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2025 (1) TMI 1367 - SC - Indian LawsDismissal of application filed by NHAI under Section 34 of Arbitration and Conciliation Act 1996 for setting aside the award passed by the Arbitral Tribunal - execution of a contract awarded by NHAI to the appellant regarding the work of four laning and strengthening of the existing two lane section - HELD THAT - Division Bench of the High Court exercising jurisdiction under Section 37 of the 1996 Act acknowledged that primarily it was for the Arbitral Tribunal to interpret the contractual terms and if the interpretation given by the Arbitral Tribunal is a plausible one then the court would not interfere with the award merely because according to the court another interpretation is preferable. Having said that Division Bench examined Clauses 51 and 52 of the contract. Instead of interpreting the aforesaid clauses in the contractual context Division Bench went into the dictionary meaning of the expression variation and opined that variation would mean the difference between what is provided for or contemplated in relation to the work under the contract and what is the final effect or outcome. Such variation or outcome may be or may not be the result of an instruction given by the Engineer. Division Bench disagreed with the observations of the Arbitral Tribunal as upheld by the learned Single Judge that even if there was error in estimating the quantity of geogrid while preparing the BOQ that by itself would not lead to the conclusion that NHAI cannot seek renegotiation of the rates even if the actual quantity exceeds by over 300 percent. The contract does not provide that NHAI should suffer on account of the estimated quantities mentioned in the BOQ turning out to be way off the mark when the contract is executed - Division Bench held that there is no reason as to why variation in quantity beyond the limits set out in the contract whether instructed or not instructed should not lead to renegotiation of the rates at the instance of either party. That would be the only fair reasonable and equitable way to work the contract. In so far Clause 51.1 is concerned the variation contemplated thereunder relates to the form quality or quantity of the works which in the opinion of the Engineer is necessary. In the present case there is a clear finding of fact by two authorities i.e. DRB and the Arbitral Tribunal both comprised of technical experts that there is no variation either in the form or quality or quantity of the works. What actually happened is that at the time of execution of the contract pertaining to the RE wall the geogrid required turned out to be much more than the estimated figure given in item No. 7.7 of the contract. It is in this backdrop that both the fact finding authorities held that there was no variation in terms of Clause 51.1 and that the Engineer did not have the competence to renegotiate the price or rate of the geogrid for the excess quantity of geogrid required. It is the correct interpretation of Clause 51 made by the DRB and the Arbitral Tribunal. As such learned Single Judge rightly declined to interfere with the award under Section 34 of the 1996 Act. If that be the position there was no justification at all for the Division Bench of the High Court to set aside the award under Section 37 of the 1996 Act. In Reliance Infrastructure Ltd. 2023 (5) TMI 1319 - SUPREME COURT this Court referring to one of its earlier decisions in UHL Power Company Ltd. Vs. State of Himachal Pradesh 2022 (1) TMI 307 - SUPREME COURT held that scope of interference under Section 37 is all the more circumscribed keeping in view the limited scope of interference with an arbitral award under Section 34 of the 1996 Act. As it is the jurisdiction conferred on courts under Section 34 of the 1996 Act is fairly narrow. Therefore when it comes to scope of an appeal under Section 37 of the 1996 Act jurisdiction of the appellate court in examining an order passed under Section 34 either setting aside or refusing to set aside an arbitral award is all the more circumscribed. Again in M/s Larsen Air Conditioning and Refrigeration Company 2023 (8) TMI 985 - SUPREME COURT this Court reiterated the position that Section 37 of the 1996 Act grants narrower scope to the appellate court to review the findings in an arbitral award if it has been upheld or substantially upheld under Section 34. Conclusion - The Arbitral Tribunal had interpreted Clause 51 in a reasonable manner based on the evidence on record. This interpretation was affirmed by the learned Single Judge exercising jurisdiction under Section 34 of the 1996 Act. Therefore Division Bench of the High Court was not at all justified in setting aside the arbitral award exercising extremely limited jurisdiction under Section 37 of the 1996 Act by merely using expressions like opposed to the public policy of India patent illegality and shocking the conscience of the court . As reiterated by this Court in Reliance Infrastructure Ltd it is necessary to remind the courts that a great deal of restraint is required to be shown while examining the validity of