Full Judgment Text
REPORTABLE
2023INSC742
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2903 OF 2023
(Arising out of S.L.P. (C) No. 5640 of 2023)
KONKAN RAILWAY CORPORATION LIMITED ...APPELLANT(S)
VERSUS
CHENAB BRIDGE PROJECT UNDERTAKING …RESPONDENT(S)
J U D G M E N T
PAMIDIGHANTAM SRI NARASIMHA, J.
1. This appeal arises out of the decision of the Division Bench of the High
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Court of Bombay under Section 37 of the Arbitration and Conciliation Act 1996,
by which the concurrent findings of the Arbitral Tribunal and that of the Single
Judge of the High Court under Section 34 of the Act rejecting all claims were set
aside and certain claims were allowed. This appeal by Konkan Railway
Corporation Limited challenges the legality of the order passed by the Division
Bench of the High Court while exercising jurisdiction under Section 37 of the
Act.
Signature Not Verified
Digitally signed by
Deepak Singh
Date: 2023.08.18
17:18:29 IST
Reason:
1
Hereinafter ‘the Act’.
1
2. The short facts relevant for the purpose of this appeal are as follows: The
Respondent’s tender for construction of a bridge at KM 50/800, on the Katra-
Laole section of Udhampur-Srinagar-Baramulla rail link, said to be the highest
railway bridge in the world, was accepted by the Appellant, leading to the
execution of the contract on 24.11.2004.
3. While the contract was in execution, disputes arose between the parties and
through an agreement dated 28.02.2012, a Standing Arbitral Tribunal was
constituted for resolution of disputes. The respondent raised 35 claims which
were clubbed and classified as twelve disputes. The present proceedings arise out
of the decision of the Arbitral Tribunal deciding three disputes, being Dispute I
(relating to Claim 9), Dispute III (relating to Claims 12, 22 and 28), and Dispute
IV (relating to Claims 13, 23 and 29).
4. The Arbitral Tribunal by its award dated 15.11.2014 considered the three
disputes and rejected all the claims. The Respondent challenged the award under
Section 34 of the Act. The Single Judge of the High Court confirmed the Award
and proceeded to dismiss the challenge under Section 34 of the Act. The decision
of the Single Judge of the High Court was appealed by the Respondent under
Section 37 of the Act, and the Division Bench of the High Court, by the order
impugned herein, partly allowed the appeal in the following manner. The
Division Bench, while dismissing the appeal with respect to Dispute I, allowed
the appeal with respect to the remaining two disputes (Disputes III and IV), and
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thereby set aside the concurrent findings as regards these disputes. As there is no
controversy with respect to Dispute I, we are called upon to examine the legality
of the order with respect to Disputes III and IV.
5. The facts relevant for Dispute III are as follows: The contract in favour of
the Respondent was entered into on 24.11.2004. At that time the Notification of
the Government of Jammu and Kashmir dated 19.12.2003 exempted Entry Tax
on earth-moving instruments. However, during the execution of the contract, on
25.01.2008, the Government of Jammu and Kashmir withdrew the exemption
notification. Consequently, the Respondent raised claims for reimbursement of
Rs. 1,32,29,771/- incurred on account of payment of Entry Tax.
6. In so far as Dispute IV is concerned, it relates to reimbursement of Toll Tax
on machinery and materials. As per the extant policy in Jammu and Kashmir, the
Toll Tax as applicable on the date of the submission of tender, that is 31.05.2004,
was Rs. 400/- per MT. However, through four subsequent notifications issued
under Jammu and Kashmir Levy of Toll Tax Act, 1998, the taxes were
progressively increased to Rs. 650/- per MT. Consequently, the Respondent
raised a claim of Rs. 5,23,279/-, incurred on account of increase in toll tax during
the subsistence of the contract.
