Delhi High Court
M/S National Highways Authority Of ... vs M/S Oriental Structural Engineers Pvt. ... on 16 January, 2015
Equivalent citations: AIR 2015 DELHI 79, (2015) 1 ARBILR 322 (2015) 217 DLT 678, (2015) 217 DLT 678
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 16th January, 2015
+ O.M.P. No.1640/2014
M/S NATIONAL HIGHWAYS AUTHORITY
OF INDIA ..... Petitioner
Through: Mr. Sudhir Nandrajog, Sr. Adv. with
Ms. Tanu Priya Gupta, Adv.
Versus
M/S ORIENTAL STRUCTURAL
ENGINEERS PVT. LTD. ..... Respondent
Through: None.
CORAM:-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. This petition, under Section 34 of the Arbitration and Conciliation
Act, 1996, seeks setting aside of the unanimous arbitral Award dated 22nd
August, 2014, of the Arbitral Tribunal comprising of a nominee of the
petitioner and the nominee of the respondent and a presiding Arbitrator of
the choice of the nominees of the two parties, to the extent the same allows
the Claims No.2 to 6 of the respondent against the petitioner (claim No.1 of
the respondent against the petitioner was disallowed).
O.M.P. No.1640/2014 Page 1 of 35
2. The petition came up before the Court first on 22nd December, 2014
when after hearing extensively the senior counsel for the petitioner, orders
were reserved.
3. The arbitral award emanates from the claims of the respondent against
the petitioner under the contract dated 29th September, 2005 for a price of
Rs.115,24,02,683/- between the parties for construction by the respondent of
New Four Lane Jhansi Bypass on National Highway 25 in the State of Uttar
Pradesh for the petitioner, with the stipulated date of start as 21st November,
2005 and the stipulated date of completion as 20 th May, 2008. The works
were however completed only on 31st August, 2010.
4. The petitioner seeks setting aside of the arbitral award to the extent:-
(i) It allows the Claim No.2 of the respondent in the sum of
Rs.89,66,783/- with interest for wrongful certification
of Bills of Quantity for construction of reinforced earth,
precast concrete facia panel, RCC crash barrier etc. for the
period till 31 s t August, 2010 and holds the respondent
entitled to further sums on similar basis for period subsequent
O.M.P. No.1640/2014 Page 2 of 35
to 31st August, 2010 and till final account in respect of wrong
quantification;
(ii) It allows Claim No.3 of the respondent in the sum of
Rs.30,65,779/-towards delay till 31st August, 2010 in payments
of the admitted amounts;
(iii) It allows Claim No.4 of the respondent in the sum of
Rs.3,21,64,657/- for non-payment of price adjustment upto 31st
August, 2010 and in a sum of Rs.60,87,471/- towards interest
thereon till 31st August, 2010 and further finds the respondent
entitled to payment of correct quantification of price adjustment
in subsequent IPCs till final account, together with interest
thereon;
(iv) It allows Claim No.5 of the respondent in the sum of
Rs.16,09,647/- towards additional cost due to increase in
royalty on various minerals for the quantities executed till
February, 2010 with interest @ 10% compounded monthly
from 9th March, 2010 till the completion of the work and simple
interest @ 10% per annum including on compound interest
O.M.P. No.1640/2014 Page 3 of 35
aforesaid, from 1st September, 2010 till the date of actual
payment;
(v) It allows Claim No.6 of the respondent in the sum of
Rs.2,68,69,295/- on account of price escalation till 31st August,
2010 and in a sum of Rs.48,29,367/- towards interest @ 10%
per annum thereon compounded monthly and simple interest @
10% per annum from 1st September, 2010 till the date of actual
payment;
5. The petitioner seeks setting aside of the said arbitral award on the
grounds of:-
(a) The Arbitral Tribunal having wrongly read the Contract
between the parties to conclude that certain works required to
be carried out were not part of the Contract when in fact as per
the Contract they were not to be measured separately and were
to be deemed to be incidental to the work under the Contract.
(b) Allowing of certain claims of the respondent by the Arbitral
Tribunal amounting to the respondent being paid twice for the
same work.
O.M.P. No.1640/2014 Page 4 of 35
(c) The delays in payment of the admitted amounts by the
petitioner to the respondent being on account of the respondent
failing to comply with the obligations it was required to comply
with before receiving payment and the petitioner being thus not
liable to pay interest and the Arbitral Tribunal having wrongly
concluded that the petitioner had delayed the payment.
(d) The Arbitral Tribunal having not considered that the respondent
had not sought any clarification to the addendum / corrigendum
of the pre-bid meeting, thereby impliedly accepting the
addendum and having started making representation only after
major work were executed.
(e) The Arbitral Tribunal having not considered that if the
respondent intended to claim any additional payment pursuant
to any clause in the Contract, the respondent under the contract
was required to within 28 days from the date of dispute notify
the engineer with a copy marked to the petitioner, of his such
intention and the respondent had not done so and was thus not
entitled to the claim.
O.M.P. No.1640/2014 Page 5 of 35
(f) The Arbitral Tribunal having awarded price adjustment at a rate
contrary to the Contract between the parties and the
clarifications, addendum and corrigendum issued by the
petitioner;
(g) The respondent being not entitled to any additional costs due to
increase in royalty on various minerals owing to its failure to
notify the engineer in this regard within the time prescribed and
the Arbitral Tribunal having not considered the said aspect.
(h) The Arbitral Tribunal having wrongly interpreted the
contractual provision regarding additional cost; contractually,
the respondent was entitled thereto only if the additional cost
was on account of change in legislation; the additional cost
claimed by the respondent and allowed by the Arbitral Tribunal
was not on account of change in legislation. The Arbitral
Tribunal having misinterpreted the contract between the parties;
(i) The Arbitral Tribunal having overlooked other contractual
provisions and facts.
