No Reappreciation Of Evidence Permitted Under Section 34 Of Arbitration Act, Arbitrator's Views Must Be Respected: Orissa High Court

Section 34 deals with the application for setting aside an arbitral award. This section allows a party to challenge the arbitral award on specific grounds.

Brief Facts:

M/s. Jagannath Choudhury (Respondent), a Superclass Contractor, was awarded the task of constructing the Jambhira Earth Dam Reach-IV(B) under the Subarnarekha Irrigation Project (SIP) in Odisha. An agreement was executed between the Respondent and the Principal Secretary to the Govt. of Odisha (Appellant) for a contract price of Rs.2,50,68,948.00/-. The contract involved the execution of 11 specified items of work as outlined in the schedule of quantities in Chapter VII of the agreement. During the project's progress, the Chief Engineer urged all contractors, including the Respondent, to complete the work by the end of March 1997, ahead of the original deadline. This required deviations in work. The Respondent complied and completed all work by March 1997, but the final bill was not settled. Only part of the dues for the executed work was paid which led the Respondent to claim Rs.2,12,59,430.07/- for work entitlement, Rs.25,11,166.95/- for price escalation, Rs.5,15,858.00/- for idle charges of machinery and personnel, Rs.5,45,719.00/- for the refund of security deposits.

The Appellant countered the claims on several grounds. It argued that the dispute was not arbitrable before the appointed Arbitrator and that the reference was not maintainable due to the Respondent's failure to furnish a security deposit as required by Clause-5 of the GCC. They argued that the Respondent only executed two extra items of work, for which payment had been made, and that the other three extra items were not duly completed within the financial assistance timeframe of NABARD.

The Respondent filed an application under Section 11 of the Arbitration and Conciliation Act before the High Court, which appointed Justice P.K. Mishra (Retd.) as the sole Arbitrator. After considering the evidence, the Arbitrator awarded amounts under various heads, summarily granting Rs.73,76,378.00 towards the work bill, Rs.12,51,932.00 for price escalation, Rs.5,45,719.00 for the refund of the security deposit, and interest at 18% on Rs.91,74,029.00 from the date of the award till payment. Costs of Rs.7,00,000.00 for arbitration were also awarded.

The Appellant filed an application under Section 34 of the Arbitration Act to set aside the award, which was rejected by the District Judge. Consequently, an appeal under section 37 of the Arbitration Act was filed in the High Court. The Appellant contended that the Arbitrator proceeded without following the mandate of Clause-53(F) of the agreement, which requires a security deposit for arbitration maintainability. It argued that the claims were barred by limitation referring that the final bill was cleared on December 24, 1997, and the claim was invoked in November 2007.

The Respondent argued that the arbitral award should not be lightly interfered with and that the Arbitrator rightfully considered the limitation issue. It argued that the cause of action arose when the Respondent filed for arbitration after prolonged inaction by the Appellant. It contended that the Arbitrator's detailed consideration of materials and case facts justified the award, and there was no express denial of the interest claim in the contract.

Observations by the High Court:

The High Court referred to Section 37(1)(c) of the Arbitration Act which states that an appeal can be made against an order either setting aside or refusing to set aside an arbitral award under Section 34 of the Arbitration Act. It held that there is a narrow scope for judicial intervention in the review of arbitral awards. It referred to the decision of the Supreme Court in Mcdermott International Inc. v. Burn Standard Co. Ltd where it was held that the Arbitration Act intended to limit court intervention to rare circumstances such as fraud, bias, or a violation of natural justice.

Further reinforcing this principle, the Supreme Court in National Highway Authority of India v. M. Hakeem held that Section 34 is not akin to an appellate provision. Instead, it allows for setting aside an arbitral award only on narrowly defined grounds specified in sub-sections (2) and (3). The Supreme Court held that the legislative intent was clear in not providing any power within Section 34 to modify an award. The Supreme Court noted that any modification of an award would extend beyond the statutory scope of Section 34, breaching the legislative intent and altering the balance of limited judicial interference intended by the 1996 Act.

The High Court examined whether the arbitral award could be challenged on the grounds of patent illegality or perversity. The Appellant's arguments, regarding the maintainability of the arbitral proceedings and the completion date of the work, were previously dismissed by the Arbitrator and upheld by the Supreme Court.

The High Court noted that the law on judicial intervention in arbitral awards has been well-established through various decisions, including the Supreme Court's rulings in Associate Builders v. Delhi Development Authority and subsequent cases. It held that a court cannot reappraise or re-evaluate evidence presented before the arbitrator. Instead, judicial intervention is warranted only if the arbitral award is perverse, meaning it is based on no evidence, irrelevant considerations, or the exclusion of vital evidence.

The High Court held that findings based on little or marginal evidence are within the arbitrator's purview and cannot be held to be perverse unless they completely lack any rational basis or defy logic to an outrageous extent. Thus, as long as the arbitrator's approach is not arbitrary or capricious, their decision on factual matters stands.

Furthermore, the Supreme Court in Reliance Infrastructures Vs the State of Goa reiterated that patent illegality must be an error going to the root of the matter, not merely an erroneous application of the law. It held that judicial review under Section 34 is not intended for reappreciation of evidence but to address fundamental legal principles and procedural fairness.

The High Court held that there were no grounds for judicial interference in the arbitral award issued by the Arbitrator. It held that the arbitrator's decisions regarding the maintainability and the completion date of the work were well-supported by evidence and did not suffer from any patent illegality or perversity. Consequently, the appeal challenging the judgment passed by the District Judge was disposed of with 9% per annum as a rate of interest.

Case Title: Principal Secretary to the Govt. of Odisha & Others vs M/s.Jagannath Choudhury

Citation : 2024 LiveLaw (Ori) 48

Case Number: ARBA No.28 of 2019

Advocate for the Appellants: Mr. S.N. Das

Advocate for the Respondent: Mr. Pratik Parija

Date of Judgment: 20.05.2024

Click Here To Read/Download Order or Judgment