Supreme Court of India
UHL POWER COMPANY LTD.versusSTATE OF HIMACHAL PRADESH
- Citation
- 2022 INSC 20
- Decided
- 7 January 2022
- Disposal
- Disposed off
- Bench
- N V RAMANA
Holding
Arbitrators may award post‑award interest, courts’ jurisdiction under Section 34 is limited to public‑policy grounds, the MoU merged with the Implementation Agreement, the State’s termination was premature, and the Single Judge exceeded his jurisdiction, so the award with interest is restored.
Summary
UHL Power Company Ltd. and the State of Himachal Pradesh appealed a High Court judgment that had set aside a 2005 arbitral award. The Supreme Court examined whether an arbitrator may award post‑award interest (interest on interest/compound interest) and held that, following Hyder Consulting (UK) Ltd., such interest can be granted. It clarified that the court’s jurisdiction under Section 34 of the Arbitration and Conciliation Act, 1996 is narrowly limited to public‑policy grounds and cannot overturn a plausible interpretation of contract terms by the arbitrator. The Court found that the 1992 Memorandum of Understanding was incorporated as Appendix A of the 1997 Implementation Agreement, thereby merging the MoU into the Agreement. Consequently, the disputes under the MoU fell within the arbitration clause of the Implementation Agreement. The Court also held that the State had terminated the Implementation Agreement prematurely, contrary to the extension provisions in Clause 4, and that the Single Judge had exceeded his jurisdiction in re‑appraising the award. The Supreme Court restored the arbitral award with post‑award interest in favour of UHL and dismissed the State’s appeal.
Issues considered
- Whether an arbitrator can award post‑award interest (interest on interest/compound interest) under the Arbitration and Conciliation Act, 1996.
- Whether the court may interfere with an arbitral award on the basis of an alternative interpretation of contract terms under Section 34.
- Whether the 1992 Memorandum of Understanding merged into the 1997 Implementation Agreement.
- Whether the State of Himachal Pradesh terminated the Implementation Agreement prematurely in violation of Clause 4.
- Whether the Single Judge erred in setting aside the arbitral award and restoring a lower amount.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 31(7)(b), s. 34, s. 34(2)(b)(ii), s. 37
Subjects
ArbitrationPost‑award interestSection 34Arbitral awardContract mergerImplementation AgreementPremature terminationPublic policyInterest on interestJurisdiction
Judgment
[2022] 1 S.C.R. 1
UHL POWER COMPANY LTD.
v.
STATE OF HIMACHAL PRADESH
(Civil Appeal No. 10341 of 2011)
JANUARY 07, 2022
[N. V. RAMANA, CJI, A. S. BOPANNA AND
HIMA KOHLI, JJ.]
Arbitration and Conciliation Act, 1996: Post award interest
on the interest amount awarded – Held: Can be granted by
Arbitrator.
Arbitration and Conciliation Act, 1996: s.34 – Jurisdiction
under, Scope – Held: Court does not sit in appeal over the arbitral
award and may interfere on merits on the limited ground provided
under s.34(2)(b)(ii).
Arbitration: If there are two plausible interpretations of the
terms and conditions of the contract then no fault can be found if
the arbitrator proceeds to accept one interpretation as against the
other.
Arbitration: Arbitral award – Scope of interference by courts
– Held: Courts should not interfere with an award merely because
an alternate view on facts and interpretation of contract exists.
Deeds and Documents: Whether in the instant case, the
Memorandum of Undertaking (MoU) dated 10 th February, 1992
merged into the Implementation Agreement dated 22nd August, 1997
– Held: As admitted by State, the MoU was mentioned as “Appendix
A” in the second recital of Implementation Agreement which itself
demolished the plea taken by the State that the Arbitral Tribunal
and the Appellate Court have erred in returning a finding that the
MoU dated 10th February, 1992 did not merge into the
Implementation Agreement dated 22nd August, 1997 – The view is
reinforced on a reading of the definition of the word “Agreement”
as used in Clause 2.2 of the Implementation Agreement which clearly
stated that the word “Agreement” wherever used in the
Implementation Agreement, shall include all its appendices and
annexures – The MoU having been described by the parties as
1
2 SUPREME COURT REPORTS [2022] 1 S.C.R.
A Appendix A to the Implementation Agreement, would have to be
treated as having merged with the Implementation Agreement for all
effects and purposes.
