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Arbitration & Commercial LawSupreme Court of India

M/s Harish Chandra & Company v. State of U.P. Thr. Superintending Engineer

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 8829 of 2016)Decided 8 Sept 2016
Civil Appeal No. 8829 of 2016
Justice J. Chelameswar · Justice Abhay Manohar Sapre

Background

A civil contractor, M/s Harish Chandra & Company, had executed two agreements with the State of U.P. (Irrigation Department) in 1979-80 for earthwork and drainage construction under the Khara Hydel Scheme. Disputes arose over completion, payment, and deductions, and the matter went to arbitration; the sole arbitrator in 1995 allowed three of the contractor's claims (awarding roughly Rs. 55.6 lakh) and rejected the State's counter-claims entirely. The Civil Judge, Dehradun upheld the award in 1996, but the High Court of Uttarakhand, on the State's appeal, set the award aside in 2007, holding that the arbitrator had "misconducted himself" by travelling beyond the agreement's terms. The contractor appealed to the Supreme Court against the High Court's order (a connected, duplicate SLP by the same contractor was separately withdrawn with liberty to pursue a review before the High Court).

Decision Breakdown

The Supreme Court held that under Section 30 of the Arbitration Act, 1940, a court examining objections to an award cannot sit as an appellate court re-appreciating evidence; interference is permissible only where the arbitrator's reasoning is perverse, legally impossible, or based on a wrong proposition of law. Reviewing the arbitrator's reasoned award claim-by-claim, the Court found no perversity or legal misconduct: the arbitrator had considered the oral and documentary evidence and arrived at one of the possible reasonable views. It therefore held that the High Court had erred by effectively re-deciding the merits as a first appellate court, allowed the contractor's appeal, set aside the High Court's judgment, and restored the Trial Court's decree upholding the arbitral award. The connected, separately-filed SLP (No. 23950/2007) by the same contractor was permitted to be withdrawn, with liberty to pursue a review petition before the High Court if needed.

Lesson Learnt

Courts reviewing an arbitral award under the (now repealed) Arbitration Act, 1940 have a very narrow scope of interference: they cannot re-weigh the evidence like an appellate court, and an award can only be upset for genuine legal misconduct or perversity, not merely because the arbitrator's view differs from what a judge might have decided.

M/s Harish Chandra & Company v. State of U.P. Thr. Superintending Engineer – Legal Case Shots | LegalAware