7. Claims under Dispute III as well as Dispute IV were to be considered in
terms of the relevant clauses of the contract, which are Clauses 5.1.2, 7.1.1, 7.1.2,
and 11.7. These clauses are extracted hereinbelow for ready reference. Relevant
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part of Clause 5 of Chapter 5, titled ‘Sales Tax, Turn Over Tax/Local Tax, Duties
etc’, is as under:
“Clause 5.1 Sales Tax/Turn Over Tax/Local Tax,
Duties Etc.
...
Clause 5.1.2 Sales Tax including turn over tax on
works contract, octroi, royalty, toll tax, Duties/Levies as
well as services and any other tax levied by central
govt., state govt. or local bodies, as applicable 15 days
prior to the date of opening of tender shall be considered
to be included in the percentage rates quoted by
tenderer/s in the Schedule of Items, Rates & Quantities.
In case of any increase/decrease in the taxes during the
period from 15 days prior to the date of opening of
tender to the completion of the work, the net
increase/decrease for the balance portion of the work
shall be borne/recovered by the Corporation.
The prevailing rate of Works Contract Tax (WCT) in J
& K states to be deducted at source is 4.2% for the
registered firms with state taxation department from
firms not having the registration, the rate is 8.2%.
Clause 5.1.3 Corporation shall deduct the sales
tax/Turn Over Tax or any other tax from the
Contractor’s bill at the rate as applicable as per rules
framed by concerned Govt./Local bodies from time to
time and remit it to concerned department and shall
issue a certificate regarding Tax/levies so deducted on
demand by the contractor.”
7.1. Clauses 7.1.1 and 7.1.2 from Chapter 7, titled ‘Price Variation’, are as
under:
“ Clause 7.1.1 The rates quoted by tenderer and
accepted by the Corporation shall hold good till the
completion of the work and no additional, individual
claim shall be admissible on account of fluctuation in
market rates, increase in taxes/any other levies/tolls etc.
except the payment/recovery for overall market
situation shall be made as per price variation clause
given below.
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Clause 7.1.2 No cognizance shall be given for any
sort of fluctuations in taxes and other market conditions
etc. for any individual item for the purpose of making
adjustments in payments. The contract shall, however,
be governed by the general price variation clause as
under.”
7.2. Clause 11.7, in Chapter 11, titled ‘Schedule of Items, Rates & Quantities -
Bill of Quantities’, is as follows:
“ Clause 11.7 The rates and prices tendered in the
priced Bill of Quantities, shall except in so far as it is
otherwise provided under the contract, include all
construction plant, labour, supervision, materials, all
temporary works, false works, all leads and lifts,
erection, specified finishes, maintenance, establishment
and overhead charges, insurance, profits, foreign
taxation and levies, taxes, royalties and duties together
with all general risks, liabilities and obligations set out
or implied in the contract and including remedy of any
defects during the Defects Liability Period.”
8. The Decision of the Arbitral Tribunal : The Arbitral Tribunal interpreted
the contract and construed Clause 5.1.2 of the contract as limited to taxes that
could be raised by the Respondent-Contractor directly on the Appellant, as
opposed to taxes that formed part of the materials quoted in the ‘Schedule of
Items of Rates - Bill of Quantities’. For this, the Arbitral Tribunal also relied on
Clause 11.7 of the Contract. The Arbitral Tribunal was of the view that Entry
Taxes on earth-moving equipment formed part of the cost of the works quoted in
the Bill of Quantities. For this reason, the Arbitral Tribunal came to the
conclusion that the increased liability on account of imposition of Entry Tax
could not be reimbursed under Clause 5.1.2, as recoupment for the same could
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only be governed by the Price Variation clauses (clause 7.1.1 and 7.1.2 in
Chapter 7).
8.1 Interpreting the Price Variation clauses, the Arbitral Tribunal noted that
the contract only provided for generic price variation based on a standardised
formula. It also found that Clause 7.1.2 specifically barred cognizance of “ any
sort of fluctuations in taxes and other market conditions for any individual item
for the purpose of making adjustments in payments ”. Accordingly, the Arbitral
Tribunal held that the claim for recouping increased tax liability for individual or
specific items, in this case, the imposition of entry tax, could not be reimbursed
under Clauses 7.1.1 and 7.1.2.
