The High Court of Chhattisgarh, in a significant ruling on the scope of judicial interference in arbitral awards, has dismissed an appeal filed by the State of Chhattisgarh against M/s Anjani Steels Limited. A Division Bench comprising Chief Justice Ramesh Sinha and Justice Bibhu Datta Guru, upheld an order of the Commercial Court, Raipur, which had affirmed an arbitral award in favour of the steel company concerning a water supply dispute. The Court reiterated that judicial intervention under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, is highly circumscribed and cannot involve a re-appreciation of evidence or contract interpretation.
Background of the Case
The dispute originated from a water supply agreement dated December 11, 2009, between the Water Resources Department of the State of Chhattisgarh and M/s Anjani Steels Limited. The company, having signed Memorandums of Understanding with the State in 2003 and 2007 to establish steel and power plants, had sought water for its operations.
The company’s initial water requirement was 0.29 Million Cubic Meters (MCM) per year for its existing Sponge Iron and 12 MW Power Plant. It also projected a future need for an additional 1.52 MCM per year for a proposed 60 MW Power Plant and integrated steel plant.
On November 12, 2009, the State government allotted a total of 1.81 MCM of water annually to be drawn from the Kelo River. Crucially, the allotment order specified that this supply was contingent upon the construction of the proposed Kelo Dam. An agreement was subsequently executed on December 11, 2009.
The core of the dispute arose when the department began billing the company for the entire allotted quantity of 1.81 MCM per year starting from December 2009. However, the Kelo Dam was not constructed until 2012, and the company’s proposed 60 MW plant was not yet established. Consequently, M/s Anjani Steels was only drawing 0.29 MCM per year from a natural source, the Gerwani Nala.
The company’s repeated requests to the department to rectify the bills based on actual consumption were denied, leading to the initiation of arbitration proceedings as per the agreement.
The Arbitral Award
The Sole Arbitrator, Hon’ble Shri Justice L.C. Bhadoo (Retd.), after examining the evidence and submissions, passed an award on September 9, 2018. The arbitrator found that the State was not entitled to its counter-claim of Rs. 8,53,06,786 for the unutilized 1.52 MCM of water. The award directed the company to pay for the 0.29 MCM it had drawn from July 2012, allowing it to adjust excess payments made between 2009 and 2012.
The arbitrator deemed the State’s condition—that it would reduce the allotment only if the company agreed not to demand more water for 20 years—as “arbitrary, unjustified and unfair.”
Aggrieved, the State challenged the award before the Commercial Court, Raipur, under Section 34 of the Arbitration and Conciliation Act, 1996. The Commercial Court dismissed the State’s application on October 18, 2019, leading to the present appeal before the High Court.
Arguments Before the High Court
The Advocate General, appearing for the State, argued that the arbitral award was contrary to the agreement, which was for a total of 1.81 MCM per year. It was contended that the company had paid bills for the full amount until June 2012 without protest and that Clause 2 of the agreement obligated the company to pay for at least 90% of the allotted quantity, regardless of actual usage. The State maintained that the arbitrator had gone beyond the scope of the agreement.
Representing M/s Anjani Steels, Senior Advocate Mr. Abhishek Sinha argued that the scope for judicial interference in an arbitral award is very limited. He pointed out that Clause 22 of the agreement explicitly incorporated the water allotment order of November 13, 2009, which made the supply of 1.81 MCM conditional upon the Kelo Dam’s construction. Since the dam was only completed in 2012, billing for the full amount prior to that was unjustified. Furthermore, it was argued that water drawn from the Gerwani Nala, a natural resource, should be charged at the rate of Rs. 0.90 per cubic meter as per a 2006 government notification, not the Rs. 3.00 rate applicable to government sources.
High Court’s Analysis and Decision
The High Court, in its judgment authored by Justice Bibhu Datta Guru, meticulously analyzed the contractual terms. The Court observed that the water allotment order was an integral part of the agreement and its language was unambiguous. The judgment noted, “Perusal of the above order reveals that the quantity of water 1.81 MCM yearly was to be allotted only after construction of the Kelo Dam on Kelo River.”
The Court concurred with the arbitrator’s finding on the applicable water rate. It held that since the company drew water from Gerwani Nala, a natural resource, before the dam’s completion, the lower rate of Rs. 0.90 per cubic meter was applicable as per the State’s own notification. The Court quoted the arbitrator’s award, which found the agreement’s stipulation of Rs. 3.00 per cubic meter to be “contrary to notification dated 21-03-06” for water drawn from a natural resource.
Reinforcing the principle of minimal judicial intervention, the Court cited the Supreme Court’s decision in Punjab State Civil Supplies Corporation Limited v Sanman Rice Mills, stating, “the scope of the intervention of the Court in arbitral matters is virtually prohibited, if not absolutely barred and that the interference is confined only to the extent envisaged under Section 34 of the Act.”
The Bench concluded that the arbitrator’s findings were based on a “reasonable interpretation of the contractual terms” and did not suffer from patent illegality or conflict with public policy. The Court stated, “It is well settled that the interpretation of clauses of a contract and appreciation of facts and evaluation of evidence is exclusive domain of Arbitrator. The factual findings are also not liable to be disturbed while deciding a petition under Section 34 of the 1996 Act.”
Finding no infirmity in the arbitral award or the Commercial Court’s order, the High Court dismissed the appeal, concluding that it was “sans substratum.”