(j) The rate of interest @ 10% granted by the Arbitral Tribunal
being excessive.
O.M.P. No.1640/2014 Page 6 of 35
(k) The issue with respect to additional cost due to increase in
royalty on various minerals involved the issue of subsequent
legislation and which is pending consideration before the
Supreme Court; and,
The petitioner thus contends that the award is contrary to public
policy and law of the land, within the meaning of Oil and National
Gas Corporation Ltd. Vs. SAW Pipes Ltd. (2003) 5 SCC 705.
6. The senior counsel for the petitioner during the hearing fairly
informed that the award, insofar as allowing the Claim No.5 of the
respondent towards additional cost due to increase in royalty on various
minerals, is in accordance with the judgments of the Single Judge and the
Division Bench of this Court but the issue is pending consideration before
the Supreme Court. The senior counsel also agrees that the challenge to the
award is on the grounds either of the Arbitral Tribunal having wrongly
interpreted the contract between the parties or having not considered the
defence of the petitioner to the claims of the respondent which have been
allowed. With regard to award on Claim No.3 allowing interest on delayed
payments, it is argued that the respondent had failed to furnish the
clarification sought from it and so the engineer had no option but to assess
O.M.P. No.1640/2014 Page 7 of 35
the payment due on best judgment and payment was made accordingly and
thus the petitioner could not be held liable for any interest for delay. It was
argued that under the Contract the engineer was entitled to seek such
clarifications and the engineer having done so and the respondent having not
submitted the clarifications, no delay in payment could be attributed to the
petitioner. On enquiry, as to whether the payment ultimately made to the
respondent was as demanded by the respondent, it was informed that there
was a difference of 5% between what the respondent had demanded and
what was paid to the respondent. It was yet further contended that though
the respondent in the pre-bid meeting had given a discount of 7.5% on each
item and though in accordance therewith the petitioner was entitled to
discount of 7.5% on payment even if found due on increased work also but
the Arbitral Tribunal while allowing the claim of the respondent for price
escalation has not given the said discount of 7.5%. With respect to the
award on Claim No.4, it is argued that the Arbitral Tribunal did not consider
that the respondent was required to raise the said dispute within 28 days and
had raised the same just one month prior to the closure of the award.
7. I had during the hearing enquired from the senior counsel for the
petitioner as to under which of the grounds stipulated in Section 34 of the
O.M.P. No.1640/2014 Page 8 of 35
Arbitration Act for setting aside of the award, do the aforesaid grounds
urged, fit. Attention of the senior counsel was invited to the fact that Section
34(2) provides "an arbitral award may be set aside by the Court only if" the
grounds mentioned thereunder were satisfied. It was enquired whether not
the use by the legislature of the word "only" is indicative of, the arbitral
award being not liable to be set aside on any ground other than those
specified. Such language, even under the 1940 Act, was in State of U.P. Vs.
Allied Constructions (2003) 7 SCC 396 held to be restrictive in operation.
8. The senior counsel responded that the arbitration being an
adjudicatory mechanism, the award, if adjudicates contrary to law or
contrary to the facts, has to be held to be in conflict with the public policy of
India. Reference of course is made to Saw Pipes Ltd. (supra).
9. Attention of the senior counsel for the petitioner has however been
invited to the judgment of the Division Bench of this Court of which the
undersigned was a member in Delhi Development Authority Vs. Bhardwaj
Brothers MANU/DE/1753/2014 and in which the earlier judgment of the
same Division Bench in State Trading Corporation of India Ltd. Vs. M/s.
O.M.P. No.1640/2014 Page 9 of 35
Toepfer International Asia Pte Ltd. MANU/DE/1480/2014 was quoted as
laying down as under:
"5. The challenge in this appeal is on the ground that the learned
Single Judge ignored that the interpretation of the contract
between the parties given by the Arbitral Tribunal is contrary to
the express terms and conditions thereof and the Arbitral Tribunal
has given a meaning to the terms and conditions which is not
contemplated in the contract. The senior counsel for the appellant
thus wants us to read the contract between the parties, particularly
the clauses relating to demurrage, and then to judge whether the
interpretation thereof by the Arbitral Tribunal is correct or not.
6. In our view, the interpretation in Saw Pipes Ltd. supra (ONGC
Ltd. Vs. Saw Pipes Ltd. (2003) 5 SCC 705) of the ground in Section
34 of the Act for setting aside of the arbitral award, for the reason
of the same being in conflict with the public policy of India, would
not permit setting aside, in the aforesaid facts. A Section 34
proceeding, which in essence is the remedy of annulment, cannot
be used by one party to convert the same into a remedy of appeal.
In our view, mere erroneous/wrong finding of fact by the Arbitral
Tribunal or even an erroneous interpretation of documents
/evidence, is non-interferable under Section 34 and if such
interference is done by the Court, the same will set at naught the
whole purpose of amendment of the Arbitration Act.
7. Arbitration is intended to be a faster and less expensive
alternative to the courts. If this is one's motivation and expectation,
then the finality of the arbitral award is very important. The
remedy provided in Section 34 against an arbitral award is in no
O.M.P. No.1640/2014 Page 10 of 35
sense an appeal. The legislative intent in Section 34 was to make
the result of the annulment procedure prescribed therein
potentially different from that in an appeal. In appeal, the decision
under review not only may be confirmed, but may also be modified.
