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Merely showing another reasonable interpretation or possible view is insufficient for interference in the arbitral award: SC

The Supreme Court on Thursday held that merely showing that there is another reasonable interpretation or possible view on the basis of the material on the record is insufficient to allow for the interference by the Court in an arbitral award (NTPC v. M/s Deconar Services Private Limited).

A Bench of Chief Justice of India, NV Ramana and Justices Surya Kant and Aniruddha Bose ruled that in order to succeed in a challenge against an arbitral award the challenger “must show that the award of the arbitrator suffered from perversity or an error of law or that the arbitrator has otherwise misconducted himself.”

The judgment was rendered on a plea by National Thermal Power Corporation (NTPC) challenging a judgment passed by the Delhi High Court in April 2010 rejecting the appeals filed by NTPC against the dismissal of their objections to an award passed by the arbitrator under the Arbitration Act, 1940.

By way of background, the NTPC Ltd sanctioned two tenders for a builder who was tasked to build two sets of quarters. However, due to the delay in handing over of the site, the builder delayed delivery of the finished project.

Certain difference also arose with respect to the final amount of money payable.

The builder took recourse to arbitration for dispute resolution. The arbitrator passed an award favouring the builder.

NTPC challenged the same before the Delhi High Court but both the single-judge and Division Bench of the High Court ruled against NTPC leading to the present appeal before the Supreme Court.

The counsel for the appellant raised three main contentions – on­ the refund of the rebate agreed upon by the parties, the grant of escalation of charges for work done beyond the scheduled period and the costs imposed on the appellant by all three forums below.

On the issue of rebate, the appellant submitted that the arbitrator erred in holding that the rebate was a conditional one, as the terms of the offer by the respondent and the letter of award did not indicate the same.

The arbitrator had held that the rebate of 16 percent on the price of construction of 100 units of A and B quarters was given by the respondent on the condition that he would be able to execute both the works simultaneously.

The arbitrator interpreted the rebate as a conditional one on analysis of the documents on record, particularly the letter dated June 14, 1988 sent by the respondent to the appellant subsequent to the negotiations held between them, the award of both contracts to the respondent on the same date and the works programme (L­2) for both the works. The arbitrator specifically highlighted that the appellant had not denied the L­2 programme, which indicated that both the works were to be carried out together.

“From a reading of the above material, the Arbitrator held that the intention of the parties was to complete the work together, which would have enabled the respondent to reduce its costs and optimizing its charges, thereby allowing it to grant the 16% rebate to the appellant. By delaying the handing over of the sites, the appellant had therefore breached the condition for the grant of rebate, entitling the respondent to a refund of the same,” the Supreme Court held.

The counsel for the appellant had sought to canvas an alternate interpretation regarding the rebate on the basis of the letter dated June 14, 1988, stating that the same was granted merely for the awarding of both sets of contract to the respondent.

The apex court said that while such an interpretation is possible, it was of the opinion that this is not sufficient to interfere with the award passed by the arbitrator.

“The Court does not sit as an appellate court over the decision of an arbitrator, and cannot substitute its views for that of the Arbitrator as long as the arbitrator had taken a possible view of the matter,” the Supreme Court underscored.

We are of the considered opinion that in the present case, the arbitrator has given clear reasoning for the possible view taken by him on the interpretation of the contract between the parties, the Court added.

The second issue pertained to the grant of escalation charges for work done by the respondent beyond the scheduled period of the contract.

The arbitrator had taken a view on the construction of the clauses of the contract that the firm price clause operated only with respect to the period for which the contract subsisted, and would not subsist beyond the scheduled period of the contract. The arbitrator had also noted that the appellant accepted the work undertaken by the respondent beyond the period of the contract without objections.

The arbitrator also assessed the period of delay attributable to the appellant and awarded escalation to the respondent only for the same.

Thus, only a part of the claim made by the respondent was allowed by the arbitrator.

The Court noted that the issue of whether arbitrator could order such escalation is settled by a judgment of a three-judge Bench in Assam State Electricity Board v. Buildworth Private Limited [(2017) 8 SCC 146]. The said judgment is applicable in this case too, the Court said.

“The arbitrator in the present case has constructed the present contract, and the fixed price clause, in the same manner. This construction was on the basis of the evidence on record and the submissions of the counsel before him. The Arbitrator has carefully delineated the period of delay attributable to the appellant, and has granted the claim of the respondent only to that limited extent,” the Bench observed.

In the facts and circumstances of the present case, the view taken by the arbitrator was a possible one, and cannot therefore be interfered with by the courts, the Bench held.

On the final issue, pertaining to imposition of costs on the appellant by the forums below, the Court said that it is not inclined to interfere with the same, in view of the fact that the counsel for the appellant did not press the issue.

“In view of the above, we see no reason to interfere with the impugned judgment passed by the High Court. 29. Accordingly, the Civil Appeals filed by the appellant are dismissed. The appellant is directed to pay the pending amounts to the respondent within a period of 6 months from the date of this judgment,” the Court ordered.

 

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