LI Network
Published on: 21 August 2023 at 11:15 IST
The Supreme Court has addressed a case involving the misinterpretation of contractual clauses under Section 37 of the Arbitration and Conciliation Act.
The appellant, Konkan Railway Corporation Limited, contested a Division Bench decision by the High Court, asserting that the court overstepped its jurisdiction by reinterpreting contractual clauses during the exercise of its powers under Section 37 of the Act.
The dispute in question revolves around a construction contract for a railway bridge. The respondent had initially raised claims for taxes and levies, which were rejected by an Arbitral Tribunal.
The Tribunal’s decision was subsequently upheld by a Single Judge. However, the respondent appealed under Section 37, leading the High Court Division Bench to allow certain claims based on a different interpretation of contractual clauses, particularly Clause 5.1.2 (taxes) and Clauses 7.1.1 and 7.1.2 (price variation).
The Division Bench found fault in the Arbitral Tribunal’s interpretation and went on to grant the claims. This appeal challenges the High Court’s re-interpretation of the contractual clauses, focusing on the accurate understanding of the contract terms.
The Supreme Court, comprising a three-judge bench including Chief Justice D.Y. Chandrachud, Justice Pamidighantam Sri Narasimha, and Justice J.B. Pardiwala, observed that the Division Bench had indeed erred in its approach.
The Court clarified that the jurisdiction exercised under Section 37 of the Act mirrors that of Section 34, and it is not a standard appellate jurisdiction. The Court’s interference with an arbitral award should be minimal unless the award is found to be perverse.
The Court emphasized that the Division Bench of the High Court exceeded its jurisdiction under Section 37 by attempting to re-interpret the contractual clauses.
The principle of interpreting contracts to give effect to all clauses doesn’t have an absolute application in arbitration matters. The reliance on an older case for re-interpreting contractual clauses was deemed unjustified by the Supreme Court.
The Court stated that previous cases where courts intervened under Section 37 involved clear perversity in interpretation, a criterion that was not met in the present case.
Therefore, the Supreme Court allowed the appeal, overturning the Division Bench’s judgment and restoring the decision of the Single Judge. The Court’s ruling underscores the importance of maintaining proper jurisdiction and a careful approach to interpreting contractual clauses within the framework of the Arbitration and Conciliation Act.