Construction Of Terms Of Contract Must Be Primarily Decided By Arbitrator, Not Court U/S 34 Of Arbitration Act: Delhi High Court

The Delhi High Court bench of Justice Dinesh Kumar Sharma has held that Construction of the terms of the contract is primarily for the arbitrator to decide, unless it is found that such a construction is not at all possible. Brief Facts: After a competitive bidding process, a contract was entered into between the petitioner and the respondent. The contract required the supply of 8000 MT of rails within 3 months from the date of establishment of the letter of credit. There were provisions in the contract for liquidated damages in case of delays. The respondent delivered all lots but with delay. Thereafter, the petitioner encashed the performance bank guarantee. Consequently, an arbitration clause was invoked by the respondent and the Arbitral Tribunal was constituted. The AT passed the impugned award in favor of the respondent and rejected all the claims of the petitioner. Contentions: The petitioner submitted that the Respondent concealed the real reason for the delays—namely, the removal of rust from Lot-1 rails stored in Mumbai—which was not disclosed to the Petitioner and falls far outside the scope of Force Majeure. It is the case of the petitioner that the Supreme Court in 'ONGC v. Afcons Gunanusa JV' (2022) held that unilateral modifications to contractual terms by an arbitral tribunal are impermissible. It was also argued that the Supreme Court in 'Amiraj Construction Co. v. State of Maharashtra', 1987 and 'State of Orissa v. Modern Construction Co.' (1972) held that unreasonable conduct and deviations from agreed terms constitute misconduct, warranting judicial intervention. The respondent submitted that under clause 33 of the GCC extension of time granted cannot be withdrawn. Reliance was placed on the Supreme Court judgment in 'North Delhi Municipal Corporation v. IJM Corporation Berhad' (2022). It was further contended that Extension of time cannot be retrospectively reassessed to the detriment of the contractor. It was also argued that encashment of the PBG by the petitioner was illegal and contrary to the terms of the contract. Lastly, it was submitted that the Petitioner failed to demonstrate or quantify any actual loss suffered due to the alleged delays. As per 'Maula Bux v. Union of India (1970) and Kailash Nath Associates v. Delhi Development Authority' (2015) the burden of proving actual loss rests on the claimant and in view thereof the Petitioner‟s unsubstantiated claims regarding losses were unsustainable. Observations: The court at the outset traced the jurisprudence with respect section 34 of the Arbitration Act.It referred to the Supreme Court judgment in MMTC Ltd. V.JM. Combine (2019) where it was held that an arbitral award can be set aside if it is arbitrary, capricious, perverse or shocks the conscience of the court. The award passed by the arbitrator can also be set aside when the illegality is not trivial but goes to the root of the matter. An arbitral award may not be interfered with if the view taken by the arbitrator is a possible view based on facts. Similarly, the Apex Court in K. Sugumar v. Hindustan Petroleum Corporation Ltd. (2020) held that there is the highly constricted power of the court to interfere with an arbitral award for the reason that if parties have chosen to avail an alternate mechanism for dispute resolution, they must be left to reconcile themselves to the wisdom of the decision of the arbitrator and the role of the court should be restricted to the bare minimum. Based on the above, the court observed that it is no longer res integra that arbitral tribunals possess the jurisdiction to interpret contracts based on their terms, the conduct of the parties, exchanged correspondences, surrounding circumstances, and pleadings. Construction of the terms of the contract is primarily for the arbitrator to decide, unless it is found that such a construction is not at all possible. The Supreme Court in Parsa Kente Collieries Limited v. Rajasthan Rajya Vidyut Utpadan Nigam Limited, 2019 held that “an Arbitral Tribunal must decide in accordance with the terms of the contract but if a term of the contract has been construed in a reasonable manner, then the award ought not to be set aside on the ground there could be any other interpretation.” The court noted that the learned AT meticulously evaluated the material presented before it and thoroughly examined the documents filed by the parties. The learned AT, in its detailed and reasoned award, addressed each claim and counterclaim with due regard to the terms of the contract, the conduct of the parties, and the applicable legal principles. It also noted that the learned AT‟s findings demonstrate that it carefully balanced the contractual provisions, the actions and inactions of the parties, and the principles of fairness. The counterclaims raised by the petitioner were also addressed comprehensively. The...

Construction Of Terms Of Contract Must Be Primarily Decided By Arbitrator, Not Court U/S 34 Of Arbitration Act: Delhi High Court

Mohd Malik Chauhan

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