2020 (5) TMI 733 - SC - Indian Laws

Supreme Court Upholds Dismissal of Review Petitions Challenging Arbitral Awards

PATEL ENGINEERING LTD. Versus NORTH EASTERN ELECTRIC POWER CORPORATION LTD. (NEEPCO)

The Supreme Court upheld the High Court of Meghalaya's decision to dismiss review petitions challenging the setting aside of arbitral awards. The Court ... Domestic award between two Indian entities - Patent illegality - HELD THAT:- After considering the Constitution Bench decision in DURGA SHANKAR MEHTA VERSUS THAKUR RAGHURAJ SINGH AND OTHERS. [1954 (5) TMI 25 - SUPREME COURT] and number of other judgments, in BUSSA OVERSEAS & PROPERTIES (P) LTD. & ANOTHER VERSUS UNION OF INDIA & ANOTHER [2016 (1) TMI 914 - SUPREME COURT], the Court held that consistency is the cornerstone of the administration of justice and courts have evolved and formulated a principle that if the basic judgment is not assailed and the challenge is only to the order passed in review, the Supreme Court is obliged not to entertain such special leave petitions. Patent illegality as a ground for setting aside a domestic award was first expounded in the judgment of OIL & NATURAL GAS CORPN. LTD. VERSUS SAW PIPES LTD. [2003 (4) TMI 438 - SUPREME COURT] where this Court was dealing with a domestic award. This Court gave a wider interpretation to the ‘public policy of India’ in Section 34(2)(b)(ii) in Part I of the 1996 Act. The Court held that an award would be “patently illegal”, if it is contrary to the substantive provisions of law; or, provisions of the 1996 Act; or, terms of the contract. The present case arises out of a domestic award between two Indian entities. The ground of patent illegality is a ground available under the statute for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or, so irrational that no reasonable person would have arrived at the same; or, the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view - In the present case, the High Court has referred to the judgment in ASSOCIATE BUILDERS VERSUS DELHI DEVELOPMENT AUTHORITY [2014 (11) TMI 1114 - SUPREME COURT] at length and arrived at the correct conclusion that an arbitral award can be set aside under Section 34 if it is patently illegal or perverse. In the present case, the High Court in paragraph (51) has held that no reasonable person could have arrived at a different conclusion while interpreting Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii) of the Conditions of Contract. Any other interpretation of the above clauses would definitely be irrational and in defiance of all logic - Even though the High Court referred to various judgments, the case has been decided on the ground that the arbitral award is a perverse award and on a holistic reading of all the terms and conditions of the contract, the view taken by the arbitrator is not even a possible view. While dealing with the appeal under Section 37 of the Act, the High Court has considered the matter at length, and held that while interpreting the terms of the contract, no reasonable person could have arrived at a different conclusion and that the awards passed by the arbitrator suffer from the vice of irrationality and perversity. SLP dismissed. Issues Involved:1. Review petition dismissed by the High Court of Meghalaya.2. Application of amendments to the Arbitration and Conciliation Act, 1996.3. Grounds for setting aside an arbitral award under Section 34 of the Act.4. Concepts of 'patent illegality' and 'public policy of India' in arbitration awards.5. The impact of the arbitral award on public exchequer and unjust enrichment.Issue-wise Detailed Analysis:1. Review Petition Dismissed by the High Court of Meghalaya:The High Court of Meghalaya dismissed the review petitions filed by the petitioner challenging its judgment dated 26.02.2019, which had set aside the arbitral awards. The High Court found no grounds for review and noted a delay in filing the review applications.2. Application of Amendments to the Arbitration and Conciliation Act, 1996:The petitioner argued that the High Court's judgment dated 26.02.2019 did not consider the amendments made to the Arbitration and Conciliation Act by the Amendment Act of 2015. The petitioner claimed that the High Court erroneously applied pre-amendment provisions and relied on outdated judgments, such as Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. and Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited. The Supreme Court acknowledged that the Amendment Act, 2015, effective from 23.10.2015, should apply to the case since the arbitral awards were dated 29.03.2016.3. Grounds for Setting Aside an Arbitral Award under Section 34 of the Act:The Supreme Court discussed the grounds for setting aside an arbitral award under Section 34, particularly focusing on 'patent illegality.' The Court referred to various precedents, including Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., Associate Builders v. Delhi Development Authority, and Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India. The Court emphasized that an award could be set aside if it is contrary to substantive law, the Arbitration Act, or the terms of the contract, and if it suffers from irrationality or perversity.4. Concepts of 'Patent Illegality' and 'Public Policy of India' in Arbitration Awards:The Supreme Court explained that 'patent illegality' as a ground for setting aside a domestic award was first introduced in the Saw Pipes case and later reaffirmed in Associate Builders. The Amendment Act, 2015, incorporated this ground into Section 34(2A) of the Act. The Court clarified that patent illegality includes contraventions of substantive law, the Arbitration Act, or the terms of the contract, and that an award must not be set aside merely for erroneous application of law or reappreciation of evidence.5. The Impact of the Arbitral Award on Public Exchequer and Unjust Enrichment:The High Court found that the arbitral awards would result in unjust enrichment of the respondent to the tune of approximately Rs. 1,000 Crores, which is against the fundamental policy of Indian law. The Court noted that the payment of Rs. 3.56 Lakh per truckload of sand or boulder for a 100 km distance was excessive and constituted unjust enrichment at the cost of public funds. The Supreme Court agreed with the High Court's assessment that the arbitral awards were perverse and irrational.Conclusion:The Supreme Court upheld the High Court's decision to dismiss the review petitions, finding no error on the face of the judgment dated 26.02.2019. The Court concluded that the arbitral awards were rightly set aside by the High Court as they suffered from patent illegality and irrationality, and would result in unjust enrichment contrary to the fundamental policy of Indian law. The special leave petitions were dismissed with no order as to costs.