In CIVIL APPEAL NO. 8067 OF 2019-SC- Court supplanting its view in place of Arbitrator is completely de-hors the jurisdiction u/s 34 of the Arbitration & Conciliation Act, holds Apex Court
Justices Abhay S. Oka & Sanjay Karol [04-01-2024]

Read Order: S.V. SAMUDRAM v. STATEOF KARNATAKA & ANR

Tulip Kanth

New Delhi, January 5, 2023 :In the absence of compliance with the well laid out parameters and contours of both Section 34 and Section 37 of the Arbitration & Conciliation Act, the Supreme Court has set aside a Karnataka High Court order while restoring the Arbitrator’s award.

Facts of the case suggested that the Claimant-Appellant, S.V. Samudram, a registered Class II Civil Engineering Contractor, had secured a contract from the Karnataka State Public Works Department to construct the office and residence of the Chief Conservator of Forests at Sirsi for an amount of Rs 14.86 lakh.The said contract was entered into between the parties on 29^th January, 1990 with the stipulation that the possession of the construction site would be handed over to the Claimant-Appellant on 8^th March, 1990 and the work allotted was to be completed on or before 6^th May 1992 i.e., 18 months from the date of the agreement excluding the monsoon season.

The work as allotted could not be completed by the Claimant-Appellant, for which, he held the authorities of the State responsible as they allegedly did not clear his bills, repeatedly at every stage and also due to delays caused by change of site and in delivery of material for such construction.For settlement and adjudication of disputes, the parties to the contract resorted to the arbitral mechanism and resultantly, in Arbitration Petition, Mr. S.K Angadi, Chief Engineer (Retd.) stood appointed as the Arbitrator.

The appellants approached the Top Court challenging a judgment of the High Court of Karnataka (Dharwad Bench) under Section 37(1) of the Arbitration and Conciliation Act, 1996.

The issue before the Division Bench of Justice Abhay S. Oka and Justice Sanjay Karol was whether the High Court was justified in confirming the order under Section 34 of the Arbitration & Conciliation Act, 1996 passed by the Senior Civil Judgewhereby the award passed by the Arbitrator was modified and the amount awarded was reduced.

The Bench noted that the position as to whether an arbitral award can be modified in the proceedings initiated under Sections 34/37 of the A&C Act is no longer res integra. Reference was made to National Highways Authority of India v. M. Hakeen and Another[LQ/SC/2021/2866] wherein it was categorically held that any court under Section 34 would have no jurisdiction to modify the arbitral award, which at best, given the same to be in conflict with the grounds specified under Section 34 would be wholly unsustainable in law. The Court observed that any attempt to modify an award under Section 34 would amount to crossing the Lakshman Rekha.

Furthermore, referring to Dyna Technologies Private Limited v. Crompton Greaves Limited [LQ/SC/2019/1917]; Konkan Railway Corpn. Ltd. v. Chenab Bridge Project [LQ/SC/2023/868];  Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Limited [LQ/SC/2021/3001] to reiterate certain principles such as award passed by a technical expert is not meant to be scrutinised in the same manner as is the one prepared by a legally trained mind. It was observed therein that if the view taken by the Arbitrator is a plausible view, no interference on the specified grounds is warranted.

The Bench took note of the fact that it was dealing with an award passed on 18^th February, 2003, prior to the amendment brought in Section 34 by virtue of the Arbitration and Conciliation (Amendment) Act, 2015. “…prior to the Amending Act, it was open for the Court to examine the award as to whether it was in conflict with, (a) public policy of India; (b) induced or affected by fraud; (c) corruption; and (d) any violation of the provisions of Section 75 and 81 of the A&C Act”, it said.

In the instant case, the only provision under which the award could have been assailed was for it to have been in conflict with the public policy of India. This concept, the Bench noted has been elaborately considered by this Court in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India [LQ/SC/2019/858]; Associate Builders v. DDA [LQ/SC/2014/1247]. It had been observed in these cases that insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law.

The Bench was of the opinion that the view taken by the Arbitrator, in the present matter, was a plausible view and could not have been substituted for its own by the Court.The reasons assigned by the Court under Section 34 of the A &C Act, were totally extraneous to the controversy, to the lis between the parties and not borne out from the record.

It was also observed that in awarding an amount of 25% of the tender amount in favour of the Claimant-Appellant, the Court had ipso facto accepted that the Claimant-Appellant had not breached the terms of the contract. In fact, the Court appeared to have accepted the Claimant’s contention of delay in handing over the site drawings and supply of materials. The Court while noticing the change in the drawings, resorted to, a misadventure by observing that the changes in the drawings were only minor in the dimension of beam which as we find the Court have contradicted itself by recording the same to have been noticed as essential in the execution of the contract.

“The Court, in our considered view had no business to state that the Claimant is claiming the amount is from the pocket of the concerned engineer or his property”, the Bench said while further commenting, “For it is no business of the Court to consider the burden on the exchequer. All that is required by the Court is to see as to whether the contracting parties have agreed to bind themselves to the terms with the only supervisory jurisdiction of the Court to consider breach thereof, in the light of the grounds specified under Section 34.”

The Bench made it very clear that the court could have at best set aside the award and could not modify the same. It was observed that the question of idleness of the labour did not arise if there was another building to be constructed, and therefore, such claim cannot be paid. This, as per the Top Court, was a clear instance of the court supplanting its view in place of the Arbitrator, which is not a permissible exercise, and is completely de-hors to the jurisdiction under Section 34.
 

In the considered opinion of the Bench, the court while confirming the modification of the award committed the very same mistake which the Court under Section 34 of the A&C Act, made.

The Court under Section 37 had only three options of confirming the award of the Arbitrator; setting aside the award as modified under Section 34 and rejecting the application(s) under Section 34 and 37. Referring to J.G Engineers (P) Ltd. v. UOI [LQ/SC/2011/640]wherein it has been held that the award passed by the Arbitrator is patently illegal, unreasonable, contrary to public policy, the Bench opined that therewas no reason forthcoming as to how the holding of the Arbitrator flies in the face of public policy.

Thus, allowing the appeal, the Bench also awarded interest at the rate of 9 % p.a. from the date of award pendente lite and future, till date of payment.