It is settled law that courts should not interfere with the view taken by an arbitral tribunal unless an award portrays perversity unpardonable under Section 34 of the Arbitration and Conciliation Act, 1996 (‘the Act’). In other words, courts generally refuse to interfere with awards wherein the arbitral tribunal has arrived at a possible or plausible conclusion. However, what might be a plausible view in a particular matter has been subject to constant debate, largely because of the element of subjectivity involved in interpreting agreements and other correspondence between the parties.
In the recent case of Anglo American Metallurgical Coal Ltd. v. MMTC Ltd., the Supreme Court overruled the decision of the Delhi High Court and attempted to discern the characteristics of a decision based on no evidence or imaginary evidence. The analysis of the same has been divided into four parts – Part I explains the factual matrix in brief; Part II discusses the decisions of the arbitral tribunal, the Delhi High Court and the Supreme Court respectively; Part III comprises an analysis of the rationale behind the judgment; and lastly, in Part IV, the author concludes by affirming that courts must be careful while distinguishing between a scenario wherein the tribunal has relied on no evidence, and one wherein the tribunal has merely put forth a plausible view based on the existing evidence.
FACTS OF THE CASE
MMTC and Anglo American were parties to a long-term contract, pursuant to which MMTC was to purchase coking coal from Anglo American, at a price of USD 300 per metric tonne, over five delivery periods. Following a slump in the industry, the parties agreed to a one-time ad-hoc arrangement under which coal would be supplied at a discounted price of USD 128.25 per metric tonne. The obligation under the original contract continued separately. Sometime after the execution of the ad-hoc arrangement, MMTC requested Anglo American to supply the coal due in the fifth delivery period while referring to certain backlogs in the supply.
Anglo American responded by stating that there was no coal available for supply for the rest of the year. After completing the fifth delivery period, Anglo American proposed a new agreement under which the previously unfulfilled obligations could be carried out. However, the parties could not arrive at an understanding concerning the prices and the duration in which the coal would be lifted. Subsequently, Anglo American initiated arbitration proceedings against MMTC for breaching the contract by failing to lift the coal as per the existing agreement. The entire matter revolves around the interpretation of certain correspondence between the parties to determine which party is to be held liable for breaching the contract.
THE TRIBUNAL’S AWARD
Based on the analysis of the testimonies and the e-mails exchanged between the parties, the Tribunal concluded that Anglo American’s statement regarding the non-availability of coal had been made in the context of the ad-hoc arrangement. The non-availability had been communicated for supplying coal at the ad-hoc price, and Anglo American had always been willing to supply coal at the price mentioned in the long-term agreement. Although the e-mails made no specific mention of the ad hoc price, the tribunal stated that the same could not be interpreted literally, and had to be read in the context of the parties’ previous dealings. It, therefore, held MMTC responsible for breaching the contract and awarded Anglo American damages of USD 78,720,414.92 pendente lite and future interest and cost.
DECISION OF THE COURTS
When the award was challenged by MMTC in the Delhi High Court, the single judge upheld the validity of the award and refused to set it aside. MMTC then preferred an appeal under Section 37 of the Act before the Division Bench. The Bench observed that while requesting for coal, MMTC had clearly referred to backlogs and requested for the supply due in the fifth delivery period. The court relied primarily on “three crucial emails” wherein Anglo American had responded to MMTC’s request for coal by stating that they did not have any coal to supply for the remainder of the year.
Since the court found the language of these three e-mails to be clear and unambiguous, it refused to consider the testimony of Anglo American’s witness who asserted that the non-availability of coal had been conveyed in the context of MMTC’s constant requests for supplying coal at reduced prices. Further, as there was no mention of any reduced price in the e-mail, the bench observed that there was no reason for Anglo American to assume that the coal was being demanded at a reduced price, and not at the price specified in the original agreement.
The Bench concluded that the arbitral tribunal had acted in an arbitrary and capricious manner by reading words into written communications between the parties and omitting to read what had been written in plain and unambiguous terms. Relying heavily on the reasoning given in Associate Builders v. Delhi Development Authority, the bench held that the tribunal had made a perverse award based on no evidence or imaginary evidence, and set it aside.
When the matter reached the Supreme Court, the court overturned the division bench’s verdict and concurred with the rationale proposed by the tribunal as well as the single judge. The court found that upon a holistic reading of the correspondence exchanged between the parties, the view taken by the tribunal was a plausible view which could not be set aside merely because the division bench came forth with an alternate interpretation.
ANALYSIS OF THE JUDGMENT
A. PLAIN-EYED READING OF EVIDENCE: THE CORRECT APPROACH?
The Division Bench of the Delhi High Court had relied upon the judgment of Smt. Kamala Devi v. Takhatmal and Anr., (which discussed the scope of Section 94 of the Indian Evidence Act, 1872) to conclude that there was no reason to look for the undisclosed intention of the parties when the express words contained in the three crucial emails were perfectly in accord with the existing facts. The court opined that by overlooking the clear meaning of these mails, the tribunal had constructed an imaginary scenario and essentially relied on “no evidence” when finding MMTC at fault. It further stated that in cases where the conclusion of the arbitral tribunal is not supported by a “plain, objective and clear-eyed reading” of the unambiguous documentary evidence, such awards may fall within the ambit of perversity.
