Case Note & Summary
These were cross appeals under Section 37 of the Arbitration and Conciliation Act, 1996 before the High Court of Judicature at Bombay against the order dated 16 November 2005 passed by a learned Single Judge in Arbitration Petition No.449 of 2003. The dispute arose from a tender floated by Hindustan Petroleum Corporation Limited (HPCL) for laying, testing, pre-commissioning and commissioning of an 18-inch diameter, 350 kilometre pipeline from Vishakhapatnam to Vijaywada. Larsen & Toubro Limited (L&T) submitted its bid on 23 April 1996 and was awarded the contract at a price of Rs.53,64,39,858 by Letter of Intent and Letter of Allotment dated 25 November 1996. The work was to commence on 10 December 1996 with completion by 25 November 1997. Engineers India Limited acted as Engineer-in-Charge. Extensions were granted up to 30 April 1998, but further extension to 30 June 1998 was refused. L&T claimed the pipeline was released for hydrotesting on 10 May 1998 and that HPCL pumped water on 11 May 1998; a Work Completion Certificate was issued on 20 August 1998. Disputes arose and L&T invoked arbitration on 22 August 2000. HPCL appointed its General Manager as sole arbitrator on 21 September 2000. The parties agreed that no oral evidence would be led and that they would be represented by functional department officers. The arbitrator passed an award on 4 July 2003 allowing 16 out of 30 claims for an aggregate amount of Rs.7,43,66,444 against a total claim of Rs.27,82,74,107. HPCL challenged the award under Section 34. The Single Judge set aside the award on claims 1, 2, 4, 9, 15, 16, 21(1), 21(3) and 21(4) and retained Claim No.19 relating to release of withheld liquidated damages of Rs.2,01,60,000. Both parties filed appeals. A Division Bench initially set aside the Single Judge's order on 16 September 2016 and remanded the petition. The Supreme Court, by order dated 5 April 2023 in Special Leave Petition Nos.35937 and 35938 of 2016, found that the Division Bench had erred by not rendering specific findings while accepting Claim No.19. The Supreme Court set aside the Division Bench judgment and remitted the appeals for fresh consideration. In the present appeals, L&T argued that the Single Judge exceeded Section 34 jurisdiction by re-appreciating evidence and substituting its own interpretation of the contract. It contended that interpretation of a contract is the arbitrator's domain and a plausible view cannot be set aside even if another view exists. It submitted that the arbitrator, being an expert, could rely on his expertise and that the parties had agreed to a procedure without oral evidence, so strict rules of evidence were inapplicable. L&T further argued that quantification of damages based on guesswork is not reviewable under Section 34, that clauses providing finality to the Engineer-in-Charge were not binding because they were mere opinions, and that contra proferentem required ambiguity to be resolved in favour of the contractor. Reliance was placed on several precedents including Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar, Associate Builders v. Delhi Development Authority, and Venkatesh Construction Company v. Karnataka Vidyuth Karkhane Limited. The provided judgment text ends during L&T's submissions on Claim No.2; therefore the court's final analysis and decision on the cross appeals are not available in the excerpt. The judgment was reserved on 29 July 2025 and pronounced on 8 August 2025.
Headnote
A) Arbitration - Scope of Section 34 - Limited Interference - Arbitration and Conciliation Act, 1996, Section 34 - L&T contended that the Single Judge exceeded Section 34 jurisdiction by reappreciating evidence and interpreting the contract; arbitrator's plausible view cannot be set aside even if another view possible; expert arbitrator may rely on specialized knowledge - The Court was urged to support arbitral awards rather than destroy them (Paras 6-7). B) Evidence - Arbitral Procedure - Party Autonomy and No Oral Evidence - Arbitration and Conciliation Act, 1996 - Parties agreed that no oral evidence would be led and that they would be represented by officers, thereby waiving strict rules of evidence; arbitrator's findings based on documents cannot be disturbed - L&T argued HPCL cannot complain about procedure after agreement (Para 7). C) Contract Law - Excepted Matters and Finality of Engineer-in-Charge - Arbitration and Conciliation Act, 1996, Section 34 - Distinction between 'opinion' and 'decision' of Engineer-in-Charge; clauses 5.j.2 to 5.j.4 provided opinion not binding decision; arbitrator has jurisdiction despite finality clauses - L&T relied on State of Orissa v. Dandasi Sahu (Paras 8-9). D) Contract Interpretation - Contra Proferentem and Whole Contract Reading - Arbitration and Conciliation Act, 1996, Section 34 - Ambiguous clauses must be construed strictly against the party relying on them and in favour of contractor; contract clauses read as whole; opinion of Engineer-in-Charge based on similar works not final - L&T submitted that rates derived from similar items valid (Para 9(i)). E) Damages - Quantification Based on Guesswork - Arbitral Discretion - Arbitration and Conciliation Act, 1996, Section 34 - Section 34 court cannot interfere with quantification of damages made by arbitrator on guesswork; plausible view cannot be set aside - L&T relied on Mahanagar Gas and U.P. Hotels (Para 8).
Issue of Consideration
Whether the learned Single Judge exceeded the scope of Section 34 of the Arbitration and Conciliation Act, 1996 by setting aside the arbitral award on claims 1, 2, 4, 9, 15, 16, 21(1), 21(3), 21(4) and whether Claim No. 19 was correctly retained.
Law Points
- Limited judicial review under Section 34
- interpretation of contract by arbitrator
- plausible view doctrine
- party autonomy in arbitral procedure
- no oral evidence agreement
- expert arbitrator expertise
- finality of Engineer-in-Charge decision
- excepted matter
- contra proferentem
- quantification of damages by guesswork
- support arbitral awards
