THE STATE OF JHARKHAND v. THE INDIAN BUILDERS JAMSHEDPUR
Reconsideration of Bharat Drilling: Applicability of Excepted Clauses and the Scope of Party Autonomy in Arbitration under the Arbitration and Conciliation Act, 1996.
Court: Supreme Court of India
Citation: 2025 INSC 1388
Decision Date: 05-12-2025
List of Laws
Arbitration and Conciliation Act, 1996; Section 34 of the Arbitration and Conciliation Act, 1996; Section 37 of the Arbitration and Conciliation Act, 1996; Section 31(7) of the Arbitration and Conciliation Act, 1996; Freedom of Contract; Party Autonomy
Case Brief
- Facts: The State of Jharkhand appealed a High Court judgment that allowed a Section 37 appeal under the Arbitration and Conciliation Act, 1996. The respondent-claimant had challenged a Civil Court's decision to set aside an arbitral award based on Section 34 objections filed by the State. The Civil Court had overturned claims 3, 4, and 6, deeming them prohibited by the contract.
- Procedural Posture: The case reached the Supreme Court as a Civil Appeal by the State of Jharkhand against the High Court's judgment. The Supreme Court noted that the High Court relied on a previous Supreme Court decision, Bharat Drilling, without adequately examining the contractual clauses.
- Issue: Does the principle established in Bharat Drilling, regarding the applicability of excepted or prohibited claim clauses in contracts, apply solely to the employer and not to the Arbitral Tribunal? Furthermore, how does party autonomy influence the interpretation of such clauses under the Arbitration and Conciliation Act, 1996?
- Holding: The Supreme Court expressed its opinion that the Bharat Drilling case was not an authority for the proposition that an excepted clause or a prohibited claim in a contract applies only to the employer and not to the Arbitral Tribunal. The Court referred Bharat Drilling to a larger bench for reconsideration to ensure clarity and consistency in the law.
- Reasoning: The Court found that the High Court erred by relying on Bharat Drilling without examining the specific contractual clauses. The Supreme Court emphasized that contractual clauses limiting claims are founded on freedom of contract and represent informed choices by the parties. The Court highlighted the importance of party autonomy in arbitration, as reflected in the Arbitration and Conciliation Act, 1996. It noted that the applicability of excepted or prohibitory clauses depends on the agreement between the parties, which serves as the guiding principle for the Arbitral Tribunal. The Court also distinguished the issue of interest under Section 31(7) of the Act from contractual clauses prohibiting claims, finding Bharat Drilling's reliance on Port of Calcutta (dealing with interest) inappropriate in this context.