Court’s Decision
The Kerala High Court dismissed a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, upholding an arbitral award rendered in favour of a construction company against a State-owned infrastructure entity.
Justice Dinesh Kumar Singh reiterated the limited scope of judicial intervention in arbitral awards, holding that courts cannot act as appellate authorities by re-assessing evidence or substituting their own views on contractual interpretation. The Court observed:
“Once parties have consciously chosen arbitration as their mode of dispute resolution, courts must respect the autonomy of the arbitral process. Interference is warranted only when the award shocks the conscience of the court or violates the fundamental policy of Indian law.”
The Court found no perversity, patent illegality, or violation of public policy in the arbitral award, and consequently dismissed the petition.
Facts
The dispute arose out of a construction contract for a State highway expansion project awarded to the respondent contractor by a government-owned infrastructure development corporation. The contract, valued at over ₹45 crores, required completion within a stipulated period, with time being declared as the essence of the contract.
Delays occurred due to multiple factors — including delayed handing over of the work site, non-availability of statutory clearances, and change in design specifications initiated by the employer. The contractor sought extension of time and additional payments for idle machinery, price escalation, and loss of overheads.
After several rounds of correspondence, the disputes were referred to arbitration under the terms of the contract. The Arbitral Tribunal awarded compensation to the contractor for delay attributable to the employer, while rejecting claims relating to loss of profit.
Aggrieved, the infrastructure corporation filed a petition under Section 34 of the Arbitration Act before the High Court, seeking to set aside the award on the grounds that it was contrary to the contract, suffered from patent illegality, and violated public policy.
Issues
- Whether the arbitral award suffered from patent illegality or perversity within the meaning of Section 34(2A) of the Arbitration and Conciliation Act, 1996.
- Whether the Arbitral Tribunal had exceeded its jurisdiction by re-writing contractual terms or granting claims beyond the scope of the agreement.
- Whether the findings of the Tribunal could be interfered with merely because a different view was possible.
Petitioner’s Arguments
The petitioner argued that the Arbitral Tribunal had misapplied the contractual provisions and granted compensation in direct contravention of the “time is of the essence” clause. It was contended that the Tribunal failed to appreciate that delays were attributable to the contractor, not the employer.
The petitioner submitted that the Tribunal ignored the liquidated damages clause under Section 74 of the Indian Contract Act and wrongly construed the clauses relating to extension of time. It was further argued that the award was “against the public policy of India” since it rewarded inefficiency and non-performance.
Counsel relied on ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705, contending that an award violating express contractual terms must be set aside as patently illegal. The petitioner also cited Associate Builders v. DDA (2015) 3 SCC 49, to argue that the Tribunal’s interpretation of contractual clauses was perverse and beyond its jurisdiction.
Finally, it was contended that the Tribunal failed to consider crucial documents and evidence showing the contractor’s delay, thereby rendering the award arbitrary and unreasonable.
Respondent’s Arguments
The respondent contractor countered that the employer’s failure to provide unhindered site access and timely approvals was the real cause of delay. It was argued that the Arbitral Tribunal had meticulously examined the evidence, including correspondence, measurement books, and delay analysis reports, and its conclusions were supported by material evidence.
The respondent emphasized that Section 34 does not empower courts to re-appreciate evidence or substitute their own interpretation for that of the arbitrator. Once the arbitrator’s view is a possible view based on the contract and evidence, courts must not interfere.
Reliance was placed on MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163, and Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131, where the Supreme Court held that “public policy” under Section 34 is to be construed narrowly, and interference is permissible only in cases of fraud, corruption, or patent illegality apparent on the face of the award.
The contractor also cited Delhi Airport Metro Express Pvt. Ltd. v. DMRC (2022) 1 SCC 131, where the Supreme Court reaffirmed that “the Court cannot act as a court of appeal in arbitral matters.”
Analysis of the Law
The Court analysed the legislative intent behind the 1996 Arbitration and Conciliation Act, as amended in 2015 and 2019, noting that the reforms sought to minimize judicial intervention and enhance India’s reputation as an arbitration-friendly jurisdiction.
