Arbitral Award Can't Be Challenged On Ground That Arbitrator Has Failed To Appreciate Facts : Supreme Court

A Bench comprising Chief Justice of India, N.V. Ramana and Justices A.S. Bopanna and Hima Kohli allowed an appeal assailing the order passed by the Division Bench of the Madras High Court, which had set aside the order and decree of the Single Judge upholding the arbitral award to the extent that it granted money for idle hire charges and value of tools and machineries.

Factual Background

On 16.11.1988, a construction company, Atlanta Limited ("Atlanta") entered into a contract with the Union of India (UoI) to construct a runway and for allied work at the Naval Air Station, Arakonam for a consideration of Rs. 19,58,94,190. The term for completion was stipulated in the contract to be 21 months from the date of commencement. As per the UoI, the site was handed over on 24.11.1988 and therefore the date of completion ought to be 23.08.1990, whereas Atlanta claimed that due to water-logging the work could commence only on 01.01.1989. Extension was sought and granted by the UoI thrice, first till 31.12.1990, then till 30.06.1991 and finally till 31.03.1992. Atlanta claimed that by mid-March it had completed substantial construction of the runway and the taxi track. For inauguration purposes on 11.03.1992, the site was handed over to the UoI. Later, Atlanta's request for passes for entry of the staff, operators and labourers were not granted. And on 02.04.1992, it was intimated that the contract was terminated. Atlanta invoked the arbitration clause and a Sole Arbitrator was appointed. Upon consideration of the claims and counterclaims the Arbitrator awarded Rs. 25,96,87,442.89 to Atlanta including interest upto 31.03.1999. Directions were also passed against the UoI to pay future interest at the rate of 18% p.a. on the principal amount. The Union of India was awarded Rs. 1,42,255 along with future interest. Dissatisfied with the award, UoI filed a petition under Section 30 read with Section 33 of the 1940 Act, which was rejected by the Single Judge and a decree was passed. On appeal, the Division Bench set aside the amount awarded in favour of Atlanta towards idle hire charges and the value of the tools and machineries.

Contentions raised by the appellant

Senior Advocate, Ms. Meenakshi Arora appearing on behalf of Atlanta submitted that the Division Bench had erred in re-appreciating evidence, which was extensively examined by the Arbitrator and the Single Judge considering that the scope of inference is limited under the Arbitration Act, 1940 as held by the Supreme Court in NTPC Ltd. v. Deconar Services Pvt. Ltd. (2021) SCC OnLine SC 498. Arguing that the award is not patently perverse, she submitted that the Division Bench had exceeded its jurisdiction in supplanting the conclusions reached by the Arbitrator with its own opinion.

Contentions raised by the respondent

Additional Solicitor General, Mr. Sanjay Jain appearing on behalf of the Union of India argued that Clauses 7, 11, 54 and 70 of the contract, which pertain to reasonableness of extension of time and validity of termination of contract were "excepted matters". It was contented that the Arbitration had gone beyond the reference to allow claim for idling cost of plant and machinery in favour of Atlanta which were covered under "excepted matters" by virtue of Clauses 54 and 70. It was pointed out that in a separate proceeding before the High Court, Atlanta was permitted to lift its material from the site, but it chose not to do so. Therefore, it was contended that the award was patently perverse. Relying on Food Corporation of India v. Sreekanth Transport (1999) 4 SCC 491, Grid Corporation of Orissa Ltd. And Anr. v. Balasore Technical School (2000) 9 SCC 552 and General Manager, Northern Railways And Anr. v. Sarvesh Chopra (2002) 4 SCC 45, Mr. Jain argued that the Arbitrator could not have adjudicated the "excepted matters".

Analysis by the Supreme Court

Scope of Section 30 and 33 of the Arbitration Act, 1940

Citing Kwality Manufacturing Corporation v. Central Warehousing Corporation (2009) 5 SCC 142, Arosan Enterprises Ltd. v. Union of India And Anr. (1999) 9 SCC 449 and Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar and Anr. (1987) 4 SCC 497, the Court noted that the scope of the provisions are indeed limited and the Court ought not to reassess or appreciate evidence or examine sufficiency of evidence in the exercise of the same. Only a patent error or misconduct of the Arbitrator or the proceedings could justify the Court's interference. The Court referred to State of Rajasthan v. Puri Construction Co. Ltd. And Anr. (1994) 6 SCC 485, to observe that an award cannot be challenged on the ground that the arbitrator had drawn his own conclusion or had failed to appreciate facts.

