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State of Orissa v. M/s. Samantaray Constn. Pvt. Ltd. & Anr.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 2991 of 2007)Decided 11 Sept 2015
Civil Appeal No. 2991 of 2007
Justice Anil R. Dave · Justice Adarsh Kumar Goel

Background

A contractor was awarded a barrage-construction contract by the State of Orissa, but after delays the State terminated the contract and seized the contractor's construction machinery. An arbitrator later awarded the contractor Rs. 3 crore in "hire charges" for the machinery that had been seized, along with other sums. The District Judge set aside this award as illegal, but the High Court reversed the District Judge and restored the arbitrator's award in full, prompting the State to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that while courts cannot normally re-appreciate evidence or substitute their own view for an arbitrator's on merits, an award can be set aside where it is perverse or shows non-application of mind. It found the arbitrator had awarded Rs. 3 crore in hire charges without ever ascertaining the actual value of the seized machinery, since compensation for loss of use of equipment cannot ordinarily exceed the equipment's own price, this was a patent, unreasoned excess. Rather than remanding the issue (which would cause further delay), the Court itself recalculated the figure from the material already on record, noting the machinery's purchase invoice value, and reduced the award on this one item from Rs. 3 crore to Rs. 1.25 crore (inclusive of pre-award interest), upholding the rest of the award unchanged, with only the mechanical final calculation left to the Executing Court.

Lesson Learnt

An arbitral award, though largely immune from merits-review by courts, can still be struck down or modified where it is internally perverse or unreasoned: for instance, awarding compensation for loss of equipment use that exceeds the equipment's own value without any explanation.

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

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