Rajasthan High Court Upholds Limited Judicial Interference in Arbitral Awards: Dismisses Appeal in Escalation Clause Dispute

The Rajasthan High Court, comprising Justice Shree Chandrashekhar and Dr. Justice Nupur Bhati, reaffirmed that the interpretation of agreement clauses by an Arbitrator is not subject to judicial interference unless it is shown that the Arbitral Tribunal’s interpretation is perverse.

The court further held that if the Arbitrator’s view is logical and reasonable, the Court, while exercising its supervisory jurisdiction, cannot interfere merely because an alternate interpretation is possible.

Brief Facts:

An appeal was filed challenging the Commercial Court’s decision that upheld an Arbitral award. The dispute arose from an agreement for constructing a police line with a contract value of ₹2,88,04,833/-. Differences emerged regarding the escalation clause (Clause 45), leading to arbitration. The Arbitral Tribunal awarded the claimant ₹31,54,223/- with 15% interest per annum for the period from April 14, 2001, to February 23, 2004, including pendente-lite interest. This award was affirmed by the Commercial Court, prompting the appellant to challenge the decision.

Court Observations:

The High Court observed that the Arbitral Tribunal correctly interpreted the escalation clause and adhered to established legal principles. The court reiterated that the Arbitrator’s interpretation should not be interfered with unless proven perverse. Moreover, the Arbitrator’s decision remains valid even if multiple interpretations are possible, provided the view taken is reasonable.

The appellant’s argument that the award conflicted with public policy was rejected, as the Arbitral Tribunal was found to have acted within its powers. The court highlighted Section 31(7)(a) of the Arbitration Act, which grants Arbitrators the authority to award interest unless otherwise agreed by the parties. The provision permits interest from the date the cause of action arose until the Arbitral award is made.

Relying on the Supreme Court judgment in Delhi Airport Metro Express (P) Ltd. v. DMRC (2022), the High Court emphasized that in the absence of a specific agreement, the Arbitrator has wide discretion to award interest under Section 31(7)(a).

Judgment:
The appeal was dismissed, upholding the Arbitral award.

Case Details

Case Title: State of Rajasthan v. M/s. Leeladhar Devkinandan
Case Number: D.B. Civil Misc. Appeal No. 761/2024
Date of Judgment: December 16, 2024