Arbitration Act| High Court Erred In Re-interpreting Contract Clause In Section 37 Jurisdiction: Supreme Court

A three judge Bench of CJI D.Y. Chandrachud, Justice Pamidighantam Sri Narasimha and Justice J.B. Pardiwala observed:

“Accordingly, the question of reinterpreting the contract on an alternative view does not arise. If this is the principle applicable to exercise of jurisdiction under Section 34 of the Act, a Division Bench exercising jurisdiction under Section 37 of the Act cannot reverse an Award, much less the 17 decision of a Single Judge, on the ground that they have not given effect and voice to all clauses of the contract. This is where the Division Bench of the High Court committed an error, in re-interpreting a contractual clause while exercising jurisdiction under Section 37 of the Act.”

This case involved a construction contract for a railway bridge, where the appellant, Konkan Railway Corporation Limited, challenged a High Court Division Bench decision under Section 37 of the Arbitration and Conciliation Act 1996. The dispute revolved around the respondent's claims for taxes and levies initially rejected by an Arbitral Tribunal, which was upheld by a Single Judge. The respondent appealed under Section 37, leading the Division Bench to allow certain claims based on a different interpretation of contractual clauses, particularly Clause 5.1.2 (taxes) and Clauses 7.1.1 and 7.1.2 (price variation). The Division Bench found the Arbitral Tribunal's interpretation flawed and allowed the claims. The present appeal questioned this interpretation and allowance of claims, focusing on proper understanding of contractual clauses.

Senior Advocate Shyam Divan appeared for the Appellants and Senior Advocate Darius Khambata appeared for the Respondents.

The appellant argued that the High Court overstepped its jurisdiction in Section 37 by reinterpreting the contract terms. They contended the contract was a lump-sum agreement under Clause 11.7. The Arbitral Tribunal's interpretation of Clauses 5.1.2, 7.1.1, and 7.1.2 suggested individual tax claims wouldn't be reimbursed, and tax reimbursement in Clause 5.1.2 was distinct from price fluctuations under Clauses 7.1.1 and 7.1.2.

On the other side, the respondents argued that the High Court rightly corrected the Tribunal's findings, avoiding a rewritten contract.

The Apex Court held that the Court's jurisdiction under Section 37 of the Act was akin to Section 34 and was not a standard appellate jurisdiction. Interference with an arbitral award must be avoided unless the award is perverse.

“At the outset, we may state that the jurisdiction of the Court under Section 37 of the Act, as clarified by this Court in MMTC Ltd. v. Vedanta Ltd., is akin to the jurisdiction of the court under Section 34 of the Act.8 Scope of interference by a court in an appeal under Section 37 of the Act, in examining an order, setting aside or refusing to set aside an award, is restricted and subject to the same grounds as the challenge under Section 34 of the Act.”

The Court noted that the present case concerns the interpretation of contract clauses; the Arbitral Tribunal rejected the respondent's claims, which was affirmed by a Single Judge under Section 34, based on a plausible view.

“The principle of interpretation of contracts adopted by the Division Bench of the High Court that when two constructions are possible, then courts must prefer the one which gives effect and voice to all clauses, does not have absolute application. The said interpretation is subject to the jurisdiction which a court is called upon to exercise”, the Court held.

The Court was of the view that the Division Bench of the High Court overstepped its jurisdiction under Section 37 by reinterpreting the contract clauses. The principle of interpreting contracts to give effect to all clauses doesn't have absolute application in arbitration matters. The High Court's reliance on an old case for reinterpreting contractual clauses was not justified. Other cases cited, where courts interfered under Section 37, involved clear perversity in interpretation.

The Arbitral Tribunal's and Single Judge's decisions weren't perverse. The Division Bench erred in setting them aside. Thus, the Court allowed the appeal, overturning the Division Bench's judgment and restoring the Single Judge's decision.

Cause Title: Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking

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