an arbitral award when such an award has been upheld wholly or substantially under Section 34 of the 1996 Act. Frequent interference with arbitral awards would defeat the very purpose of the 1996 Act. The impugned order cannot be sustained. Accordingly judgment and order dated 17.11.2009 passed by the Division Bench of the High Court is hereby set aside and the arbitral award dated 03.06.2005 is restored - Appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment revolve around the interpretation and application of Clauses 51 and 52 of the General Conditions of Contract (GCC) and Conditions of Particular Application (COPA) in the context of a construction contract. The primary issues include: 1. Whether the increase in the quantity of geogrid material constituted a variation under Clause 51.1, thereby allowing the Engineer to revise the rates as per Clause 52.2. 2. Whether the Division Bench of the High Court was justified in setting aside the arbitral award and the Single Judge's order under Section 37 of the Arbitration and Conciliation Act, 1996. 3. The scope of judicial interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, particularly concerning the interpretation of contractual terms by an arbitral tribunal. ISSUE-WISE DETAILED ANALYSIS 1. Interpretation of Clauses 51 and 52 of the GCC and COPA Relevant Legal Framework and Precedents: The legal framework involves Clauses 51 and 52 of the GCC and COPA, which deal with variations in the contract and the Engineer's authority to revise rates. Precedents include various Supreme Court judgments emphasizing the limited scope of judicial review in arbitration matters. Court's Interpretation and Reasoning: The Court analyzed that Clause 51.1 pertains to instructed variations, where the Engineer can instruct changes in the form, quality, or quantity of work. Clause 51.2 clarifies that no instruction is needed for quantity changes due to BOQ variations. Clause 52.2 allows rate revisions for instructed variations, subject to certain conditions. Key Evidence and Findings: The DRB and Arbitral Tribunal, both comprising technical experts, found no change in design or instructed variation. The increase in geogrid quantity was due to incorrect initial estimates, not a change in design. Application of Law to Facts: The Court applied the contractual clauses to the facts, concluding that the increase in quantity did not constitute a variation under Clause 51.1, and thus, the Engineer lacked the authority to revise rates under Clause 52.2. Treatment of Competing Arguments: The appellant argued that the increase was due to initial estimation errors, not design changes. The respondent contended that the increase warranted rate renegotiation. The Court sided with the appellant, emphasizing the lack of instructed variation. Conclusions: The Court concluded that the Arbitral Tribunal's interpretation was correct, and the Division Bench erred in its contrary interpretation. 2. Judicial Interference under Sections 34 and 37 of the Arbitration Act Relevant Legal Framework and Precedents: Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, limit judicial interference with arbitral awards. Precedents stress that courts should not act as appellate bodies in arbitration matters. Court's Interpretation and Reasoning: The Court reiterated that judicial review under Section 34 is limited to grounds such as violation of public policy, patent illegality, or procedural irregularities. Section 37 further restricts appellate review to these grounds. Key Evidence and Findings: The Single Judge upheld the arbitral award, finding no grounds for interference under Section 34. The Division Bench, however, set aside the award, citing public policy concerns. Application of Law to Facts: The Court found that the Division Bench exceeded its jurisdiction under Section 37 by reinterpreting contractual terms and disregarding the Arbitral Tribunal's plausible interpretation. Treatment of Competing Arguments: The appellant argued for limited judicial interference, while the respondent sought broader review. The Court favored the appellant's position, emphasizing arbitration's autonomy. Conclusions: The Court concluded that the Division Bench wrongly interfered with the arbitral award, which was within the Arbitral Tribunal's jurisdiction to interpret. SIGNIFICANT HOLDINGS The Court restored the arbitral award, emphasizing several core principles: - Judicial interference in arbitration should be minimal, respecting the autonomy of arbitral tribunals. - Contractual terms should be interpreted by arbitrators, with courts intervening only in cases of egregious errors or violations of public policy. - The interpretation of Clauses 51 and 52 by the Arbitral Tribunal was reasonable and should not have been disturbed by the Division Bench. - The increase in geogrid quantity did not constitute a variation under Clause 51.1, and thus, no rate revision was warranted under Clause 52.2. The final determination was to set aside the Division Bench's judgment and restore the arbitral award, allowing the appeal without costs.
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