Disposing of the appeals, the Court
HELD: 1. As the judgment in the case of S.L. Arora, on
B which reliance has been placed by the Division Bench of the High
Court of Himachal Pradesh, has since been overruled by a three-
Judge Bench of this Court in the case of Hyder Consulting (UK)
Ltd., the findings returned by the Appellate Court in the impugned
judgment to the effect that the Arbitral Tribunal is not empowered
C to grant compound interest or interest upon interest and only
simple interest can be awarded in favour of UHL on the principal
amount claimed, is quashed and set aside. As a result, the findings
returned in para 54(a) of the impugned judgment insofar as it
relates to grant of the interest component, are reversed while
restoring the arbitral award on the above aspect in favour of UHL.
D [Para 6][8-E-G]
2. The very fact that the State admits to having executed
the MoU with UHL on 10th February, 1992 and the said MoU
has been mentioned as “Appendix A” in the second recital of the
Implementation Agreement, itself demolishes the plea taken by
E the State that the Arbitral Tribunal and the Appellate Court have
erred in returning a finding that the MoU dated 10th February,
1992 did not merge into the Implementation Agreement dated
22nd August, 1997. The said view is reinforced on a reading of
the definition of the word “Agreement” as used in Clause 2.2 of
F the Implementation Agreement which clearly states that the word
“Agreement” wherever used in the Implementation Agreement,
shall include all its appendices and annexures. The MoU having
been described by the parties as Appendix A to the
Implementation Agreement, would have to be treated as having
merged with the Implementation Agreement for all effects and
G purposes. In the light of the said recitals and clauses of the
Implementation Agreement, this Court endorses the findings
returned in para 47 of the impugned judgment, wherein it has
been held that a plain reading of the second recital read with
Clause 2.2 of the Implementation Agreement suggested that the
H
UHL POWER COMPANY LTD. v. STATE OF HIMACHAL PRADESH 3
MoU has merged with the Implementation Agreement and, A
therefore, the disputes that were referable to arbitration under
the Implementation Agreement in terms of Clause 20, were to
include disputes arising under the MoU, even though the latter
document did contain a separate arbitration clause. [Para 10]
[10-B-F]
B
3. All the points of dispute between the parties regarding
performance of the contractual obligations including claims for
damages and expenses incurred by UHL either arising from the
MoU dated 10th February, 1992, or under the Implementation
Agreement dated 22nd August, 1997, were referable to arbitration
in accordance with Clause 20 forming a part of the Implementation C
Agreement. [Para 11][11-B-C]
4. The second plea taken by the State is that the Appellate
Court has erred in setting aside the order of the Single Judge
and restoring the findings of the Sole Arbitrator on the aspect of
pre-mature termination of the Implementation Agreement on the D
part of the State well before expiry of the prescribed period.
[Para 12][11-D]
5. A plain reading of Clauses 4.1(a) and (b) leaves no manner
of doubt that UHL was required to commence construction of
the project within a period of one year from the effective date E
only after obtaining a techno-economic clearance from CEA and
an environmental clearance from the Government of India,
Ministry of Environment and Forests. However, it was agreed
by the parties that since obtaining of the relevant clearances
referred to above and under Clause 16.8 of the Agreement F
whereunder the State was required to discharge certain
obligations, were not entirely in the hands of UHL, in the event
of any delay beyond a period of three months reckoned from the
effective date, the stipulated period of one year contemplated in
the Implementation Agreement could be extended, but not
beyond the additional period of twelve months. In the light of the G
aforesaid clauses of the Implementation Agreement, the
submission made by the State that, under all circumstances, the
Implementation Agreement had to be executed within a period
of one year and since the provision for extension beyond one
H
4 SUPREME COURT REPORTS [2022] 1 S.C.R.
A year was applicable only to the conditions contemplated in Clause
4.1(a) and (b) and not to those stipulated in Clause 4.1(c) to (g),
is found to be unmerited and is turned down. When the parties to
the Implementation Agreement were ad idem that the period of
one year available to UHL to commence the construction activity
was to be reckoned after the major requirements prescribed in
B
Clause 4.1 could be obtained, then any argument sought to be
advanced to segregate the obligations under different sub-heads
of Clause 4.1 only to lay the blame at the door of UHL when the
requisite clearances were to be obtained by the State Government
from the Central Government and Centralized Authorities, is
C devoid of merits, besides being completely unreasonable and
illogical. [Para 13][12-D-H; 13-A]
6. This Court also accepts as correct, the view expressed
by the Appellate Court that the Single Judge committed a gross
error in re-appreciating the findings returned by the Arbitral
D Tribunal and taking an entirely different view in respect of the
interpretation of the relevant clauses of the Implementation
Agreement governing the parties inasmuch as it was not open to
the said Court to do so in proceedings under Section 34 of the
Arbitration Act, by virtually acting as a Court of Appeal.
