Court says no: judges can't rewrite a contract just because they disagree with the arbitrator

The High Court threw out a ₹100 crore arbitral award because it read the contract differently. The Supreme Court just told them: that's not your job.

The dispute was about dirt. Pond ash and soil, to be precise—the stuff that makes an embankment hold a road. A three-member panel of engineers and lawyers had spent months reading the same clauses, the same specifications, the same Bill of Quantities. Two of them said the contractor was right. One said the government was right. That split opinion travelled to the Delhi High Court, where a Division Bench decided the dissenter had the better argument—and set aside the majority award worth over ₹100 crore.

The Supreme Court just restored it. The message: a judge cannot rewrite a contract because he prefers one arbitrator's reading over another's.

The dirt that cost a decade

In 2009, NHAI awarded Hindustan Construction Company (HCC) a contract to build the Allahabad bypass. The job required constructing embankments using a composite mix of soil and pond ash. The contract—a standard MoRTH (Ministry of Road Transport and Highways) document—contained detailed specifications for how the work would be measured and paid.

The fight turned on two items in the Bill of Quantities—Items 2.02(a) and 2.02(b)—read with Clause 305.8 of the MoRTH Technical Specifications. Clause 305.8 governed the measurement and payment methodology for embankment construction. HCC argued that the entire embankment cross-section, including both soil and pond ash layers, should be measured as one composite unit for payment. NHAI's engineer said no: measure the soil separately, measure the pond ash separately, and pay different rates for each. The engineer's approach was also informed by Clause 114.1, which defined how contract unit rates applied in item rate contracts.

The difference was not small. HCC's reading meant over ₹100 crore more.

An internal dispute resolution board—a panel of technical experts from NHAI—examined the same clauses and largely sided with HCC. The board's opinion, though non-binding, was a significant technical endorsement of the composite measurement approach. NHAI rejected that finding. HCC invoked arbitration.

The three arbitrators sat with the contract spread across the table, Clause 305.8 highlighted in yellow, the Bill of Quantities pages dog-eared from repeated turning. For months, they debated whether the word "embankment" in the specification meant the whole structure or just its components.

Two views, one award

A three-member arbitral tribunal was constituted on 30 March 2010. The majority—two of the three arbitrators—ruled in favour of HCC. Their reasoning: the contract mandated composite cross-section measurement, and the engineer's separate measurement approach was inconsistent with the technical specifications. The third arbitrator dissented, agreeing with NHAI.

The majority award was detailed and technically grounded. It parsed the contract clauses, examined standard MoRTH specifications, and arrived at what it called a "plausible" interpretation. The dissenting opinion was equally detailed but reached the opposite conclusion.

Under Section 34 of the Arbitration and Conciliation Act, 1996 (the provision that allows a court to set aside an arbitral award on limited grounds), NHAI challenged the majority award before a Delhi High Court Single Judge. On 30 November 2011, the Single Judge dismissed the petition, holding that the majority's interpretation was plausible and that the court could not substitute its own view.

NHAI appealed. Under Section 37 of the Act (which allows appeals against orders under Section 34), the matter went to a Division Bench of the Delhi High Court. On 8 November 2012, the Division Bench delivered its judgment.

When the High Court became the arbitrator

The Division Bench did something the Supreme Court would later call a fundamental error. It conducted what the Supreme Court described as a de novo (fresh) contractual interpretation—reading the contract clauses from scratch, deciding which interpretation was better, and concluding that the dissenting arbitrator's view was correct.

The Division Bench set aside the majority award. In doing so, it effectively treated the dissenting opinion as the correct interpretation and substituted its own judgment for that of the arbitral tribunal. The courtroom fell silent as the order was read—the ₹100 crore award, built on months of technical deliberation, was gone in a single hearing.

HCC appealed to the Supreme Court. The appeal would take another eleven years to reach judgment.

The Supreme Court's answer

The bench, comprising Justice S. Ravindra Bhat and Justice Aravind Kumar, allowed the appeals and restored the arbitral awards on 24 August 2023. The judgment is a crisp restatement of a principle courts have struggled with for years: the narrow scope of interference under Sections 34 and 37.

Justice Bhat leaned forward and asked the counsel for NHAI a single question that shifted the room: "If the tribunal's interpretation is plausible, where is the patent illegality?" The question hung in the air. The answer, the court would later hold, was that there was none.

The court held that when an arbitral tribunal—particularly one comprising technical experts with first-hand experience in the subject matter—adopts a plausible interpretation of contractual terms, courts exercising jurisdiction under Sections 34 and 37 cannot substitute their own interpretation. Appellate review of contractual interpretation is impermissible under Section 34.

The court drew heavily on its own precedents. In Associate Builders v. Delhi Development Corporation (2014), the court had held that a tribunal's view must be given deference unless it is perverse or irrational. In Delhi Airport Metro Express (P) Ltd v. DMRC (2021), the court had reiterated that Section 34 does not permit a re-hearing of the merits. The bench also cited Ssangyong Engg. & Construction Co. Ltd v. NHAI (2019), McDermott International Inc. v. Burn Standard Co. Ltd, and MSK Projects (I) (JV) Ltd v. State of Rajasthan (2011) to reinforce the principle that a plausible view, even if not the only view, must stand.

The court also addressed a secondary issue: what happens to a dissenting opinion when the majority award is set aside. The Division Bench had, in effect, elevated the dissenting opinion to the status of an award. The Supreme Court rejected this approach, holding that a dissenting opinion does not receive the level and standard of scrutiny to which the majority award is subjected, and its elevation to the status of an award would be inappropriate and improper.

The court noted that the dispute resolution board—a departmental body of technical experts—had also endorsed a similar interpretation. Where such bodies have weighed in, courts must accord enhanced deference to the arbitral tribunal's findings. The file felt thin in the courtroom—just a few hundred pages of contract and award—but the legal principle it carried was thick with decades of precedent.

The interest that got adjusted

The Supreme Court also modified the interest direction. The arbitral award had granted compounded monthly interest from the date of the award to the date of payment. The court modified this to uniform interest at 12% per annum, payable within eight weeks. No costs were awarded.

The operative order was clean: all five appeals (Civil Appeal No. 4658 of 2023 and connected appeals 4659-4662 of 2023) were allowed, all judgments of the Delhi High Court that were under challenge were set aside, and the arbitral awards were restored to the extent they had been set aside. The citation—2023 LiveLaw (SC) 704 : 2023 INSC 768—now stands as a marker for how far courts can go, and where they must stop.

THE PLAY: When challenging an arbitral award under Section 34, do not ask the court to re-read the contract and decide which interpretation is better—ask only whether the tribunal's interpretation was so unreasonable that no reasonable person could have adopted it.

The embankment was built. The bypass was completed. But the fight over how to measure dirt took fourteen years and three levels of courts to resolve. The Supreme Court ended where the arbitral tribunal began: with a contract, a technical specification, and the simple rule that judges do not get to be arbitrators.