On October 18, 2019, the Supreme Court gave its decision in the case of State of Jharkhand v. HSS Integrated SDN & Anr. (Special Leave to Appeal (C) No. 13117 of 2019) where it dealt with the issue of the scope and ambit of judicial interference in proceedings under section 34 and 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). 

Brief Facts: 

The special leave petition arose out of a contractual dispute between the State of Jharkhand (“Petitioner”) and HSS Integrated SDN and another party (“Respondents”) in relation to a consultancy agreement, entered into between the abovementioned parties. There were certain disputes relating to non-performance and unsatisfactory nature of work done by the Respondents, however, the Petitioner granted them two extensions with the caveat that if the deficiencies were not removed, there shall be suspension of payment as per the provisions of the contract. Subsequently, the Petitioner suspended the payment and later terminated the contract due to non-compliance of the Respondents with the pending issues under the contract.  

Since the letters issued by the Respondents asking the Petitioner to reconsider the matter were not accepted, the Respondents served a legal notice and invoked the arbitration clause under the contract. After consideration of the matter, the arbitral tribunal held that the termination of the contract was illegal, and that the Petitioner had not followed the procedure as required under the contract. The aforesaid award of the arbitral tribunal was confirmed by the first appellate court in the proceedings under section 34 of the Arbitration Act and further upheld by the High Court in an appeal under section 37 of the Arbitration Act. 

Issues:  

The issue which arose for consideration before the Supreme Court was whether the findings recorded by the arbitral tribunal, which are on appreciation of evidence and considering the materials on record, can be interfered with by courts in the proceedings under sections 34 and 37 of the Arbitration Act. 

Decision: 

The Supreme Court referred to its earlier decision in National Highway Authority of India v. Progressive-MVR (JV) ((2018) 14 SCC 688), where it was held that even when the view taken by the arbitrator is a plausible view, and/ or when two views are possible, a particular view taken by the arbitral tribunal which is also reasonable should not be interfered with in a proceeding under section 34 of the Arbitration Act. 

Further, the Supreme Court reiterated the position taken in a catena of decisions, where it was held that an award passed by the arbitral tribunal can be interfered with, in the proceedings under section 34 and 37 of the Arbitration Act, only in a case where the finding is perverse and/ or contrary to the evidence and/ or the same is against public policy.  

Accordingly, it was held that in the instant case, since the findings of the arbitral tribunal were on appreciation of evidence and considering the material on record as well as on interpretation of the relevant provisions of the contract, which are neither perverse nor contrary to the evidence on record, the first appellate court and the High Court have rightly not interfered with such findings of the arbitral tribunal.

This update has been contributed by Aastha (Partner) and  Radhika Kothari (Associate).