2024 (4) TMI 425 - SC - Indian Laws

Arbitral awards in construction dispute upheld under Section 34 with minimal interference principle

M/s HINDUSTAN CONSTRUCTION COMPANY LIMITED Versus M/s NATIONAL HIGHWAYS AUTHORITY OF INDIA

The SC upheld arbitral awards in a construction dispute regarding embankment measurement for payment purposes. The Court emphasized that technical ... Interpretation of a contract condition, which required the measurement of quantities used for payment for embankment construction with soil or with pond ash - Section 34 of the Arbitration and Conciliation Act, 1996 - HELD THAT:- This Court, in VOESTALPINE SCHIENEN GMBH VERSUS DELHI METRO RAIL CORPORATION LTD. [2017 (2) TMI 1239 - SUPREME COURT] commenting on the value of having expert personnel as arbitrators, emphasized that 'technical aspects of the dispute are suitably resolved by utilising their expertise when they act as arbitrators.' The prevailing view about the standard of scrutiny- not judicial review, of an award, by persons of the disputants' choice being that of their decisions to stand- and not interfered with, [save a small area where it is established that such a view is premised on patent illegality or their interpretation of the facts or terms, perverse, as to qualify for interference, courts have to necessarily chose the path of least interference, except when absolutely necessary]. By training, inclination and experience, judges tend to adopt a corrective lens; usually, commended for appellate review. However, that lens is unavailable when exercising jurisdiction Under Section 34 of the Act. Courts cannot, through process of primary contract interpretation, thus, create pathways to the kind of review which is forbidden Under Section 34 - As long as the view adopted by the majority was plausible- and this Court finds no reason to hold otherwise (because concededly the work was completed and the finished embankment was made of composite, compacted matter, comprising both soil and fly ash), such a substitution was impermissible. It is evident that a dissenting opinion cannot be treated as an award if the majority award is set aside. It might provide useful clues in case there is a procedural issue which becomes critical during the challenge hearings. This Court is of the opinion that there is another dimension to the matter. When a majority award is challenged by the aggrieved party, the focus of the court and the aggrieved party is to point out the errors or illegalities in the majority award. The minority award (or dissenting opinion, as the learned authors point out) only embodies the views of the arbitrator disagreeing with the majority. There is no occasion for anyone- such as the party aggrieved by the majority award, or, more crucially, the party who succeeds in the majority award, to challenge the soundness, plausibility, illegality or perversity in the approach or conclusions in the dissenting opinion - the so-called conversion of the dissenting opinion, into a tribunal's findings, [in the event a majority award is set aside] and elevation of that opinion as an award, would, with respect, be inappropriate and improper. The awards, which were the subject matter of challenge, and to the extent they were set aside, are hereby upheld and restored. The direction in the awards, to the extent they required compounded monthly interest payments, are modified. Instead, the NHAI shall pay uniform interest on the amounts due, on the head concerned, i.e., construction of embankment, to the extent of 12% from the date of award to the date of payment, within eight weeks from today. Appeal allowed. Issues Involved:1. Interpretation of contract conditions for measurement and payment of embankment construction.2. Validity of the arbitral award and the scope of judicial interference under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996.Summary:Issue 1: Interpretation of Contract ConditionsThe core issue was the interpretation of a contract condition regarding the measurement of quantities for payment in embankment construction using soil or pond ash. The contractors argued for a composite measurement of the entire cross-section using the average end area method, while the supervising engineer (EE) measured soil and pond ash separately. The contractors claimed this was against Technical Specification (TS) Clause 305.8. The National Highways Authority of India (NHAI) supported the EE's method.Issue 2: Validity of the Arbitral Award and Scope of Judicial InterferenceThe arbitral tribunal, comprising three technical experts, issued an award favoring the contractors' interpretation, with a dissenting opinion from one arbitrator. The contractors challenged both the unanimous and majority views under Section 34 of the Arbitration and Conciliation Act, 1996. The Single Judge upheld the majority view, stating it was a plausible interpretation that did not warrant interference. The Division Bench, however, set aside this decision, deeming the majority view implausible.Contentions of Parties:- Contractors: Argued that the Division Bench exceeded its jurisdiction under Sections 34 and 37 of the Act, which restricts grounds for challenging an arbitral award. They emphasized the technical nature of the contract conditions and the need for deference to the tribunal's findings. They highlighted that the contract contemplated two types of embankments and that the method of measurement should be composite.- NHAI: Argued that the tribunal's interpretation was incorrect and led to absurd results. They contended that separate measurements were necessary due to varying ratios of soil and pond ash. They highlighted that for two years, separate measurements were taken, and embankment construction involved layering, making separate measurements feasible.Analysis and Conclusions:The Supreme Court emphasized the limited scope of judicial review under Section 34, which does not allow for appellate review of arbitral awards. The Court noted that the tribunal's majority view was plausible and should not have been substituted by the Division Bench. The Court reiterated the principle that arbitral awards, especially those involving technical expertise, should not be lightly interfered with unless they are perverse or based on a wrong proposition of law.Final Decision:The Supreme Court allowed the appeals, set aside the judgments of the Delhi High Court, and upheld the arbitral awards. The Court modified the interest payments, directing NHAI to pay uniform interest at 12% from the date of the award to the date of payment within eight weeks. There were no directions to pay costs.