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Category: Recourse against Arbitral Awards

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Recourse against Arbitral Awards

Associate Builders v. DDA, (2015) 3 SCC 49

ASSOCIATE BUILDERS V. DDA

Associate Builders v. DDA, (2015) 3 SCC 49

ISSUE:

  • Whether the Delhi Development Authority (DDA) was legally obligated to compensate the contractor for the significant delay in the construction project that the arbitrators determined?
  • Whether the division bench of the High Court’s use of the principle of “rough and ready justice” was a suitable criterion for determining compensation amounts in cases of construction project delays.

RULE:

  • In circumstances involving construction contracts and delays, courts may apply the idea of “rough and ready justice” to determine the amount of compensation. Based on the facts of the case, this approach helps courts to decide a reasonable and justifiable compensation sum.

FACTS:

  • The lawsuit involves a contract for building construction between the Delhi Development Authority (DDA) and Associate Builders.
  • The building project experienced major delays, extending the completion deadline by 25 months.
  • Arbitrators evaluating the contractor’s claims blamed the delay on the DDA.
  • As compensation for the delay, the arbitrators awarded the contractor Rs. 23.39 lakhs.
  • The case was heard by a learned single judge of the High Court and dismissed.
  • The DDA filed an appeal, appealing the learned single judge’s order.
  • The division bench overturned the contested order and reduced the claims, describing it as “rough and ready justice.”

HELD:

  • The Supreme Court dismissed the appeal and overturned the arbitral award.
  • Courts should not vacate arbitral verdicts based solely on disagreements with the arbitrator’s interpretations of the agreement under Section 34 of the Arbitration and Conciliation Act.
  • To set aside an award, you must show that the tribunal’s decisions were based on no or irrelevant evidence.
  • ‘Public Policy’ Justifications:
  • The Supreme Court established what constitutes ‘public policy.’
  • Among these grounds are:
  • Failure to comply with superior court instructions.
  • Violation of judicial approach principles.
  • Violation of natural justice principles.
  • Unreasonableness in the selection of an arbitrator to the degree that no reasonable person would reach a comparable conclusion.
  • These points provide clarification.
Categories
Recourse against Arbitral Awards

Gammon India Ltd. & Anr v. NHAI [Delhi HC, 23 June 2020]

GAMMON INDIA LTD. V. NHAI

Gammon India Ltd. & Anr v. NHAI [Delhi HC, 23 June 2020]

ISSUE:

  • Whether it is permissible for a court to rely on the findings of a subsequent award in resolving objections brought against a previous award in a case involving several awards and arbitration proceedings, whether it is permissible for a court to rely on the findings of a subsequent award in resolving objections brought against a previous award.
  • Whether the 1996 Arbitration and Conciliation Act have explicit provisions or established legal principles to handle the issue of multiple arbitral processes and promote effective dispute resolution?
  • Whether the Act contains instructions or procedures for dealing with the problem of varied arbitral processes and ensuring that dispute resolution adheres to the terms of the 1996 Arbitration and Conciliation Act?

RULE:

  • To avoid multiple arbitrations, parties interested in arbitration pertaining to the same contract should combine their claims into a single arbitration procedure if practicable. This ensures that dispute resolution is more efficient and effective.

FACTS:

  • A road building contract was signed between Gammon-Atlanta JV, a joint venture of Gammon India Ltd. and Atlanta Ltd. (“contractor”), and the National Highways Authority of India (NHAI).
  • Disputes emerged during contract execution, prompting the contractor to seek arbitration three times in 2005, 2007, and 2008.
  • Three independent arbitral tribunals were formed, and three separate arbitral awards were issued, each addressing a different dispute arising from the same contract.

