Interpreting clauses in a contract differently amounts to re-appreciation of facts – Not permissible under Section 34, Arbitration & Conciliation Act, 1996

The Hon’ble Delhi High Court vide its judgment dated 08.11.2023 in the case of “Raghunath Builder Pvt. Ltd. vs. Anant Raj Ltd.” had the occasion to deal with whether the courts under Section 34 of the Arbitration & Conciliation Act, 1996 can get into interpretation of clauses in a contract or that is solely the domain of the Arbitrator.

Factual Matrix:

The Appellant and the Respondent entered into an Agreement dated 12.06.2007 for development of a Residential-cum-Commercial Complex on the land owned by the Appellant in collaboration. The Appellant was required to extend full support to the Respondent for reaching the settlements with the tenants for getting the tenanted area vacated so that parties could take joint possession as per the agreement.

As per the agreement, within a period of 60 months from the date of Agreement necessary sanctions were to be obtained, however, after the lapse of 8 years since the Agreement the necessary sanctions were not obtained which led the Appellant to revoke the Special Power of Attorney and General Power of Attorney vide letter dated 03.03.2014 which had been executed in favour of the Respondent. Aggrieved by the said revocation, the Respondent initiated Arbitration proceedings in terms of Clause 21 of the Agreement.

The Arbitrator vide the award dated 09.09.2017 held that Clause 19(a) of the Agreement provided for termination of the Agreement by either party after 60 months which were to be calculated from the date of commencement of Agreement and not from the date of getting the tenanted area vacated as was projected by the Respondent. It was thus, concluded that the Agreement had been validly terminated by the Appellant. Consequently, the claims of Respondent were all rejected.

Aggrieved, the Respondent filed objections under Section 34 of the Arbitration & Conciliation Act, 1996 before the Single Judge of the Hon’ble Delhi High Court which held that conjoint reading of Clause 6 with Clause 19 of the Agreement, it was evident that the right to terminate the Contract would accrue 60 months after the vacation of the land by the tenants. Hence, the Objections under Section 34 of the Act, 1996 were allowed and the Arbitral Award dated 09.09.2017 was set aside.

Aggrieved, the Appellant filed an appeal under Section 13 of the Commercial Courts Act, 2015.

Analysis:

The Division Bench of the Hon’ble Delhi High Court allowed the appeal and set aside the judgment of the Single Judge thereby upholding the award of the Arbitrator.

The Division Bench held that the Arbitrator had done a detailed interpretation of Clause 6 and Clause 19 of the agreement to determine whether the Agreement was validly terminated. It was held that Clause 6 did not deal with the termination of the Agreement. Instead, it was Clause 19 (a) which specifically dealt with the Termination of the Agreement. It provided that if permission, CLU, clearances, plans etc. are not obtained within a period of 60 months or such period as may be mutually agreed between the parties, then either party may terminate this Agreement. Hence, the Arbitrator in his well-reasoned order has held that the termination of the Agreement was valid and was in accordance with the terms of the Agreement.

The Division Bench further held that Single Judge has interpreted Clause 6 and 19 differently to conclude that the 60 months period would commence from the date the tenants were evicted. The learned Single Judge has given another interpretation to aforesaid Clauses which may or may not be possible but essentially, it amounts to re-appreciation of facts to come to a different conclusion.

The Division Bench while relying upon a plethora of judgments in the form of “MMTC Limited v. Vedanta Ltd, (2019) 4 SCC 163”, “Associate Builders v. DDA (2015) 3 SCC 49”, “Ssangyong Engineering and Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131”, “Sumitomo Heavy Industries Ltd. vs. ONGC Ltd. (2010) 11SCC 296”, “Kwality Mfg. Corpn. vs. Central Warehousing Corpn. (2009) 5 SCC 142”, “McDermott International Inc. vs. Burn Standard Co. Ltd. (2006) 11 SCC 181” held that Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law. Once, it is held that the arbitrator had the jurisdiction, no further question shall be raised and the court will not exercise its jurisdiction unless it is found that there exists any bar on the face of the award.

Hence, scope of grounds of challenge of an Award under Section 34 of the Act is limited and not equivalent to an appeal and so the Single Judge should not have reinterpreted the contract and substituted its finding for that of the Arbitrator’s.