Once interpretation of relevant clauses of Implementation Agreement, as arrived at by Sole Arbitrator are both possible & plausible, then arbitral award calls for no interference: SC

Read Judgment: Uhl Power Company Ltd. V. State of Himachal Pradesh

Pankaj Bajpai

New Delhi, January 10, 2022: The Supreme Court has opined that the jurisdiction conferred on Courts u/s 34 of the Arbitration and Conciliation Act, 1996 is fairly narrow, when it comes to the scope of an appeal u/s 37 of the Arbitration Act. 

The jurisdiction of an Appellate Court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed, added the Court. 

A Larger Bench of Chief Justice N.V. Ramana, Justice Hima Kohli and Justice A.S. Bopanna observed that when the interpretation of the relevant clauses of the Implementation Agreement, as arrived at by the Sole Arbitrator, are both, possible and plausible, then Single Judge of the High Court should not have interfered with the arbitral award merely because another view could have been taken. 

Going by the background of the case, the Sole Arbitrator had awarded a sum of Rs. 26,08,89,107 in favour of UHL (Appellant) towards expenses claimed along with pre-claim interest capitalized annually, on the expenses so incurred. Further, compound interest was awarded in favour of UHL @ 9% per annum till the date of claim and in the event the awarded amount was not realized within a period of six months from the date of making the award, future interest was awarded @ 18% per annum on the principal claim with interest.

Dissatisfied with the award, when the State of H.P. (Respondent) filed a petition u/s 34 of the Arbitration Act, the Single Judge disallowed the entire claim of UHL. On appeal, the Division Bench of the High Court awarded a sum of Rs. 9,10,26,558.74 in favour of UHL, being the actual principal amount along with simple interest @ 6% per annum from the date of filing of the claim, till the date of realization of the awarded amount. The Division Bench further held that in the absence of any provision for interest upon interest in the contract, the Arbitral Tribunals do not have the power to award interest upon interest, or compound interest, either for the pre-award period or for the post-award period.

The counsel for the State canvassed that the Appellate Court as also the Arbitral Tribunal had committed a grave error in arriving at the conclusion that the Implementation Agreement was prematurely terminated by the State much before the expiry of the prescribed period.

After considering the submissions, the Apex Court noted that the very fact that the State admits to having executed the MoU with UHL on February 10, 1992 and the said MoU had been mentioned as “Appendix A” in the second recital of the Implementation Agreement, itself demolished the plea taken by the State that the Arbitral Tribunal and the Appellate Court had erred in returning a finding that the said MoU did not merge into the Implementation Agreement dated August 22, 1997.

The Apex Court therefore endorsed the view that the disputes that were referable to arbitration under the Implementation Agreement, were to include disputes arising under the MoU, even though the latter document did contain a separate arbitration clause. 

The Larger Bench opined that when the parties to the Implementation Agreement were ad idem that the period of one year available to UHL to commence the construction activity was to be reckoned after the major requirements prescribed under a Clause of the Agreement could be obtained, then any argument sought to be advanced to segregate the obligations under different subheads of such Clause only to lay the blame at the door of UHL when the requisite clearances were to be obtained by the State Government from the Central Government and Centralized Authorities, was devoid of merits. 

In the instant case, the State of H.P. had terminated the Implementation Agreement five months prior to the stipulated period by adopting a distorted interpretation of Clause 4 of the Implementation Agreement, which was impermissible, added the Top Court.

Hence, the Larger Bench concluded that the Appellate Court had rightly held that the Single Judge exceeded his jurisdiction in interfering with the award by questioning the interpretation given to the relevant clauses of the Implementation Agreement, as the reasons given were backed by logic.