In FAO 212 of 2010- DEL HC- Court supplanting its own views on the view formed by the Arbitral Tribunal amounts to transcending jurisdiction, says Delhi High Court
Justice Manoj Kumar Ohri [25-05-2023]

Read More: Mahesh Construction v Municipal Corporation of Delhi

Simran Singh

New Delhi, May 29, 2023: The Delhi High Court, while exercising its appellate jurisdiction, upheld the award passed by the Arbitral Tribunal and set aside the order passed by the Trial Court and stated that the Courts hearing objections under Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) were not required to judge the arbitral award as if it were sitting in appeal. "However, out of judicial habit the Courts tend to act like appellate courts and blur the distinction between the two very distinct jurisdictions.” The High Court stated that the Courts exceed its jurisdiction by supplanting its own view on the view formed by the Arbitral Tribunal, which was not permissible.

Factual Matrix

In the matter at hand, the appellant challenged the judgment dated 04.07.2009 passed by Additional District Judge, Tis Hazari vide which objections filed by respondent under Section 34 of the Arbitration Act were upheld and the Arbitral Award dated 21.07.2007 was set aside.

In the year 2000, the respondent floated tenders for de-silting of certain Nallas i.e., drains in the West Zone, Delhi. The appellant, a Contractor, participated in the said tender and was awarded the work vide two work orders. The time period for completion of work was one month and two months respectively. It was alleged that despite the work being completed, the payments were not released.

The respondent contended that the claim was time barred and the appellant did not provide with the dumping receipts, photographs, videography to prove that the silt was dumped at the designated dumping site after its removal from the drain, proof of which was required to be submitted by the appellant and in the absence of the same, it could not be claimed that the work was satisfactorily completed.

Legal Trajectory

The Arbitral Tribunal had rejected the objection on limitation in favour of the appellant and held that no notice for final bill was ever given to the appellant by the respondent. Further the Tribunal had allowed the claim on merits, in favour of the appellant and awarded interest on the sums claimed for pre-reference, pendente-lite, and future stating that the appellant had dumped the silt at the sites other than the sites designated in the work order, on the instructions of respondents. It took note of the instructions mentioned in the Measurement Book and held that there was no breach of contract by the appellant thus, the appellant was entitled to be paid as per the actual lead and not the pre-fixed lead of 10-20 kms for the designated dumping sites.

Aggrieved by the same, the respondent filed objections under Section 34 of the Arbitration Act re-agitating the plea of limitation and contending that the appellant had failed to prove compliance of the contract whereby it was obliged to dump the silt at the sites designated in the contract. In absence of the same the contractual obligation remained unfulfilled and hence bills were not cleared. The respondent also challenged the interest awarded by the Tribunal.

The Trial Court did not concur with the finding of the Arbitral Tribunal and vide impugned order, while rejecting the plea of limitation, set aside the award by observing that in absence of SLF receipts, which would have proved dumping of silt at the designated sites, the appellant failed to show completion of work as per the Contract. It held that the appellant failed to show that the instructions issued by the field staff that the contractual condition of dumping at the designated site was waived off and was directed to dump at new sites since they were closer to the location. Accordingly the Court found the appellant wanting compliance with the contract for the said reason.

Court Analysis

The Bench stated that it was a settled position of law that the Court hearing objections under Section 34 of the Arbitration Act was not required to judge the arbitral award as if it were sitting in appeal. "However, out of judicial habit the Courts tend to act like appellate courts and blur the distinction between the two very distinct jurisdictions.” It was stated that the Courts exceed its jurisdiction by supplanting its own view on the view formed by the Arbitral Tribunal, which was not permissible.

It was stated that the view formed by Arbitral Tribunal was a plausible view and did not appear to be manifestly perverse to call for interference. The Arbitral Tribunal was of the view that dumping of silt in the sites other than designated sites was not a breach of contract in view of specific instructions received from the field staff.  “MB was filed as evidence of silting work executed by the Contractor. Arbitral Tribunal relied upon this piece of evidence and was satisfied about its sufficiency. In Associate Builders v. Delhi Development Authority, it has been laid down that Arbitral Tribunal is the master of both quality and quantity of evidence to reach a finding of fact. In view of this legal position, it was not proper for the Court below to discount evidentiary value of the MBs by calling it secondary evidence.”

The Bench stated that an arbitral award, which was based on no material or evidence at all could be vitiated by patent illegality but insufficiency of evidence or material could not be a ground for setting aside an arbitral award. Pertinently, respondent’s own witnesses; Executive Engineer admitted that the bills for payments were finalised after making proper enquiries and test checks by the officials and then were passed for payment by him and the Divisional Accountant. Thus, the Court stated that there was evidence and material available on the record which substantiated the appellant’s claim. “Apparently, the Court had embarked upon an exercise to re-evaluate the sufficiency of evidence in material produced and faulted the Arbitral Tribunal in incorrectly appreciating the sufficiency of the said material which is clearly outside the ambit of Section 34 of the Act.”

The Bench while dealing with the power of Arbitral Tribunal to award interest referred to Reliance Cellulose Products Ltd v. ONGC which had observed that the interest was compensatory in nature and was parasitic on the principal amount. The arbitrator was empowered under Section 31(7) of the Arbitration Act to grant interest. Even a clause in a contract that prohibits payment of interest on delayed payments, does not restrict the arbitrator to grant interest. In view thereof, the Court held that the award of interest by the Arbitral Tribunal for pre-rerence, pendentelite and post award periods was neither contrary to the terms of contract nor was it in breach of Section 31(7) of the Arbitration Act. Consequently, the impugned order was set aside and the award passed by the Arbitral Tribunal was upheld.