In annulment, on the other hand, the decision under review may
either be invalidated in whole or in part or be left to stand if the
plea for annulment is rejected. Annulment operates to negate a
decision, in whole or in part, thereby depriving the portion negated
of legal force and returning the parties, as to that portion, to their
original litigating positions. Annulment can void, while appeal can
modify. Section 34 is found to provide for annulment only on the
grounds affecting legitimacy of the process of decision as distinct
from substantive correctness of the contents of the decision. A
remedy of appeal focuses upon both legitimacy of the process of
decision and the substantive correctness of the decision.
Annulment, in the case of arbitration focuses not on the correctness
of decision but rather more narrowly considers whether,
regardless of errors in application of law or determination of facts,
the decision resulted from a legitimate process.
8. In the case of arbitration, the parties through their agreement
create an entirely different situation because regardless of how
complex or simple a dispute resolution mechanism they create,
they almost always agree that the resultant award will be final and
binding upon them. In other words, regardless of whether there are
errors of application of law or ascertainment of fact, the parties
agree that the award will be regarded as substantively correct. Yet,
although the content of the award is thus final, parties may still
challenge the legitimacy of the decision-making process leading to
the award. In essence, parties are always free to argue that they are
O.M.P. No.1640/2014 Page 11 of 35
not bound by a given "award" because what was labeled an award
is the result of an illegitimate process of decision.
9. This is the core of the notion of annulment in arbitration. In a
sense, annulment is all that doctrinally survives the parties
agreement to regard the award as final and binding. Given the
agreement of the parties, annulment requires a challenge to the
legitimacy of the process of decision, rather than the substantive
correctness of the award.
10. Joseph Raz in his paper "The Politics of the Rule of Law" has
opined that the function of the rule of law is to facilitate the
integration of a particular piece of legislation with the underlying
doctrines of the legal system; the authority of the courts to harness
legislation to legal doctrine arises neither from their superior
wisdom nor from any superior law of which they are the
custodians; it arises out of the need to bring legislation in line with
doctrine. The courts ensure coherence of purpose of law, ensuring
that its different parts do not fight each other. The learned author
has further observed that a law which is incoherent in purpose
serves none of its inconsistent purposes very well. Purposes
conflict if due to contingencies of life serving one will in some cases
retard the other. The second basis for the authority of the courts to
integrate legislation with doctrine is the need to mix the fruits of
long established traditions with the urgencies of short term
exigencies. In ensuring the coherence of law, the courts are
expected to ensure the effectiveness of the democratic rule. In
giving weight to the preservation of long established doctrines i.e.,
the traditions, they protect the long term interest of the people
from being swamped by the short term. We have taken the liberty
O.M.P. No.1640/2014 Page 12 of 35
to quote from the aforesaid paper since the courts are being
repeatedly called upon to adjudicate on the various provisions of
the re-enacted arbitration law. From the various pronouncements
in the last about 18 years since re-enactment, it appears that the
danger of interpreting the new Act in a manner doing away with
the whole object/purpose of re-enactment is imminent. The courts
continue to be inundated till date, in spite of repeal of the old Act
18 years ago, with cases thereunder also, particularly of challenge
to the arbitral award. Provisions of the old and the new Act relating
to inference with the arbitral award are vastly different. However,
when the courts, in the same day are wrestling with a matter
concerning arbitral award under the old Act and with that under
the new Act, the chances of culling out the huge difference between
the two are minimal. It is not to be forgotten that the courts deal
with and rule on disputes where monies and properties of real
persons are at stake. The courts do not decide in abstract. Thus,
when in one case the courts interfere with the arbitral award for
the reason of the same not rendering to the litigant what the courts
would have granted to him, the courts find it difficult in the very
next case, though under the new Act, to apply different parameters.
11. Arbitration under the 1940 Act could not achieve the savings in
time and money for which it was enacted and had merely become a
first step in lengthy litigation. Reference in this regard can be made
to para 35 of Bharat Aluminium Company Vs. Kaiser Aluminium
Technical Services Inc. (2012) 9 SCC 552. It was to get over the said
malady that the law was sought to be overhauled. While under the
old Act, the award was unenforceable till made rule of the court and
for which it had to pass various tests as laid down therein and
general power/authority was vested in the court to modify the
O.M.P. No.1640/2014 Page 13 of 35
award, all this was removed in the new Act. The new Act not only
made the award executable as a decree after the time for preferring
objection with respect thereto had expired and without requiring it
to be necessarily made rule of the court but also did away with
condonation of delay in filing the said objections. The
reason/purpose being expediency. The grounds on which the
objections could be filed are also such which if made out, the only
consequence thereof could be setting aside of the award. It is for
this reason that under new Act there is no power to the court to
modify the award or to remit the award etc. as under the old Act. A
perusal of the various grounds enunciated in Section 34 will show
that the same are procedural in nature i.e., concerning legitimacy of
the process of decision. While doing so, the ground, of the award
being in conflict with Public Policy of India, was also incorporated.
However the juxtaposition of Section 34(2)(b)(ii) shows that the
reference to 'Public Policy' is also in relation to fraud or corruption
in the making of the award. The new Act was being understood so
[see Konkan Railway Corporation Ltd. Vs. Mehul Construction Co.
(2000) 7 SCC 201 (para 4 and which has not been set aside in S.B.P.
& Co. Vs. Patel Engineering Ltd. (2005) 8 SCC 618)] till the Supreme
Court in Saw Pipes Ltd. (supra) held that the phrase "Public Policy
of India" is required to be given wider meaning and if the award on
the face of it is patently in violation of statutory provisions, it
cannot be said to be in public interest and such
award/judgment/decision is likely to adversely affect the
administration of justice. In para 37 of the judgment it was held
that award could be set aside if it is contrary to fundamental policy
of Indian Law or the interest of India or justice or morality or if it is
patently illegal. A rider was however put that illegality must go to
O.M.P. No.1640/2014 Page 14 of 35
the root of the matter and if the illegality is of trivial nature it
cannot be held that the award is against the public policy. Yet
another test laid down is of the award being so unfair and
unreasonable that it shakes the conscience of the court.