8.2 The Tribunal reasoned that the contractor was aware of these conditions at
the time when the prices were quoted, and therefore, the claim could not succeed
under Price Variation clauses.
8.3 As regards the claim for Toll Tax which formed part of Dispute IV, the
Tribunal adopted the same interpretation of the contractual clauses and rejected
the claim.
9. Decision of the High Court under Section 34 of the Act : The Respondent’s
challenge to the Arbitral Award under Section 34 of the Act was considered and
dismissed by the Single Judge of the High Court by its order dated 17.01.2019.
The High Court concluded that there were two possible views with respect to the
construction of relevant clauses of the contract. However, as the Arbitral Tribunal
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adopted one interpretation and since it was a reasonable interpretation, the Single
Judge of the High Court held that there was no justification for exercising
jurisdiction under Section 34 of the Act to interfere with the findings of the
Arbitral Tribunal.
10. Decision of the Division Bench under Section 37 of the Act : The Division
Bench of the High Court, while considering the appeal under Section 37 of the
Act, proceeded to reinterpret the contractual clauses and arrived at a distinct
conclusion. The Division Bench rejected the Arbitral Tribunal’s and the Single
Judge’s interpretation of Clause 5.1.2 of the contract and came to the conclusion
that the said clause will also include indirect taxes such as service tax, GST,
Works Contract Tax, etc. While doing so, the Division Bench applied the
principle of ejusdem generis to include even Entry Tax in Clause 5.1.2. The
Division Bench of the High Court reversed the conclusion of the Arbitral Tribunal
and the Single Judge of the High Court on the ground that they had simply
assumed that the tax liability of items forming part of the Bill of Quantities was
‘inbuilt’ in the quoted costs and that no evidence was supplied to substantiate the
same. The Division Bench also noted that reimbursement on account of increase
in ‘toll taxes’ was specifically provided for in Clause 5.1.2 of the contract, and
hence, claim for the same could not be rejected. In view of its conclusion, the
Division Bench did not find it necessary to refer to Clauses 7.1.1 and 7.1.2
relating to price variation clauses, as the claims were justified under Clause 5.1.2
7
2
itself. Finally, relying on Radha Sundar Dutta v. Mohd Jahadur Rahim & Ors ,
the High Court came to the conclusion that it is a “ well-settled principle that if
there are two constructions possible of a contract, then the one that gives effect
and voice to all clauses will be preferred over the other that renders one of them
otiose or nugatory ”. Adopting this approach, the Division Bench of the High
Court proceeded to hold that the Arbitral Tribunal failed to interpret the
contractual clauses harmoniously and holistically . It finally concluded that the
approach adopted by the Arbitral Tribunal would amount to perversity, and
therefore, found it necessary to set aside the Award, and allow claims covered
under Disputes III and IV.
11. This judgment of the Division Bench of the Hight Court led to the present
civil appeal before us.
12. Submissions on behalf of the Appellant : Mr Shyam Divan, Senior
Advocate, along with Mr Amlaan Kumar, Mr Musharaf Shaikh, Ms Rukhmini
Bobde, Ms Soumya Priyadarshinee, Mr Ankit Ambasta, Mr Amit Kumar
Shrivastava, Advocates, and Mr Vishal Prasad, AOR appeared on behalf of the
Appellants. They submitted that the Division Bench of the High Court exceeded
its limited jurisdiction under Section 37 of the Act by reinterpreting the contract
and substituting its view for the Arbitral Tribunal’s, assuming the role of a court
of appeal. They relied on UHL Power Company Limited v. State of Himachal
2
AIR 1959 SC 24.
8
3
Pradesh and South East Asia Marine Engineering and Constructions Limited v.
4
Oil India Limited for this purpose.
