Orissa High Court Advises Valuing Arbitrator's View; No Reappreciation Of Evidence Permitted Under Section 34 of A&C Act

Orissa High Court Advises Valuing Arbitrator's View; No Reappreciation Of Evidence Permitted Under Section 34 Of A&C Act

Cites the decision of the Supreme Court in a previous case

The Orrisa High Court has held that under Section 34 of the Arbitration and Conciliation (A&C) Act, 1996, a petition reappreciating evidence, cannot replace the arbitrator's view with another.

The bench comprising Justice D. Dash stated that the arbitrator's views must be considered possible interpretations based on the factual circumstances.

Section 34 deals with setting aside an arbitral award, allowing an entity to challenge it on specific grounds.

Jagannath Choudhury (respondent), a superclass contractor, was awarded the task of constructing the Jambhira Earth Dam, Reach-IV(B) under the Subarnarekha Irrigation Project (SIP) in Odisha.

An agreement was executed between the respondent and the Principal Secretary to the Government of Odisha (appellant) for Rs.2,50,68,948.00.

The contract involved the execution of 11 specified items of work (outlined in the schedule of quantities in Chapter VII) of the agreement.

During the project's progress, the chief engineer urged all contractors, including the respondent, to complete the work by the end of March 1997, ahead of the original deadline. This required deviations in work.

The respondent complied with it and completed all jobs within the deadline. However, the final bill was not settled. He was paid for only part of the dues for the executed work.

It led the respondent to claim Rs.2,12,59,430.07 for work entitlement, Rs.25,11,166.95 for price escalation, Rs.5,15,858.00 for idle charges of machinery and personnel, and Rs.5,45,719.00 for the refund of security deposits.

On the other hand, the appellant countered the claims on several grounds. It argued that the dispute was not arbitrable before the appointed arbitrator. The reference was not maintainable due to the respondent's failure to furnish a security deposit as mandated under Clause 5 of the General Conditions of Contract (GCC).

The appellant argued that the respondent executed only two extra items of jobs, for which he was paid. The three extra items were not completed within the financial assistance timeframe of the National Bank for Agriculture and Rural Development (NABARD).

The respondent filed an application under Section 11 of the A&C Act before the High Court. The latter appointed Justice P.K. Mishra (Retired) as the sole arbitrator.

On considering the evidence, the arbitrator awarded the amounts under various heads, summarily granting Rs.73,76,378.00 towards the work bill, Rs.12,51,932.00 for price escalation, Rs.5,45,719.00 for the refund of the security deposit, and interest at 18 percent on Rs.91,74,029.00 from the date of the award till payment. He also slapped Rs.7,00,000.00 for the cost of arbitration.

As a result, the appellant filed an application under Section 34 to set aside the award, which was rejected by the District Judge.

Consequently, an appeal under Section 37 was filed in the Court.

The appellant contended that the arbitrator proceeded without following the mandate of Clause 53(F) of the agreement. It mandated a security deposit for arbitration maintainability. He further argued that the claims were barred by limitation, stating that the final bill was cleared on 24 December 1997, but the claim was invoked in November 2007.

The respondent argued that the arbitral award could not be interfered lightly, and the arbitrator rightfully considered the limitation issue. It added that the cause of action arose when the respondent filed for arbitration after prolonged inaction by the appellant. It contended that the arbitrator's detailed consideration of materials and case facts justified the award. In the claim, there was no express denial of the interest.

Justice Dash referred to Section 37(1)(c), which states that an appeal can be made against an order either setting aside or refusing to set aside an arbitral award under Section 34.

He noted a narrow scope for judicial intervention in the review of arbitral awards. The Judge referred to the decision of the Supreme Court in the Mcdermott International Inc. v. Burn Standard Co Ltd case, wherein it was held that the Arbitration Act intended to limit Court intervention to rare circumstances such as fraud, bias, or a violation of natural justice.

While reinforcing this principle, the Top Court in the National Highway Authority of India v. M. Hakeem case had held that Section 34 was not akin to an appellate provision. Instead, it allowed setting aside an arbitral award only on narrowly defined grounds specified in sub-sections (2) and (3).

The Apex Court held that the legislative intent was clear in not providing any power within Section 34 to modify an award. The Supreme Court ruled that any modification of an award would extend beyond the statutory scope of Section 34, breaching the legislative intent and altering the balance of limited judicial interference intended by the A&C Act.

The High Court Judge examined whether the arbitral award could be challenged on the grounds of patent illegality or perversity. Earlier, the appellant's arguments regarding the maintainability of the arbitral proceedings and the completion date of the work were dismissed by the arbitrator and upheld by the Supreme Court.

The bench noted that the law on judicial intervention in arbitral awards was well-established through various decisions, including the decisions of the Supreme Court in the Associate Builders v. Delhi Development Authority and subsequent cases.

It held that a Court was not entitled to reappraise or re-evaluate evidence presented before the arbitrator. Instead, judicial intervention was warranted only if the arbitral award was perverse. This meant it could happen if based on no evidence, irrelevant considerations, or the exclusion of vital evidence.

The bench held that findings based on little or marginal evidence were within the arbitrator's purview and could not be held perverse unless they lacked any rational basis or defied logic to an outrageous extent. Therefore, if the arbitrator's approach was not arbitrary or capricious, the decision on factual matters had a standing.

Additionally, the Top Court's decision in the Reliance Infrastructures Vs the State of Goa case was cited. It reiterated that patent illegality must be an error going to the root of the matter, not merely an erroneous application of the law. It was then held that the judicial review under Section 34 was not intended for re-appreciation of evidence but to address the fundamental legal principles and procedural fairness.

Thus, the High Court held that there was no basis for judicial interference in the arbitral award issued by the arbitrator. It added that the arbitrator's decisions regarding the maintainability and completion date of the work were well-supported by evidence and did not suffer from any patent illegality or perversity.

Consequently, the appeal challenging the judgment passed by the District Judge was disposed of with 9 percent per annum as a rate of interest.