12. The courts have thereafter been inundated with challenges to
the award. The objections to the award are drafted like appeals to
the courts; grounds are urged to show each and every finding of the
arbitrator to be either contrary to the record or to the law and thus
pleaded to be against the Public Policy of India. As aforesaid, the
courts are vested with a difficult task of simultaneously dealing
with such objections under two diverse provisions and which has
led to the courts in some instances dealing with awards under the
new Act on the parameters under the old Act.
13. The result is that the goal of re-enactment has been missed.
14. The re-enactment was not only to achieve savings in time and
prevent arbitration from merely becoming the first step in lengthy
litigation but also in consonance with the international treaties and
commitments of this country thereto. Since the enactment of the
1940 Act, the international barriers had disappeared and the
volume of international trade had grown phenomenally. The new
Act was modeled on the model law of international commercial
arbitration of the United Nations Commission on International
Trade Law (UNICTRAL). It was enacted to make it more responsive
to contemporary requirements. The process of economic
liberalization had brought huge foreign investment in India. Such
foreign investment was hesitant, owing to there being no effective
mode of settlement of domestic and international disputes. It was
with such lofty ideals and with a view to attract foreign investment
O.M.P. No.1640/2014 Page 15 of 35
that the re-enactment was done. If the courts are to,
notwithstanding such re-enactment, deal with the arbitration
matters as under the old Act it would be a breach of the
commitment made under the treaties on international trade.
15. Applying the aforesaid test, we are afraid, the arguments of the
senior counsel for the appellant are beyond the scope of Section 34.
16. The senior counsel for the respondent has in this regard rightly
argued that the scope of appeal under Section 37 is even more
restricted. It has been so held by the Division Benches of this Court
in Thyssen Krupp Werkstoffe Vs. Steel Authority of India
MANU/DE/1853/2011 and Shree Vinayak Cement Clearing Agency
Vs. Cement Corporation of India 147 (2007) DLT 385. It is also the
contention of the senior counsel for the respondent that the
argument made by the appellant before the learned Single Judge
and being made before this Court, that the particular clause in the
contract is a contract of indemnification, was not even raised
before the Arbitral Tribunal and did not form the ground in the
OMP filed under Section 34 of the Act and was raised for the first
time in the arguments.
17. The Supreme Court in Rashtriya Ispat Nigam Ltd. Vs. Dewan
Chand Ram Saran (2012) 5 SCC 306 refused to set aside an arbitral
award, under the 1996 Act on the ground that the view taken by
the Arbitral Tribunal was against the terms of the contract and held
that it could not be said that the Arbitral Tribunal had travelled
outside its jurisdiction and the Court could not substitute its view
in place of the interpretation accepted by the Arbitral Tribunal. It
was reiterated that the Arbitral Tribunal is legitimately entitled to
take the view which it holds to be correct one after considering the
O.M.P. No.1640/2014 Page 16 of 35
material before it and after interpreting the provisions of the
Agreement and if the Arbitral Tribunal does so, its decision has to
be accepted as final and binding. Reliance in this regard was placed
on Sumitomo Heavy Industries Ltd. Vs. ONGC Ltd. (2010) 11 SCC
296 and on Kwality MFG. Corporation Vs. Central Warehousing
Corporation (2009) 5 SCC 142. Similarly, in P.R. Shah, Shares &
Stock Broker (P) Ltd. V. B.H.H. Securities (P) Ltd. (2012) 1 SCC 594
it was held that a Court does not sit in appeal over the award of an
Arbitral Tribunal by reassessing or reappreciating evidence and an
award can be challenged only under the grounds mentioned in
Section 34(2) and in the absence of any such ground it is not
possible to reexamine the facts to find out whether a different
decision can be arrived at. A Division Bench of this Court also
recently in National Highways Authority of India Vs. M/s. Lanco
Infratech Ltd. MANU/DE/0609/2014 held that an interpretation
placed on the contract is a matter within the jurisdiction of the
Arbitral Tribunal and even if an error exists, this is an error of fact
within jurisdiction, which cannot be reappreciated by the Court
under Section 34 of the Act. The Supreme Court in Steel Authority of
India Ltd. Vs. Gupta Brother Steel Tubes Ltd. (2009) 10 SCC 63 even
while dealing with a challenge to an arbitral award under the 1940
Act reiterated that an error by the Arbitrator relatable to
interpretation of contract is an error within his jurisdiction and is
not an error on the face of the award and is not amenable to
correction by the Courts. It was further held that the legal position
is no more res integra that the Arbitrator having been made the
final Arbiter of resolution of dispute between the parties, the award
is not open to challenge on the ground that Arbitrator has reached
at a wrong conclusion.
O.M.P. No.1640/2014 Page 17 of 35
18. If we were to start analyzing the contract between the parties
and interpreting the terms and conditions thereof and which will
necessarily have to be in the light of the contemporaneous conduct
of the parties, it will be nothing else than sitting in appeal over the
arbitral award and which is not permissible."
and it was further held:
(I) That a Division Bench of this Court in New Delhi Apartment
Group Housing Society Vs. Jyoti Swaroop Mittal
MANU/DE/9107/2007 has held that Saw Pipes Ltd. cannot be
read as permitting a Court exercising powers under Section 34
to sit in appeal over the findings of fact recorded by the Arbitral
Tribunal or on interpretation placed by the Arbitral Tribunal of
the provisions of the Agreement.
