Supreme Court, in the judgement rendered in Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corporation. Ltd¹., held that the arbitrator has the right to construe and interpret the terms of the contract in a reasonable manner and such interpretation should not be a ground to set aside the award, as the construction of the terms of the contract is finally for the arbitrator to decide.

Background of the Dispute:
On acceptance of the tender and in terms of the letter of intent, Hindustan Petroleum Corporation. Ltd (HPCL) had awarded Batliboi Environmental Engineers Ltd. (BEEL), the turnkey contract for detailed engineering including civil and structural design, supply, and erection, testing and commissioning of 23 MLD capacity Sewage Water Reclamation Plant in the Mahul Refinery area in the year 1992. As per the Contract, the work was to be completed within 18 months. There was a delay in completion and on written requests made by BEEL, the time for completion was extended on two occasions. BEEL carried on the work till 1996 and thereafter, it abandoned the work. Hence, 80% of the work was complete and BEEL made a formal claim to HPCL for breach of contract on account of delay in execution, causing extra expenses and losses.

By the letter, BEEL sought an advance payment and simultaneously expressed its desire to resolve the dispute through conciliation. It also invoked the arbitration clause in the contract, if the proposal as given by it was unacceptable to HPCL; however, HPCL refused to make payment, and relying on the terms of the contract had impressed upon BEEL to resume and complete the remaining work, even if the matter was to proceed for arbitration. Still, BEEL did not agree to resume work. A Sole Arbitrator was appointed and the arbitral award substantially allowed the claims of BEEL and dismissed the counterclaim of HPCL for liquidated damages of Rs. 57.40 lakhs, on the ground that omissions and commissions of HPCL caused the delay. However, the High Court set aside such an arbitral award aggrieved by which, BEEL filed an appeal.

Court’s Analysis:
The Court, while analyzing the dispute, expanded the scope and expanse of the jurisdiction of the Court under Section 34² of the Arbitration and Conciliation Act, 1996 and observed that the foundation of arbitration is party autonomy, per contra the party autonomy should not be treated as an absolute defence against the constitutional and basic human right to have a fair and just resolution of the disputes, even if a party had agreed to refer the disputes/claims to a private tribunal consensually. The Court also observed that courts must exercise their powers when the award is unfair, arbitrary, perverse, or otherwise infirm in law. The Court explained that arbitration is a private form of dispute resolution, however, the arbitral proceedings must meet the juristic requirements of due process and procedural fairness and reasonableness, to achieve a ‘judicially’ sound and objective outcome or award. Further, the Court observed that the award which does not accommodate these juristic requirements and the outcome is marred, calls for intervention of Courts.

The Bench relied on its earlier decision in Associate Builders v. Delhi Development Authority³, wherein it was observed that the public policy test to an arbitral award does not give jurisdiction to the Court to act as a court of appeal and correct error of facts. The Court further observed that an Arbitral Tribunal is the ultimate master of quality and quantity of evidence. An Award cannot be regarded invalid merely for being passed upon little or no evidence. It is not imperative for every Arbitrator to be trained in law like a Judge. Even if decisions are passed over equity, being just and fair, such decisions cannot be set aside alleging arbitrariness. Regarding the concept of justice and morality, the Court observed that these are different concepts, and an award is against justice when it shocks the conscience of the Court and morality would necessarily cover agreements that are illegal and also those which cannot be enforced given the prevailing mores of the day.

Conclusion:

Eventually, the Court opined that the finding in the award that HPCL was wholly responsible for the inordinate delay that had occurred by not taking proper and timely action in the removal of various impediments and obstacles that stood in the way of completing the project within a stipulated period of 18 months was flawed. The Court further opined that the arbitral award was bereft of analysis and examination of facts and the amount payable as compensation by HPCL to BEEL was erroneous as there was no method and manner specified by the arbitral tribunal to arrive at this computation, as the arbitrator did not specifically refer to any formula or method, and the figures to compute damages under the head of loss on account of overheads and profits/profitability.

The Court concluded that the arbitral award in the present case was manifestly lacking reasoning for the award and held that the arbitral award was rightly set aside by the High Court. The appeal was accordingly dismissed.

By - Prachi Pandey