HELD:

  • When contesting a previous award (2nd Award), the court considered whether it is permissible to rely on findings from a subsequent award (3rd Award).
  • To avoid confusion and inefficiency, the court emphasised that multiple arbitrations for disputes arising from the same contract should be avoided.
  • The court issued suggestions to reduce the number of arbitral hearings, such as raising all claims at the time of arbitration invocation and assigning a single panel to hear connected disputes.
  • It ruled that findings from a future award could not be used to support a challenge to a previous award.
  • When submitting Section 11 or Section 34 petitions, the court emphasised the need of specific disclosures regarding ongoing or concluded arbitration processes linked to the same contract.
Categories
Recourse against Arbitral Awards

Megha Enterprises And Ors v. Haldiram Snacks Pvt Ltd (Judgment dated March 1).

MEGHA ENTERPRISES V. HALDIRAM SNACKS PVT. LTD.

Megha Enterprises And Ors v. Haldiram Snacks Pvt Ltd (Judgment dated March 1).

ISSUE:

  • Whether the Arbitral Tribunal’s decision that Haldiram’s claim is not barred by limitation because Megha acknowledged her debt through email conversations complies with Section 18 of the Limitation Act?
  • Whether, in light of the High Sea Sale Agreements’ choice of jurisdiction, the Arbitral Tribunal’s decision that it had territorial jurisdiction to decide Haldiram’s claims is legally sound and consistent with the parties’ intentions under the agreements?

RULE:

  • The Arbitration and Conciliation Act of 1996 (A&C Act) controls the arbitration proceedings in this matter, while the Limitation Act of 1963 is consulted for concerns concerning the limitation period.

FACTS:

  • Megha and Coral engaged into contracts for the sale and acquisition of crude palm oil.
  • In 2013, invoices were sent, and payments were due within a specific time frame.
  • Coral merged with Haldiram, and Haldiram demanded the outstanding sum from Megha.
  • Megha challenged the allegation, claiming that it was not obligated to pay.
  • Haldiram requested arbitration, and the Arbitral Tribunal was formed to settle the claims.
  • The primary question in this case is the limitation period for Haldiram’s claim and whether Megha’s statements might be considered acknowledgements of the debt.

HELD:

  • The Arbitral Tribunal dismissed the claim that it lacked territorial jurisdiction.
  • It ruled that Haldiram’s claims were not prohibited by limitation, citing certain interactions, including emails, as evidence of debt acknowledgement.
  • Megha appealed the Arbitral Tribunal’s ruling, claiming that the communications did not comply with Section 18 of the Limitation Act.
  • The main point of contention is the appraisal of evidence and the implementation of the limitation period.
Categories
Recourse against Arbitral Awards

Patel Engineering Ltd. v. NEEPCO [Supreme Court. 22 May 2020]

PATEL ENGINEERING LTD. V. NEEPCO

Patel Engineering Ltd. v. NEEPCO [Supreme Court. 22 May 2020]

ISSUE:

  • Whether the Meghalaya High Court’s decision to overturn the arbitral award was justified on the basis of ‘patent illegality.’
  • Whether the Amendment Act of 2015’s modifications to the Arbitration and Conciliation Act of 1996 should be considered in this instance?

RULE:

  • Section 34(2A) of the Arbitration and Conciliation Act, 1996, empowers the court to vacate a domestic arbitral ruling if it is tainted by ‘patent illegality’ on the face of the award. The term “patent illegality” refers to situations in which the arbitrator’s ruling is determined to be perverse, unreasonable, or opposed to substantive provisions of law, the 1996 Act, or the conditions of the contract.

FACTS:

  • Patel Engineering Ltd. (PEL) and North Eastern Electric Power Corporation Ltd. (NEEPCO) had a disagreement over a works contract containing three separate arbitration clauses, which resulted in three separate arbitral rulings in favour of PEL.
  • NEEPCO appealed the awards to the Additional Deputy Commissioner under Section 34 of the Act, who upheld them.
  • NEEPCO appealed the awards to the Meghalaya High Court (HC), which overturned them.
  • PEL petitioned the Supreme Court for special leave petitions (SLPs), which were denied. PEL then filed review petitions with the Meghalaya High Court, saying that the HC used the pre-Amendment Act provisions incorrectly.
  • The review requests were also denied, prompting PEL to file an appeal with the Supreme Court.

