Court Cannot Sit in Appeal Over Arbitrator’s View Merely Because Another Interpretation Is Possible: Orissa High Court

“An arbitral award based on plausible construction and sound reasoning cannot be interfered with unless it shocks the conscience of the Court” –Orissa High Court in Union of India v. Pyari Mohan Mohanty (ARBA No.10 of 2018) dismissed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, affirming the District Judge’s decision to uphold an arbitral award of ₹6.66 lakhs with 12% interest to the contractor. The Court held that judicial interference under Sections 34 and 37 is extremely limited, and no “patent illegality” or violation of “public policy” had been shown to justify setting aside the award.

The dispute arose from a railway contract for roof treatment work awarded in 1992, which was eventually rescinded by the Railways citing non-completion. However, the arbitrator found the delay attributable to the Railways themselves and awarded compensation to the contractor. The award was challenged under Section 34, and the rejection of that challenge was further appealed under Section 37.

“Section 34 Is Not an Appellate Provision – Courts Must Respect Arbitral Finality”

“The legislative intent circumscribes judicial intervention to instances where the award is shown to be vitiated by patent illegality, contravention of the express terms of the contract, or where it stands in conflict with the public policy of India” – observed Justice Dr. Panigrahi while reaffirming the minimal curial intervention doctrine.

The Court reiterated that Section 34 does not permit the court to act as an appellate forum over the findings of an arbitral tribunal. The court’s role is supervisory and not evaluative:

“The Court...is not empowered to reappraise the evidentiary substratum or to supplant its own view... unless the findings are demonstrably irrational, implausible, or in flagrant contravention of settled legal principles.”

Relying on MMTC v. Vedanta Ltd. [(2019) 4 SCC 163], Associate Builders v. DDA [(2015) 3 SCC 49], and PSA Sical Terminals v. V.O. Chidambranar Port Trust [2021 SCC OnLine SC 508], the Court emphasized that an arbitral award can only be set aside for reasons such as fraud, violation of natural justice, or patent illegality – not mere misinterpretation.

“Contractual Time Extension Does Not Make Time the Essence – Arbitrator's View on Delay Was Reasonable”

In addressing the issue of delay and termination under Clause 62 of the General Conditions of Contract, the Court rejected the appellant-Railways’ submission that the contract stood terminated automatically when the extended time lapsed.

“The Tribunal found the principal cause of delay was referable to the conduct and inaction of the Appellant, thereby rendering the subsequent rescission of the contract unjustified.”

The contractor had been granted two time extensions, and the arbitrator concluded that the delay was not willful or in breach of the contract, but instead attributable to administrative inefficiencies of the Railways. The High Court found no perversity in this conclusion.

“Award of Claims on Pricing of Waterproofing and Bitumen Was Based on Contractual Interpretation and ISI Standards”

The most contentious claims (Claim Nos. 6 and 7) pertained to pricing for waterproofing and tar-felting work, which the Railways argued was fixed and not open for enhancement.

However, the arbitrator interpreted the contract and specifications reasonably, considering ISI standards that required a particular quality of bitumen and gravel. The High Court endorsed this approach:

“The Tribunal’s determination...was anchored in a careful interpretation of the contractual provisions...reflecting a judicious and reasoned appreciation of the contractual matrix.”

Hence, there was no breach of public policy, nor any evidence that the award had ignored the terms of the contract.

“Interest Awarded Under Section 31(7) Is Permissible – Contractual Bar Not Absolute”

The Court also upheld the arbitrator’s award of 12% per annum interest, both pre-award and post-award, citing Section 31(7) of the Arbitration and Conciliation Act. While the Railways had argued that the General Conditions of Contract (GCC) prohibited interest, the Court held that such a bar was not absolute.

“The mere existence of a stipulation in the GCC prohibiting payment of interest could not, in the facts and circumstances of the case, operate to nullify the award.”

This finding is consistent with the Supreme Court’s interpretation in Delhi Airport Metro v. DMRC and Indian Oil Corporation Ltd. v. Shree Ganesh Petroleums [(2022) 4 SCC 463], where it was held that arbitrators can award interest in equity and justice, even if the contract seeks to bar it.

“Courts Must Resist Temptation to Revisit Merits – Arbitrator Is Sole Judge of Facts and Law”

In a strongly worded conclusion, the High Court condemned overreaching by courts under the guise of “review” under Section 37:

“Substitution of the Court’s own conclusions for those of the Arbitrator is impermissible unless the findings are demonstrably irrational, implausible, or in flagrant contravention of settled legal principles.”

The Court also reminded that both Sections 34 and 37 of the Act are part of the same statutory scheme—designed to uphold finality and autonomy of arbitral awards, subject only to narrow exceptions.

Appeal Dismissed – Award Upheld, No Costs Imposed

Holding the arbitral award dated 31.01.2011 and the District Judge’s order dated 24.10.2017 to be reasoned, lawful, and consistent with judicial precedent, the High Court dismissed the appeal under Section 37 with no order as to costs.

“The impugned award, being reasoned, internally coherent, and grounded upon a conscientious appraisal of the evidentiary and contractual materials, falls squarely within the parameters of the Arbitrator’s jurisdictional competence.”

The interim orders passed earlier were also vacated.

Date of Decision: 10 October 2025