12.1 Next, they submitted that the parties agreed to a lump-sum contract price
payable to the Respondent-Contractor. The Contractor split the agreed prices into
several components and indicated the division in the ‘Schedule of Items and Rates
- Bill of Quantities’, which inhered the cost and effort involved in execution of
the items mentioned therein. There is no indication that the amount incurred in
the execution of the entries therein would be separately reimbursed. They added
that Clause 11.7 of the contract expressly indicates that the prices mentioned in
the Bill of Quantities are inclusive of all costs that are liable to be incurred in the
execution of the contract.
12.2 Further, they also submitted that the Arbitral Tribunal holistically
interpreted Clauses 5.1.2, 7.1.1 and 7.1.2 of the contract to opine that individual
tax claims would not be reimbursed by the Appellant-Corporation. The Arbitral
Tribunal held that Clause 5.1.2 operates in a separate field, i.e., it operates in the
field of taxes directly payable by the Corporation to the Contractor. They further
added that the mention of toll tax and octroi in Clause 5.1.2 is only incidental,
and does not render the recovery of taxes by the Contractor implicit. On the other
hand, the fluctuations in price of entries in the Bill of Quantities (or for
mobilisation of construction material and machinery) was recoverable only as per
3
(2022) 4 SCC 116.
4
(2020) 5 SCC 164.
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the scheme of Price Variation in Clauses 7.1.1 and 7.1.2, which expressly exclude
cognizance of fluctuations in price of individual items.
13. Submissions on behalf of the Respondents : Mr Darius Khambata, Senior
Advocate, along with Mr Aveak Ganguly, Mr Manu Seshadri, Ms Pallavi Anand,
Mr Abhijit Lal, Ms Soumya, Advocates and Mr Mithu Jain, AOR appeared on
behalf of the Contractor-Respondent. They submitted that the High Court rightly
interfered with the findings of the Arbitral Tribunal as it had rewritten the
contract. They submitted that every canon of contractual interpretation provides
for harmonious construction of seemingly contradictory clauses, and constructing
contracts such that no clause is rendered otiose.
13.1 They submitted that undoubtedly, Clauses 5.1.2 and 7.1.1 operate in
separate fields, i.e., Clause 5.1.2 of the Special Conditions of Contract is a special
clause that deals with taxes and provides for reimbursement on account of
increase of taxes by the Corporation. Clauses 7.1.1 and 7.1.2, on the other hand,
prohibit additional and individual claims for price variation, apart from the ones
already mentioned in Clause 5.1.2. By limiting Clause 5.1.2 to the taxes that can
be billed by the Contractor on the Corporation, the Arbitral Tribunal
impermissibly rewrote the terms of the contract. Instead of harmonising the
provisions of the contract, it inserted new terms and contradictions to it.
13.2 The respondents submitted that the Division Bench of the High Court was
well within its jurisdiction under Section 37 of the Act to partially set aside the
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Award. To substantiate their submissions, they relied on Adani Power (Mudra)
5
Limited v. Gujarat Electricity Regulatory Commission and Ors., Radha Sundar
Dutta v. Mohd Jahadur Rahim & Ors . (supra), Satyanarayana Construction
6
Company v. Union of India and Ors. , and Delhi Development Authority v. R.S.
7
Sharma and Company, New Delhi .
14. Analysis: At the outset, we may state that the jurisdiction of the Court under
Section 37 of the Act, as clarified by this Court in MMTC Ltd. v. Vedanta Ltd. , is
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akin to the jurisdiction of the court under Section 34 of the Act. Scope of
interference by a court in an appeal under Section 37 of the Act, in examining an
order, setting aside or refusing to set aside an award, is restricted and subject to
the same grounds as the challenge under Section 34 of the Act.
