SSANGYONG V. NHAI
Ssangyong v. NHAI [Supreme Court, S 8 May 2019]
ISSUE:
- Whether the Supreme Court’s explanation of the meaning of “public policy” under Section 34 of the Indian Arbitration and Conciliation Act, as amended by the 2015 Act, result in a more predictable and constrained application of this ground for setting aside arbitration awards?
- Whether the Supreme Court’s decision on the prospective applicability of the 2015 Act to Section 34 applications effectively prevents the use of “public policy” and “patent illegality” as grounds for challenging domestic and foreign arbitration awards initiated prior to the 2015 Act’s enactment?
RULE:
- The Supreme Court’s clarification of the scope of “public policy” under Section 34 of the Indian Arbitration and Conciliation Act, as amended by the 2015 Act, seeks to limit the broad interpretation of “fundamental policy of Indian law” and establishes specific criteria for assessing public policy challenges in arbitration. This rule aims to make the “public policy” justification for setting aside awards more predictable and restricted. The Supreme Court’s decision on the future applicability of the 2015 Act to Section 34 applications establishes that the 2015 Act’s modifications apply only to applications for setting aside awards filed on or after the 2015 Act’s start date. This rule is meant to prevent “public policy” from being abused.
FACTS:
- The issue stemmed from a contract between Ssangyong Engineering and the National Highways Authority of India (NHAI) to build a four-lane bypass on a National Highway.
- The disagreement centred on calculating compensation for inflation in construction material prices, with the agreed-upon approach being the Wholesale Price Index (WPI) using 1993-1994 as the base year.
- Ssangyong objected to NHAI’s circular amending the WPI base year to 2004-2005.
- The arbitral tribunal rendered a majority judgement upholding the NHAI’s amendment and a minority decision opposing it.
- Ssangyong contested the majority award as being contrary to public policy, which resulted in an appeal to the Supreme Court.
HELD:
- Previous cases’ broad interpretations of “fundamental policy of Indian law” were rejected.
- Clarification on interpretations of public policy aspects under Section 34: “fundamental policy of Indian law” – Violation of a statute defending national interests, disdain for orders of superior courts in India, and natural justice principles.
- “most basic notions of morality or justice” – Awarded against justice and morality when it disturbs the court’s conscience.
- “patent illegality” – Illegality that goes to the heart of the issue while excluding erroneous application of law or re-appreciation of facts.
- The 2015 Act’s Potential Applicability:
- Affirmation that the 2015 Act modifying Section 34 is fully prospective and applies to all applications filed on or after October 23, 2015, regardless of when arbitration procedures began.
- The Supreme Court exercised its authority under Article 142 of the Constitution to declare the minority decision as the parties’ award.
- Raised concerns about the effectiveness of Section 34 remedies.
It has been suggested that if a majority verdict is overturned, the parties may have to start the arbitration process all over again. - Recognised that using Article 142 appears to contradict earlier principles that it must not lose sight of statutory provisions.