While restoring the NIL Arbitral Award passed by the Sole Arbitrator, the Delhi High Court has reiterated that courts under Sections 34 and 37 of the Arbitration Act cannot re-appreciate evidence or substitute their interpretation of contractual terms for that of the arbitrator, even where an alternative view may appear more plausible. The High Court explained that jurisdiction of a court under Section 34, and consequently under Section 37 of the Arbitration and Conciliation Act, 1996, is limited and supervisory in nature, and the court does not sit in appeal over an arbitral award and cannot re-appreciate evidence or substitute its own interpretation of the contract for that of the arbitrator.
An arbitral award can be set aside only where the arbitrator’s interpretation of contractual terms or findings of fact are perverse, that is, a view which no reasonable person could have arrived at, and not merely because another view is also possible. Further, the arbitrator is the final adjudicator of the construction of contractual terms and the sufficiency of evidence, and a possible view taken by the arbitrator must be respected, added the Court, while emphasising that a ‘without prejudice’ offer to settle or mere non-denial of a claim does not, by itself, amount to admission of liability or discharge the claimant’s burden of proving its case.
The Division Bench comprising Justice Navin Chawla and Justice Madhu Jain allowed Otsuka’s appeal and set aside the Single Judge’s order that had set aside the NIL Arbitral Award, thereby restoring the arbitrator’s award in its entirety. The Court reaffirmed that the scope of interference under Section 34, and consequently under Section 37 of the Arbitration and Conciliation Act, 1996, is supervisory and not appellate; the arbitrator remains the final adjudicator of contractual interpretation and sufficiency of evidence.
The Court observed that a plausible view taken by the arbitrator on the construction of contractual terms or on the appreciation of evidence cannot be interfered with merely because the court considers another view to be more appropriate. Hence, an interference is warranted only where the view is perverse, that is, one which no reasonable person could have arrived at.
The Court also held that the Single Judge had exceeded its jurisdiction by re-reading the Minutes of Meeting, Purchase Orders and the Agreement, and by substituting its own interpretation of the contractual framework for that of the Sole Arbitrator, particularly in holding that the P&IDs dated July 26, 2016 alone formed the contractual baseline. The Court clarified that a “without prejudice” settlement offer or mere non-denial of additional work does not, by itself, constitute an admission of liability or discharge the claimant’s burden of proving its claim for additional payment under a turnkey lump-sum contract.
Briefly, Otsuka Chemical (India) Pvt Ltd., which operated a chemical plant at Kotputli, Rajasthan, engaged Trans Engineers India Pvt Ltd. for its “Lion Project” to expand manufacturing capacity from 1,000 MT to 1,500 MT per annum. Trans Engineers was first retained for the consultancy stage vide Purchase Order dated May 27, 2016 for Rs. 3 Crores to prepare Piping and Instrumentation Diagrams (P&IDs). Thereafter, Trans Engineers submitted its Offer dated Aug 30, 2016 for the construction stage, and following a meeting on Sep 15, 2016, Otsuka issued a Letter of Intent for Rs. 71 Crores and Purchase Orders, followed by a formal Agreement dated Jan 20, 2017 for supply, erection and commissioning on a turnkey basis.
Trans Engineers claimed that Otsuka had substantially modified the P&IDs during execution, resulting in additional scope of work, and accordingly raised 26 proforma invoices dated 22–27.02.2018 for Rs. 28.37 crores towards the alleged additional work. Otsuka offered Rs. 3 Crores towards full and final settlement, which Trans Engineers rejected, and on Aug 03, 2018, Trans Engineers invoked arbitration under Clause 21 of the Agreement. The Sole Arbitrator dismissed both the claims and counter-claims and passed a “NIL” Award. Aggrieved, Trans Engineers filed a Section 34 application before the Single Judge, who set aside the Arbitral Award, holding that the Sole Arbitrator had misread the contractual framework.