[Para 14][13-B-C]
E
7. As it is, the jurisdiction conferred on Courts under
Section 34 of the Arbitration Act is fairly narrow, when it comes
to the scope of an appeal under Section 37 of the Arbitration Act,
the jurisdiction of an Appellate Court in examining an order,
setting aside or refusing to set aside an award, is all the more
F circumscribed. [Para 15][13-C-D]
MMTC Limited v. Vedanta Limited (2019) 4 SCC 163 :
[2019] 3 SCR 1023; K.Sugumar v. Hindustan Petroleum
Corporation Ltd. (2020) 12 SCC 539; Dyna
Technologies (P) Ltd. v. Crompton Greaves Ltd. (2019)
G 20 SCC 1; Parsa Kente Collieries Limited v. Rajasthan
Rajya Vidyut Utpadan Nigam Limited (2019) 7 SCC 236
: [2019] 8SCR 728; McDermott International Inc. v.
Burn Standard Co. Ltd. And Others (2019) 20 SCC 1;
H
UHL POWER COMPANY LTD. v. STATE OF HIMACHAL PRADESH 5
Rashtriya Ispat Nigam Ltd. V. Dewan Chand Ram Saran A
(2006) 11 SCC 181 : [2012] 4 SCR 1; South East Asia
Marine Engg. & Constructions Ltd. [SEAMAC Limited]
v. Oil India Ltd. 2020 (5) SCC 164 : [2020] 5
SCC 164 – relied on.
8. In the instant case, the interpretation of the relevant B
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 C
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. [Para 21][17-C-D]
9. The decision of the Appellate Court is upheld that has
restored the findings returned in the arbitral award dated 05th D
June, 2005 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 E
Agreement five months prior to the stipulated period by adopting
a distorted interpretation of Clause 4 of the Implementation
Agreement, which was impermissible. [Para 22][17-E-F]
State of Haryana v. S.L. Arora and Co.(2010) 3 SCC
690 : [2010] 2 SCR 297 – held overruled. F
Hyder Consulting (UK) Ltd. V. Governor, State of Orissa
through Chief Engineer (2015) 2 SCC 189 : [2014]
14 SCR 1029 – followed.
Case Law Reference
G
[2010] 2 SCR 297 held overruled Para 3
[2014] 14 SCR 1029 followed Para 4
[2019] 3 SCR 1023 relied on Para 15
H
6 SUPREME COURT REPORTS [2022] 1 S.C.R.
A (2020) 12 SCC 539 relied on Para 16
(2019) 20 SCC 1 relied on Para 17
[2019] 8 SCR 728 relied on Para 18
(2019) 20 SCC 1 relied on Para 18
B [2012] 4 SCR 1 relied on Para 18
[2020] 5 SCC 164 relied on Para 20
The Judgment of the Court was delivered by
HIMA KOHLI, J.
C
1. Both the present appeals arise from a common judgment dated
th
24 May, 2011, passed by the High Court of Himachal Pradesh partly
allowing Arbitration Appeal No. 2 of 2009 filed by UHL Power Company
Limited1 under Section 37 of the Arbitration and Conciliation Act, 19962.
UHL has filed Civil Appeal No. 10342 of 2011 and the State of Himachal
D Pradesh3 has filed Civil Appeal No. 10342 of 2011, as both the parties
are aggrieved by the impugned judgment.
2. Though several grounds have been taken by UHL in its appeal
to assail the impugned judgment, Mr. Jaideep Gupta, learned senior
counsel for UHL has confined his grievance to the disallowance of the
E 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 dated 05th June, 2005, the learned Sole Arbitrator had
awarded a sum of ¹ 26,08,89,107.35p. (Rupees Twenty six crores eight
lakhs eighty nine thousand one hundred and seven and thirty five paise)
in favour of UHL towards expenses claimed along with pre-claim interest
F capitalized annually, on the expenses so incurred. Further, compound
interest was awarded in favour of UHL @ 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 @ 18% per annum on the principal claim with interest.
G 3. Dissatisfied with the award, when the State of H.P. filed a
petition under Section 34 of the Arbitration Act, vide judgment dated 16th
December, 2008, the learned Single Judge disallowed the entire claim of
1
For short ‘UHL’
2
For short ‘the Arbitration Act’
H 3
For short ‘the State’
UHL POWER COMPANY LTD. v. STATE OF HIMACHAL PRADESH 7
[HIMA KOHLI, J.]
