Courts cannot set aside arbitral awards by substituting contractual interpretations or reappreciating evidence.

Otsuka Chemical established a chemical manufacturing plant and engaged Trans Engineers for expansion under the “Lion Project.”

Trans Engineers was initially engaged for consultancy services, including preparation of Piping and Instrumentation Diagrams (P&IDs).

The parties subsequently entered into a turnkey arrangement for manufacture, supply, erection and commissioning of equipment, piping, instrumentation and electrical material for a lump-sum consideration of ₹71 crores.

Trans Engineers claimed ₹28,37,09,384 towards additional work allegedly executed pursuant to revisions in the P&IDs and issued 26 pro forma invoices after completion of the project.

The learned Sole Arbitrator rejected both the claims and counter-claims and passed a “NIL” award, holding, inter alia, that the claimant had failed to prove major additional work, written instructions, mutually agreed rates and compliance with the contractual variation procedure.

Trans Engineers challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

The learned Single Judge set aside the award, holding that the Arbitrator had misconstrued the contractual framework by treating the P&IDs dated 20.08.2016 as relevant and had failed to appreciate that variations from the P&IDs dated 26.07.2016 could attract additional payment.

Otsuka appealed under Section 37 of the Act.

Whether the learned Single Judge exceeded the limited jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 by substituting its interpretation of the contract and re-appreciating the evidence instead of determining whether the arbitral award was perverse or patently illegal?

Whether the Arbitrator’s interpretation of the contractual documents, including the offer dated 30.08.2016, the P&IDs dated 20.08.2016 and the purchase orders dated 16.09.2016, was a possible and plausible interpretation warranting deference under Section 34?

Whether the Arbitrator’s rejection of Trans Engineers’ claim for additional work, on the grounds of failure to prove major or substantial work, written instructions, variation orders, mutually agreed rates and supporting evidence, was perverse or patently illegal?

The Court applied Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

Under Section 34, an arbitral award may be set aside only on the statutory grounds, including conflict with the fundamental policy of Indian law under Section 34(2)(b)(ii) or patent illegality appearing on the face of the award under Section 34(2A); the Court cannot review the merits or set aside an award merely for erroneous application of law or re-appreciation of evidence.

The Arbitrator is the final authority on contractual interpretation and factual findings, and judicial interference is justified only where the interpretation is perverse, wholly irrational or not a possible view.

Relying on OPG Power Generation Pvt. Ltd. v. Enexio Power Cooling Solutions India Pvt. Ltd. , Associate Builders v. DDA , Ssangyong Engineering & Construction Co. Ltd. v. NHAI , Patel Engineering Ltd. v. North Eastern Electric Power Corporation Ltd. , Reliance Infrastructure Ltd. v. State of Goa and Jan De Nul Dredging India Pvt. Ltd. v. Tuticorin Port Trust , the Court reiterated that Section 37 jurisdiction is co-extensive with, and even more restricted than, Section 34 jurisdiction; an appellate court cannot act as a court of ordinary appeal or re-appreciate evidence.

Under Clauses 12.1 and 12.2 read with Schedule 5 of the Agreement, additional work beyond the contractual scope was subject to written instructions, variation procedure and mutually agreed rates.

The Court held that the Arbitrator’s conclusion—that the turnkey contract was not confined exclusively to the P&IDs dated 26.07.2016 and that the offer dated 30.08.2016 and P&IDs dated 20.08.2016 were relevant contractual materials—was based on the offer, purchase orders, witness testimony and the parties’ conduct, and was therefore at least a possible view.

The Single Judge had instead adopted what he considered to be the preferable interpretation of the Minutes of Meeting and purchase orders, thereby effectively rewriting the contractual framework and re-assessing the evidence, which was impermissible under Section 34.

The Arbitrator also found that Trans Engineers had not established entitlement to additional payment because it had not proved a qualifying variation, written instructions, a variation order, mutually agreed rates, contemporaneous invoices, the cost incurred or “as-built” drawings demonstrating work beyond the agreed scope.

The High Court held that these were factual and evidentiary determinations within the Arbitrator’s domain.

The Single Judge’s reliance on the appellant’s alleged failure to deny the additional work, its silence in response to an email, and a “without prejudice” settlement offer amounted to re-appreciation of evidence and did not demonstrate perversity or patent illegality.

A settlement offer could not, by itself, discharge the claimant’s burden of proving contractual entitlement and quantification.

The Arbitrator’s interpretation and rejection of the additional-work claim were neither perverse nor patently illegal.

The appeal was accordingly allowed; the Single Judge’s judgment setting aside the arbitral award was set aside, thereby restoring the Arbitrator’s “NIL” award.

The parties were directed to bear their own costs.