However, the application of the principle in the present case is flawed because of two reasons: First, when such principles are applied to a string of correspondence between parties, each document must be taken to be part of a coherent whole, and certain portions cannot be read in isolation. In the present case, as there was no mention of the price at which coal was to be supplied in the three crucial emails, it cannot be claimed that the language of the mails was clear enough to derive a conclusion solely based on their plain-eyed reading. Second, when the three mails are read in context, there does arise an ambiguity which has to be resolved by taking the witness testimonies into consideration and discerning the intent behind the communication.
B. Resolving the ambiguity: The Tribunal’s plausible view
As mentioned previously, the division bench’s decision was rooted in its reliance upon the principle that the court need not look at the intention behind the correspondence which does not reflect any ambiguity. The bench, however, failed to note the following points, which when read together with the three mails, certainly raise doubts as to the context in which the mails were written:
First, after the completion of the fifth delivery period, Anglo American sent a mail to MMTC proposing a new agreement under which MMTC could fulfil its obligation of lifting the stipulated quantity of coal mentioned in the Long-term agreement. Instead of disputing Anglo American’s assertions with respect to the unfulfilled obligations, MMTC acknowledged the same.
Second, post receiving Anglo American’s communication with respect to the completion of the fifth delivery period, and the proposed new agreement, MMTC never questioned Anglo American for not fulfilling its obligations. It did not even claim that there had been a breach of contract for refusal to supply the coal. It merely asked for more time to lift the coal and attempted to negotiate the prices. Even while negotiating for a new agreement, MMTC expressed its inability to lift the quantity of coal initially proposed by Anglo American.
Third, soon after the commencement of the fifth delivery period, MMTC requested a reduction in the price of the coal being supplied because of the market recession. Moreover, MMTC gave no response to Anglo American’s request for providing a delivery schedule for fulfilling obligations under the Long-term Agreement, even after being reminded about the same. It simply enquired about the availability of items for the future months.
The aforementioned points, when read alongside the three mails clearly raise doubts as to the context in which Anglo American had mentioned the non-availability of coal. Therefore, the tribunal in an attempt to make sense of the correspondence, closely scrutinised the mails and the testimonies advanced from both sides and deduced that Anglo American, being a major producer of coal, was both capable and willing to supply the contracted quantity of coal for the fifth delivery period at the contractual price and that it was MMTC who had been unwilling to lift the coal owing to a slump in the market conditions. This was a plausible view that could be reasonably taken after reviewing the entire fact situation and hence did not appear to be perverse in any manner.
While the principle of the arbitrator being the ultimate master of the facts reigns supreme, there have been a number of instances in recent times wherein courts have set aside awards by finding fault with the arbitrators’ appreciation of the evidence, documentary or otherwise. This is because there can be no straightjacket formula for decoding whether a particular interpretation of the evidence is a possible and reasonable view of the matter, or if it is an impossible view emerging from an erroneous application of the law to the facts of the case.
In cases like the present one, where the evidence is considerably ambiguous in nature, there is a greater chance that an alternative view may seem as an impossible one to the court hearing the matter. In the author’s opinion, the Division Bench’s end conclusion based on its appreciation of the evidence cannot be deemed as incorrect. However, the bench made the error of believing that its view was the only reasonable one, and thereby failed to consider the possibility of the arbitral tribunal’s view being a plausible one as well.
There are two key takeaways from the judgment: First, the division bench put forth an interesting test for perversity, that is, if the inference drawn by the arbitral tribunal is not supported by a plain, objective and clear-eyed reading of documents, the award may be set aside. This observation stemmed from the court’s understanding that the tribunal in the current case had read words into the written communications between the parties, and omitted to read what was written in simple, uncomplicated language.
While the test is logically sound, courts must take care to note that the aforementioned clear-eyed reading of the documents must be done in a holistic manner, and cherry-picking sentences from documentary evidence and giving them a literal interpretation must be avoided at all costs. Further, while interpreting contractual agreements, it is necessary to consider all relevant evidence which may give an insight into the parties’ true intent and objectives.
Second, while it is an established principle that a plausible view taken by the tribunal should not be interfered with, the distinction is drawn between an alternative view and an impossible view in a particular case is largely dependent on the judges’ psyche and their comprehension of the arbitrator’s rationale. Therefore, while evaluating an award for perversity, courts must exercise judicial restraint and set aside the award only in exceptional circumstances.
*Khushbu is a Staff Writer for the Arbitration Workshop Blog. She is currently a third-year law student pursuing B.A L.L.B (Hons.) at National Law Institute University, Bhopal. She also serves as an Editor for the NLIU Law Review and the Indian Arbitration Law Review. She can be contacted at email@example.com
 2020 SCC OnLine SC 1030.  MMTC v. Anglo American Metallurgical Pvt. Ltd., FAO(OS) 532/2015 & CM. APPL 20560/2015, MANU/DE/0664/2020.  Id. at 1.  Id.  Supra note 2 at 12.  Supra note 2 at 43.  (2015) 3 SCC 49.  (1964) 2 SCR 152.  Supra note 5.  Id.  Supra note 2 at 6.