A contract was granted for installation of power cables to M/s L S Cables (LSC). The contract granting company was M/s Power Grid Corporation (PGC). The agreement was signed between the parties on 22nd May, 2003. Incidentally Central Government w.e.f 1st July 2003 extended service tax to services provided by the LSC. In other words, at the time of execution of the Agreement, cost towards service tax was not factored in by LSC. Dispute arose between the parties in regard to payment of service tax, LSC demanded reimbursement of the service tax, while PGC refused to make the payment on the ground that the bid was a ‘fixed price bid’ which was inclusive of all taxes.
The matter was referred to Arbitration, wherein the Arbitrators held that PGC is liable to reimbursement of service tax. Challenge before the Single Judge of Delhi High Court under Section 34 of Arbitration and Conciliation Act (Act) was dismissed on the ground that on objections do not fall within parameters of Section 34 of the Act. The appeal before the Division Bench of the Delhi High Court in the matter of Power Grid Corporation vs L S Cable FAO(OS) 458/2012 decided on 16th October, 2018 was dismissed for the reasons mentioned herein below.
The DB’s judgment was firstly couched in negative format-as to what the Court cannot do under Section 34, Secondly it was stated in positive-as to what is the scope of power of the Court and lastly it dealt with how should Courts deal with interpretation of Contracts in exercise of its jurisdiction.
In the negative format, the Court reiterated the established legal position that the jurisdiction of the Court under Section 34 of the Act is neither appellate nor supervisory, which means that Court cannot exercise these jurisdictions. Appellate jurisdiction in civil cases is governed by Section 96 CPC and supervisory jurisdiction is governed by Article 227 of the Constitution of India. The powers and duties of the High Court in such jurisdiction is different from one exercised under Section 34 of the Act
In an appellate jurisdiction, the Court can re-appreciate the evidence and pleadings and arrive at finding contrary/different from the Court, whose order is challenged. While in a supervisory jurisdiction the High Court can interfere with the findings of the subordinate Court by replacing its view with that of the subordinate Court.
Thus it means that Court while dealing with objections to Awards cannot re-appreciate the evidence or arrive at a finding different from the Arbitral Tribunal. The Court will have to limit its intervention only to the grounds provided in Section 34, which takes us to the second part of the judgment-the power of the Court to interfere. The High Court held that the jurisdiction is limited to ensure that the Arbitrators decision is broadly in conformity with the law and not preceded by an approach that betrays unreasonableness in procedure or outcome of that kind that would shock a court of law or disclose patently erroneous understanding of law.
In the last part of the judgment the High Court held that Section 34 would be attracted in cases where an arbitrator “travels beyond the contract”, or makes an award “contrary to the terms of the contract”. The Court however, cannot set aside awards in which there was an ‘error relatable to interpretation of the Contract’.