1. Construction contract dispute — delays in site handover, drawings, and materials — arbitral award modified by lower courts under Section 34 and Section 37, Arbitration and Conciliation Act. (Para 1 , 2 , 3 , 4 , 5 , 6 )
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2024 Supreme(SC) 18
SUPREME COURT OF INDIA
Abhay S. Oka, Sanjay Karol, JJ.
S.V. Samudram - Appellant
Versus
State of Karnataka & Anr. – Respondents
Civil Appeal No. 8067 of 2019
Decided On : 04-01-2024
Advocates appeared:
For the Appellant(s) : Mr. Anil Kaushik, Adv. Mr. Abhishek Mishra, Adv. Mrs. Shashi Sharma, Adv. Ms. Arunima Dwivedi, AOR
For the Respondent(s): Mr. Avishkar Singhvi, A.A.G. Mr. V. N. Raghupathy, AOR Mr. Manendra Pal Gupta, Adv. Mr. Vivek Kumar Singh, Adv.
For the Appellant(s) : Mr. Anil Kaushik, Adv. Mr. Abhishek Mishra, Adv. Mrs. Shashi Sharma, Adv. Ms. Arunima Dwivedi, AOR
For the Respondent(s): Mr. Avishkar Singhvi, A.A.G. Mr. V. N. Raghupathy, AOR Mr. Manendra Pal Gupta, Adv. Mr. Vivek Kumar Singh, Adv.
IMPORTANT POINTS
(1) Appeal against modified arbitral award – Merits of award are only to be gone into, if award is demonstrated to be contrary to public policy of India.
(2) Arbitral proceedings are per se not comparable to judicial proceedings before Court – Arbitrator’s view, generally is considered to be binding upon parties unless it is set aside on certain specified grounds.
Headnote:
(A) Arbitration and Conciliation Act, 1996 – Sections 34 and 37 – Appeal against modified arbitral award – Dispute arising from work contract – Any court under Section 34 would have no jurisdiction to modify arbitral award – Arbitral proceedings are per se not comparable to judicial proceedings before Court – Arbitrator’s view, generally is considered to be binding upon parties unless it is set aside on certain specified grounds – If view taken by Arbitrator is a plausible view, no interference on specified grounds is warranted – Award passed by a technical expert is not meant to be scrutinised in same manner as is one prepared by a legally trained mind – In instant case, only provision under which award could have been assailed was for it to have been in conflict with public policy of India. (Paras 14, 17, 19 and 21)
(B) Arbitration and Conciliation Act, 1996 – Sections 34 and 37 – Appeal against modified arbitral award – Dispute arising from work contract – Merits of award are only to be gone into, if award is demonstrated to be contrary to public policy of India – None of reasons recorded by Civil Judge for modifying arbitral award, even so much as allude to award being contrary to public policy of India which would enable court to look into merits of award – Each one of claims stands separately considered and dealt with – View taken by Arbitrator is a plausible view and could not have been substituted for its own by Court – Reasons assigned by Court under Section 34 are mutually contradictory – It is no business of Court to consider burden on exchequer – All that is required by Court is to see as to whether contracting parties have agreed to bind themselves to terms with only supervisory jurisdiction of Court to consider breach thereof, in light of grounds specified under Section 34 – Modification of arbitral award by Civil Judge does not stand scrutiny and must be set aside. (Paras 29, 30, 31, 32, 32.5 and 33)
(C) Arbitration and Conciliation Act, 1996 – Section 37 – Appeal against arbitral award – Dispute arising from work contract – Transaction being commercial in nature, no reason as to why claimant could not be entitled to interest in terms of rate quantified by Arbitrator which includes period of pre-arbitration, pendente lite and future – Claimant-Appellant is entitled to 9% interest – Award of Arbitrator restored. (Paras 46, 47 and 48)
Facts of the case:
Issue arising for consideration in this Civil Appeal, which lays challenge to a judgment and order dated 7th February, 2017 passed by High Court of Karnataka (Dharwad Bench) in MFA No. 24507 of 2010 (AA) under Section 37(1) of Arbitration and Conciliation Act, 1996, is whether High Court was justified in confirming order dated 22nd April, 2010 under Section 34 of Arbitration & Conciliation Act, 1996 passed by Senior Civil Judge, Sirsi, in Civil Misc. No. 08/2003, whereby award passed by Arbitrator was modified and amount awarded was reduced.
Findings of Court:
It cannot be doubted that the Claimant-Appellant is entitled to interest. Arbitrator has awarded 18% interest and the same stood reduced by Courts below to 9% without any legal basis therefor.
Result : Appeal allowed.
Judgement Key Points
Key Points: - Arbitral proceedings are not comparable to judicial proceedings; an award can only be set aside on specified grounds, not modified (!) (!) (!) . - Courts can intervene under Section 34 only if the award is contrary to public policy, and such grounds are strictly enumerated (!) (!) (!) (!) . - A party is entitled to interest on awarded amounts at the rate quantified by the arbitrator, and courts cannot reduce such interest without legal basis (!) (!) (!) .
Whether an arbitral award can be modified by a court under the Arbitration and Conciliation Act?
On what grounds can an arbitral award be set aside under the Arbitration and Conciliation Act?
Whether a party is entitled to interest on awarded amounts and the applicable rate of interest?
