Section 34 Arbitration Act | Court Cannot Substitute Its Own Interpretation Over A Plausible View Taken By The Arbitrator: Supreme Court

Interpretation of Contract By Arbitrator Is Final: In a landmark decision rendered by  Supreme Court of India has strongly reaffirmed the principle that a court exercising powers under Section 34 of the Arbitration and Conciliation Act, 1996 cannot act as an appellate authority over an arbitral award. Supreme Court held that a different view of contractual terms, even if possible, is no ground to set aside a well-reasoned arbitral award. "The jurisdiction under Section 34 is not appellate in nature. It is extremely limited and restricted to grounds specified under the statute," declared the Bench, restoring the sanctity of the arbitral process.

The case arose from a construction contract executed between Consolidated Construction Consortium Limited and Software Technology Parks of India, involving delays and subsequent levy of liquidated damages under specific contractual clauses. Although the arbitral tribunal had upheld the imposition of liquidated damages based on the contractual framework, the learned Single Judge of the High Court interfered under Section 34 and set aside the award. However, on appeal, the Division Bench reinstated the award, prompting the matter to reach the Supreme Court.

The Court noted that extensions of time were granted during execution, but importantly, each extension specifically recorded the employer’s right to levy liquidated damages. The Supreme Court meticulously examined the contractual framework and the findings of the arbitral tribunal to conclude that the tribunal’s reasoning was sound and based on a plausible view of the facts and law.

The Supreme Court reiterated that Section 34 of the Arbitration Act provides for very narrow grounds to set aside an award and cannot be misused to reappreciate facts or to substitute the court’s interpretation over that of the tribunal. The Court emphasized: "A plausible view taken by the arbitral tribunal cannot be substituted by the court merely because an alternative view is possible."

Justice Ujjal Bhuyan, authoring the decision, observed that the arbitral award was based on a careful analysis of the contract, including Clauses 26 and 27, and properly considered the implications of Sections 55, 73, and 74 of the Indian Contract Act, 1872.

The Court categorically held: "The learned Single Judge had clearly gone beyond the grounds provided in Section 34 of the 1996 Act to set aside the arbitral award."

It further emphasized that interference by the Single Judge amounted to sitting in appeal over the award, which is impermissible.
Regarding liquidated damages, the Supreme Court clarified that the grant of extension of time with a reservation of the right to impose damages did not amount to waiver or condonation of delay. Therefore, the tribunal’s conclusion to uphold the imposition of liquidated damages was perfectly justified and could not be disturbed.

Restoring the decision of the Division Bench of the High Court, the Supreme Court unequivocally stated: "The view taken by the arbitral tribunal is certainly a possible and plausible view."

It reaffirmed that the courts must show due deference to arbitral awards and must not interfere merely because a different interpretation could also be arrived at. The judgment forcefully endorsed the autonomy of the arbitral process and the finality of the tribunal’s interpretation of contractual terms, provided such interpretation is reasonable and supported by evidence.

The Supreme Court's judgment in Consolidated Construction Consortium Limited v. Software Technology Parks of India delivers a decisive blow against judicial overreach in arbitration matters. The ruling ensures that arbitral awards are not subjected to unwarranted judicial scrutiny merely because a different reading of the contract is conceivable. By asserting that "courts must respect plausible views taken by arbitral tribunals" and not treat Section 34 as an appellate remedy, the Court has once again fortified the regime of party autonomy and finality that lies at the heart of modern arbitration law in India.

Date of Decision: April 28, 2025