Failure Of Arbitrator To Appreciate Facts Not A Ground U/s. 30 Of Arbitration Act To Challenge The Award - Supreme Court

In this case, the Appellant construction company entered into an agreement with the Respondent for construction of a runway and allied works at the Arakonam Railway Station for a contract price of Rs. 19,58,94,190/-. It was stipulated that the construction work will be completed within 21 months from the date of commencement.

It was contended by the Respondent that the date of completion would be August 23, 1990. Whereas, the Appellant argued that since the site was heavily water-logged, the work could commence only from January 1, 1989. Moreover, the Appellant had sought extensions thrice which had been granted by the Respondent. Since the site was to be inaugurated by the President of India, the site was handed back to the Respondent on March 9, 1992. However, after that, no entry passes were issued to the staff of the Appellant. The contract with the Appellant was terminated with immediate effect vide letter dated April 2, 1992 wherein the Chief Engineer declined to extend any time for the completion of the balance work.

The termination of the contract was challenged before a Sole Arbitrator since the arbitration clause was invoked. The Sole Arbitrator granted an award of Rs. 25,96,87,442.89/- including interest. Additionally, a sum of Rs. 14,12,50,907.55 was directed to be paid to the Appellant at the interest rate of 18%. However, the Respondent based on its counter-claims was awarded a sum of Rs. 1,42,255 with future interest.

The Respondent i.e. the Union of India challenged the impugned award before a single judge of the Madras High Court under Section 30 read with Section 33 of the Arbitration and Conciliation Act, 1940. The Single Judge dismissed the appeal in favor of the Appellant and affirmed the entitlement of interest on the principal amount at the interest rate of 12%. The Respondent preferred an intra-Court appeal against this impugned order. The Division Bench of the Madras High Court set aside the award towards idle hire charges and values of tools and machineries which were awarded by the Single Judge. The Division Bench even set aside the findings with respect to the extension and illegal termination of the contract. The Appellant Company challenged the impugned judgment of the Division Bench of the Madras High Court before the Supreme Court.

The primary issues that were for consideration were -

Whether the Appellate Court has exceeded its jurisdiction by substituting its own opinion in place of the conclusions arrived at by the learned Sole Arbitrator?

Whether was the Appellant Company entitled to an extension of time?

• Whether was the Appellant Company rightfully granted for idle hire charges and the value of tools and machinery?

It was contended by the Appellant that the Appellate Court has erred in re-appreciating the evidence led by the parties which was duly scrutinized and evaluated by the learned Sole Arbitrator and upheld by the learned Single Judge. Moreover, it was argued that the scope of interference by courts in arbitral Awards made under the old Act, viz., the Arbitration Act, 1940, is fairly limited. It was stated that Courts do not sit in appeal over an Award passed by the learned Arbitrator, nor do courts interfere with the Award only on the ground that the Arbitrator has taken a possible view, though a different view could have been taken on the very same evidence. 

It was claimed by the Respondent that the issues relating to the reasonableness of extension of time and validity of the termination of the contract were "excepted matters" in terms of Clauses 7, 11, 54, and 70 of the contract governing the parties, which aspects were completely overlooked by the Sole Arbitrator and that the Sole Arbitrator had traveled beyond the terms of the contract by allowing the claim for idling cost of plant and machinery. Moreover, it was argued that allowing idling charges in favour of the appellant-claimant amounted to a patent illegality in the Award as per the case of Food Corporation of India v. Sreekanth Rajasthan.

On the first issue, the Court referred to Kwality Manufacturing Corporation v. Central Warehousing Corporation and opined, "The consistent view taken in several judicial pronouncements is that the Court does not sit in appeal over an Award passed by an Arbitrator and the only grounds on which it can be challenged are those that have been specified in Sections 30 and 33 of the Arbitration Act, namely, when there is an error on the face of the Award or when the learned Arbitrator has mis-conducted himself or the proceedings."

"It is also a well-settled principle of law that challenge cannot be laid to the Award only on the ground that the Arbitrator has drawn his own conclusion or failed to appreciate the relevant facts. Nor can the Court substitute its own view on the conclusion of law or facts as against those drawn by the Arbitrator, as if it is sitting in appeal." – The Bench held after relying on the case of State of Rajasthan v. Puri Construction Co.

Thus, as per Arosan Enterprises Ltd v. Union of India, the Court held that as the Sole Arbitrator had taken a possible view, which might be a plausible view, just because a different view from that was adopted, based on the same evidence, it would also not be a ground to interfere with the Award.

Proceeding on the second issue, the Court observed that Sole Arbitrator had accepted almost twenty reasons for the delay in the work and held the extension granted to the Appellant to be insufficient. The Arbitrator had extensively perused the voluminous documents and provided cogent reasons for taking this particular view. Thus, the Court held that considering the High Court's limited jurisdiction, the Division Bench had transgressed its limitation under the statute.

The Bench asserted – "That once the learned Sole Arbitrator had interpreted the clauses of the contract by taking a particular view and had gone to great length to analyse several reasons offered by the appellant-claimant to justify its plea that it was entitled for extension of time to execute the contract, the Division Bench of the High Court ought not to have sat over the said decision as an Appellate Court and seek to substitute its view for that of the learned Arbitrator."

On the third issue, the Court observed that the Sole Arbitrator had granted the compensation for idle hire charges and the value of tools and machinery, relying on the report of the Engineer appointed by the Division Bench of the Madras High Court. Moreover, on the tools and machineries, the Engineer and the Surveyor found that the machineries had detoriated and were no longer usable. Considering the failure to mitigate the damages, the award for idle hire charges and the value of tools and machinery was passed by the Sole Arbitrator.

It was asserted by the Supreme Court that – "The aforesaid conclusion drawn by the Appellate Court is manifestly erroneous and flies in the face of the settled legal position that the Arbitrator is the final arbiter of the disputes between the parties and it is not open to a party to challenge the Award on the ground that he has drawn his own conclusions or has failed to appreciate certain facts. It is beyond the jurisdiction of the Appellate Court to assign to itself, the task of construing the terms and conditions of the contract and its provisions and take a view on certain amounts awarded in favour of a party. It is reiterated that the learned Sole Arbitrator had given certain cogent reasons for awarding the amount in favour of the appellant- claimant towards idle hire charges of the parts of the machineries and equipments and loss of machinery. It was beyond the domain of the Appellate Court to have examined the reasonableness of the said reasons by reappreciating the evidence to arrive at a different conclusion."

Hence, the Supreme Court quashed and set aside the impugned judgment of the Division Bench of the Madras High Court and restored the judgment passed by the Single Judge of the Madras High Court which had upheld the decree and judgment in favour of the Appellant Company.

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