The Supreme Court has, by its judgment pronounced on August 24, 2023, in the matter of Hindustan Construction Company Limited v. National Highways Authority of India [Civil Appeal No(s). 4658 of 2023, 4659 of 2023, 4660 of 2023, 4661 of 2023 and 4662 of 2023], disposed of a batch of appeals involving a common question pertaining to interpretation of a condition of the contract. Considering that the Supreme Court dealt with multiple appeals in a single judgment, for the purpose of convenience, the Supreme Court has pronounced this judgment treating the judgment dated November 8, 2022 passed by the Division Bench of High Court of Delhi (“High Court”) in FAO (OS) No. 48/ 2012 as the impugned judgment.

Facts

National Highways Authority of India (“NHAI/ Respondent”) awarded the work of construction of the Allahabad by-pass project to Hindustan Construction Company Limited (“Contractor/ Appellant”) by agreement dated June 2, 2004. The project was completed. However, certain disputes arose between the parties with reference to different areas of the contract. Since NHAI has an inbuilt dispute resolution mechanism, namely, the Dispute Resolution Board (“DRB”) comprising of technical experts, the matter was referred to DRB. However, as the Contractor was not satisfied with the opinion of DRB, the Contractor chose to invoke arbitration proceeding. Three technical persons were appointed to act as arbitrators and after due consideration to the contentions made and materials placed by both the parties, the arbitrators passed an award. While the arbitrators had a unanimous view on most of the questions, however, on some questions, one of the arbitrators gave a dissenting view.

Being aggrieved by the award, NHAI approached the High Court under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). By order dated November 30, 2011, the Single Judge of the High Court dismissed the petition filed by NHAI under Section 34 (Application for setting aside arbitral awards) of the Arbitration Act and observed that the majority opinion of the arbitrators reflected a plausible and reasonable view and does not warrant any judicial interference. Aggrieved by the dismissal of the aforesaid petition by the Single Judge, NHAI preferred appeal before Division Bench of the High Court, which set aside the order passed by the Single Judge and held that the award passed by the arbitrators and the majority view taken by them were based on implausible interpretation of the contract.

Issues

• Whether dissenting opinion given by minority members of a multi-member arbitral tribunal can be treated as an award.
• Whether an award or interpretation of majority of the members of a multi-member arbitral tribunal, who are experts of the field, on a technical aspect or condition of a contract, which is plausible, is subject to judicial review within the limited scope under Section 34 of the Arbitration Act.

Arguments

Contentions of the Appellant:

It was contended that the Division Bench of the High Court has exceeded its jurisdiction of judicial review in terms of Sections 34 and/or 37 (Appealable orders) of the Arbitration Act. It is a settled legal position that there are very limited grounds on which court can interfere upon challenge of an arbitral award and court shall adopt the approach of minimal interference. The Appellant further submitted that contractual conditions relating to method of measurement are dependent heavily on technical understanding as possessed by the arbitral tribunal in the present case comprising of technical experts and such technical conditions cannot be read and interpreted in the same manner as a general provision of a contract.

The Appellant made further submissions on the merits/ technical interpretation of the relevant clause of the contract and assailed the impugned judgment on the ground that the Division Bench of the High Court failed to appreciate that there are two kinds of embankments, one with soil and the other with fly ash and soil and therefore, the Appellant had quoted rates for these two kinds of embankment. Further, the Appellant contended that contract conditions and stipulations are to be read as a whole and hence, technical specifications, drawings and other documents form part of the contract and cannot be considered in isolation.

The Appellant relied upon the judgment pronounced by the Supreme Court in the matter of Associate Builders v. Delhi Development Corporation [(2014) (13) SCR 895] (“Associate Builders Case”), wherein the Supreme Court had considered the extent to which a court can replace the arbitrator’s conclusion with its own conclusion by way of judicial interference.

Contentions of the Respondent:

The Respondent submitted that Supreme Court may not interfere with the impugned judgment of the High Court and other decisions followed by it, which are the subject matter of all the appeals. The Respondent further contended that interference with the award by the Division Bench of the High Court was justified and necessary and the arbitrators had acted beyond the terms of the contract in the sense that their award amounted to not only incorrect interpretation but rather a case of rewriting the terms of the contract.

