Tuesday, 17 February 2015

Boundaries reiterated for Section 34

The present case[1] arises out of the petition filed by the Petitioner under Section 34 of the Arbitration and Conciliation Act, 1996 to assail the interim/ partial award dated 04.04.2007 passed by a three member arbitral tribunal. The dispute between the parties arose out of the differences pertaining to the quantum of deduction that could be made from the fixed lump sum price of the project, on account of exemption from customs duties and other indirect taxes (i.e. the excise duty component of the indirect taxes) granted by the Government of India in relation to the project. According to the Petitioner the agreed declared amounts of the deductions, that were permissible under the contract, were limited to Rs. 206.4 Crores as per Clause 4 of the 'contract agreement' between the parties. While the Respondent has placed reliance on the Clause 13.1 of 'General Conditions of Contract' which very clearly states that if any benefit arises due to exemption in Custom Duty or Excise Duty to the claimant (Petitioner in the present dispute), the said benefit should be passed on to the employer (Respondent in the present dispute).

The learned arbitral tribunal, on the interpretation of the clauses of the 'General Conditions of Contract' (hereinafter "GCC") along with the 'contract agreement' held that the Respondent is entitled to deductions in excess of the said amount on the basis of the "actual benefits" accrued to the Petitioner on account of exemptions.

The Hon’ble High Court upheld the decision passed by the Learned tribunal and further dismissed the petition filed by the Petitioner. Following reasons were given by the Hon’ble High Court in support of its decision dated 05.01.2015.
1.   If the intention of the parties, at the time of entering into the contract was not to pass on the benefit, beyond Rs. 206.4 Crores to the employer in case of grant of any tax/duty exemption at a later stage, they would not have included Clause 13.1 in the GCC, which forms part of the Contract. It was inserted with an aim to avoid any confusion as to who the beneficiary will be, if during the existence/course of the contract, any tax/duty exemption is granted by the Government.

It is settled law that if the arbitrator has applied his mind to the pleadings, the evidence adduced before it, and the terms of the contract, the court would not reappraise the matter as if it were an appeal. Interpretation of contractual terms is a matter within the domain of the arbitrator. Even if the interpretation adopted by the arbitrator is not the only possible view, it being a plausible view, without any patent illegality in the conclusions drawn by the arbitrator, it is beyond the scope of jurisdiction of this court under Section 34 of the Act to interfere with the award on this aspect.

Decided on:  05.01.2015 Decided by:  Delhi High Court

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