(II) That the parties having agreed to be bound by the arbitral award
and by declaring it to be final, also agree to be bound by the
wrong interpretation or an erroneous application of law by the
Arbitral Tribunal and once the parties have so agreed, they
cannot apply for setting aside of the arbitral award on the said
ground. Reliance in this regard was placed on Tarapore and
Co. Vs. Cochin Shipyard Ltd., Cochin (1984) 2 SCC 680, U.P.
O.M.P. No.1640/2014 Page 18 of 35
Hotels Vs. U.P. State Electricity Board (1989) 1 SCC 359 and
N. Chellappan Vs. Secretary, Kerala State Electricity Board
(1975) 1 SCC 289, though all under the Arbitration Act, 1940;
and,
(III) "11. We are further of the view that the scope of judicial review of
an arbitral award is akin to review under Article 226 of the
Constitution of India of the decisions of bodies, where it is a settled
principle of law (See State of U.P. Vs. Maharaja Dharmander Prasad
Singh (1989) 2 SCC 505 and State of U.P. Vs. Johri Mal (2004) 4 SCC
714) that the judicial review is of the decision making process and not
of the decision on merits and cannot be converted into an appeal. This
is quite evident from the various Clauses of Section 34 (2)(a) which
prescribe the grounds of challenge on the lines of violation of the
principles of natural justice in making of the award or invalidity of the
arbitral agreement and non-arbitrability of the disputes arbitrated
and of the composition of the Arbitral Tribunal or arbitral procedure
being not in accordance with the agreement between the parties.
Section 34(2)(b) adds the ground of the arbitral award being in
conflict with the public policy of India. None of the said grounds are
the grounds of challenge on the merits of the award. The ground of
challenge of the award being in conflict with the public policy of India
is explained as the award being induced or affected by fraud or
corruption or being in violation of Section 75 or Section 81. Thus the
grounds of challenge are akin to the grounds of judicial review under
Article 226 and not to grounds of appeal or revision. We are
reminded of the merits legality distinction in judicial review as culled
O.M.P. No.1640/2014 Page 19 of 35
out by Lord Hailsham in The North Wales Vs. Evans (1982) 1 WLR
1155 by observing "the purpose of judicial review is to ensure that the
individual receives fair treatment, and not to ensure that the
authority, after according fair treatment, reaches on a matter which it
is authorized by law to decide for itself a conclusion which is correct
in the eyes of the Court". Lord Brightman in the same judgment held
that judicial review, as the words imply, is not an appeal from a
decision, but a review of the manner in which the decision was made
and it would be an error to think that the Court sits in judgment not
only on the correctness of the decision making process but also on the
correctness of the decision itself. It was clarified that only when the
issue raised in judicial review is whether a decision is vitiated the
judicial review of the decision making process includes examination,
as a matter of law, of the relevance of the factors. In our opinion the
same is an apt test also for judicial review of the arbitral awards and
just like a mere wrong decision without anything more is not enough
to attract the power of judicial review, the supervisory jurisdiction
conferred on the Court under the Arbitration Act is limited to see that
the Arbitral Tribunal functions within the limits of its authority and
that the arbitral award does not occasion miscarriage of justice. The
Supreme Court in Mc. Dermott International Inc. Vs. Burn Standard Co.
Ltd. (2006) 11 SCC 181 commenting on the radical changes brought
about by the re-enactment of the arbitration law observed that the
role of the Courts under the new law is only supervisory, permitting
intervention in few circumstances only, like, in case of fraud or bias by
the arbitrators, violation of natural justice etc. and the Court cannot
correct the errors of arbitrators and can only quash the award leaving
the parties free to begin arbitration again.
O.M.P. No.1640/2014 Page 20 of 35
12. Of the finality of arbitral awards, there is no doubt under our
arbitration law. The Supreme Court as far back as in Union of India Vs.
A.L. Rallia Ram AIR 1963 SC 1685 held that:-
"An award being a decision of an arbitrator whether a lawyer or a
layman chosen by the parties, and entrusted with power to decide a
dispute submitted to him is ordinarily not liable to be challenged on
the ground that it is erroneous. In order to make arbitration effective
and the awards enforceable, machinery is devised for lending the
assistance of the ordinary Courts. The Courts are also entrusted
with power to modify or correct the award on the ground of
imperfect form or clerical errors, or decision on questions not
referred, which are severable from those referred........The Court
may also set aside an award on the ground of corruption or
misconduct of the arbitrator, or that a party has been guilty of
fraudulent concealment or wilful deception. But the Court cannot
interfere with the award if otherwise proper on the ground that the
decision appears to it to be erroneous. The award of the arbitrator is
ordinarily final and conclusive, unless a contrary intention is
disclosed by the agreement. The award is the decision of a
domestic tribunal chosen by the parties, and the civil courts which
are entrusted with the power to facilitate arbitration and to effectuate
the awards, cannot exercise appellate powers over the decision.
Wrong or right the decision is binding, if it be reached fairly after
giving adequate opportunity to the parties to place their grievances
in the manner provided in the arbitration agreement."
O.M.P. No.1640/2014 Page 21 of 35
of course the said judgment being under the Arbitration Act, 1940
proceeds to hold that an award is bad on the ground of error of law on
the face of it. However the legislature while re-enacting the arbitration
law has removed the ground of challenge of error of law on the face of
the award. In Mc. Dermott International Inc. supra also it was held that
the parties to the Arbitration Agreement make a conscious decision to
exclude the Courts jurisdiction as they prefer the expediency and finality
offered by arbitration. I am bound to respect the said change brought
about by the legislature and cannot dogmatically review the awards on
the grounds of challenge which have been intentionally taken away by
the legislature.