UHL. The said judgment was challenged by UHL in a petition filed A
under Section 37 of the Arbitration Act that has been decided by the
impugned judgment whereunder, the Division Bench of the High Court
has awarded a sum of ¹ 9,10,26,558.74 (Rupees Nine crores ten lakhs
twenty six thousand five hundred fifty eight and seventy four paise) in
favour of UHL, being the actual principal amount along with simple
B
interest @ 6% per annum from the date of filing of the claim, till the date
of realization of the awarded amount. For declining payment of compound
interest awarded by the learned Sole Arbitrator to UHL, the Division
Bench relied on the decision of this Court in State of Haryana v. S.L.
Arora and Co.4, wherein it was held that compound interest can be
awarded only if there is a specific contract, or authority under a Statute, C
for compounding of interest and that there is no general discretion vested
in courts or tribunals to award compound interest. It was further held
that in the absence of any provision for interest upon interest in the
contract, the Arbitral Tribunals do not have the power to award interest
upon interest, or compound interest, either for the pre-award period or
D
for the post-award period.
4. By now, the aforesaid aspect has been set at rest by a three-
Judge Bench of this Court in Hyder Consulting (UK) Ltd. V. Governor,
State of Orissa through Chief Engineer5, that has overruled the verdict
in the case of S.L. Arora (supra). The majority view is that post-award
interest can be granted by an Arbitrator on the interest amount awarded. E
Writing for the majority, Justice Bobde (as His Lordship then was) has
held thus:
“21. In the result, I am of the view that S.L. Arora case [State of
Haryana v. S.L. Arora and Co. (2010) 3 SCC] is wrongly
decided in that it holds that a sum directed to be paid by an Arbitral F
Tribunal and the reference to the award on the substantive claim
does not refer to interest pendente lite awarded on the “sum
directed to be paid upon award” and that in the absence of any
provision of interest upon interest in the contract, the Arbitral
Tribunal does not have the power to award interest upon interest, G
or compound interest either for the pre-award period or for the
post-award period. Parliament has the undoubted power to legislate
on the subject and provide that the Arbitral Tribunal may award
4
(2010) 3 SCC 690
5
(2015) 2 SCC 189 H
8 SUPREME COURT REPORTS [2022] 1 S.C.R.
A interest on the sum directed to be paid by the award,
meaning a sum inclusive of principal sum adjudged and the
interest, and this has been done by Parliament in plain language.”
[emphasis supplied]
5. While giving a concurring opinion in the aforesaid case, Justice
B Sapre made the following pertinent observations:
“31. Coming now to the post-award interest. Section 31(7)(b) of
the Act employs the words, “A sum directed to be paid by an
arbitral award ... “. Clause (b) uses the words “arbitral award”
and not the “Arbitral Tribunal”. The arbitral award. as held
C above, is made in respect of a “sum” which includes the
interest. It is, therefore, obvious that what carries under Section
31 (7)(b) of the Act is the “sum directed to be paid by an arbitral
award” and not any other amount much less by or under the
name “interest”. In such situation. it cannot be said that what
D is being granted under Section 31(7)(b) of the Act is “interest
on interest”. Interest under clause (b) is granted on the
“sum” directed to be paid by an arbitral award wherein the
“sum” is nothing more than what is arrived at under clause
(a).”
E [emphasis supplied]
6. As the judgment in the case of S.L. Arora (supra), on which
reliance has been placed by the Division Bench of the High Court of
Himachal Pradesh, has since been overruled by a three-Judge Bench of
this Court in the case of Hyder Consulting (UK) Ltd. (supra), the
F findings returned by the Appellate Court in the impugned judgment to
the effect that the Arbitral Tribunal is not empowered to grant compound
interest or interest upon interest and only simple interest can be awarded
in favour of UHL on the principal amount claimed, is quashed and set
aside. As a result, the findings returned in para 54(a) of the impugned
judgment insofar as it relates to grant of the interest component, are
G reversed while restoring the arbitral award on the above aspect in favour
of UHL.
