Otsuka Chemical (India) Pvt. Ltd. vs. Trans Engineers India Pvt. Ltd.
Background
Otsuka Chemical hired Trans Engineers to build out a chemical plant expansion (the "Lion Project") in Rajasthan for a lump-sum price of Rs. 71 crore. After the work was completed and paid for, Trans Engineers later claimed roughly Rs. 28 crore more, saying it had done extra work beyond what was originally agreed because the technical drawings kept changing. A sole arbitrator rejected both sides' claims (a "NIL" award), but a Single Judge of the High Court set that award aside, ruling that Trans Engineers should get its extra payment. Otsuka appealed that reversal to a Division Bench.
Decision Breakdown
The Division Bench held that the Single Judge had gone far beyond what courts are allowed to do when reviewing an arbitration award, instead of just checking whether the arbitrator's decision was so unreasonable that no sensible person could have reached it, the Single Judge had re-read the contract and the evidence himself and substituted his own preferred interpretation. The Court reiterated that under Sections 34 and 37 of the Arbitration Act, an arbitrator is the final judge of facts and contract interpretation, and a court cannot act as an appellate court over an award merely because it thinks another view is more persuasive. Since the arbitrator's conclusion (that Trans Engineers failed to prove its extra-work claim) was a legally possible view supported by evidence, the Single Judge's interference was unjustified. The Single Judge's judgment was set aside and the original "NIL" arbitral award was restored.
Lesson Learnt
Once parties agree to arbitration, courts have very limited power to second-guess the arbitrator's reading of the contract or assessment of evidence: a court can step in only if the arbitrator's view is not even a "possible" one, not simply because a different interpretation seems fairer.