1. The present appeal arises out of impugned judgment and order dated 13.12.2007 in Arbitration Appeal No. 11 of 2006 passed by the Gauhati High Court, wherein the High Court allowed the appeal preferred by the Respondent under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter the “Arbitration Act”), and set aside the arbitral award dated 19.12.2003.
2. Brief facts necessary for the disposal of this case are as follows: appellant was awarded the work order dated 20.07.1995 pursuant to a tender floated by the Respondent in 1994. The contract agreement was for the purpose of well drilling and other auxiliary operations in Assam, and the same was effectuated from 05.06.1996. Although, the contract was initially only for a period of two years, the same was extended for two successive periods of one year each by mutual agreement, and finally the contract expired on 04.10.2000.
3. During the subsistence of the contract, the prices of High Speed Diesel (“HSD”), one of the essential materials for carrying out the drilling operations, increased. Appellant raised a claim that increase in the price of HSD, an essential component for carrying out the contract triggered the “change in law” clause under the contract (i.e., Clause 23) and the Respondent became liable to reimburse them for the same. When the Respondent kept on rejecting the claim, the Appellant eventually invoked the arbitration clause vide letter dated 01.03.1999. The dispute was referred to an Arbitral Tribunal comprising of three arbitrators.
4. On 19.12.2003, the Arbitral Tribunal issued the award in A.P No. 8 of 1999. The majority opinion allowed the claim of the Appellant and awarded a sum of Rs. 98,89,564.33 with interest @10% per annum from the date of the award till the recovery of award money. The amount was subsequently revised to Rs. 1,32,32,126.36 on 11.03.2005. The Arbitral Tribunal held that while an increase in HSD price through a
circular issued under the authority of State or Union is not a “law” in the literal sense, but has the “force of law” and thus falls within the ambit of Clause 23. On the other hand, the minority held that the executive orders do not come within the ambit of Clause 23 of the Contract.
5. Aggrieved by the award, the Respondent challenged the same under Section 34 of the Arbitration Act before the District Judge. On 04.07.2006, the learned District Judge, upheld the award and held that the findings of the tribunal were not without basis or against the public policy of India or patently illegal and did not warrant judicial interference.
6. The Respondent challenged the order of the District Judge by filing an appeal under Section 37 of the Arbitration Act, before the High Court. By the impugned judgment, the High Court, allowed the appeal and set aside the award passed by the Arbitral Tribunal.
7. The High Court held that the interpretation of the terms of the contract by the Arbitral Tribunal is erroneous and is against the public policy of India. On the scope of judicial review under Section 37 of the Arbitration Act, the High Court held that the
Court had the power to set aside the award as it was passed overlooking the terms and conditions of the contract. Aggrieved by the same, the appellant has filed this present appeal by the way of special leave petition against the impugned judgment.
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