Summary
The Supreme Court restored a contractor’s arbitral award after holding that the Section 34 court and the High Court had exceeded their limited review powers by reappraising evidence and reducing the award. The arbitrator’s reasoned view was plausible. Separately exercising Article 142, the Court directed interest at 9% per annum from the award date until payment.
Issues
- Whether the courts reviewing the 2003 award under Sections 34 and 37 could substitute their factual assessment and reduce the awarded amount.
- Whether the asserted public-policy grounds justified interference with the arbitrator’s findings on delay, escalation and other claims.
- What interest and payment directions should follow restoration of the award.
Provisions considered
- Section 34, before the 2015 amendment, Arbitration and Conciliation Act, 1996The Court applied the pre-amendment framework to the 2003 award. It held that review had to remain within statutory grounds and that the lower court could not modify the award by substituting its own view of the evidence. No sustainable public-policy ground had been identified. (¶¶ 14, 15, 20, 21, 22, 23, 24, 28, 29, 30, 31, 32, 33)
- Section 37, Arbitration and Conciliation Act, 1996Appellate review could not exceed the limits of Section 34 or become an independent merits appeal. The High Court repeated the lower court’s error without explaining how the reasoned award breached public policy. (¶¶ 34, 35, 36, 38, 39, 40, 41, 42, 43, 44)
- Section 31(7), Arbitration and Conciliation Act, 1996In discussing interest, the Court relied on Hyder Consulting’s explanation of the power to include pre-award interest in the awarded sum and of post-award interest under the then applicable framework. The final rate directed in this case was fixed separately under Article 142. (¶¶ 45, 46)
- Article 142, Constitution of IndiaDespite finding no legal basis for the lower courts’ reduction of the arbitrator’s 18% rate, the Supreme Court itself exercised Article 142 to award 9% per annum from the award date until payment to ensure substantial justice between the parties. (¶¶ 45, 46)
Held
- The limited supervisory jurisdiction under the statutory framework considered did not authorise modification of the award. A court could sustain or set aside an award on the prescribed grounds, but could not substitute its assessment of evidence and quantify a different award. A plausible, reasoned arbitral view was not open to replacement merely because a court preferred another view. (¶¶ 14, 15, 16, 17, 18, 19, 28, 29, 30, 31, 32, 33)
- The arbitrator had separately considered the claims and relevant materials, accepting some, reducing one and rejecting others. The civil court instead relied on conjectures about commencement of work, minor design changes, the taxpayer’s burden and alleged benefit to the arbitrator. Such reasoning did not establish a statutory ground of interference and disregarded the composite nature of the office-and-residence contract. (¶¶ 30, 31, 32)
- The High Court’s Section 37 jurisdiction was no wider than the Section 34 jurisdiction. Its unsupported characterisation of the award as perverse, patently illegal or contrary to public policy did not justify a fresh merits assessment or the lump-sum reduction to 25% of the tender value. (¶¶ 35, 36, 39, 40, 41, 42, 43, 44)
- The lower courts supplied no legal basis for reducing the interest awarded in this commercial transaction. The Supreme Court nonetheless separately exercised Article 142 to direct 9% annual interest from the award date until payment, while restoring the award and directing expeditious payment. (¶¶ 45, 46, 47, 48)
Result
Appeal allowed. The Section 34 and Section 37 judgments were set aside and the arbitrator’s award dated 18 February 2003 restored, subject to the Supreme Court’s Article 142 direction for interest at 9% per annum from the award date until payment. Karnataka directed to pay expeditiously. No costs.