7. Proceeding to the submission made by Mr. Abhinav Mukerji,
learned Additional Advocate General for the State for assailing the
impugned judgment, we may note that two-fold arguments have been
H put forth. Firstly, that the Division Bench has gravely erred in upsetting
UHL POWER COMPANY LTD. v. STATE OF HIMACHAL PRADESH 9
[HIMA KOHLI, J.]
the findings returned by the learned Single Judge vide judgment dated A
16th December, 2008 and has failed to appreciate that the Memorandum
of Undertaking6 dated 10th February, 1992, did not merge into the
Implementation Agreement dated 22nd August, 1997, as both were distinct
documents and that the MoU contained a separate Arbitration clause
numbered as Clause 18, whereas the Implementation Agreement
B
contained Clause 20. Secondly, it has been canvassed that the Appellate
Court as also the Arbitral Tribunal have committed a grave error in arriving
at the conclusion that the Implementation Agreement was prematurely
terminated by the State much before the expiry of the prescribed period.
8. Coming first to the argument urged on behalf of the State that
C
the MoU dated 10th February, 1992 did not merge with the Implementation
Agreement dated 22nd August, 1997, a perusal of the recitals and the
clauses contained in the Implementation Agreement dated 22nd August,
1997, belies such a submission. One of the recitals on the second page
of the Implementation Agreement is as follows:
D
“WHEREAS the Government in accordance with the policy
guidelines of Government of India (hereinafter referred to as “GOI”
had entered into Memorandum of Understanding (MOU)
(APPENDIX ‘A’) on February 10, 1992 with the Company to
carry out detailed investigations of the UHL-III Hydro - electric
Project of 100 MW capacity and located in District Mandi, E
Himachal Pradesh (hereinafter referred to a “Project”) and has
submitted, within the stipulated period from the date of signing of
the MOU, a Detailed project Report (DPR).”
9. Further, the definition of different words used in the
F
Implementation Agreement form a part of Clause (2). The term
“Agreement” has been defined in Clause 2.2 as follows:
“CLAUSE 2 DEFINITIONS
For all purposes of this Agreement, the. various terms shall have
the following meanings, except where the context otherwise G
requires, definitions and other terms expressed in the singular shall,
include the plural and vice versa.
2.1 xxx xxx xxx
6
For short ‘MoU’ H
10 SUPREME COURT REPORTS [2022] 1 S.C.R.
A 2.2 “Agreement” shall mean this Agreement together with
all its appendices and annexures and any amendments
thereto made in accordance with the provisions herein
contained.”
10. The very fact that the State admits to having executed the
B MoU with UHL on 10th February, 1992 and the said MoU has been
mentioned as “Appendix A” in the second recital of the Implementation
Agreement, as reproduced above, itself demolishes the plea taken by
the State that the Arbitral Tribunal and the Appellate Court have erred in
returning a finding that the MoU dated 10th February, 1992 did not merge
into the Implementation Agreement dated 22nd August, 1997. The aforesaid
C view is reinforced on a reading of the definition of the word “Agreement”
as used in Clause 2.2 of the Implementation Agreement which clearly
states that the word “Agreement” wherever used in the Implementation
Agreement, shall include all its appendices and annexures. The MoU
having been described by the parties as Appendix A to the Implementation
D Agreement, would have to be treated as having merged with the
Implementation Agreement for all effects and purposes. In the light of
the aforesaid recitals and clauses of the Implementation Agreement,
this Court endorses the findings returned in para 47 of the impugned
judgment, wherein it has been held that a plain reading of the second
recital read with Clause 2.2 of the Implementation Agreement suggested
E that the MoU has merged with the Implementation Agreement and,
therefore, the disputes that were referable to arbitration under the
Implementation Agreement in terms of Clause 20, were to include disputes
arising under the MoU, even though the latter document did contain a
separate arbitration clause.
F 11. No exception can be taken to the observations made by the
Appellate Court that the learned Single Judge erred in singularly relying
on the contents of Clause 1 of the Implementation Agreement, which
states as follows:
“CLAUSE 1 STATEMENT OF IMPLEMENTATION OF
PROJECT :
G
Both the parties i.e. the Government and the company agree that
the Project shall be implemented, subject to the terms mentioned
in the Agreement, as per the provisions of the DPR as approved
by· the Government/ GOI. The parties also agree that the MOU
signed on 10.2.1992 shall stand lapsed as on today the twenty
H second August, 1997.”
UHL POWER COMPANY LTD. v. STATE OF HIMACHAL PRADESH 11
[HIMA KOHLI, J.]
This Court is in agreement with the Appellate Court that Clause 1 A
of the Implementation Agreement could not have been read in isolation
and when read in conjunction with the second recital and Clause 2.2 of
the Implementation Agreement, it is apparent that the MoU was made a
part and parcel of the Implementation Agreement. In view of the above,
the view taken by the learned Sole Arbitrator that the MoU forms a part
B
of the Implementation Agreement, as has been upheld by the Appellate
Court, does not deserve any interference. All the points of dispute
between the parties regarding performance of the contractual obligations
including claims for damages and expenses incurred by UHL either arising
from the MoU dated 10th February, 1992, or under the Implementation
Agreement dated 22nd August, 1997, were referable to arbitration in C
accordance with Clause 20 forming a part of the Implementation
Agreement.