15. Therefore, the scope of jurisdiction under Section 34 and Section 37 of the
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Act is not akin to normal appellate jurisdiction. It is well-settled that courts ought
not to interfere with the arbitral award in a casual and cavalier manner. The mere
possibility of an alternative view on facts or interpretation of the contract does
10
not entitle courts to reverse the findings of the Arbitral Tribunal. In Dyna
5
(2019) 19 SCC 9.
6
(2011) 15 SCC 101.
7
(2008) 13 SCC 80.
8
(2019) 4 SCC 163: “para 14. As far as interference with an order made under Section 34, as per Section 37, is
concerned, it cannot be disputed that such interference under Section 37 cannot travel beyond the restrictions laid
down under Section 34. In other words, the court cannot undertake an independent assessment of the merits of the
award, and must only ascertain that the exercise of power by the court under Section 34 has not exceeded the
scope of the provision.”
9
UHL Power Company Ltd. v. State of Himachal Pradesh (2022) 2 SCC (Civ) 401, para 15. See also : Dyna
Technologies Pvt Ltd v. Crompton Greaves Limited (2019) 20 SCC 1, para 24, 25.
10
ibid; Ssangyong Engineering. & Construction Company Ltd . v. National Highways Authority of India ( NHAI)
(2019) 15 SCC 131; Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd ., (2019) 7 SCC
236, para 11.1.
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Technologies Private Limited v. Crompton Greaves Limited (2019) 20 SCC 1,
this Court held:
“24. There is no dispute that Section 34 of the
Arbitration Act limits a challenge to an award only on
the grounds provided therein or as interpreted by various
courts. We need to be cognizant of the fact that arbitral
awards should not be interfered with in a casual and
cavalier manner, unless the court comes to a conclusion
that the perversity of the award goes to the root of the
matter without there being a possibility of alternative
interpretation which may sustain the arbitral award.
Section 34 is different in its approach and cannot be
equated with a normal appellate jurisdiction. The
mandate under Section 34 is to respect the finality of the
arbitral award and the party autonomy to get their
dispute adjudicated by an alternative forum as provided
under the law. If the courts were to interfere with the
arbitral award in the usual course on factual aspects,
then the commercial wisdom behind opting for alternate
dispute resolution would stand frustrated.
25. Moreover, umpteen number of judgments of this
Court have categorically held that the courts should not
interfere with an award merely because an alternative
view on facts and interpretation of contract exists. The
courts need to be cautious and should defer to the view
taken by the Arbitral Tribunal even if the reasoning
provided in the award is implied unless such award
portrays perversity unpardonable under Section 34 of
the Arbitration Act.”
16. In the present case, the Arbitral Tribunal interpreted the contractual clauses
and rejected the Respondent’s claims pertaining to Disputes I, III and IV. The
findings were affirmed by the Single Judge of the High Court in a challenge under
Section 34 of the Act, who concluded that the interpretation of the Arbitral
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Tribunal was clearly a possible view, that was reasonable and fair-minded in
approach.
