Arbitrator's Plausible Reading Of Ambiguous Contract Clause Not Ground To Set Aside Award: Rajasthan HC

The Rajasthan High Court has held that where a contract contains an ambiguous term and the arbitrator adopts a plausible interpretation of that term, such interpretation does not amount to misconduct under Section 30 of the Arbitration Act, 1940.

Justice Sandeep Shah upheld an arbitral award passed nearly two decades ago against the Union of India (UOI) in a dispute arising from fencing work along the Indo-Pak border and affirmed the arbitral award as well as the order of the District Judge, Sri Ganganagar refusing to set it aside. He held:

“When the terms of the contract are capable of more than one interpretation and the learned Arbitrator has adopted one of the possible and plausible interpretations, the same by itself cannot be a ground for interference with the award in question under Section 30 of the Act of 1940.”

The UOI, through the Central Public Works Department (CPWD), Jaisalmer, issued tenders in 1991-92 for construction of security fencing along the Indo-Pak border in Rajasthan. Contractor V.S. Saini claimed that he executed additional work at the Department's instance beyond the scope of the original contract.

The parties mutually appointed a Sole Arbitrator. V.S. Saini raised 11 claims, and by an award dated 22 February 1996, the Arbitrator partly allowed the claims.

The UOI challenged the award under Section 30 of the Arbitration Act, 1940 before the District Judge, Sri Ganganagar, alleging misconduct by the Arbitrator. On 9 September 2005, the District Judge dismissed the objections. Aggrieved by that order, the UOI filed the present appeals under Section 39 of the Act.

It argued that the word “either” in the contract meant both sides of the fence. According to it, the provision of struts on both sides always formed part of the original contractual obligations and did not give rise to any additional claim. It also contended that the Arbitrator committed misconduct by disregarding the dictionary meaning of the term and interpreting it to mean only one side. The UOI further submitted that the District Judge failed to properly exercise jurisdiction under Section 30 and decided the matter without adequately examining the agreement.

V.S. Saini argued that the word “either” referred to one side and not both sides. He submitted that the Arbitrator had correctly interpreted the contractual term and that the District Judge had also considered the dictionary meaning of the word before rejecting the objections.

Examining the contract, the Court noted that the meaning of the word “either” depends on the context in which it is used and may refer to one of two alternatives or both of them. It found that it could not be conclusively held that the term in the present contract meant both sides. It also observed that the clause was ambiguous and capable of more than one interpretation.

Justice Shah held that when contractual terms are ambiguous and the arbitrator adopts one of the possible interpretations, the Court cannot interfere with the award merely because another interpretation is also possible.

On the scope of judicial interference under Section 30 of the Arbitration Act, 1940, the Court observed:

“So far as the scope of interference is concerned, it has been clearly held by the Hon'ble Apex Court that merely because another view is equally possible, the view taken by the learned Arbitrator cannot be a ground for interference with the award. It has further been held that interference with an arbitral award is warranted only in cases where the learned Arbitrator has acted arbitrarily, irrationally, capriciously, or beyond the terms of the agreement.”

The Bench concluded that the Arbitrator neither committed misconduct nor acted beyond the terms of the contract. It also found no error in the District Judge's refusal to set aside the award.

Accordingly, the High Court dismissed the appeals.

For Petitioner: Mr. V.K. Aggarwal

For Respondent: Mr. Saransh Vij, Mr. Manish Sangela, Mr. Gaurav Kumar Singh