13. It cannot also be lost sight of that non-conferring of finality on the
arbitral awards not only affects the speed and expense of arbitration but
also has a more subtle consequences of, extensive judicial review
changing the nature of the arbitral process to an even greater extent. If
arbitration becomes simply another level of decision making, subject to
judicial review on merits, arbitrators may begin to decide cases and
write opinions in such a way as to insulate their awards against judicial
reversal producing opinions that parrot the appropriate statutory
standards in conclusory terms, but suffer from a lack of reasoned
analysis. Such a shift from the arbitral model, in which decision makers
are free to focus solely on the case before them rather than on the case
as it might appear to an Appellate Court, to the administrative model, in
which decision makers are often concerned primarily with building a
record for review, in my opinion would substantially undercut the ability
of arbitrators to successfully resolve disputes. The Courts therefore have
no business weighing the merits of the grievance, considering whether
there is equity in a particular claim, or determining whether there is
O.M.P. No.1640/2014 Page 22 of 35
particular language in the written instrument which will support the
claim. The agreement is to submit all grievances to arbitration, not
merely those which the Court will deem meritorious. The Courts if start
undertaking to determine the merits of the grievance, would be usurping
the function which under that Arbitration Act, 1996 is entrusted to the
Arbitration Tribunal. This plenary review by the Courts of the merits
would make meaningless the provisions that the arbitral award is final,
for in reality it would almost never be final. I though may admit that
sieving out the genuine challenges from those which are effectively
appeals on merits is not easy.
14. Arbitration will not survive, much less flourish, if this core
precept is not followed through by the Courts. The integrity and efficacy
of arbitration as a parallel dispute resolution system will be subverted if
the Courts appear unable or unwilling to restrain themselves from
entering into the merits of every arbitral decision that comes before it.
The power to intervene must and should only be exercised charily,
within the framework of the Arbitration Act. Minimal curial intervention
is underpinned by need to recognise the autonomy of the arbitral
process by encouraging finality, so that its advantage as an efficient
alternative dispute resolution process is not undermined. The parties
having opted for arbitration, must be taken to have acknowledged and
accepted the attendant risks of having only a very limited right of
recourse to the Courts. It would be neither appropriate nor consonant
for the Court to lend assistance to a dissatisfied party by exercising
appellate function over arbitral awards, save to the extent statutorily
permitted."
O.M.P. No.1640/2014 Page 23 of 35
10. I have enquired from the senior counsel for the petitioner whether not
at least this Court would be bound by the judgment aforesaid of the Division
Bench and as per which the grounds urged by the petitioner for setting aside
of the Arbitral Award are not within the ambit of Section 34(2) of the
Arbitration Act.
11. The senior counsel for the petitioner has not shown any judgment to
the contrary.
12. I may add, an indication of what the legislature, while re-enacting the
arbitration law, meant by including the ground, of the arbitral award being in
conflict with public policy of India, for setting aside of arbitral awards can
be had from the Explanation to Section 34(2) which declares that an award is
in conflict with the public policy of India if the making of the award was
induced or affected by fraud or corruption or was in violation of Section 75
or Section 81. Sections 75 as well as 81 are contained in Part III titled
„Conciliation‟. Section 75 requires the parties and the conciliator to keep
confidential all matters relating to conciliation proceedings and the
settlement agreement. Section 81 provides that the parties shall not rely on
O.M.P. No.1640/2014 Page 24 of 35
or introduce as evidence in arbitral or judicial proceedings, views expressed
or suggestions made by the other party in respect of a possible settlement of
the dispute, the admissions made by the other party in course of the
conciliation proceedings, the proposals made by the conciliator, the fact that
the other party had indicated his willingness to accept a proposal for
settlement made by the conciliator. Thus, if the arbitral award is based on
what had transpired in the conciliation proceedings which ultimately failed
and not on adjudication by the Arbitral Tribunal, it would be deemed to be in
conflict with the public policy of India. Though the explanation to
Section 34(2) containing the ground of the arbitral award being in conflict
with the public policy of India is prefaced with "without prejudice to the
generality of Section 34(2)(b)(ii)" but the declaration therein of the award
being in conflict with the public policy of India if the making of the award
was induced by fraud or corruption or was in violation of Sections 75 or 81,
in my humble view is suggestive of the expression "the public policy of
India" being required to be read as meaning grounds ejusdem generis with
the grounds of fraud or corruption or the award being based on material
exchanged in conciliation which ultimately failed. In my view, the same
cannot be read as referring to public policy of India qua adjudication of
O.M.P. No.1640/2014 Page 25 of 35
disputes in Courts, where error of law or fact is a ground for interference by
higher Court. If the intent was to make the award liable to be set aside if
contrary to the substantive law applicable to the decision thereof the
legislature would have provided so. Even under the 1940 Act, neither the
error of law nor of fact in the arbitral award was a ground for setting aside
thereof. The preamble to the re-enacted Act states the purpose of the re-
enactment to make our domestic law relating to arbitration in consonance
with the United Nations Commission on International Trade Law
(UNCITRAL) Model Law and the grounds of interference with the arbitral
award under the same were/are much narrower than the grounds of
interference under the 1940 Act. If the words "in conflict with the public
policy of India" are to be read as permitting interference with the arbitral
award whenever the same is found to be contrary to the substantive law
applicable to the merits of the dispute, the same in my view would be in
violation of the preamble to the re-enacted law.