17. It is important to extract the relevant portion of the Award, where the
Tribunal considered and interpreted the contractual clauses pertaining to Disputes
III and IV:
“40. A careful reading of the relevant provisions of the
contract shows that claimant will not be entitled to
reimbursement of Entry Tax paid by it. Clause 5.1.2 of
Special Conditions provides that sales tax or turnover
tax on works contract or other tax on the amount billed
to respondent, levied or increased during the execution
of the work; shall be borne by the respondent. For
example, if the price of goods sold is Rs. 2000/- and at
the time of contract, the goods were not subject to Sales
Tax, but subsequently during the execution of the work,
the State subjected such sale of goods to Sales Tax, at the
rate of 5%, the contractor will be entitled to receive
under clause 5.1.2, the Sales Tax at 5% on the price of
Rs. 2000/-. Similarly, if Works Contract Tax is increased
from the rate of 4.2% prevailing at the time of making
the contract, the contractor will be entitled to the higher
rate, by claiming the difference. Therefore, what clause
5.1.2 deals with is taxes “chargeable” by the contractor
on the bills raised on the respondent. It does not deal
with or provide for reimbursement of increase in taxes
which may indirectly be a component of the price or rate
quoted and which is be governed only by the price
variation clause. This is obviously because when a
contractor quotes a rate for an item of work, such rate
will have various components like material cost, labour
cost, fuel cost, overheads and profits. The contractor
does not indicate the break-up of the various components
that make up the quoted price. Obviously the rates so
quoted, if it involves use of a material, will include the
cost of the material plus any tax paid thereon; and if it
involves use of some machinery/equipment, it will
include the hire charges in respect of the
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machinery/equipment and any taxes thereon. It is clear
from the contract that in regard to such components of a
rate, claimant is not entitled to seek reimbursement of
any increase in price or taxes and all that it will be
entitled to, will be an increase that is permitted in
accordance with the formula in the price variation
clause. The price variation clause only provides for price
variation in a general manner in accordance with a
standardized price variation formula, and not
reimbursement of the actual increases. That is why
clause 11.7 of BoQ provides that the rates/prices shall
include all taxes and clauses 7.1.1 and 7.1.2 clearly
provide that rates quoted by the tenderer and accepted
by the KRCL, shall hold good till the completion of the
work and no additional individual claim shall be
admissible on account of increases in tax or other levies
except for the provision made by way of price variation
clause.
...
43. ... As noticed above, the contract does not
contemplate reimbursement of indirect cost, taxes
incurred by the claimant for executing the work. The
contract contemplates the contractor quoting a price for
executing a work by taking all circumstances into
account and all increase that may take place. The
contractor knew when it quoted, that it is entitled to only
the price quoted and only variation in price as permitted
by the price variation clause. The contract does not
provide for payment or reimbursement of each and every
increase in the price of material or tax thereon, which
may go into the execution of a work.”
(emphasis supplied)
18. The Single Judge of the High Court affirmed the findings of the Arbitral
Tribunal. The reason for upholding the decision of the Tribunal is not that the
Single Judge exercising jurisdiction under Section 34 of the Act is in complete
agreement with the interpretation of the contractual clauses by the Arbitral
Tribunal. The Learned Judge exercising jurisdiction under Section 34 of the Act
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kept in mind the scope of challenge to an Arbitral Award as elucidated by a
number of decisions of this Court. Section 34 jurisdiction will not be exercised
merely because an alternative view on facts and interpretation of contract exists.
In its own words, the conclusion of the Single Judge Bench of the High Court is
as follows:
“10. … The ambiguity does not come from clause 5.1.1,
but from the fact that there are other clauses in the
contract, such as clauses 7.1.1 and 7.1.2. One way to
look at the co-existence of these clauses is to treat
clauses 7.1.1 and 7.1.2 merely as an exclusion for
working out price variation, since it is specifically
provided for in clause 5.1.2. Equally, there is another
way of looking at these three clauses, and that is : clauses
7.1.1 and 7.1.2 make it clear that no increase in tax in
the case of any component forming part of BoQ rates,
which was considered by the contractor for quoting his
rates for any particular item, should be allowed to the
contractor; it is only when particular taxes were actually
to be paid on the deliveries of the contractor, these would
be included for reimbursement by the employer under
clause 5.1.2. The arbitrator adopted the latter view. It
cannot be said either that it is an unreasonable view or
a view which is either impossible or which no fair and
judiciously minded person would have taken. The award
on this dispute, thus, does not merit any interference
under Section 34 of the Act, having regard to the law
stated by the Supreme Court in the case of Associate
Builders (supra).”
