Scope of Judicial Interference Under Section 37 of the Arbitration Act Limited to Plausibility of Arbitrator’s Interpretation

The Appellant (TML) entered into a Construction Agreement with the Respondent (NIRLAC) in 1995 to build on a plot leased from the President of India

Clause 3.2(a) stipulated 36% interest p.a. on delayed payments

TML completed construction in 1999, but NIRLAC defaulted

To recover costs, TML leased portions of the building to third parties until the property was sealed by the MCD in 2006 for unauthorized subletting

TML issued a demand notice on 20.01.2007 claiming construction costs and 36% interest

In the subsequent two arbitrations, the Arbitrator reduced interest to 7.5% from 2007 (Arbitration I) and rejected maintenance claims (Arbitration II)

A Single Judge set aside the reduction of the interest rate but upheld the date of commencement (2007) and the denial of maintenance penalties

TML appealed under Section 37 of the Arbitration Act

1. Whether the learned Arbitrator and Single Judge erred in reckoning the interest on construction costs from 20.01.2007 instead of the original default dates in 1995-1999

2. Whether the rejection of the claim for interest/penalty at 2% per month on outstanding electricity and maintenance charges was legally sustainable

Section 37 and Section 34 of the Arbitration and Conciliation Act, 1996, which restrict judicial interference to grounds of patent illegality or conflict with public policy

Jan De Nul Dredging India (P) Ltd. v. Tuticorin Port Trust (2026) regarding the "minimum intervention" principle

Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2015), which establishes that an arbitrator’s interpretation of a contract is final unless it is one that no fair-minded person could adopt

Section 74 of the Indian Contract Act, 1872 was applied to differentiate between reasonable compensation and penal interest

Regarding Issue 1, the Court held that the Arbitrator’s interpretation of "three options" for recovery under Clause 3.2 was a plausible reading of the contract

The Court found that until the 2007 notice, TML acted as a "lessee" bearing costs to enjoy the property, rather than a "creditor" demanding payment, evidenced by TML’s own balance sheets which did not list NIRLAC as a debtor

Thus, shifting to the "debt recovery" option only occurred in 2007 after the property was sealed

Regarding Issue 2, the Court analyzed Clause 11 of the Maintenance Agreement, agreeing with the Arbitrator that the 2% monthly charge was a "penalty" under Section 74 of the Contract Act

Since the Arbitrator found no underlying debt for service charges due to prior excess recoveries by TML, the claim for penalty/interest could not survive

The Court affirmed that interest on construction costs is payable from 20.01.2007 (the date of the demand notice) and confirmed the rejection of penal interest on maintenance charges

It held that the scope of Section 37 is narrower than Section 34 and does not permit re-appreciation of evidence or choice between two plausible interpretations

The liberty granted to TML by the Single Judge to seek a fresh reference on the rate of interest remained undisturbed