HELD:

  • The Supreme Court ruled that the 2015 modifications to the Arbitration and Conciliation Act should be taken into account in this instance.
  • The Court reaffirmed the breadth of ‘patent illegality’ as a basis for overturning a domestic arbitral ruling.
  • The concept of ‘patent illegality’ allows an award to be overturned if it is found to be perverse, unreasonable, or contradictory to the substantive requirements of law, the 1996 Act, or the contract.
  • The Court upheld the Meghalaya High Court’s decision to vacate the arbitral award, finding that it was unreasonable and perverse, and that the arbitrator’s viewpoint was not even a plausible viewpoint.
  • PEL’s review applications were denied, upholding the Meghalaya High Court’s decision to vacate the arbitral verdict.
Categories
Non Intervention Recourse against Arbitral Awards

Ssangyong v. NHAI [Supreme Court, S 8 May 2019]

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.
Categories
Recourse against Arbitral Awards

South East Asia Marine Engineering and Constructions Ltd v. Oil India Limited [Supreme Court, 11 May 2020 in Civil Appeal No. 673 of 2012]

SOUTH EAST ASIA MARINE ENGINEERING V. OIL INDIA LTD.

South East Asia Marine Engineering and Constructions Ltd v. Oil India Limited [Supreme Court, 11 May 2020 in Civil Appeal No. 673 of 2012]

ISSUE:

  • Whether the arbitral tribunal’s interpretation of Clause 23 as involving a price increase in high-speed diesel (HSD) due to an Executive Order was a reasonable construction of the contract provisions, given that the contract appeared to envisage a fixed rate for the contractor?
  • Whether the arbitral tribunal’s interpretation, while based on the principle of harmonious interpretation, was so implausible and contrary to the overall terms of the contract that it could be considered against Indian public policy, justifying the High Court’s overturning of the arbitral award?

RULE:

  • While courts and tribunals should normally use a harmonic interpretation of contract words to determine the parties’ intent, such interpretation must nevertheless be consistent with the contract’s overall terms and conditions. An interpretation that is not plausible in the context of the contract may be rejected, particularly if it contradicts the contract’s plain stipulations and is contrary to Indian public policy.

FACTS:

  • OIL awarded SEAMEC a contract for drilling and related operations that includes a “change in law clause” (Clause 23).
  • The contract authorised SEAMEC to seek payment for additional expenditures incurred as a result of legal changes.
  • An Executive Order caused a rise in the price of HSD, which is necessary for SEAMEC’s operations.
  • SEAMEC contended that the price rise constituted a “change in law” under Clause 23, but OIL disagreed.
  • The arbitral tribunal found in favour of SEAMEC, applying a broad interpretation of the Article.
  • The District Judge upheld the award after it was challenged under Section 34 of the Arbitration and Conciliation Act 1996.
  • The High Court overturned the award, ruling that the interpretation was incorrect and against public policy.
  • SEAMEC filed an appeal with the Supreme Court.

HELD:

  • Both the arbitral tribunal and the High Court were overruled by the Supreme Court.
  • While a harmonic reading of a contract is normally prefered, it should not contradict the overall terms and circumstances of the deal.
  • The contract envisioned a set fee for SEAMEC, according to the Court, and there was no specific language in the contract linking price changes with a “change in law.”
  • SEAMEC’s broad interpretation of Clause 23 was ruled improbable by the tribunal because it was not supported by adequate evidence.
  • When two credible opinions exist, the Supreme Court clarified that the Court should not interfere with the arbitrator’s decision. In this case, however, the tribunal’s interpretation was not even an option.
  • Finally, the Supreme Court declined to intervene in the High Court’s decision to vacate the arbitral verdict.