19. In appeal under Section 37 of the Act, the Division Bench of the High
Court took a different position. It opined that the construction of the clauses by
the Arbitral Tribunal was not even a possible view, and observed as follows:
“30. ... What is more appropriate is the well-settled
principle that if there are two constructions possible of a
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contract, then the one that gives effect and voice to all
clauses will be preferred over the other that renders one
of them otiose or nugatory [Radha Sundar Dutta v Mohd
Jahadur Rahim & Ors, AIR 1959 SC 24]. There is some
law to suggest that if an Award does not construe the
contract as a whole then it is not a possible view and it
is perverse [South East Asia Marine Engineering and
Constructions Ltd v Oil India Ltd, (2020) 5 SCC 164;
Patel Engineering Ltd v North Eastern Electric Power
Corporation Ltd, (2020) 7 SCC 167]. As regards the
dispute for reimbursement on account of toll tax effected
by the Government of Jammu and Kashmir through
various Notifications, Chenab Bridge’s case stands on
an even stronger footing. This is because toll tax is
specifically mentioned in Clause 5.1.2 and the arbitral
view amounts to an entire deletion of those two words.
This is clearly impermissible.”
20. The principle of interpretation of contracts adopted by the Division Bench
of the High Court that when two constructions are possible, then courts must
prefer the one which gives effect and voice to all clauses, does not have absolute
application. The said interpretation is subject to the jurisdiction which a court is
called upon to exercise. While exercising jurisdiction under Section 37 of the Act,
the Court is concerned about the jurisdiction that the Section 34 Court exercised
while considering the challenge to the Arbitral Award. The jurisdiction under
Section 34 of the Act is exercised only to see if the Arbitral Tribunal’s view is
perverse or manifestly arbitrary. Accordingly, the question of reinterpreting the
contract on an alternative view does not arise. If this is the principle applicable to
exercise of jurisdiction under Section 34 of the Act, a Division Bench exercising
jurisdiction under Section 37 of the Act cannot reverse an Award, much less the
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decision of a Single Judge, on the ground that they have not given effect and voice
to all clauses of the contract. This is where the Division Bench of the High Court
committed an error, in re-interpreting a contractual clause while exercising
jurisdiction under Section 37 of the Act. In any event, the decision in Radha
Sundar Dutta (supra), relied on by the High Court was decided in 1959, and it
pertains to proceedings arising under the Village Chaukidari Act, 1870 and
Bengal Patni Taluks Regulation of 1819. Reliance on this judgment particularly
for interfering with the concurrent interpretations of the contractual clause by the
Arbitral Tribunal and Single Judge under Section 34 of the Act is not justified.
21. As far as the decisions in South East Asia Marine Engineering and
Constructions Limited (supra) and Patel Engineering Limited v. North Eastern
11
Electric Power Corporation Limited are concerned, in both the cases, this Court
affirmed the interference by a court exercising jurisdiction under Section 37 of
the Act, with the concurrent findings of the Arbitral Tribunal as well as the court
under Section 34 of the Act, for good and valid reasons. In South East Asia
Marine Engineering and Constructions Limited (supra), the Section 37 Court
interfered with the Award as the Arbitral Tribunal allowed the claim for price
escalation for High-Speed Diesel under the ‘Change in Law’ clause, by
construing the circular increasing the HSD price as having “force of law”. The
‘Change in Law’ clause therein provided for reimbursement of any additional
11
(2020) 7 SCC 167.
17
costs on account of “change in or enactment of any law or interpretation of
existing law”. The High Court, exercising jurisdiction under Section 37 of the
Act, and this Court, found that the Arbitral Tribunal incorrectly construed the
‘Change in Law’ clause as akin to a force majeure clause and allowed the claims.
This was held to not be a possible interpretation of the contract and hence, the
Award was set aside. Similarly, in Patel Engineering Ltd. (supra), the Arbitral
Award was found to be based on irrelevant facts and the outcome was found to
result in unjust enrichment, the latter being in violation of public policy of India
under Section 34(2) of the Act. Therefore, in both these cases, this Court was
convinced that the view of the Arbitral Tribunal was not even a possible view,
and hence, perverse in nature.
22. In the present case, we have examined the appreciation of evidence by the
Arbitral Tribunal as well as the Single Judge of the High Court. We are convinced
that their appreciation of the facts and interpretation of the contract is reasonable,
and comprises a possible view. Keeping in mind the mandate of Section 5 of the
12
Act 1996, we note the observation of this Court in Vidya Drolia and Ors. v.