Legal Category Hierarchy
- practice and procedure
- civil law
Table of Contents
2. Whether lower courts were justified in modifying the arbitral award by reducing the awarded amount and interest based on a re-appreciation of evidence. (Para 7 , 8 , 9 , 10 )
3. Lower courts impermissibly modified the award by re-appreciating evidence and substituting their own views for the arbitrator's plausible findings, ignoring the limited scope of judicial intervention. (Para 28 , 29 , 30 , 31 , 32 , 39 , 40 , 41 , 42 , 43 , 44 )
4. Courts under Section 34 and Section 37 of the Arbitration and Conciliation Act have no jurisdiction to modify an arbitral award; they may only uphold or set it aside. (Para 14 , 15 , 16 , 42 )
5. Appeal allowed — judgments of the High Court and Civil Judge set aside — original arbitral award restored with interest at 9% per annum. (Para 46 , 47 , 48 )
6. Can a court modify an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996?
No. A court under Section 34 has no jurisdiction to modify an arbitral award. It can either dismiss the objections and uphold the award or set aside the award if specific grounds are made out; any attempt to modify the award is legally unsustainable. (Para 14 , 15 , 16 )
7. What is the scope of interference by an appellate court under Section 37 of the Arbitration and Conciliation Act?
Interference under Section 37 cannot exceed the restrictions laid down under Section 34. The appellate court cannot undertake an independent assessment of the merits of the award and must only ascertain that the Section 34 court did not exceed its statutory scope. (Para 35 , 36 , 39 , 42 )
8. When is the view taken by an arbitrator binding on the court?
If the view taken by the arbitrator is a plausible one, no interference is warranted. Courts should examine the substance of the findings rather than the form and adopt a fair and just approach rather than an unduly literal one. (Para 17 , 18 , 31 )
9. Under what circumstances can an award be set aside on the ground of being contrary to the public policy of India?
An award is contrary to public policy if it is in patent violation of a statutory provision, violates principles of natural justice, is unreasonable or perverse, is patently illegal, or is so unfair that it shocks the conscience of the court. (Para 24 , 25 , 26 , 27 )
10. Does an arbitral tribunal have the power to award interest for the pre-award period?
Yes. Under Section 31(7)(a), the tribunal may include interest in the sum for which the award is made for the entire pre-award period between the date on which the cause of action arose and the date on which the award is made. (Para 45 )
JUDGMENT :
SANJAY KAROL J.
1. The issue arising for consideration in this Civil Appeal, which lays challenge to a judgment and order dated 7th February, 2017 passed by the High Court of Karnataka (Dharwad Bench) in MFA No. 24507 of 2010 (AA) under Section 37(1) of the Arbitration and Conciliation Act, 19961[A&C Act, for short.], is whether the High Court was justified in confirming the order dated 22nd April, 2010 under Section 34 of the Arbitration & Conciliation Act, 1996 passed by the Senior Civil Judge, Sirsi, in Civil Misc. No. 08/2003, whereby the award passed by the learned Arbitrator was modified and the amount awarded was reduced.
FACTS
2. As borne out from the judgments rendered by the Courts below, the facts, are:-
2.1 Mr. S.V. Samudram2[Hereinafter, the Claimant-Appellant] is a registered Class II Civil Engineering Contractor and had secured a contract from the Karnataka State Public Works Department to construct the office and residence of the Chief Conservator of Forests at Sirsi for an amount of Rs. 14.86 Lakhs.
2.2 The said contract was entered into between the parties on 29th January, 1990 with the stipulation that the possession of the construction site would be handed over to the Claimant-Appellant on 8th March, 1990 and the work allotted was to be completed on or before 6th May 1992 i.e., 18 months from the date of the agreement excluding the monsoon season.
2.3 It is undisputed that the work as allotted could not be completed by the Claimant-Appellant, for which, he held the authorities of the State responsible as they allegedly did not clear his bills, repeatedly at every stage and also due to delays caused by change of site and in delivery of material for such construction.
2.4 For settlement and adjudication of disputes, the parties to the contract resorted to the arbitral mechanism and resultantly, in Arbitration Petition dated 31st May, 2002, Mr. S.K Angadi, Chief Engineer (Retd.) stood appointed as the Arbitrator on 30th July, 2002.
PROCEEDINGS BEFORE THE LEARNED ARBITRATOR
3. Pursuant thereto, the Claimant-Appellant herein filed his claim before the learned Arbitrator totalling to Rs.18,06,439/- along with an interest payable thereupon @ 18% per annum, payable from 9th March, 1994 till date of payment.
4. Having heard both sides, the three primary issues identified were:-
(a) inordinate delay in handing over of site for performance of contract;
(b) non-supply of working drawings and designs; and
(c) delay in supply of materials.
5. For each of these issues, the learned Arbitrator, upon examination of the evidence before him found the Respondents liable. A précis of the reasoning adopted, is as under:-
| S.No. | Point of Consideration | Reasoning |
| 1. | Delay in handing over the entire site for total performance of the contract. | 1) Non handling over the entire site in time is one of the reasons which resulted in non-completion of the work within the stipulated time of 18 months. There is a delay of 9 months in handing over possession of complete site. Possession of office building was handed over on 07.03.1990 Possession of quarters building was handed over on December 1990. |
| 2. | Delay in supply of working drawings, designs, etc. | 1) Drawing showing typical excavation plan for footings, details of columns were issued to claimant during September 1990, with a delay of 6 months 2) The drawing of R28 was not supplied by April 1991 but on 1st July 1991. There was a delay of 3 months. 3) Drawing showing the details of 1st floor slab of the office of the Conservator of Forest was found to be prepared by 13.10.1992 but supplied on 01.11.1992 i.e. after expiration of contract on 06.05.1992. 4) The drawings with details of lintel beams, roof beams, slab, etc of quarters was prepared by 05.10.1991 & supplied on 15.10.1991 but the changed site for construction was handed over to claimant on 14.02.1991. |
| 3 | In the ma |
