Delhi High Court: Microscopic Examination not permissible Under Section 37, but an unreasoned or non-speaking Arbitral Award can be set aside.

1. Brief Facts

National Project Construction Corporation Limited (NPCC/Appellant) is a government company that was awarded a contract by Sardar Sarovar Narmada Nigam Limited (SSNNL/principal employer) for the construction of four aqueducts at rivers Deo, Karad, Mesari, and Kun. The present dispute pertains specifically to the construction of aqueducts over river Kun .

The Appellant issued a work order (No. 32/0007) to M/s S.S. Sharma and Company (Respondent) for sinking of circular wells and other connected works for an amount of Rs. 23,34,000/- with a completion period of 18 months . The Respondent could not complete the entire awarded work within the stipulated time and only completed work worth Rs. 1,69,937/- in about six and a half months. Consequently, the Principal Employer terminated the contract on 14.05.1992 .

Prior to the termination, the Respondent had stopped work effective 28.02.1992, allegedly due to its failure to pay its workmen despite having its bills cleared by the Appellant. On 05.05.1997, the Respondent submitted a claim before the learned Sole Arbitrator for an amount of Rs. 18,00,000/- along with interest payable at the rate of 24% per annum from the date of award till actual payment .

The Sole Arbitrator passed an award on 15.10.2003. Aggrieved by this award, the Appellant filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the Additional District Judge, South-01, Saket. The ADJ dismissed the Section 34 Petition vide judgment dated 20.12.2022, which was challenged in the appeal under Section 37 of the Act .

2. Arguments of the Parties

(a) Arguments of the Appellant

The learned Counsel for the Appellant raised an objection that goes to the very root of the matter, contending that although the learned ADJ recorded the submissions advanced by the Appellant, the impugned judgment neither addressed nor engaged with these submissions on merits. Instead, the impugned judgment merely quoted principles and judgments relating to Section 34 without demonstrating how they applied to the facts of the present case. 

The Appellant further submitted that the impugned award was based on mere conjectures and surmises, and the impugned judgment gave no reasons for its conclusions, making it bad in law. In particular, the Appellant challenged the grant of claims for idle labor and loss of profits in favour of the Respondent, arguing that the impugned award did not disclose any discernible basis for such findings.

The Appellant specifically argued that the Arbitrator had not relied on evidence but rather acted on assumptions by presuming that about fifty workmen must have been at the site while awarding idle labor charges in favour of the Respondent .

(b) Arguments of the Respondent

The learned Counsel for the Respondent argued that the present appeal was essentially a last-ditch attempt by the Appellant to challenge the impugned award . He contended that both the impugned award and the impugned judgment were well-reasoned and did not warrant any interference by the Court. The Respondent therefore prayed that the impugned award dated 15.10.2003 and the impugned judgment dated 20.12.2022 should be upheld by the Court .

3. Reasoning and Findings of the Court

The Court began by acknowledging the limited scope of jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996. It noted that when a specific challenge against an Arbitral award is made under Section 34, the Court does not function like an appellate forum . It is not permissible for a Court under Section 34 to re-appreciate evidence or re-examine the merits of a dispute, as would ordinarily be done in a regular appeal .

The Court cited the Supreme Court's decision in Larsen Air Conditioning & Refrigeration Co. v. Union of India, (2023) 15 SCC 472, which observed that the jurisdiction conferred on a Court under Section 34 is narrowly tailored, and when it comes to the scope of an appeal under Section 37, the jurisdiction of the Appellate Court is even more circumscribed  .

However, the Court emphasized that despite this limited scope and jurisdiction, when a party raises a valid challenge against an Award under Section 34(2), the Court must examine those objections by applying its mind and engaging with them . The narrowly tailored jurisdiction does not mean that a Court can summarily note down the objections raised by the challenger in a cursory manner without engaging with the objections on merits or assigning cogent reasons for rejecting them .

The Court referred to the principle that judicial and quasi-judicial authorities must provide reasons in support of their conclusions, citing the Supreme Court's decision in Woolcombers of India Ltd. v. Woolcombers Workers Union & Anr., (1974) 3 SCC 318 . The Court also cited Bombay Slum Redevelopment Corpn. (P) Ltd. v. Samir Narain Bhojwani, (2024) 7 SCC 218, which reiterated that the remedy of appeal would not be effective unless there is a power of remand vested in the appellate authority .

Upon examining the impugned judgment, the Court found considerable weight in the arguments raised by the Appellant. It observed that the impugned judgment dated 20.12.2022 was indeed unreasoned, non-speaking, and did not deal with the merits of the issues raised by the Appellant. The Trial Court had noted about 28 contentions raised by the Appellant and broadly clubbed these grounds under three heads, but there had been no assessment of these grounds on merits, nor had it been examined whether any of these grounds crossed the threshold under Section 34(2) of the Act  .

The Court noted that while a microscopic analysis of each individual ground might not be mandatory, the impugned judgment did not demonstrate any engagement with the allegations of perversity, irrational reasoning, and absence of proper evidence. For instance, regarding the Appellant's argument about the Arbitrator's presumption of fifty workmen at the site, the Trial Court had not examined whether the Arbitrator actually relied on any evidence for determining the number of workmen.

The Court found that the Trial Court had summarily noted down the three broad heads of objections and generically summarized the law concerning the applicability of Section 34 without explaining how the law applied to the facts of the present case . The Court concluded that there had been a vague and incomplete application of Section 34 jurisdiction, with nothing to show how the judgments cited in the impugned judgment concurred with the observations made therein. 

The Court also noted that the impugned judgment was cryptic to the extent that it did not mention any reply filed by the Respondent, and the issues flagged for consideration had been left unanswered. With these gaps and consequently unanswered issues/objections, the impugned order was rendered vague and ambiguous .

4. Final Conclusion / Operative Part

The Court concluded that the impugned judgment was liable to be set aside on the grounds that it was non-speaking, unreasoned, and did not appropriately exercise jurisdiction under Section 34 of the Act . The Court deemed it appropriate to remand the matter back to the Trial Court for fresh consideration of the Section 34 petition on merits .

Considering that the impugned award had been passed in 2003 and almost 22 years had elapsed since then, the Court directed the Trial Court to ensure that the objection petition be positively disposed of within 2 months of the date of pronouncement of this judgment . The Court clarified that the observations made in this judgment were confined solely to the Trial Court's jurisdiction under Section 34 of the Act, and nothing stated therein should be construed as an expression on the merits of the case. The appeal was allowed along with any pending applications. 

Read the entire Judgment.