Justice Dinesh Kumar Singh emphasized that Section 34 proceedings are not appeals, and the court’s jurisdiction is confined to identifying patent illegality, lack of jurisdiction, or violation of public policy. Referring to Section 34(2A), the Court noted that an award can be set aside for patent illegality only if the illegality goes to the root of the matter and not for trivial errors of fact or law.
The Court cited Associate Builders v. DDA (2015) 3 SCC 49, explaining the three subcategories of public policy — (a) fundamental policy of Indian law, (b) interest of India, and (c) justice or morality — and held that only a clear breach of these parameters would justify interference.
The Court reiterated the principle in Ssangyong Engineering (2019) that courts cannot review an arbitrator’s findings on contractual interpretation, and any error of interpretation that is not perverse cannot be a ground to set aside an award.
Precedent Analysis
- ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705) – Laid down that awards violating express contract terms may be set aside; distinguished here, as the Tribunal’s interpretation was within contractual scope.
- Associate Builders v. DDA (2015) 3 SCC 49) – Followed; established the “public policy” parameters.
- MMTC Ltd. v. Vedanta Ltd. (2019) 4 SCC 163) – Applied; clarified that re-appreciation of evidence is impermissible.
- Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131) – Relied on; limited interference to patent illegality apparent on the face of the record.
- Delhi Airport Metro Express Pvt. Ltd. v. DMRC (2022) 1 SCC 131) – Followed; reiterated the narrow scope of Section 34 jurisdiction.
Through these precedents, the Court emphasized a consistent judicial approach — finality of arbitral awards must be preserved unless the award is perverse, absurd, or contrary to the basic tenets of justice.
Court’s Reasoning
The Court held that the Arbitral Tribunal’s findings were based on documentary and oral evidence, including correspondences that proved the delay was attributable to the employer’s failure to hand over clear work sites.
Justice Dinesh Kumar Singh rejected the petitioner’s contention that the award violated public policy, observing that no statutory violation, moral impropriety, or fraud was demonstrated. The Court clarified that mere dissatisfaction with the reasoning of the Tribunal does not amount to a ground for setting aside an award.
The Bench observed:
“An arbitral tribunal is the final authority on facts and contract interpretation between the parties. Unless the award shocks the conscience of the court or defies logic, the court cannot intervene under Section 34.”
Consequently, the award was held to be well-reasoned, proportionate, and consistent with law, and the Section 34 petition was dismissed.
Conclusion
The Kerala High Court dismissed the Section 34 petition, upholding the arbitral award in favour of the contractor, holding that the Tribunal’s findings were neither perverse nor violative of public policy.
The Court reinforced that arbitration must remain a self-contained mechanism of dispute resolution and that judicial interference should be an exception, not the rule. The ruling strengthens the pro-arbitration jurisprudence and ensures predictability in infrastructure and construction contract enforcement.
Implications
This judgment fortifies the trend of judicial restraint in arbitration matters, in line with global standards. It confirms that courts cannot re-appreciate evidence or re-interpret contracts under Section 34.
It also signals to public sector undertakings that challenges based on mere disagreement with the arbitrator’s findings will not succeed. The decision contributes to making India a reliable and arbitration-friendly jurisdiction, particularly crucial for infrastructure and PPP contracts.
FAQs
1. When can a court interfere with an arbitral award under Section 34?
Only when the award suffers from patent illegality, jurisdictional error, or violation of the fundamental policy of Indian law — not for mere factual or interpretative errors.
2. What is meant by “public policy of India” under Section 34?
It refers to core legal principles such as adherence to Indian law, morality, justice, and absence of fraud or corruption — interpreted narrowly post the 2015 amendments.
3. Can contractual interpretation by an arbitrator be challenged?
No. As long as the interpretation is a plausible view based on evidence and the contract, courts cannot substitute their view for the arbitrator’s.
