India: Arbitration Law: Supreme Court Reaffirms Minimal Judicial Interference Under The Arbitration Act, 1940.

Background

In an interesting decision¹, the Supreme Court of India ("Supreme Court") reaffirmed the principle of judicial non-intervention over arbitral awards passed even under the Arbitration Act, 1940 ("Act").

Facts

National Thermal Power Corporation Limited ("NTPC") ("Appellant") issued two tenders for construction of certain quarters, which were subsequently awarded to Deconar Services Private Limited ("Deconar").

There was delay in handing over of the construction sites by NTPC, which resultantly delayed completion of both projects. Deconar invoked arbitration and referred the matter to a sole arbitrator. The sole arbitrator subsequently passed two awards dated 7 July 2000 in favor of Deconar ("Awards"). NTPC filed objections against both awards before the Delhi High Court ("High Court") under Sections 30 and 33 of the Act, which were dismissed (except for a modification of the interest rate granted by the sole arbitrator). A division bench of the High Court dismissed NTPC's appeal and accordingly, NTPC approached the Supreme Court by way of a special leave petition under Article 136 of the Constitution of India, 1950.

Arguments

Before the Supreme Court, NTPC renewed its challenge against the Awards on various technical and factual findings made by the sole arbitrator, challenging the rationale in awarding work escalation charges beyond the scheduled period since the underlying contracts expressly provided otherwise.

On the other hand, Deconar argued that the appeal was yet another tactic to prolong the litigation and that it was settled law that courts ought not to sit in appeal over arbitral awards so long as the arbitrator had taken a reasonable view.

Judgment

The Supreme Court reiterated the principle of minimal judicial interference to be one of the underlying principles to interpretation of the provisions of the Act. The Supreme Court also held that courts should not sit in appeal over arbitral awards and the scope for interference under Sections 30 and 33 of the Act was minimal. The Supreme Court also reiterated the view that courts should not re-appreciate evidence or examine the sufficiency of the evidence already examined by arbitrators².

The Supreme Court emphasized that if an arbitrator has taken one view, although a different view may be possible on the same evidence, the courts should not interfere with the same³ and that 'error apparent on the face of the record⁴' does not by itself, justify a scrutiny of the merits of documents and materials on record.

The Supreme Court also reiterated that to succeed, a party must show that the award of the arbitrator suffered from a perversity or an error of law or that the arbitrator was guilty of misconduct⁵.

Applying the above principles to the present case, the Supreme Court held that the findings and reasoning of the Awards did not merit any interference from the courts under Sections 30 and 33 of the Act. The Supreme Court rejected each of the grounds raised by NTPC against the Awards and held that the Awards were well reasoned and did not warrant any interference.

The Supreme Court observed that the sole arbitrator had decided the matter on the basis of evidence on record and the submissions placed by parties and thereafter, clearly held the delay to be attributable to NTPC. In doing so, the Supreme Court distinguished the judgments⁶ relied upon by NTPC where courts had rejected claims for escalation of prices due to the delay. The Supreme Court observed that no general principle could be evolved as to whether a claim should be granted and each case must be evaluated on its own facts and circumstances.

Conclusion

The Supreme Court's decision is an important reaffirmation of minimal judicial interference and preservation of the sanctity of the arbitration process and arbitral awards.

Footnotes

1 NTPC v Decona Services Pvt Ltd. [Civil Appeal No. 6484 of 2014 decided on 4 March 2021]

2 (2009) 5 SCC 142

3 (1999) 9 SCC 449

4 (1999) 9 SCC 449

5 (2003) 7 SCC 396, (2010) 1 SCC 409, (2018) 16 SCC 219

6 (1997) 11 SCC 75, (2000) 3 SCC 27, (2002) 4 SCC 45

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