Del HC | Commercial wisdom of the parties in an agreement not to be revisited; arbitral tribunal cannot re-work the terms owing to commercial difficulties of one party

Delhi High Court

Delhi High Court: Vibhu Bakhru, J. while hearing an application against award of an arbitral tribunal has held that it would not be permissible for the arbitral tribunal to rewrite the agreement between the parties or examine the commercial wisdom of entering in, when the parties have agreed to and accepted the terms of the agreement.

Factual Background

The petitioners had moved an application under Section 34 of the Arbitration and Conciliation Act, 1934 challenging an award rendered by the arbitral tribunal. The contract pertained to manufacture and supply of wagons by the respondents and there were subsequent amendments made to the agreement. Disputes had arisen in reference to certain claims based on the dual pricing of wagons.

The arbitral tribunal had found against the petitioners and had taken objection to III amendment made to the agreement. The action undertaken/order placed by the petitioner pursuant to this amendment was held to be in breach of the terms of the agreement. The arbitral tribunal ordered for the compensation under Sections 73 and 74 of the India Contract Act to be paid by the petitioners to the respondent in this regard.

Observations and Decision

Vibhu Bakhru J. observed that the limited point that required attention was whether the arbitral tribunal could hold an amendment made to agreement to be impressible only on the ground that it was commercially inviable to one of the parties and was in breach of the terms of agreements.

The Bench observed that the respondents had accepted and agreed to the terms of the agreement and the amendments that followed. The same was backed by the fact that the respondents did not challenge the contractual provisions and the III amendment per se and the claim rests on the same.

Further it was held that the “commercial contract between the parties cannot be avoided on the ground that one of the parties subsequently finds it commercially unviable to perform the same”. It was clarified that commercial wisdom of the parties is not up for examination in such cases.

It is not permissible that the arbitral tribunal reworks the bargain between the parties and in the process rewrite the contract. The Bench quoted with approval the decision of the Supreme Court in PSA SICAL Terminals Pvt. Ltd v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin, 2021 SCC OnLine SC 508.

The Bench added that in matters “where the terms of the contract do not clearly express the intentions of the parties, it is open to seek recourse to various tools of interpretation. This would include interpreting a contract in a manner that would make commercial sense’’, however yielding losses is not a ground for parties to not perform their contractual obligations.

Vibhu Bakhru J. held the arbitral award to be suffering from patented illegality and hence was erroneous.

[Union Of India, Ministry of Railways, Railway Board v. Jindal Rail Infrastructure Limited, 2022 SCC OnLine Del 1540, decided on 23-05-2022]


Parties appearing before the High Court:

For Petitioner: Mr Deepak Jain, with Mr K.B. Pradeep, Ms Jaspreet Aulakh and Mr Tanpreet Gul

For Respondent: Mr Ranjit Kumar, Mr Manoj Singh, Mr Nilava Bandyopadhyay, Mr Pratik Dhir and Mr Nimish Chandra

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