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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.