In the case of South East Asia Marine Engineering and Constructions Ltd (Seamec Ltd) vs Oil India Limited, Supreme Court Bench comprising of Justice N.V Ramana, Justice Mohan M. Shantanagoudar and Justice Ajay Rastogi held that Award of an Arbitral Tribunal should not be interfered with unless there are conclusive reasons to believe that the interpretation adopted by the Tribunal of the Contractual Terms, is perverse and has patent illegality.
Apex Court was approached by the appellant by preferring an SLP against the impugned judgment of the Guwahati High Court. The learned High Court reversed the award given by the Arbitral Tribunal in favour of the appellant, that is, South East Asia Maine Engineering and Constructions Ltd.
SC Bench The Cheld in its judgment upheld the impugned judgment and reiterated the settled position of interpretation of laws, that is, “the thumb rule of interpretation is that the document forming a written contract should be read as a whole and so far as possible as mutually explanatory.”
Brief Facts of the Matter:
The appellant was awarded the work order dated 20.07.1995 in pursuance of a tender floated by the respondent, that is, Coal India Ltd. The contract was for the purpose of well drilling and other auxiliary operations in Assam. The contract was initially valid for two years but eventually it was renewed till and extended to 2002.
During the subsistence of the contract, the price of High Speed Diesel (HSD) was increased. HSD was one of the essential materials for carrying out drilling operations. Claiming that increase in price of HSD, constituted a part of “change in law” in terms of Clause 23 of the Contract, the appellants approached the respondent for reimbursing the increased price. The respondent however rejected the claim.
Thus, invoking the Arbitration Clause in the Contract, the appellant approached the Arbitral Tribunal. In 2003, holding that increase in HSD constituted a ‘change in law’ in terms of Clause 23, the Tribunal issued an award of around Rs 99 lac in favour of the appellant along with an interest rate of 10% per annum.
The Respondent challenged the award u/s 34 of Arbitration and Conciliation Act, 1996 (Arbitration Act) before the District Judge. In 2006, the award of the Tribunal was upheld by the District Judge. Aggrieved by this, the Respondent filed an appeal u/s 37 of the Arbitration Act before the Guwahati High Court. Holding the interpretation of the Contractual Terms (by the Tribunal) as erroneous and against public policy, the High Court allowed the appeal and set aside the arbitral award. Thus, the present SLP was preferred.
Contentions of the Parties:
The Counsel for the petitioner contended that Clause 23 is a matter of interpretation and the Tribunal’s interpretation is correct. The Counsel contended that if two views are possible on a question of law, the High Court cannot substitute one view and deference should be given to plausible view of the Arbitral Tribunal. Calling the additional reimbursement as perverse and patently illegal, the Counsel for the Respondent argued that the arbitral award is contrary to the Contractual Terms and it essentially re-writes the contract.
Supreme Court
The question that came for the court’s consideration was; whether the interpretation provided to the contract in the award of the Tribunal was reasonable and fair, so that the same passes the muster under section 34 of the arbitration act?
Before deciding the matter on its merit, the Court looked into the ambit and scope of the court’s jurisdiction under section 34 of the Arbitration Act by; reiterating the provision of Section 34, the position taken by the Supreme Court on previous occasions on this section; and by reproducing important paragraphs of the orders of the Arbitral Tribunal and the order and judgment of the High Court.
The Court also laid down the settled position of law with respect to interference by the Apex Court in award given by an Arbitral Tribunal, by supplying emphasis in its earlier judgment in the case of Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd.[1] wherein the court held that; “there is no dispute that Section 34 of the Arbitration Act limits a challenge to an award only on the grounds provided therein or as interpreted by the Courts, we need to be cognizant of the fact that arbitral awards should not be interfered with in a casual manner, unless the Court comes to a conclusion that the perversity of the award goes to the root of the matter without there being a possibility of alternative interpretation which may sustain the arbitral award.” The court further observed that the power given to Courts u/s 34 should not be equated with the power they have in their appellate jurisdiction.
After having looked into the scope of jurisdiction u/s 34, the Court looked in the merits of the case. With respect to the Tribunal’s finding about Clause 23, the Court held that “the thumb rule of interpretation is that the document forming a written contract should be read as a whole and so far as possible as mutually explanatory,” and that this basic rule was ignored by the Arbitral Tribunal, which expanded the meaning of clause 23 to include change in rate of HST as part of ‘changed law.’ The Court held that such a wide interpretation is not possible for this contract, as; (a) the appellant did not introduce any evidence which proves the same; and (b) the contract was not interpreted in its entirety, to ascertain the intention of the parties, rather a portion of the it was interpreted separately.
In order to ascertain the intention of the parties; the apex court looked into the terms of the contract as a whole and thus, reached to the conclusion that the contract was entered between the parties in furtherance of a tender issued by the respondent and after considering the tender fit, the appellant issued letter of intent; in furtherance of which the contract for drilling was came into existence. The Court reflected upon the fact that the contract price was payable to the contractor for full and proper performance and also certain other clauses of the contract stated that the rates, term and conditions were to be in force until the completion or abandonment of the last well from being made. Therefore, the Court reached the conclusion that the contract was based on a fixed rate and the appellant by issuing a letter of intent to the tender application called by the Respondent, mitigated the risk of such increase in price in future. Moreover, a prudent contractor is aware of the possible price fluctuation and therefore, the appellant should have included the increased expected fluctuation in essential materials in terms of the contract. Therefore, the Court held that, the price fluctuation cannot be brought under clause 23 unless the language specifically points to such inclusion.
Decision of the Supreme Court
The Supreme Court, for the reasons specified above, did not feel it right to interfere with the order and judgment of the Guwahati High Court and thus, the appeal was dismissed.
Read Judgment @LatestLaws.com:
[1] 2019 SCC Online SC 1656
