Court Doesn't Sit In Appeal Over Arbitral Tribunal's Interpretation Of Contract : Supreme Court

The Supreme Court held that it is for the Arbitral Tribunal to adjudicate upon the construction of the terms of a contract and the Court under Section 34, Arbitration and Conciliation Act, 1996 does not sit in appeal over the findings of the arbitrator

The bench of Justices A. S. Oka and Pankaj Mithal was pronouncing its judgment on an appeal by the NHAI against concurrent findings of the Arbitral Tribunal, the Single Judge and Division Bench of the Delhi High Court

(i) directing the reimbursement to the respondent-company of additional expenditure incurred due to an increase in the rates of royalty and associated sales tax;

(ii) directing payment to the respondent for executed work of embankment in accordance with the requirements of the contract; and

(iii) directing the reimbursement to the respondent of additional costs incurred due to an increase in the forest transit fee rates.

The appellant-NHAI had awarded a contract to the respondent for the work of the Allahabad Bypass Project

At the outset, the bench of Justices Oka and Mithal stated that it is in the light of the limited scope for interference under Section 37 appeal that it will have to deal with the submissions.

The bench, in its judgment, cited the earlier decisions of the Supreme Court which lay down that “only when the award is in conflict with the public policy in India, the Court would be justified in interfering with the arbitral award”; “that when a court is applying the 'public policy' test to an arbitration award, it does not act as a court of appeal and consequently errors of fact cannot be corrected”; and that “the jurisdiction of the Court under Section 34 is relatively narrow and the jurisdiction of the Appellate Court under Section 37 of the Arbitration Act is all the more circumscribed”

On the issue of whether the claim for the construction of embankment forms part of the activity of clearing and grubbing and was not payable as embankment work, the bench notes that “two expert members of the Arbitral Tribunal held in favour of the respondent on this point, whereas the third member dissented”

The bench of Justices Oka and Mithal then reiterates that “There cannot be any dispute that as far as the construction of the terms of a contract is concerned, it is for the Arbitral Tribunal to adjudicate upon”.

In its judgment, the bench continues to observe that “If, after considering the material on record, the Arbitral Tribunal takes a particular view on the interpretation of the contract, the Court under Section 34 does not sit in appeal over the findings of the arbitrator”

“The Division Bench was right in holding that the majority opinion of technical persons need not be subjected to a relook, especially when the learned Single Judge had also agreed with the view taken by the Arbitral Tribunal”, concludes the bench of Justices Oka and Mithal

Stating that the Single Judge and the Division Bench of the High Court have examined the challenge to the award “within four corners of limitation imposed by Sections 34 and 37 of the Arbitration Act”, the Supreme Court dismisses the appeals.

Case Title : National Highway Authority of India v. M/s Hindustan Construction Company Ltd

Citation : 2024 LiveLaw (SC) 361

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