12. The second plea taken by the learned Additional Advocate
General the State is that the Appellate Court has erred in setting aside
the order of the learned Single Judge and restoring the findings of the D
Sole Arbitrator on the aspect of pre-mature termination of the
Implementation Agreement on the part of the State well before expiry
of the prescribed period. For examining this point, Clause 4 of the
Implementation Agreement gains significance. The said clause prescribes
the starting date of the project and states as follows:
E
“CLAUSE 4 STARTING DATE OF PROJECT.
4.1 Within one year from the Effective Date, the Company shall
start the construction of the Project after meeting the major
requirements, e.g.:-
a) Obtain techno economic clearance from CEA. F
b) Obtain environmental clearance from GO!, Ministry
of Environment and Forests (MOEF).
c) Identify the purchaser of power and finalise Power
Schedules Agreement(s).
G
d) Commence· detailed designs of Project components/
structures.
e) Finalise selection of Engineering, Procurement and
construction (EPC) contractor/ executing agencies,
if required. H
12 SUPREME COURT REPORTS [2022] 1 S.C.R.
A f) Establish site office and take over the site from
Government including the Government land or private
land already acquired by Government on lease etc.,
for the purpose of carrying out preparatory works.
g) Achieve Financial Closure.
B Both parties acknowledge that fulfillment of activities
enumerated at 4.1(a), 4.l(b) of this clause and clause 16.8 of this
Agreement are not totally under the control of the Company,
therefore, if the fulfillment of these activities is delayed beyond
three 3 months from effective Date, the stipulated period of one
C year, shall be extended by one month for each month of delay in
fulfillment of any of the activities enumerated at 4.1(a), 4.1 (b)
and 16.8 provided that the total of the monthly extensions shall
not exceed twelve (12).”
13. A plain reading of Clauses 4.1(a) and (b) leaves no manner of
D doubt that UHL was required to commence construction of the project
within a period of one year from the effective date only after obtaining a
techno-economic clearance from CEA and an environmental clearance
from the Government of India, Ministry of Environment and Forests.
However, it was agreed by the parties that since obtaining of the relevant
clearances referred to above and under Clause 16.8 of the Agreement
E whereunder the State was required to discharge certain obligations, were
not entirely in the hands of UHL, in the event of any delay beyond a
period of three months reckoned from the effective date, the stipulated
period of one year contemplated in the Implementation Agreement could
be extended, but not beyond the additional period of twelve months. In
F the light of the aforesaid clauses of the Implementation Agreement, the
submission made by learned Additional Advocate General for the State
that, under all circumstances, the Implementation Agreement had to be
executed within a period of one year and since the provision for extension
beyond one year was applicable only to the conditions contemplated in
Clause 4.1(a) and (b) and not to those stipulated in Clause 4.1(c) to (g),
G is found to be unmerited and is turned down. When the parties to the
Implementation Agreement were ad idem that the period of one year
available to UHL to commence the construction activity was to be
reckoned after the major requirements prescribed in Clause 4.1 could
be obtained, then any argument sought to be advanced to segregate the
H obligations under different sub-heads of Clause 4.1 only to lay the blame
UHL POWER COMPANY LTD. v. STATE OF HIMACHAL PRADESH 13
[HIMA KOHLI, J.]
at the door of UHL when the requisite clearances were to be obtained A
by the State Government from the Central Government and Centralized
Authorities, is devoid of merits, besides being completely unreasonable
and illogical.
14. This Court also accepts as correct, the view expressed by the
Appellate Court that the learned Single Judge committed a gross error in B
re-appreciating the findings returned by the Arbitral Tribunal and taking
an entirely different view in respect of the interpretation of the relevant
clauses of the Implementation Agreement governing the parties inasmuch
as it was not open to the said Court to do so in proceedings under Section
34 of the Arbitration Act, by virtually acting as a Court of Appeal.
C
15. As it is, the jurisdiction conferred on Courts under Section 34
of the Arbitration Act is fairly narrow, when it comes to the scope of an
appeal under Section 37 of the Arbitration Act, the jurisdiction of an
Appellate Court in examining an order, setting aside or refusing to set
aside an award, is all the more circumscribed. In MMTC Limited v.