"It is also a well-settled principle of law that challenge cannot be laid to the Award only on the ground that the Arbitrator has drawn his own conclusion or failed to appreciate the relevant facts. Nor can the Court substitute its own view on the conclusion of law or facts as against those drawn by the Arbitrator, as if it is sitting in appeal."

Atlanta was entitled to extension of time

The Court observed that the Arbitrator had perused the voluminous documents and accepted as many as twenty reasons for delay in completing the work, such as, water logging, increase in quantity of work to be executed, changes ordered by the UoI from time to time, orders issued by UoI to procure sophisticated machinery and equipment beyond the contract, non-availability of petroleum products due to Gulf crisis, piecemeal extensions granted by UoI, work halted for inauguration of the runway, non-issue of entry passes. The Court noted that the Arbitrator had found that the extension of time granted by the UoI was not sufficient. Considering that the Arbitrator had extensively discussed and provided cogent reasons for taking a particular view, the Court opined that the Division Bench ought not to have supplanted the conclusion reached by the Arbitrator with its own view, especially in exercise of limited jurisdiction under Section 30 and 33 of the Arbitration Act, 1940. Therefore, the Court held that the Division Bench had transgressed the limitation placed on it by the statute.

"We are of the opinion that once the learned Sole Arbitrator had interpreted the clauses of the contract by taking a particular view and had gone to great length to analyse several reasons offered by the appellant-claimant to justify its plea that it was entitled for extension of time to execute the contract, the Division Bench of the High Court ought not to have sat over the said decision as an Appellate Court and seek to substitute its view for that of the learned Arbitrator."

Award rightfully granted for idle hire charges and value of machinery

The Court observed that Atlanta had sought compensation on several grounds, but the Arbitrator chose to grant money for idle hire charge and the value of the machinery. The sum to be awarded was calculated on the basis of the report of the Engineer and Insurance Surveyor appointed by Division Bench of Madras High Court in a separate proceeding filed by Atlanta, to ascertain the value of different items as well as machines. In the said proceedings Atlanta was permitted to remove machines from the site, but as UoI refused to prepare inventory the same did not fructify, and the tools remained at the site till 23.12.1995. Considering the failure to mitigate the damages, the award granting money for idle hire charges and value of machinery was passed by the Arbitrator and the calculation for the same was not objected to by the UoI. The Court was of the view that the finding of the Division Bench that, Atlanta being permitted to remove the machineries from the site ought not to have been awarded money for idle hire charge and value of machinery, was manifestly erroneous as an arbitral award cannot be assailed on the ground that the Arbitrator had drawn its own conclusion or failed to appreciate certain facts, particularly when cogent reasons have been provided by them.

"The aforesaid conclusion drawn by the Appellate Court is manifestly erroneous and flies in the face of the settled legal position that the Arbitrator is the final arbiter of the disputes between the parties and it is not open to a party to challenge the Award on the ground that he has drawn his own conclusions or has failed to appreciate certain facts. It is beyond the jurisdiction of the Appellate Court to assign to itself, the task of construing the terms and conditions of the contract and its provisions and take a view on certain amounts awarded in favour of a party…

…It was beyond the domain of the Appellate Court to have examined the reasonableness of the said reasons by reappreciating the evidence to arrive at a different conclusion."

The Court further observed that the Clause referred to by Mr. Jain as the "excepted matters" were taken into consideration, discussed and thereafter declared by the Arbitrator as inapplicable to the facts and circumstances. The submission with respect to the Arbitrator having misconducted himself was also rejected by the Supreme Court.

Case Name: Atlanta Limited Thr. Its Managing Director v. Union of India Represented By Chief Engineer Military Engineering Service

Citation: 2022 LiveLaw (SC) 63

Case No. and Date: Civil Appeal No. 1533 of 2017 | 18 Jan 2022

Corum: Chief Justice of India, N.V. Ramana and Justices A.S. Bopanna and Hima Kohli

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