13
Durga Trading Corporation :
“ Arbitration is a private dispute resolution mechanism
whereby two or more parties agree to resolve their
current or future disputes by an Arbitral Tribunal, as an
alternative to adjudication by the courts or a public
12
Arbitration and Conciliation Act, 1996, section 5:
“ 5. Extent of judicial intervention .—Notwithstanding anything contained in any other law for the time
being in force, in matters governed by this Part, no judicial authority shall intervene except where so
provided in this Part.”
13
(2021) 2 SCC 1, para 18.
18
forum established by law. Parties by mutual agreement
forgo their right in law to have their disputes adjudicated
in the courts/public forum. Arbitration agreement gives
contractual authority to the Arbitral Tribunal to
adjudicate the disputes and bind the parties .”
23. The conclusion of the Division Bench of the High Court that the Award is
liable to be set aside on the ground of perversity is incorrect, as it overlooks the
14
principle laid down in Associate Builders v. Delhi Development Authority ,
where this Court held:
“32. A good working test of perversity is contained in
two judgments. In Excise and Taxation Officer-cum-
Assessing Authority v. Gopi Nath & Sons [1992 Supp
(2) SCC 312] , it was held: (SCC p. 317, para 7)
“7. … It is, no doubt, true that if a finding of fact is
arrived at by ignoring or excluding relevant material
or by taking into consideration irrelevant material or
if the finding so outrageously defies logic as to suffer
from the vice of irrationality incurring the blame of
being perverse, then, the finding is rendered infirm in
law.”
In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC
10 : 1999 SCC (L&S) 429] , it was held: (SCC p. 14,
para 10)
“10. A broad distinction has, therefore, to be
maintained between the decisions which are
perverse and those which are not. If a
decision is arrived at on no evidence or
evidence which is thoroughly unreliable and
no reasonable person would act upon it, the
order would be perverse. But if there is some
evidence on record which is acceptable and
which could be relied upon, howsoever
compendious it may be, the conclusions
would not be treated as perverse and the
findings would not be interfered with.
14
(2015) 3 SCC 49.
19
33. It must clearly be understood that when a court is
applying the “public policy” test to an arbitration
award, it does not act as a court of appeal and
consequently errors of fact cannot be corrected. A
possible view by the arbitrator on facts has
necessarily to pass muster as the arbitrator is the
ultimate master of the quantity and quality of
evidence to be relied upon when he delivers his
arbitral award. Thus an award based on little
evidence or on evidence which does not measure up
in quality to a trained legal mind would not be held
to be invalid on this score.”
(emphasis supplied)
24. Having considered the matter in detail, we are of the opinion that the
Division Bench of the High Court committed an error in setting aside the
concurrent findings of the Arbitral Tribunal and the Single Judge of the High
Court. The Award of the Arbitral Tribunal and the decision of the Single Judge
of the High Court under Section 34 of the Act cannot be termed as perverse or
patently illegal as concluded by the Division Bench of the High Court. The
decision of the Arbitral Tribunal is a plausible view, and the Single Judge
refrained from interfering with it under Section 34 of the Act. We are of the
opinion that the Division Bench should not have interfered with these orders.
25. For the reasons stated above, we allow Civil Appeal No. 2903 of 2023 and
set aside the judgment of the Division Bench of the High Court of Judicature at
Bombay in Appeal No. 458 of 2019 dated 23.09.2022, and restore the judgment
20
and order of the Single Judge in Arbitration Petition No. 546 of 2015 dated
17.01.2019. No order as to costs.
……..……………………………….CJI.
[Dr Dhananjaya Y Chandrachud]
……………….………………………….J.
[Pamidighantam Sri Narasimha]
……………….………………………….J.
[J.B. Pardiwala]
New Delhi;
August 17, 2023
21