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Parsa Kente Collieries Ltd. v. Rajasthan Rajya Vidyut Utpadan Nigam Ltd.

Civil Appeal · 2019 INSC 687Decided 27 May 2019
Civil Appeal No. 9023 of 2018
Justice Arun Mishra · Justice M.R. Shah

Background

Parsa Kente Collieries (a joint venture company) had a coal supply agreement with Rajasthan Rajya Vidyut Utpadan Nigam (a state power generation company). Due to delays in getting forest and environmental clearances, actual coal supply started about 21 months later than originally scheduled. Disputes arose over price escalation, fixed costs for under-utilised plant capacity, and money held in an escrow account, which went to arbitration. The arbitrator ruled substantially in the coal company's favour on all three heads, and a Commercial Court upheld the award, but the Rajasthan High Court, hearing a further appeal, set aside the entire award in favour of the power company.

Decision Breakdown

The Supreme Court held that courts reviewing arbitral awards have very limited power to interfere: they cannot second-guess a "possible and plausible" interpretation of a contract merely because another interpretation was also available. Applying this standard, the Court restored the arbitrator's award on the price-escalation claim, agreeing that the arbitrator's reading of the contract's price-escalation clauses was reasonable and that the High Court had overstepped its narrow review role. However, it upheld the High Court's reversal of the award on the "fixed costs" claim (since the actual coal-lifting records contradicted the claimed loss) and on the "escrow account" claim (since the coal company had itself earlier agreed to the escrow arrangement). The appeal was thus allowed only in part.

Lesson Learnt

When a commercial dispute goes to arbitration, courts will not overturn the arbitrator's reasonable interpretation of a contract just because a different view was also possible: judicial interference with arbitral awards is meant to be the exception, not routine appellate review.

Official source (sci.gov.in)View Judgment (PDF)

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