the Appellant: Aishvarya

Advocate for the Respondent: Paras K Sukhwani

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