The Respondent further submitted that the Single Judge of the High Court failed to correctly analyze the conditions of the contract. If the interpretation of the relevant clause of the contract by the arbitrators is accepted, it will lead to absurd result so far as the ratio of soil and pond ash used in embankment is concerned and it would cast an unfair obligation on the Respondent to pay at one rate regardless of the soil and pond ash used for the project. To support its contentions, the Respondent referred to relevant pronouncement of the Supreme Court whereby it was observed that the court may interfere in case if the interpretation of conditions of contract by the arbitrators is incorrect.

Observations of the Supreme Court

The Supreme Court analyzed the relevant conditions of the contract as well as perused the majority award and dissenting view of one of the arbitrators. Thereafter, the Supreme Court examined the interpretation adopted by the DRB in various cases on the technical aspects pertaining to construction of embankment and certain specific conditions of the contract. The Supreme Court observed that in most of the cases, the view adopted by DRB and majority award of the arbitral tribunal favoured the arguments of the Contractors on technical aspects. Dissenting opinion, wherever expressed, was based on separate measurements. When the predominant view taken by majority of the members of DRB and arbitral tribunal, who are technical experts of the field, was in favour of Contractor, on the technical aspects and conditions of the contract, as such the court should not interfere with the arbitration award under Section 34 of the Arbitration Act. The Supreme Court relied upon judgments pronounced in the matter of M/s. Voestalpine Schienen GmbH v. DMRC [(2017) (1) SCR 798] and Delhi Airport Metro Express Private Limited v. DMRC [(2021) (5) SCR 984] and observed that when members of arbitral tribunal are technical experts of the field, their opinion should be given the same value as if the award was passed by a legally trained mind. Supreme Court further observed that an award should be scrutinized and subject to judicial review only under the limited grounds as set out under Section 34 of the Arbitration Act. However, judges often adopt a corrective lens and treat a petition under Section 34 of the Arbitration Act as a regular appeal. As long as the view taken by majority of the arbitrators is plausible, there is no reason to deviate from such view, especially on technical aspects of interpretation of contract. Supreme Court relied upon its previous decision in Associate Builders Case and observed that if an arbitrator construes a term of the contract in a reasonable manner, it will not mean that the award can be set aside on this ground.

Thereafter, Supreme Court discussed the aspect and relevance of dissenting opinion, which often arises in case of multi-member tribunals. In this regard, Supreme Court relied upon its previous landmark judgment in the matter of Dakshin Haryana Bijli Vitran Nigam Limited v. Navigant Technologies Private Limited [(2021) (1) SCR (1135)] and reiterated that dissenting opinion is only for the information of parties and does not form part of the award but may be admissible as evidence in relation to procedural matters in the event of a challenge or may add weight to the arguments of a party wishing to appeal against the award.

Decision of the Supreme Court

Supreme Court held that dissenting opinion cannot be placed at the same footing as majority view and cannot be considered to be an award. Further, Supreme Court allowed all the appeals and all the corresponding impugned judgments of the High Court were set aside. The arbitral awards, which were subject matter of challenge before the Supreme Court and to the extent that they were set aside by the High Court, were upheld and restored.

VA View:

The present judgment of Supreme Court is a significant judicial pronouncement.

The Supreme Court has clarified on the legal position that when an arbitral tribunal, comprising of technical experts from the requisite field of the subject-matter, pass an award or give an interpretation to a condition in a contract which is technical in nature and such interpretation seems to be plausible then the courts should refrain from looking into such award from corrective lens and avoid interfering or setting aside such well-reasoned award. Courts should bear in mind that unlike a regular appeal, Section 34 of the Arbitration Act stipulates limited grounds on which arbitral awards can be set aside. Otherwise, the very sanctity and intent to promote arbitration proceedings, especially in those cases where subject-matter is technical and requires experts of the field to act as arbitrators, will stand defeated.

Additionally, Supreme Court also clarified that legal position that dissenting opinion given by minority members of a multi-member arbitral tribunal cannot be treated as an award. It is only for the information of parties and does not form part of the award but may be admissible as evidence in relation to procedural matters in the event of a challenge or may add weight to the arguments of a party wishing to appeal against the award.

For any query, please write to Mr. Bomi Daruwala at [email protected]

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