The Bombay High Court has asserted that in Section 37 Arbitration Act appeal, the court cannot re-appreciate evidence or substitute its own interpretation of the contract if the arbitral tribunal’s view is a plausible one. Interference is justified only where the award suffers from patent illegality apparent on its face, perversity going to the root, or true internal contradiction of such nature as to make the award unsustainable.
The Court held that an arbitral award does not become internally contradictory merely because it recognizes the factual importance of a third party in the background of the transaction while also holding that the contract itself does not impose any contractual obligation requiring that third party’s approval or participation as a condition precedent. The distinction between commercial background/factual expectation and actual contractual obligation is legally material.
Where the tribunal’s conclusions on wrongful termination, causation of delay, and quantification of damages are based on contractual interpretation, contemporaneous correspondence, and record evidence, those findings are findings of fact and are not open to interference under Section 37 merely because another view is possible.
Accordingly, the High Court dismissed ONGC’s Section 37 appeal because the arbitral tribunal had taken a plausible view that: ONGC wrongfully terminated the contract; delay was attributable to ONGC, particularly on sludge disposal and approvals; the contract did not require UEM to approve or sign all drawings; and the damages awarded were reasoned and evidence-based enough to survive Section 34/37 scrutiny.
The Division Bench comprising the Chief Justice Shree Chandrashekhar and Justice Gautam A. Ankhad observed that no case for interference was made out within the limited scope of Section 37. It reiterated that post-2015 amendment, an appellate court under Section 37 cannot re-appreciate evidence or substitute its own view merely because another view is possible. Interference is confined to cases of patent illegality on the face of the award or perversity going to the root of the matter.
On the alleged contradiction regarding UEM, the held that a holistic reading of the award showed no inconsistency. The tribunal had merely distinguished between: the arrangement between Newton and UEM; and the contractual obligations between Newton and ONGC. The Bench accepted the tribunal’s reasoning that while UEM was the technical collaborator and ONGC may have wanted its involvement, the contract between ONGC and Newton did not require UEM’s approval/signature as a condition precedent to performance. Under the contract, Newton alone remained liable and responsible.
The Bench expressly noted that the contract constituted the entire agreement between the parties, UEM was not a party to it, and even though UEM was identified as technical collaborator, the respondent was primarily responsible for execution and completion of the project. The Bench also noted evidence, including cross-examination of ONGC’s witness, supporting the finding that neither the relevant agreement nor the contract required all documents to be signed or approved by UEM.
On engineering drawings and the 5% weightage, the Bench held that the tribunal’s interpretation of the contractual framework was plausible. The tribunal had considered the planning package weightages, Engineering 5%, Material Procurement 55%, Construction 40%, and it was open to the tribunal to conclude that UEM-approved drawings were not an absolute precondition for further execution.
On sludge disposal, the Bench rejected ONGC’s argument that the show cause notice was confined to drawings. The Bench noted that Newton’s reply had specifically identified sludge removal as a key hindrance, yet ONGC did not deal with this issue in the termination notice. The tribunal was therefore justified in treating sludge removal as a primary and foundational activity because execution of civil, mechanical, piping, electrical and instrumentation works depended on an unhindered site.
The Bench further held that the award of Rs.2 crores towards loss of revenue from sludge disposal was a factual determination based on quantity, rate, documents and surrounding circumstances, and that the award of loss of profit at 15% was supported by settled principles once wrongful termination was established.
Briefly, ONGC had awarded Newton Engineering & Chemicals Ltd. a turnkey contract for modernization of the Effluent Treatment Plant at ONGC’s Uran Plant. Newton’s bid identified UEM India Private Limited as its technical collaborator under a Technical Collaboration Agreement dated 6 May 2014. The bid was accepted through a Letter of Award dated 11 May 2015, and the contract between ONGC and Newton was executed on 29 March 2016. UEM was not a party to that contract.
Disputes arose during execution. ONGC alleged negligible progress and failure to meet milestones, and issued a notice dated 9 May 2017 under Clause 12.4 calling upon Newton to cure defaults within 30 days, failing which the contract would stand terminated. The notice relied on slow project progress, unresolved issues with UEM, non-finalization of execution philosophy and layouts, and non-commencement of procurement, soil testing and construction activities.
Newton replied on 29 May 2017 denying ONGC’s allegations and attributed the delay principally to lack of clarity and approvals regarding sludge disposal, which it described as foundational to project execution. Newton also said that design and engineering were dependent on inputs such as soil testing and equipment specifications, and asserted that commercial issues with UEM had been resolved.
ONGC terminated the contract by letter dated 15 June 2017 with effect from 7 June 2017, stating that Newton had failed to complete the activities listed in the earlier termination notice and failed to demonstrate improvement in execution. Newton invoked arbitration. It had also filed a Section 9 petition to restrain invocation of bank guarantees, but no injunction was granted and ONGC encashed the bank guarantees. Before the tribunal, issues included delay, scope of sludge disposal, role of UEM, validity of termination, refund of performance bank guarantee, loss of profit, and ONGC’s counterclaims.
The arbitral tribunal unanimously held that ONGC’s termination was wrongful. It found that delay was not attributable to Newton, that ONGC’s conduct on sludge disposal and approvals materially contributed to the lack of progress, and that the contract did not mandate UEM’s approval or signature on all engineering documents. The tribunal awarded, among other heads, refund of the performance bank guarantee, value of work done, loss of revenue from sludge disposal, and loss of profit, while rejecting ONGC’s counterclaims.
Appearances:
Senior Advocate Navroz Seervai, along with Advocates Vishal Kanade, Anagh Pradhan, Aneesha Munshi, Anand Iyer, Palak Jain, i/by Divya Shah Associates, for the Appellant
Advocates Mayur Khandeparkar, Bernardo Reis and Pratik Dixit, i/by Dr. Prem Motiramani, for the Respondent
