2014 (11) TMI 1114 - SC - Indian Laws

Arbitration award - Held that - Division Bench has interfered wrongly with the arbitral award on several counts. It had no business to enter into a pure question of fact to set aside the Arbitrator for having applied a formula of 20 months instead of 25 months. Though this would inure in favour of the appellant, it is clear that the appellant did not file any cross objection on this score. Also, it is extremely curious that the Division Bench found that an adjustment would have to be made with claims awarded under claims 2, 3 and 4 which are entirely separate and independent claims and have nothing to do with claims 12 and 13. The formula then applied by the Division Bench was that it would itself do rough and ready justice . We are at a complete loss to understand how this can be done by any court under the jurisdiction exercised under Section 34 of the Arbitration Act. As has been held above, the expression justice when it comes to setting aside an award under the public policy ground can only mean that an award shocks the conscience of the court. It cannot possibly include what the court thinks is unjust on the facts of a case for which it then seeks to substitute its view for the Arbitrator s view and does what it considers to be justice . With great respect to the Division Bench, the whole approach to setting aside arbitral awards is incorrect. The Division Bench has lost sight of the fact that it is not a first appellate court and cannot interfere with errors of fact. An argument was made before the learned Single Judge that there has been a duplication of claims awarded The Single Judge is clearly right. We have gone through all the 15 claims supplied to us and we find that none of these claims are in fact overlapping. They are all contained under separate heads. This argument, therefore, must also fail. The appeal is, therefore, allowed and the judgment of the Division Bench is set aside. The judgment of the Single Judge is upheld and consequently, the Arbitral award dated 23rd May, 2005 is as a whole upheld

Issues Involved:
1. Claims 9, 10, 11, and 15.
2. Claims 12 and 13.
3. Claims 2, 3, and 4.
4. Application of Hudson's formula.
5. Jurisdictional errors by the Division Bench.
6. Application of Clause 10C and Clause 22.
7. Duplication of claims.

Detailed Analysis:

1. Claims 9, 10, 11, and 15:
The Arbitrator awarded these claims based on the delay caused by the DDA, which prolonged the contract by 25 months. The Arbitrator found that the delay was attributable to the DDA due to various reasons such as delay in supply of drawings, materials, and other hindrances. The Division Bench set aside these claims, arguing that there was no evidence to support the claims for hire charges and establishment expenses. However, the Supreme Court found that the Division Bench exceeded its jurisdiction by interfering with the Arbitrator's findings of fact, which were based on evidence. The Supreme Court reinstated the Arbitrator's award for these claims.

2. Claims 12 and 13:
The Arbitrator awarded damages for the increased cost of materials and labor due to the delay. The Division Bench scaled down these claims, arguing that the Arbitrator should have considered the entire period of delay and adjusted the amounts awarded under other claims. The Supreme Court found that the Division Bench's approach was incorrect and that it had no jurisdiction to interfere with the Arbitrator's findings on these claims. The Supreme Court reinstated the Arbitrator's award for these claims.

3. Claims 2, 3, and 4:
These claims were awarded under Clause 10C of the agreement, which deals with the increase in the cost of materials and labor due to statutory changes. The Division Bench did not challenge these claims, and the Supreme Court upheld the Arbitrator's award for these claims.

4. Application of Hudson's Formula:
The Arbitrator applied Hudson's formula to calculate the overhead expenses and loss of profit due to the delay. The Division Bench found fault with the application of this formula, arguing that it should not be applied mechanically. The Supreme Court held that the application of Hudson's formula was within the Arbitrator's jurisdiction and that the Division Bench had no authority to interfere with it.

5. Jurisdictional Errors by the Division Bench:
The Supreme Court found that the Division Bench exceeded its jurisdiction by interfering with the Arbitrator's findings of fact and applying its own views on the evidence. The Division Bench acted as if it were a first appellate court, which is not permissible under Section 34 of the Arbitration Act. The Supreme Court emphasized that the Arbitrator is the sole judge of the quality and quantity of evidence, and the courts should not interfere with the Arbitrator's findings unless there is a patent illegality or a violation of public policy.

6. Application of Clause 10C and Clause 22:
The Division Bench argued that Clause 10C and Clause 22 should apply to the claims. The Supreme Court found that Clause 10C deals with the increase in the cost of materials and labor due to statutory changes and was correctly applied by the Arbitrator to Claims 2, 3, and 4. Clause 22, which deals with compensation for delays, was not applicable to the claims in question as the delay was caused by the DDA. The Supreme Court upheld the Arbitrator's interpretation and application of these clauses.

7. Duplication of Claims:
The Division Bench argued that there was a duplication of claims awarded by the Arbitrator. The Supreme Court found that each claim was awarded under separate heads and there was no overlap. The Arbitrator had considered the claims separately and provided reasons for each award. The Supreme Court upheld the Arbitrator's award, finding no duplication of claims.

Conclusion:
The Supreme Court allowed the appeal, set aside the judgment of the Division Bench, upheld the judgment of the Single Judge, and consequently upheld the Arbitral award dated 23rd May 2005 in its entirety. The Supreme Court emphasized the limited scope of judicial intervention under Section 34 of the Arbitration Act and reiterated that the Arbitrator is the sole judge of the quality and quantity of evidence.

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