Vedanta Limited 7, the reasons for vesting such a limited jurisdiction on D
the High Court in exercise of powers under Section 34 of the Arbitration
Act has been explained in the following words:
“11. As far as Section 34 is concerned, the position is well- settled
by now that the Court does not sit in appeal over the arbitral
award and may interfere on merits on the limited ground provided E
under Section 34(2)(b) (ii) i.e. if the award is against the public
policy of India. As per the legal position clarified through decisions
of this Court prior to the amendments to the 1996 Act in 2015, a
violation of Indian public policy, in turn, includes a violation of the
fundamental policy of Indian law, a violation of the interest of
India, conflict with justice or morality, and the existence of patent F
illegality in the arbitral award. Additionally, the concept of the
“fundamental policy of Indian law” would cover compliance with
statutes and judicial precedents, adopting a judicial approach,
compliance with the principles of natural justice, and Wednesbury
[Associated Provincial Picture Houses v. Wednesbury Corpn., G
(1948) 1 KB 223 (CA)] reasonableness. Furthermore, “patent
illegality” itself has been held to mean contravention of the
substantive law of India, contravention of the 1996 Act, and
contravention of the terms of the contract.”
7
(2019) 4 SCC 163 H
14 SUPREME COURT REPORTS [2022] 1 S.C.R.
A 16. A similar view, as stated above, has been taken by this Court
in K. Sugumar v. Hindustan Petroleum Corporation Ltd.8, where it
has been observed as follows:
“2. The contours of the power of the Court under Section 34 of
the Act are too well established to require any reiteration. Even a
B bare reading of Section 34 of the Act indicates the highly
constricted power of the civil court to interfere with an arbitral
award. The reason for this is obvious. When parties have chosen
to avail an alternate mechanism for dispute resolution, they must
be left to reconcile themselves to the wisdom of the decision of
the arbitrator and the role of the court should be restricted to the
C bare minimum. Interference will be justified only in cases of
commission of misconduct by the arbitrator which can find
manifestation in different forms including exercise of legal
perversity by the arbitrator.”
17. It has also been held time and again by this Court that if there
D are two plausible interpretations of the terms and conditions of the
contract, then no fault can be found, if the learned Arbitrator proceeds
to accept one interpretation as against the other. In Dyna Technologies
(P) Ltd. V. Crompton Greaves Ltd.9, the limitations on the Court while
exercising powers under Section 34 of the Arbitration Act has been
highlighted thus:
E
“24. There is no dispute that Section 34 of the Arbitration Act
limits a challenge to an award only on the grounds provided therein
or as interpreted by various Courts. We need to be cognizant of
the fact that arbitral awards should not be interfered with in a
casual and cavalier manner, unless the Court comes to a conclusion
F that the perversity of the award goes to the root of the matter
without there being a possibility of alternative interpretation which
may sustain the arbitral award. Section 34 is different in its
approach and cannot be equated with a normal appellate
jurisdiction. The mandate under Section 34 is to respect the finality
of the arbitral award and the party autonomy to get their dispute
G adjudicated by an alternative forum as provided under the law. If
the Courts were to interfere with the arbitral award in the usual
course on factual aspects, then the commercial wisdom behind
opting for alternate dispute resolution would stand frustrated.”
8
(2020) 12 SCC 539
H 9
(2019) 20 SCC 1
UHL POWER COMPANY LTD. v. STATE OF HIMACHAL PRADESH 15
[HIMA KOHLI, J.]
18. In Parsa Kente Collieries Limited v. Rajasthan Rajya Vidyut A
Utpadan Nigam Limited10, adverting to the previous decisions of this
Court in McDermott International Inc. v. Burn Standard Co. Ltd.
And Others11 and Rashtriya Ispat Nigam Ltd. V. Dewan Chand Ram
Saran12, 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
B
contract has been construed in a reasonable manner, then the award
ought not to be set aside on this ground, it has been held thus:
“9.1 ………..It is further observed and held that construction
of the terms of a contract is primarily for an Arbitrator to
decide unless the Arbitrator construes the contract in such
a way that it could be said to be something that no fair- C
minded or reasonable person could do. It is further observed
by this Court in the aforesaid decision in paragraph 33 that when
a court is applying the “public policy” test to an arbitration award,
it does not act as a court of appeal and consequently errors of
fact cannot be corrected. A possible view by the Arbitrator D
on facts has necessarily to pass muster as the Arbitrator is
the ultimate master of the quantity and quality of evidence
to be relied upon when he delivers his arbitral award. It is
further observed that thus an award based on little evidence or on
evidence which does not measure up in quality to a trained legal
mind would not be held to be invalid on this score. E
9.2 Similar is the view taken by this Court in NHAI v. ITD
Cementation (India) Ltd. (2015) 14 SCC 21, para 25 and SAIL
v. Gupta Brother Steel Tubes Ltd. (2009) 10 SCC 63, para 29.”
