The Bombay High Court has held that a reasoned arbitral award will not be disturbed under Section 34 Arbitration Act merely because the losing party alleges erroneous quantification, imperfect apportionment, or a different plausible contractual interpretation. Where the arbitral tribunal has considered the parties’ submissions, relied on contemporaneous material, adopted a plausible contractual interpretation, and provided a reasoned basis for its conclusions on risk purchase, delay, liquidated damages, and bank guarantee invocation, the award does not suffer from patent illegality or perversity warranting setting aside.
Accordingly, the High Court reaffirmed that Section 34 review does not permit a court to substitute its own view on contractual interpretation, quantification of claims, or appreciation of evidence where the arbitral tribunal has adopted a plausible and reasoned approach. It also dismissed a Section 34 challenge to a unanimous arbitral award and reiterated the limited scope of judicial interference with reasoned arbitral decisions.
On risk purchase, a Single Judge Bench of Justice Somasekhar Sundaresan observed that the arbitral tribunal had not acted arbitrarily in allowing 50% of the disputed portion of Siemens’ claim, and had considered the parties’ respective cases, the evidence on record, Siemens’ notices relating to risk purchases, and the admitted absence of price negotiation as well as the higher rates paid for manpower. The Bench observed that this was not a case of unreasoned “rough and ready” justice; rather, the tribunal had articulated a reasonable basis for discounting the disputed amount and arriving at a broad estimate, which could not be characterised as patent illegality or perversity under Section 34.
On delay and liquidated damages, the Bench found that the tribunal had adequately dealt with the argument that part of the delay was attributable to Siemens and another contractor, Gammon India. The Bench accepted Siemens’ submission that under Clause 2.1 of the GRA, the relevant question was whether delay of not less than 100 days was attributable to Paharpur, because once that threshold was crossed, liquidated damages capped at 20% of the contract price became payable. The tribunal’s reliance on contemporaneous minutes of meetings, correspondence, milestone dates, and findings on shortage of manpower and machinery was held to be evidence-based and rational. The Bench therefore refused to interfere with the findings attributing delay to Paharpur and upholding liquidated damages of Rs. 23.59 crores.
On invocation of bank guarantees, the Bench rejected Paharpur’s contention that the issue had remained unadjudicated or that the tribunal had ignored a Supreme Court direction. It held that the Supreme Court’s earlier order merely observed that the legality of invocation was a matter for arbitration and not criminal proceedings. The arbitral tribunal had in fact interpreted the contractual documents and reasonably concluded that the advance payment guarantee continued to operate as a performance guarantee as well, since it was required to remain valid until provisional acceptance and had not stood discharged even after adjustment of the advance. The tribunal had also returned a categorical finding that Siemens’ invocation was not mala fide, and the Bench held that this interpretation and treatment of the guarantees were commercially logical and plausible, and therefore immune from interference under Section 34.
Briefly, the case arises from a petition under Section 34 of the Arbitration and Conciliation Act, 1996 filed by Paharpur Cooling Towers Ltd. challenging a three-member arbitral award dated 27 February 2019. Under the award, Siemens Limited’s claims were partly allowed to the extent of Rs. 53.53 crores, against which Rs. 51.89 crores had already been recovered from Paharpur, while Paharpur’s counterclaims were also partly allowed to the extent of Rs. 22.48 crores, resulting in Siemens being held liable to pay Paharpur a net amount of Rs. 20.84 crores with interest at 6% per annum.
Paharpur confined its challenge to three parts of the award: the rejection of its challenge to Siemens’ invocation of bank guarantees amounting to Rs. 34.73 crores, the grant of Rs. 8.17 crores to Siemens toward risk purchase claims, and the findings on delay and liquidated damages resulting in levy of Rs. 23.59 crores. The underlying contracts were a General Responsibility Agreement and three separate agreements, all dated 24 December 2010, relating to construction of three natural draft cooling towers for Torrent Energy Ltd.’s Dahej power project in Gujarat, where Siemens was executing the project on a turnkey basis.
