2023INSC742

1

REPORTABLE

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

Court of Bombay under Section 37 of the Arbitration and Conciliation Act 1996,

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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.

1

Hereinafter ‘the Act’.

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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

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itself. Finally, relying on Radha Sundar Dutta v. Mohd Jahadur Rahim & Ors,

2

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.

9

Pradesh

3

and South East Asia Marine Engineering and Constructions Limited v.

Oil India Limited

4

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)

Limited v. Gujarat Electricity Regulatory Commission and Ors.,

5

Radha Sundar

Dutta v. Mohd Jahadur Rahim & Ors. (supra), Satyanarayana Construction

Company v. Union of India and Ors.,

6

and Delhi Development Authority v. R.S.

Sharma and Company, New Delhi.

7

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

akin to the jurisdiction of the court under Section 34 of the Act.

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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

Act is not akin to normal appellate jurisdiction.

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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

not entitle courts to reverse the findings of the Arbitral Tribunal.

10

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

Electric Power Corporation Limited

11

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

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(2020) 7 SCC 167.

18

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

Act 1996,

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we note the observation of this Court in Vidya Drolia and Ors. v.

Durga Trading Corporation

13

:

“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.

19

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

principle laid down in Associate Builders v. Delhi Development Authority,

14

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.

20

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

21

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