[emphasis supplied] F
19. In Dyna Technologies (P) Ltd. (supra), the view taken above
has been reiterated in the following words:
“25. Moreover, umpteen number of judgments of this Court have
categorically held that the courts should not interfere with an award
merely because an alternative view on facts and interpretation of G
contract exists. The courts need to be cautious and should defer
to the view taken by the Arbitral Tribunal even if the reasoning
10
(2019) 7 SCC 236
11
(2006) 11 SCC 181
12
(2012) 5 SCC 306 H
16 SUPREME COURT REPORTS [2022] 1 S.C.R.
A provided in the award is implied unless such award portrays
perversity unpardonable under Section 34 of the Arbitration Act.”
20. An identical line of reasoning has been adopted in South East
Asia Marine Engg. & Constructions Ltd.[SEAMAC Limited] V. Oil
India Ltd. 13 and it has been held as follows:
B
“12. It is a settled position that a court can set aside the award
only on the grounds as provided in the Arbitration Act as interpreted
by the courts. Recently, this Court in Dyna Technologies (P)
Ltd. v. Crompton Greaves Ltd. [Dyna Technologies (P) Ltd. v.
Crompton Greaves Ltd., (2019) 20 SCC 1 : 2019 SCC OnLine
C SC 1656] laid down the scope of such interference. This Court
observed as follows : (SCC pp. 11-12, para 24)
“24. There is no dispute that Section 34 of the Arbitration Act
limits a challenge to an award only on the grounds provided
therein or as interpreted by various Courts. We need to be
D cognizant of the fact that arbitral awards should not be
interfered with in a casual and cavalier manner, unless
the Court comes to a conclusion that the perversity of the
award goes to the root of the matter without there being a
possibility of alternative interpretation which may sustain
E the arbitral award. Section 34 is different in its approach and
cannot be equated with a normal appellate jurisdiction. The
mandate under Section 34 is to respect the finality of the arbitral
award and the party autonomy to get their dispute adjudicated
by an alternative forum as provided under the law. If the Courts
were to interfere with the arbitral award in the usual course on
F factual aspects, then the commercial wisdom behind opting
for alternate dispute resolution would stand frustrated.”
13. It is also settled law that where two views are possible,
the Court cannot interfere in the plausible view taken by
the arbitrator supported by reasoning. This Court in Dyna
G
Technologies [Dyna Technologies (P) Ltd. V. Crompton
Greaves Ltd., (2019) 20 SCC 1 : 2019 SCC OnLine SC 1656]
observed as under : (SCC p.12, para 25)
13
H (2020) 5 SCC 164
UHL POWER COMPANY LTD. v. STATE OF HIMACHAL PRADESH 17
[HIMA KOHLI, J.]
25. Moreover, umpteen number of judgments of this Court have A
categorically held that the Court should not interfere with an
award merely because an alternative view on facts and
interpretation of contract exists. The Courts need to be cautious
and should defer to the view taken by the Arbitral Tribunal
even if the reasoning provided in the award is implied unless
B
such award portrays perversity unpardonable under Section
34 of the Arbitration Act.”
[emphasis supplied]
21. In the instant case, we are of the view that the interpretation
of the relevant clauses of the Implementation Agreement, as arrived at C
by the learned Sole Arbitrator, are both, possible and plausible. Merely
because another view could have been taken, can hardly be a ground
for the learned 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 learned Single Judge exceeded his jurisdiction in
interfering with the award by questioning the interpretation given to the D
relevant clauses of the Implementation Agreement, as the reasons given
are backed by logic.
22. We, therefore, uphold the decision of the Appellate Court that
has restored the findings returned in the arbitral award dated 05th June,
2005 to the effect that the State of Himachal Pradesh had proceeded to E
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 F
Agreement, which was impermissible.
23. In view of the above discussion, Civil Appeal No. 10341 of
2011 preferred by UHL is partly allowed to the extent mentioned in para
6 above, while Civil Appeal No. 10342 of 2011 filed by the State of
Himachal Pradesh is rejected in toto. Parties are left to bear their own G
costs.
Devika Gujral Appeals disposed of.
H
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