SETTING ASIDE OF IMPLAUSIBLE AND ERRORNEOUS ARBITRAL AWARD BY COURT : SOUTH EAST ASIA MARINE ENGENEERING AND CONSTRUCTION LIMITED V.OIL INDIA LIMITED
In recent decision by the Supreme Court has set aside an arbitral award as the interpretation provided to the contract in the award of the Tribunal was unreasonable and unfair
Brief facts of the case
The apllealant was awarded the work pursuant to a tender given by the respondent . The contract agreement was for the purpose of well drilling and other auxiliary operations in Assam .
Although the contract was initially only for a period of two years, the same was extended for a two successive periods of one year each by mutual agreement and finally the contract expired.
During the subsistence of the contract , the prices of High Speed Diesel (HSD) one of the essential materials for carrying out the drilling operations increased.
Appellant raised a claim that increase in the price of HSD , an essential component for carrying out the contract triggered the " change in law " Clause 23 under the contract and the respondent became liable to reimburse then for the same .
According to the Clause 23 of the Contract
" Subsequently enacted laws:-
Subsequent to the date of price of Bid opening if there is a change in or enactment of any law or interpretation of existing law which results in additional cost / reduced in cost to Contractor on account of the operation . Under the contract , the company /contractor / shall reimburse /pay contractor /company for such additional /reduced cost actually injured".
When the respondent kept on recycling the claim the appellant eventually invoked the arbitration Clause . Then the dispute was referred to an Arbitral Tribunal comprising of 3 arbitrunal.
The Arbitral Tribunal issued the award in the favour of the appellant . The Arbitral Tribunal held that while an increase in HSD price through a circular issued under the authority of state or Union is not a "law " in the literal sense but has the "force of law" and thus falls within the ambit of Clause 23 . On the other hand the minority held the executive orders don't come within the ambit of clause 23 of the contract.
District Court's Decision
The respondent challenged the same under Section 34 of the Arbitration Act before the district judge. The learned district judge upheld the awards and held that the findings of the Tribunal were not without basis or against the public policy of India or patently illegal.
High Court's Decision
The respondent challenged the order of the district judge by fillings an appeal under section 37 of the Arbitration Act , before the High Court.
The High Court held that the interpretation of the terms of the contract by the Arbitral Tribunal is erroneous and is against the public policy of India . It was further observed that Clause 23 was akin to a 'force majure' Clause and must have been included in the contract keeping in mind Section 56 of the Indian Contract Act,1872.
The SEAMEC challenged the High Court decision before Supreme Court.
Supreme Court's Decision
The Supreme Court disagreed with the view taken by Arbitral Tribunal and High Court .
The Supreme Court inferred that the Tribunal failed to apply the thumb rule of interpretation that the contract must be read as whole and mutually explanatory to extent possible.
While interpreting clause 23 the Supreme Court observed that contract contemplated a fixed rate for SEAMEC, therefore the expansion of clause 23 in regard to increase in the price of HSD was baseless interpretation.
The Supreme Court also disapproved the High Court view that clause 23 was akin to a force majeure clause and must be included in the contract keeping in mind section 56 of the Indian contract Act,1872.
The Supreme Court further relied on Dyna Technologies Pvt Ltd v Crompton Greaues Ltd to clarify that where two views are possible , the court cannot interfere in the plausible and reasonable view taken by the arbitrator . But in this case , the view of the tribunal regarding clause 23 was not acceptable one.
The Supreme court refused to interfere with the High Court's decision to set aside the Arbitral Award.
Hence the erroneous and implausible Arbitral Award can be set aside by the court.