Arbitral Tribunal to decide in accordance with Contract, but if term of contract has been construed in reasonable manner, then award ought not to be set aside: SC

In the suit of UHL Power Company Ltd. v/s State of Himachal Pradesh the Supreme Court ruled that Arbitral Tribunal shall decide in accordance with Contract, but if a term of the contract has been construed in a reasonable manner, then award ought not to be set aside.

Mr. Jaideep Gupta, Senior Counsel for UHL has confined his grievance to the disallowance of the pre-claim interest i.e., interest from the date when expenses were incurred by UHL, till the date of lodging the claim. It may be noted that in terms of the award, the Sole Arbitrator had awarded a sum in favour of UHL towards expenses claimed along with pre-claim interest capitalized annually, on the expenses so incurred. Further, compound interest was awarded in favour of UHL at the rate of 9% per annum till the date of claim and in the event the awarded amount is not realized within a period of six months from the date of making the award, future interest was awarded at the rate of 18% per annum on the principal claim with interest.

Dissatisfied with the award, when the State of H.P. filed a petition under Section 34 of the Arbitration Act, vide judgment the Single Judge disallowed the entire claim of UHL.

Further the Division Bench of the High Court has awarded a sum in favour of UHL, being the actual principal amount along with simple interest at the rate of 6% per annum from the date of filing of the claim, till the date of realization of the awarded amount.

The three Judge Bench of Chief Justice of India N.V. Ramana, Justice Hima Kohli and Justice A.S. Bopanna noted that the interpretation of the relevant clauses of the Implementation Agreement, as arrived at by the Sole Arbitrator, are both possible and plausible. Merely because another view could have been taken, can hardly be a ground for the Single Judge to have interfered with the arbitral award. In the given facts and circumstances of the case, the Appellate Court has rightly held that the Single Judge exceeded his jurisdiction in interfering with the award by questioning the interpretation given to the relevant clauses of the Implementation Agreement, as the reasons given are backed by logic.

The court relied on Parsa Kente Collieries Limited v. Rajasthan Rajya Vidyut Utpadan Nigam Limited, adverting to the previous decisions of this Court in McDermott International Inc. v. Burn Standard Co. Ltd. And Others and Rashtriya Ispat Nigam Ltd. V. Dewan Chand Ram Saran, wherein it has been observed that an Arbitral Tribunal must decide in accordance with the terms of the contract, but if a term of the contract has been construed in a reasonable manner, then the award ought not to be set aside on this ground.

The court while partly allowing the appeal preferred by UHL upheld the decision of the Appellate Court that has restored the findings returned in the arbitral award to the effect that the State of Himachal Pradesh had proceeded to terminate the Implementation Agreement before expiry of the prescribed period which could have been extended up to 24 months, reckoned from the “effective date”. In the instant case, the State of H.P. had terminated the Implementation Agreement five months prior to the stipulated period by adopting a distorted interpretation of Clause 4 of the Implementation Agreement, which was impermissible.

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