13. I may however notice Oil and Natural Gas Corporation Ltd. Vs.
Western GECO International Ltd. (2014) 9 SCC 263 where also it was held:-
O.M.P. No.1640/2014 Page 26 of 35
"35. What then would constitute the 'Fundamental policy of Indian
Law' is the question. The decision in Saw Pipes Ltd. (supra) does not
elaborate that aspect. Even so, the expression must, in our opinion,
include all such fundamental principles as providing a basis for
administration of justice and enforcement of law in this country.
Without meaning to exhaustively enumerate the purport of the
expression "Fundamental Policy of Indian Law", we may refer to three
distinct and fundamental juristic principles that must necessarily be
understood as a part and parcel of the Fundamental Policy of Indian
law. The first and foremost is the principle that in every determination
whether by a Court or other authority that affects the rights of a citizen
or leads to any civil consequences, the Court or authority concerned is
bound to adopt what is in legal parlance called a 'judicial approach' in
the matter. The duty to adopt a judicial approach arises from the very
nature of the power exercised by the Court or the authority does not
have to be separately or additionally enjoined upon the fora concerned.
What must be remembered is that the importance of Judicial approach
in judicial and quasi judicial determination lies in the fact so long as the
Court, Tribunal or the authority exercising powers that affect the rights
or obligations of the parties before them shows fidelity to judicial
approach, they cannot act in an arbitrary, capricious or whimsical
manner. Judicial approach ensures that the authority acts bonafide and
deals with the subject in a fair, reasonable and objective manner and
that its decision is not actuated by any extraneous consideration.
Judicial approach in that sense acts as a check against flaws and faults
that can render the decision of a Court, Tribunal or Authority
vulnerable to challenge.
O.M.P. No.1640/2014 Page 27 of 35
36. In Ridge v. Baldwin [1963 2 All ER 66], the House of Lords was
considering the question whether a Watch Committee in exercising its
authority Under Section 191 of the Municipal Corporations Act, 1882
was required to act judicially. The majority decision was that it had to
act judicially and since the order of dismissal was passed without
furnishing to the Appellant a specific charge, it was a nullity. Dealing
with the Appellant's contention that the Watch Committee had to act
judicially, Lord Reid relied upon the following observations made by
Atkin L.J. in [1924] 1 KB at pp. 206, 207:
Wherever anybody of persons having legal authority to
determine questions affecting the rights of subjects, and
having the duty to act judicially, act in excess of their legal
authority, they are subject to the controlling jurisdiction of
the King's Bench Division exercised in these writs.
37. The view taken by Lord Reid was relied upon by a Constitution
Bench of this Court in A.C. Co. Ltd. v. P.N. Sharma and Anr. AIR 1965 SC
1595 where Gajendragadkar, C.J. speaking for the Court observed:
In other words, according to Lord Reid's judgment, the
necessity to follow judicial procedure and observe the
principles of natural justice, flows from the nature of the
decision which the watch committee had been authorised to
reach Under Section 191(4). It would thus be seen that the
area where the principles of natural justice have to be
followed and judicial approach has to be adopted, has
become wider and consequently, the horizon of writ
jurisdiction has been extended in a corresponding measure.
O.M.P. No.1640/2014 Page 28 of 35
In dealing with questions as to whether any impugned
orders could be revised Under Article 226 of our
Constitution, the test prescribed by Lord Reid in this
judgment may afford considerable assistance.
38. Equally important and indeed fundamental to the policy of
Indian law is the principle that a Court and so also a quasi-judicial
authority must, while determining the rights and obligations of parties
before it, do so in accordance with the principles of natural justice.
Besides the celebrated 'audi alteram partem' rule one of the facets of
the principles of natural justice is that the Court/authority deciding the
matter must apply its mind to the attendant facts and circumstances
while taking a view one way or the other. Non-application of mind is a
defect that is fatal to any adjudication. Application of mind is best
demonstrated by disclosure of the mind and disclosure of mind is best
done by recording reasons in support of the decision which the Court
or authority is taking. The requirement that an adjudicatory authority
must apply its mind is, in that view, so deeply embedded in our
jurisprudence that it can be described as a fundamental policy of
Indian Law.
39. No less important is the principle now recognised as a salutary
juristic fundamental in administrative law that a decision which is
perverse or so irrational that no reasonable person would have arrived
at the same will not be sustained in a Court of law. Perversity or
irrationality of decisions is tested on the touchstone of Wednesbury's
principle of reasonableness. Decisions that fall short of the standards
of reasonableness are open to challenge in a Court of law often in writ
O.M.P. No.1640/2014 Page 29 of 35
jurisdiction of the Superior courts but no less in statutory processes
where ever the same are available.
40. It is neither necessary nor proper for us to attempt an exhaustive
enumeration of what would constitute the fundamental policy of
Indian law nor is it possible to place the expression in the straitjacket
of a definition. What is important in the context of the case at hand is
that if on facts proved before them the arbitrators fail to draw an
inference which ought to have been drawn or if they have drawn an
inference which is on the face of it, untenable resulting in miscarriage
of justice, the adjudication even when made by an arbitral tribunal that
enjoys considerable latitude and play at the joints in making awards
will be open to challenge and may be cast away or modified depending
upon whether the offending part is or is not severable from the rest."
