Case Note & Summary
The petitioner, Hindustan Petroleum Corporation Ltd., challenged an arbitral award dated 2 March 2009 passed by a sole arbitrator under Section 34 of the Arbitration and Conciliation Act, 1996. The dispute arose from a contract for supply of 28 stainless steel heat exchangers for the petitioner's Green Fuels Project. The respondent, TEMA India Limited, was the contractor. The arbitrator directed the petitioner to release and pay Rs. 2,66,48,000 withheld from bills payable to the respondent, along with interest at 8% per annum from 9 September 2008 till payment. The arbitrator also rejected the respondent's claim for loss of profits as not pressed or substantiated. The petitioner contended that the award was perverse and contrary to the contract terms, as the withholding was justified due to alleged defects. The court, after hearing arguments, held that the scope of interference under Section 34 is limited to patent illegality or perversity. The arbitrator's findings were based on evidence and a plausible interpretation of the contract. The court found no error in the award of interest, as it was within the arbitrator's discretion. Consequently, the petition was dismissed, upholding the award.
Headnote
A) Arbitration - Section 34 Challenge - Patent Illegality - The court examined whether the arbitral award suffered from patent illegality or perversity. Held that the scope of interference under Section 34 of the Arbitration and Conciliation Act, 1996 is narrow and does not permit reappreciation of evidence or correction of errors of fact. The Arbitrator's findings on contractual obligations and withholding of payments were based on evidence and plausible interpretation, hence not interfered with. (Paras 1-10) B) Contract Law - Withholding of Payments - Interpretation of Contract - The dispute arose from a contract for supply of heat exchangers where the respondent withheld payment alleging defects. The Arbitrator found that the petitioner had fulfilled its obligations and the withholding was unjustified. Held that the Arbitrator's interpretation of the contract terms, being a possible view, is binding and not open to challenge under Section 34. (Paras 2-8) C) Interest - Award of Interest - Discretion of Arbitrator - The Arbitrator awarded interest at 8% per annum from the date of filing of claim. The court held that the rate of interest is within the Arbitrator's discretion and not shockingly high or low, hence no interference warranted. (Para 9)
Issue of Consideration
Whether the arbitral award directing release of withheld amount of Rs. 2,66,48,000 with interest at 8% per annum suffers from patent illegality or perversity warranting interference under Section 34 of the Arbitration and Conciliation Act, 1996.
Final Decision
The court dismissed the petition, upholding the arbitral award dated 2 March 2009. The petitioner was directed to pay Rs. 2,66,48,000 with interest at 8% per annum from 9 September 2008 till payment.
Law Points
- Scope of interference under Section 34 of the Arbitration and Conciliation Act
- 1996 is limited to patent illegality or perversity
- not reappreciation of evidence
- Arbitrator's interpretation of contract terms is final if plausible
- Interest rate awarded by Arbitrator is discretionary and not to be interfered with unless shockingly high or low.
