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Arbitral Award can’t be questioned based on Arbitrator’s failure to appreciate facts: Atlanta Limited vs Union of India

Mahima Prabhu ,
  22 January 2022       Share Bookmark

Court :
THE SUPREME COURT OF INDIA
Brief :

Citation :
CA. NO. 1533 OF 2017

DATE OF JUDGMENT:
18/01/2022

BENCH:
CHIEF JUSTICE OF INDIA, MR. N.V. RAMANA, JUSTICE MR. A.S. BOPANNA AND JUSTICE MS. HIMA KOHLI

PARTIES:
PETITIONER: ATLANTA LIMITED REPRESENTED THROUGH ITS MANAGING DIRECTOR
RESPONDENT: UNION OF INDIA REPRESENTED BY CHIEF ENGINEER, MILITARY ENGINEERING SERVICE

SUBJECT

In this case the Supreme Court ruled that the arbitral judgement could not be overturned because the arbitrator reached his own opinion or failed to comprehend the circumstances.

LEGAL PROVISIONS

1) Section 30 and 33 of the Arbitration Act, 1940

2) Kwality Manufacturing Corporation v. Central Warehousing Corporation

3) Arosan Enterprises Ltd. v. Union of India And Anr.

4) Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar & Anr.

5) State of Rajasthan v. Puri Construction Co.Ltd &Anr.

OVERVIEW

  1. Atlanta Limited ("Atlanta"), a construction firm, entered into a deal with the Union of India (UoI) on November 16, 1988, for the building of an airstrip and related operations at the Airbase, Arakonam, for a sum of Rs. 19,58,94,190.
  2. The agreement indicated that the project would be completed within 21 months from the start date. According to the UoI, the site was given over on November 24, 1988, and hence the completion date should be August 23, 1990.However, Atlanta stated that due to water logging, construction could only begin on January 1, 1989. The UoI approved three extensions, the first until 31.12.1990, the second until 30.06.1991 and the third until 31.03.1992. Atlanta stated that just by mid-March, it had finished significant part of airstrip and the cab track.
  3. On March 11, 1992, the land was passed across to the University of Ireland for opening reasons. Atlanta's demand for credentials to allow personnel, operators, and workers into the city was later denied. On April 2, 1992, it was announced that the deal will be cancelled. Atlanta challenged the arbitration clause, which resulted in the appointment of a Single Arbitrator.
  4. The Arbitrator granted Rs. 25,96,87,442.89 to Atlanta, comprising interest up to 31.03.1999, after considering the charges and counterarguments. The UoI was also ordered to pay future interest at the rate of 18 percent per annum on the principal sum.
  5. The Union of India received Rs. 1,42,255 in addition to interest. Unhappy with the result, UoI filed a suit under Section 30 read with Section 33 of the 1940 Act, which was denied by the sole judge and a judgment was issued.
  6. The amount awarded to Atlanta for inactive rental fees and the worth of the equipment and machinery was reserved on request by the Division Bench.

ISSUES

Whether arbitral award be challenged if the arbitrator has failed to appreciate the facts?

JUDGMENT ANALYSIS

  1. A panel consisting of Chief Justice of India N.V. Ramana, Justices A.S. Bopanna and Hima Kohli permitted a plea challenging the command of the Madras High Court's Division Bench, which had reserved the Single Judge's ruling and verdict enshrining the arbitral award to the degree that it awarded cash for inactive hire fees and the worth of techniques and equipment and machinery.
  2. The Court stated that the extent of the clauses is really restricted, quoting Kwality Manufacturing Corporation v. Central Warehousing Corporation (2009), Arosan Enterprises Ltd. v. Union of India AndAnr. (1999), and Municipal Corporation of Delhi v. Jagan Nath Ashok Kumar and Anr. (1987), and that the Judge should not re-evaluate or recognise proof or investigate adequacy of proof. Only the Arbitrator's or the hearings' egregious error or wrongdoing can necessitate the Court's intervention.
  3. The Court cited State of Rajasthan v. Puri Construction Co. Ltd. And Anr. (1994), to say that an award cannot be contended based on what the arbitrator had concluded on his own or on the grounds that he had failed to appreciate the facts.
  4. The Court noted that the Arbitrator had gone through the humongous records and acknowledged quite so many as twenty explanations for the postponement in finishing the tasks, including water logging, an increase in the amount of work to be completed, modifications occasionally instructed by the UoI, commands authorised by the UoI to acquire advanced machines and tools further than the agreement, non-availability of petroleum products due to the Gulf crisis, fragmented implants given by the UoI, and work stopped for the opening ceremony.
  5. The Court stated that the Arbitrator had determined that the UoI's time extension was insufficient. The Court reasoned that the arbitrator had exhaustively explained and offered compelling grounds for adopting a certain position, so the Division Bench should not have replaced the Arbitrator's finding with its own, particularly in the operation of restricted authority under Sections 30 and 33 of the Arbitration Act, 1940.
  6. As a result, the Court determined that the Division Bench had exceeded the statute's limitations.
  7. The Court held that the Division Bench's inference that Atlanta should not be granted finances for inactive hire charge and worth of equipment because it was forced to remove the machines from the location was clearly incorrect, because an arbitral award cannot be challenged on the basis that the Arbitrator reached its very own outcome or failed to recognise definite information, especially when clear and concise explanations have indeed been supplied by them.
  8. The Court went on to say that the Provision alluded to by Mr. Jain even as "excepted matters" was considered, examined, and then deemed utterly irrelevant to the facts of the case by the Arbitrator. The Supreme Court also dismissed the argument that the Arbitrator had engaged in improper behaviour.

CONCLUSION

The Supreme Court emphasised on 18th Jan 2022 that an Appellate Division wielding control under Sections 30 and 33 of the Arbitration Act, 1940 should not analyse or reappraise proof or evaluate its adequacy. The Supreme Court further decided that the arbitral judgement could not be overturned because the arbitrator reached his own opinion or failed to appreciate the evidence.

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