Courts Cannot Substitute Plausible Arbitral View Merely Because Another Is Possible: Supreme Court

The Supreme Court has reiterated that courts should exercise minimal interference with arbitral awards and cannot substitute an arbitral tribunal's interpretation of a contract merely because another view is possible.

The court also held that although the Building and Other Construction Workers Act, 1996 (BOCW Act) and the Welfare Cess Act were brought into force in the mid-1990s, they could not be given effect to for several years due to the failure of governments to constitute statutory Welfare Boards and put the implementation machinery in place.

A bench comprising Justices Sanjay Kumar and Alok Aradhe made these observations on January 20 while deciding a batch of appeals arising from arbitral awards passed in disputes between contractors and the National Highways Authority of India (NHAI).

The court said, “If an arbitral tribunal's view is found to be a possible and plausible one, it cannot be substituted merely because an alternate view is possible. Construction and interpretation of a contract and its terms is a matter for the arbitral tribunal to determine. Unless the same is found to be one that no fair-minded or reasonable person would arrive at, it cannot be interfered with.”

The disputes arose from highway construction contracts executed in the early 2000s. NHAI had deducted labour welfare cess from contractors' bills in relation to these contracts.

The contractors argued that although the BOCW Act and the Cess Act were brought into force in 1995 and 1996, the statutory framework under the BOCW Act could not be operationalised until Welfare Boards were constituted under Section 18 of the Act. In several states, such boards were constituted only years later.

They contended that until then there was no effective mechanism for the collection of cess or for the disbursement of welfare benefits. Arbitral tribunals accepted this contention and directed reimbursement of any cess deducted

Challenging these awards, NHAI argued that the Acts were already in force on the dates the contracts were executed and therefore could not be treated as subsequent legislation. It urged the court to revisit the interpretation adopted by the arbitral tribunals.

Rejecting these submissions, the court held that the mere enactment or notification of a statute, without effective implementation, was not a sufficient ground to interfere with an arbitral tribunal's interpretation of contractual terms.

It noted that due to prolonged inaction by governments, the BOCW Act and the Cess Act remained dormant in fact despite their formal commencement.

“The BOCW Act and the Cess Act were brought into force on the dates notified therein but could not have been given effect to till Welfare Boards were constituted under Section 18 of the BOCW Act. Notwithstanding the dates from which these two enactments were brought into force, the BOCW Act and the Cess Act remained dormant, in fact, owing to the failure of the appropriate Governments in taking necessary measures to bring the provisions thereof into actual effect,” the court said.

On the scope of judicial review, the court reiterated that construction and interpretation of contractual terms is primarily within the domain of the arbitral tribunal. It said that unless the interpretation adopted is one that is not fair or unreasonable, the court could not interfere.

Applying these principles, the court upheld the arbitral awards in favour of the contractors and dismissed the appeals.