Can Arbitral Tribunal Rewrite Contract Between Parties? High Court Says No

The Delhi High Court has said that it is impermissible for an arbitral tribunal to re-work the bargain between the parties and rewrite the contract for being commercially difficult for one party to perform.

Justice Vibhu Bakhru, while dealing with a challenge to an arbitral award passed against the Ministry of Railways in relation to its disputes with Jindal Rail Infrastructure Ltd (JRIL), stated that the arbitral tribunal cannot examine the commercial wisdom and rewrite the agreement on the basis of the commercial difficulties faced by a party in performing its obligations.

A commercial contract cannot be avoided if one of the parties subsequently finds it commercially unviable, the court stated.

“A 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. The arbitral tribunal has, essentially, re-worked the bargain between the parties and rewritten the contract. This is, clearly, impermissible,” the court said in its order dated May 23 while setting aside the award passed in the matter.

JRIL had invoked the arbitration agreement to adjudicate its claims with respect to the supply and pricing of wagons and over Rs 18 crore were awarded to it by the tribunal.

The court allowed the plea by the railway ministry, represented by senior panel counsel Deepak Jain, and stated that the decision of the arbitral tribunal to award the difference between the price quoted by the tenderers and the price quoted by JRIL is unsustainable.

“The impugned award is in conflict with the fundamental policy of Indian law and is vitiated by patent illegality,” the court said.

It observed that JRIL, in its commercial wisdom, had quoted a certain price for supplying and “it is not open for the arbitral tribunal to examine this commercial wisdom and rewrite the Agreement on the basis of the commercial difficulties faced by JRIL in performing its obligations.” “It is not necessary that all contracts yield a profit; some result in a loss as well. This is not a factor to permit a party to avoid its contractual obligations,” the court said.

“In cases where it is found that 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 as it is assumed that men of commerce would have intended it so. However, it is not open to re-work a bargain that was struck between the parties on the ground that it is commercially difficult for one party to perform the same,” the court stated.