An arbitral award cannot be set aside in case an arbitrator construe the terms of the contract in a reasonable manner: Uttarakhand High Court

The judgement  that arbitral award cannot be set aside in case an arbitrator construe the terms of the contract in a reasonable manner is upheld by the Uttarakhand High Court in the case of (Appeal from Order No. 440 of 2008) on 5 January 2022 by Hon’ble Justice Ravindra Maithani.


The Tehri Hydro Development Corporation, a joint venture of the Indian government and the State of Uttar Pradesh undertook the task of constructing Tehri Dam which would ultimately result in the submerging of a large area.

The appellant was to execute the task of rehabilitating the inhabitants of this area and for the same purpose, the appellant issued tender for the construction of EWS category houses. The tender of the respondent got selected. However, post the contract agreement, the displaced inhabitants chose to be compensated in cash instead of the houses. Thus, there was no longer requirement for the construction of the houses.

A High Powered Committee that was formed in order to settle this issue suggested that the displaced inhabitants should be compensated in cash instead of the houses. Subsequently, through a communication issued by the Ministry of Power, Government of India, the rehabilitation task was handed over to the State of Uttar Pradesh which assigned the work of supervising to the appellant. Subsequently, it was decided to assign the respondent with some other work instead of the construction of EWS houses, however, it couldn’t be accomplished.

The contractor, that is, the respondent had to be compensated by the department and in order to escape this liability, the contractor was assigned the work of constructing eight Type III houses but this work could also not be completed. This led to arising of a dispute between the appellant and the respondent with respect to the contract and the payment to be made as per the contract. A notice was served by the respondent in order to invoke the arbitration clause. The Arbitration Tribunal awarded compensation to the respondent for the material that was lost due to the not being utilised in the construction of the buildings and for the work that was already done and no payment was made in whose regard but no arbitral award was granted for the non availability of the site and on the account of mental torture as well as damages that were suffered due to the contractual obligations not being fulfilled by the employer.

After being unsatisfied with the arbitral award, the appellant approached the Court under Section 11 (6) of the Arbitration and Conciliation Act, 1996 and challenged the arbitral award under Section 34 of the Act. The counsel for the appellant argued that the arbitral award was decided without any evidence.


The contract for the construction of the houses was given to the respondent but due to the changes made in the policy, the work could not be completed. The case of Associate Builders v. Delhi Development Authority was cited by the Court where the Apex Court held that a case must be decided by the Arbitral Tribunal in compliance with the terms of the contract.

An arbitrator has the primary responsibility to construe the terms of the contract in such a manner as a reasonable and fair minded person would do. An arbitral award cannot be set aside in case an arbitrator construe the terms of the contract in a reasonable manner.

The Court in the instant case held that after analysing the terms of the contract and interpreting it as per the facts and circumstances, the arbitral award was granted by the Arbitral Tribunal. The Court held that after considering all these aspects, damages were awarded.

Accordingly, the appeal was dismissed by the Court.

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