Summary
The Court restored an electricity-supply arbitral award in full, holding that the High Court had exceeded Sections 34 and 37 by reinterpreting contractual dealings and reassessing evidence under the label of patent illegality. The arbitrator’s conclusions on alternate-fuel pricing, downrating, the 4 MW billing arrangement and backup-power netting were permissible views. The award’s pre-award interest and 15% post-award interest were upheld. Reliance’s appeal was allowed and Goa’s dismissed without costs.
Issues
- Whether the High Court substituted its assessment of the contract and evidence for permissible arbitral findings.
- Whether non-disposal of procedural applications or alleged denial of further submissions established prejudice.
- Whether the award on alternate-fuel charges, downrating, the 4 MW arrangement and backup-power netting suffered patent illegality.
- Whether pre-award interest and 15% post-award interest warranted interference.
Provisions considered
- Sections 34(2), 34(2A) and 37, Arbitration and Conciliation Act, 1996Review is confined to the statutory grounds and does not permit a merits appeal or reappreciation of evidence. Patent illegality must go to the root and appear on the award’s face; the appellate court cannot enlarge section 34 review by relabelling an alternative evidentiary assessment. (¶¶ 12, 13.1, 13.2, 13.3, 13.4, 13.5, 13.6, 13.8, 18, 21, 22, 24.1, 25, 25.1, 29, 31.1, 35.1, 36, 38, 39)
- Section 28(3), Arbitration and Conciliation Act, 1996Ignoring governing contractual terms can constitute patent illegality, but a reasonable contractual construction is for the arbitrator. The award considered the actual disputes and the parties’ subsequent dealings; the High Court wrongly treated a fresh merits assessment as enforcement of the contract. (¶¶ 12, 13.2, 18, 19, 19.1, 19.2, 19.3, 20, 21, 21.1, 23.1, 24.1, 29, 30, 31.1)
- Section 26, Arbitration and Conciliation Act, 1996The State deleted its prayer for a tribunal-appointed expert, engaged its own expert and recast its counterclaim. The Tribunal could treat the application as abandoned or infructuous, and no prejudice from its formal non-disposal was demonstrated. (¶¶ 12, 14)
- Section 114, illustration (g), Indian Evidence Act, 1872Whether to infer that withheld evidence would be unfavourable involves appreciation of evidence. The State’s demand for an adverse inference did not establish facial patent illegality and could not convert limited award review into an evidentiary appeal. (¶¶ 14.1, 25, 25.1)
- Section 31(7), Arbitration and Conciliation Act, 1996Contractual pre-reference and pendente lite interest were upheld. The arbitrator’s express 15% post-award rate was within jurisdiction on these facts; the High Court lacked a basis to substitute 10% through a general equitable reassessment. (¶¶ 5.2, 12.1, 32, 32.1, 33, 34, 34.1)
Held
- A court reviewing an award does not sit in ordinary appeal. A possible contractual interpretation or evidentiary conclusion cannot be displaced merely because another view seems preferable. Patent illegality requires a defect apparent on the face of the award and going to the root; it cannot be manufactured through a long reassessment of pleadings and evidence. Complete disregard of governing contractual terms remains materially different. (¶¶ 13.1, 13.2, 13.3, 13.4, 13.5, 13.6, 13.8, 18, 19, 19.1, 19.2, 36, 38)
- The procedural objections failed. The State had itself dropped its request for appointment of an expert and had expert assistance. Most requested documents were supplied; the others were stated to be unavailable or nonexistent, and serious prejudice was not established. The State also had opportunities to respond but did not file or seek leave for further submissions. Formal non-disposal of applications did not establish denial of natural justice on this record. (¶¶ 14, 14.1, 14.2, 14.3, 14.4)
- For alternate-fuel pricing, the jointly presented dispute was whether the agreed formula varied with fuel prices and the dollar exchange rate. The arbitrator examined the proposal, clarification, Cabinet decision and communicated acceptance and permissibly answered yes. Naphtha fuel-supply clauses did not justify setting aside that conclusion concerning the later alternate-fuel arrangement. The High Court substituted its own analysis for the determination actually entrusted to the arbitrator. (¶¶ 4.3, 4.3.1, 4.3.2, 4.3.3, 4.3.4, 5.1, 16.1, 16.2, 16.3, 16.4, 16.5, 16.5.1, 16.7, 16.8, 19.3, 20, 21, 21.1)
- On downrating, the arbitrator considered supplementary agreements, the manufacturer’s certificate, the parties’ meeting and their subsequent reconciliation and payment of bills. Its conclusion that the matter had been settled was a permissible view. Reweighing the certificate or insisting on an adverse inference for other missing manufacturer material was evidentiary reassessment outside Sections 34 and 37. (¶¶ 23, 23.1, 23.2, 23.3, 24, 24.1, 25, 25.1)
- The arbitrator’s treatment of the 4 MW arrangement was also plausible: the parties agreed on billing for 15.8 MW while retaining the right to revert to 19.8 MW supply. The High Court could not overturn the award by reinterpreting the same correspondence and reaching a different factual conclusion. (¶¶ 26, 27, 28, 29)
- The backup-power netting issue depended on the parties’ contractual dealings and later communications fixing the shutdown-period rate. The arbitrator gave reasons for treating that rate as fixed without the claimed multiplier. Even if a different interpretation was possible, its view was not one no reasonable person could take, and substitution under Sections 34 or 37 was impermissible. (¶¶ 30, 31, 31.1)
- The award of pre-reference and pendente lite interest followed the contract and section 31(7); the State’s objection that payment liability had not earlier crystallised supplied no ground for interference. The High Court’s reduction of post-award interest from 15% to 10% was also unjustified. Vedanta concerned different international and currency circumstances, while the evidence here placed prevailing prime lending rates around 13%–14%. The High Court had no general equity jurisdiction to reset the rate. (¶¶ 12.1, 32, 32.1, 33, 34, 34.1)
- The Commercial Court had considered the material issues within section 34 and was wrongly criticised for framing points and referring to the award. The modifying portion of the High Court judgment was set aside and the arbitral award restored in its entirety, including its original interest terms. The claimant’s appeal was allowed, the State’s appeal dismissed, and no costs awarded. (¶¶ 5.2, 35, 35.1, 36, 37, 38, 39, 40)
Result
Claimant’s appeal allowed; State’s appeal dismissed without costs. High Court’s modification set aside and arbitral award restored in its entirety, including pre-award interest and 15% post-award interest on the terms awarded.