Supreme Court Restores 1997 Arbitral Award Passed Under 1940 Act; Criticises HC & Trial Court For "Appellate Review"

The Supreme Court, while restoring an arbitral award passed in 1997 which was set aside by the Trial Court and the High Court under the Indian Arbitration Act, 1940, has emphasised that the court’s jurisdiction under Section 30/33 of the 1940 Act never extended beyond discerning whether the award discloses an “error apparent on the face of the award” or not.

The court while restoring the arbitral award said, “The ruling of the trial courts and the High Court is nothing short of intense appellate review, which is impermissible in law and beyond the courts’ jurisdiction.”

Elaborating on the court’s jurisdiction under Section 30/33 of the 1940 Act to set aside the award, the bench of Justices S. Ravindra Bhat and Dipankar Datta said, “The scope of jurisdiction of a court, under Section 30/33 of the Act, never extended beyond discerning if the award disclosed an “error apparent on the face of the award” which is an “error of law apparent on the face of the award and not an error of fact. The error of law can be discovered from the award itself or from a document actually incorporated therein.”

Facts of the Case:

The Contractor/Claimant, M/s S.D. Shinde, was issued a work order by the Irrigation Department, Government of Maharashtra. After certain disputes arose between the parties, the claimant approached the civil court for appointment of an arbitrator, in terms of the contract. The arbitrator passed an award of Rs. 2.83 Crores (including interest) in favour of the claimant and rejected the State’s counter claim. The State challenged the award under Sections 30/33 of the 1940 Act and the award was set aside by the trial court. The appeal filed by the claimant was also rejected by the High Court.

Both the trial court and the High Court held that the award was vitiated by the “legal misconduct” of the arbitrator under the old Arbitration Act. The courts were of the view that the claims were time-barred in law and that the arbitrator had travelled beyond the terms of reference and the contract while passing the award in favour of the claimant.

Supreme Court’s Analysis

Referring to the facts of the case, the top court concluded that the claim made before the civil court for the appointment of arbitrator, was within the period of limitation.

“As far as the argument with regard to delay is concerned, the judgments of this court have clearly held that in such matters, the claim crystallizes upon the issuance of the final bill – which in this case was on 14.12.1992,” the court observed. Thus, the bench held that the claim made in January, 1995 before the civil court for appointment of arbitrator, was within the period of limitation.

With respect to the plea that the claims were not raised within the period specified in the contract, i.e., within 30 days after the expiry of the ‘defects liability period’, the court said: “There could have been no objection to delay in submission of the claim for dispute resolution or arbitration – given that the department itself had sat over the request for settlement of disputes for more than 6 years. Moreover, the defect liability period would end only upon both parties expressing satisfaction and recording it in an agreed manner or predetermined manner. Concededly, that event never occurred.”

Perusing the arbitral award, the court held that the award passed by the arbitrator was based upon the materials placed by the parties during the arbitration proceeding. Further, the contractor’s evidence and computations were not disputed or questioned by the State during the arbitral proceedings. The court further found that the award of rate of interest was neither implausible nor illegal.

“It is axiomatic that courts, while adjudging whether an arbitration award calls for interference has to be conscious that the arbitrator is the sole judge of facts; unless an error of law is shown, interference with the award should be avoided,” the court said.

“In the facts of the present case, the award did not, facially disclose any error of law; damages were awarded in accordance with principles embodied in law, and the findings were based on the evidence placed before the tribunal. The ruling of the trial courts and the High Court is nothing short of intense appellate review, which is impermissible in law and beyond the courts’ jurisdiction,” the bench said.

The court thus allowed the appeal, set aside the judgment of the trial court and the High Court, and restored the arbitral award. “The respondents shall ensure full payment in terms of the award, to the appellant, within eight weeks from today,” the court directed.

Case Title: M/s S.D. Shinde vs Govt. of Maharashtra & Ors.

Citation : 2023 LiveLaw (SC) 693

Counsel for the parties: Mr. Vinay Navare, Mr. Rahul Chitnis

Indian Arbitration Act, 1940: Sections 30 and 33

The Supreme Court, while restoring an arbitral award passed in 1997 which was set aside by the Trial Court and the High Court under the Indian Arbitration Act, 1940, has emphasised that the court’s jurisdiction under Section 30/33 of the 1940 Act never extended beyond discerning whether the award discloses an “error apparent on the face of the award” or not.

The court while restoring the arbitral award said, “The ruling of the trial courts and the High Court is nothing short of intense appellate review, which is impermissible in law and beyond the courts’ jurisdiction.”

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