14. I have considered the challenge aforesaid to the arbitral award on the
anvil of the above latest adjudication also. No ground, of the Arbitral
Tribunal in the instant case having not adopted a judicial approach or having
acted in violation of the principles of natural justice has been urged. It is
also not the case that the Arbitral Tribunal has not acted bona fide or not
dealt with the subject in a fair, reasonable and objective manner or that the
decision of the Arbitral Tribunal was actuated by any extraneous
consideration. Non application of mind by the Arbitral Tribunal is also not
pleaded or argued. No case of perversity or irrationality has also been made
O.M.P. No.1640/2014 Page 30 of 35
out. The entire challenge is on the ground of the findings of the Arbitral
Tribunal being factually erroneous and which is not a ground even as per the
judgment (supra) of the Supreme Court. Of course, the Supreme Court in
para 40 of the judgment has held that if the Arbitral Tribunal, from the facts
proved before it fails, to draw an inference which ought to have been drawn
or draws the inference which on the face of it is untenable, the arbitral award
would be in conflict with public policy of India and the test of "fails to draw
inference which ought to have been drawn or draws an inference which is
untenable" is very wide but the said test is qualified with the words
"resulting in miscarriage of justice". I am unable to read the judgment of the
Supreme Court as opening the doors of challenge to an Arbitral Award by a
detailed examination of all the facts and material before the Arbitral
Tribunal and to determination of whether the inferences drawn and the
consequences reached by the Arbitral Tribunal therefrom are correct or not
and whether the Court agrees with the same or not. If the same were to be
permitted, it would do away with the difference between the Court
exercising appellate power and power of judicial review of Arbitral Award
under Section 34 of the Act and would be against the several other
judgments of the Supreme Court and which, in the judgment (supra) were
O.M.P. No.1640/2014 Page 31 of 35
neither considered nor differed from. The judgment (supra) of the Supreme
Court, cannot be read in isolation, forgetting all other judgments of the
Supreme Court and none of which have been overruled.
15. The expression "miscarriage of justice", used by the Supreme Court in
the judgment (supra) as qualifying the test laid down in para 40 thereof of
the validity of the Arbitral Award, is an expression well recognized in law
and generally associated with grossly unfair outcome in a judicial
proceeding as when a defendant is convicted despite a lack of evidence on
an essential element of a crime (per Black‟s Law Dictionary, Eight Edition).
The Supreme Court in Union of India Vs. Ibrahim Uddin (2012) 8 SCC
148 cited with approval Bibhabati Devi Vs. Ramendra Narayan Roy AIR
1947 PC 19 holding that miscarriage of justice means such a departure from
the rules which permeate all judicial procedure as to make that which
happen not in the proper sense of the word „judicial procedure‟ at all.
16. Thus, it is not every inference drawn or not drawn by the Arbitral
Tribunal from the material before it and which the Court finds to have been
wrongly drawn or not drawn, which could be held to be resulting in
miscarriage of justice. Such inference / failure to interfere by the Arbitral
O.M.P. No.1640/2014 Page 32 of 35
Tribunal, even if in the opinion of the Court wrong, would permit
interference under Section 34 of the Arbitration Act only if it results in a
grossly unfair outcome.
17. There is another aspect of the matter. A detailed inquiry into the
correctness of the inference drawn / not drawn by the Arbitral Tribunal
would require the Court not only to go through and dissect the arbitral record
which is often voluminous in cases as the present but to also give an
opportunity to the parties / their counsels to address on the inferences drawn
/ not drawn by the Arbitral Tribunal and to only thereafter form an opinion.
The same would again make a proceeding under Section 34 of the
Arbitration Act and hearing thereof akin to an appeal from original decrees
of the Court and would be an antithesis to the very concept of judicial
review of arbitral award, even if the Court at the end of such a marathon
hearing were to conclude that there has been no miscarriage of justice. It is
thus for the contracting party challenging the Arbitral Tribunal to, in the
memorandum of challenge itself, make out a case of miscarriage of justice
within the parameters aforesaid. No such case has been made out in the
petition in the present case. Without any such case having been made out in
O.M.P. No.1640/2014 Page 33 of 35
the memorandum of petition, this Court would not embark upon an exercise
of requisitioning the arbitral record and giving an opportunity to the parties /
their counsels to address on the correctness of the inference drawn / not
drawn by the Arbitral Tribunal and on the aspect of whether there has been a
miscarriage of justice.
18. Mention may also be made of another recent dicta in Associate
Builders Vs. DDA MANU/SC/1076/2014 where on conspectus of plethora
of cases including Western GECO International Ltd. supra, the judgment of
the Single Judge of this High Court dismissing the petition under Section 34
of the Arbitration Act was restored and the judgment of the Division Bench
in appeal thereagainst interfering with the award was set aside holding that
the Division Bench exceeded its jurisdiction in interfering with the pure
finding of facts forgetting that the arbitrator is the sole Judge of the quantity
and quality of evidence before him and that the Division Bench has no
business to enter into the pure question of fact to set aside the award. It was
further held that the same cannot be done by any Court under jurisdiction
exercised under Section 34 of the Act. The Supreme Court further held that
the expression „justice‟ when it comes to setting aside an award under the
O.M.P. No.1640/2014 Page 34 of 35
public policy ground can only mean that the award shocks the conscience of
the Court and that it cannot possibly include what the Court thinks is unjust
on the facts of a case for which the Court then seeks to substitute its own
view for the arbitrator‟s view and does what it considers to be „justice‟. The
Supreme Court observed that the Division Bench had lost sight of the fact
that it is not a first Appellate Court and cannot interfere with errors of fact.
The Supreme Court held that if the arbitrators have decided the dispute with
a sound head and a good heart and after hearing both sides, the Courts
should not interfere with their award, even if the Court disagrees with the
reasons assigned by the arbitrator.
19. It is not the case of the petitioners that the arbitrators in the present
case have not decided with a sound head and a good heart.
20. I therefore do not find any case for entertaining the challenge to the
Arbitral Award by way of this petition and dismiss the same.
No costs.
RAJIV SAHAI ENDLAW, J.
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