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Supreme Court confirms that Critical path in Infrastructure Arbitration is a reliable method to analyse the delay

Overview 

The present case arose from a construction contract entered into between Ircon International Limited and AFCONS Infrastructure Limited. It revolves around how some specific clauses of the contract in relation to payments, delays and additional claims are to be interpreted. 

The differences arose between them during the execution of the contract as to the financial claims. The matter was referred to arbitration as mentioned under the agreement. The arbitrator was appointed and an award was passed in favour of AFCONS. It was challenged by Ircon alleging that the tribunal has been unreasonable while interpreting the contract, and that the relief granted does not stand ground.

The Apex Court in this matter has examined the question i.e., whether the courts hold the jurisdiction to again interpret the clauses of the contract solely because they hold a different view from that of the arbitrator.

 

Facts

A construction contract was awarded by the petitioner i.e., Ircon to the respondent herein, AFCONS, for execution of an infrastructure work. Dispute arose between the parties during the performance of the contract due to some financial loss as claimed by the respondent. 

As mentioned in the agreement, the disputes were referred to arbitration. After the submission made by both parties, the tribunal delivered an award in favour of the respondent. Some claims were accepted while the rest of them were rejected. The contract was interpreted by the tribunal in its own way, and it explained the reasoning behind awarding certain amounts to the respondent.

Not being satisfied with the award, the petitioner challenged it under Section 34 of Arbitration and Conciliation Act, 1996. It was argued that the tribunal had wrongly interpreted the contract and had granted certain relief to the respondent which was outside the scope of the agreement. Since the challenge did not succeed, the petitioner then approached the Apex Court.

 

Legal Issues

  1. Whether the interference by a court, in an arbitral award, is justified because it is of a different opinion when it comes to interpretation of certain clauses of a contract, to that of the tribunal.
  2. Whether an incorrect interpretation of the contract can be considered to be a sufficient ground to set aside an arbitral award under Section 34.
  3. Whether the award granted was subjected to patent illegality merely because it was alleged to be out of scope of the agreement.

 

Decision

The Supreme Court upheld the arbitral award delivered by the tribunal while stating that an arbitral award is not an appeal before the courts. If the tribunal is of a certain opinion which is reasonable and based on its own interpretation, then the courts have no jurisdiction to set aside such interpretation simply because it is of some other view.

It was also clarified that patent illegality is something on the face of it, such as ignorance towards clear contractual terms or granting relief entirely out of the scope of the agreement. In this case, the tribunal properly examined the clauses of the contract and gave its own reasons for granting such an award. Therefore, no interference was required. The appeal was dismissed and the arbitral award was allowed.

 

Case Reference :- O.M.P. (COMM) 279/2019 (SJB, Delivered by, Amit Bansal, J.) Ircon International Limited Vs. AFCONS Infrastructure Limited