2023 (5) TMI 1319 - SC - Indian Laws

Supreme Court restores arbitral award after High Court's erroneous interference under Section 34 Arbitration Act

RELIANCE INFRASTRUCTURE LTD. Versus STATE OF GOA

SC restored arbitral award after HC erroneously interfered with it. Commercial Court had properly examined Section 34 application under Arbitration and ... Restoration of Arbitral Award - patent illegality apparent on the face of the award or not - Section 34 of Arbitration and Conciliation Act, 1996 - HELD THAT:- The High Court could only be said to have misdirected itself on the major issues concerning merits of the award. However, before concluding, it may be observed that it had not been as if the Commercial Court did not examine the material issues arising for determination while dealing with the case in terms of Section 34 of the Act of 1996. It is noticed that after taking note of the submissions of parties, the Commercial Court precisely framed the points for determination and then, dealt with every point on the anvil of Section 34 of the Act of 1996. With respect, it is not found the High Court justified in making a comment about framing of points for determination by Commercial Court and then observing that the Commercial Court merely reproduced the findings of the award. The Commercial Court dealing with Section 34 application was not acting as a Court of Appeal. Yet, looking to the long-drawn arguments, the Commercial Court enumerated the issues raised and then returned the findings after examining the record and while rejecting the submissions made on behalf of the State. There had been no such flaw in the judgment and order passed by the Commercial Court which called for interference by the High Court on the parameters and within the periphery of Sections 34/37 of the Act of 1996. The narrow scope of 'patent illegality' cannot be breached by mere use of different expressions which nevertheless refer only to 'error' and not to 'patent illegality'. It is reiterated that what has been stated and underscored by this Court in DELHI AIRPORT METRO EXPRESS PVT. LTD. VERSUS DELHI METRO RAIL CORPORATION LTD. [2021 (9) TMI 1479 - SUPREME COURT] that restraint is required to be shown while examining the validity of arbitral award by the Courts, else interference with the award after reassessing the factual aspects would be defeating the object of the Act of 1996. This is apart from the fact that such an approach would render several judicial pronouncements of this Court redundant if the arbitral awards are set aside by categorizing them as 'perverse' or 'patently illegal' without appreciating the contours of these expressions. In the impugned judgment, the High Court though referred to the principles laid down by this Court in SSANGYONG ENGINEERING & CONSTRUCTION CO. LTD. VERSUS NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI) [2019 (5) TMI 1879 - SUPREME COURT] but then, reproduced an analysis by a learned Single Judge of the High Court and proceeded to decide the matter with reference to the passages so extracted. The enunciation of this Court ought to have been examined by the Division Bench of the High Court while dealing with the matter at hand, rather than relying on the analysis by a learned Single Judge of the High Court. Nothing more is said in this regard, essentially because the latter decisions of this Court like those in Delhi Airport Metro Express and Haryana Tourism Limited were not available before the High Court at the time of passing of the impugned judgment and order dated 08.03.2021. Nevertheless, the principles expounded by this Court in Associate Builders and Ssangyong Engineering were available and the matter was required to be dealt with in reference to those principles. Leaving this aspect at that, suffice it would be to observe for the present purpose that the impugned judgment and order dated 08.03.2021, insofar it interferes with the findings and the conclusions of the award in question, cannot be sustained and is required to be set aside. Fact of the matter remains that nothing of a patent illegality apparent on the face of the award has been pointed out. The submissions essentially are of indicating some alleged errors on the merits of the case which, as noticed, do not fall within the parameters of Section 34 of the Act of 1996. That part of the impugned judgment and order dated 08.03.2021 as passed by the High Court, which modifies the award dated 16.02.2018 and the order of the Commercial Court dated 12.09.2019, is set aside and consequently, the award in question is restored in its entirety. Appeal of claimant allowed. Issues Involved:1. Variable charges on the use of alternate fuel.2. Downrating of the power plant.3. Variable charges on 4 MW power.4. Netting-out principle.5. Award of interest.Summary:1. Variable Charges on the Use of Alternate Fuel:The Supreme Court found that the Arbitral Tribunal had correctly determined that the claimant was entitled to raise invoices based on fluctuating prices of fuel and exchange rates, as per the agreement between the parties. The High Court's interference on the ground of non-consideration of certain clauses (12.1.4 to 12.1.7) was held to be unjustified. The Tribunal had focused on the core issue of whether the claimant agreed to supply power based on fixed rates, which was not the case. The Tribunal's findings were based on documentary evidence and the cabinet decision of the Government of Goa.2. Downrating of the Power Plant:The Tribunal concluded that the issue of downrating was settled between the parties and that there was no annual downrating of the rated capacity. The High Court's re-evaluation of evidence and substitution of its own view for that of the Tribunal was found to be beyond its jurisdiction. The Tribunal's interpretation of the contractual terms and reliance on the OEM certificate and minutes of meetings were deemed appropriate.3. Variable Charges on 4 MW Power:The Tribunal determined that the Government of Goa was not justified in claiming credits for 4 MW in computing tariff heat rate for arriving at the fuel cost variable charges. The High Court's reinterpretation of the communications between the parties and its conclusion that the Tribunal's award was perverse and patently illegal was rejected. The Tribunal's view was found to be reasonable and based on the evidence.4. Netting-Out Principle:The Tribunal found that the agreed rate for backup power supplied during the shutdown period was a fixed amount and not subject to multiplication as per the PPA. The High Court's interference on the ground of patent illegality was found to be unjustified. The Tribunal's interpretation of the notes and communications between the parties was upheld.5. Award of Interest:The Tribunal's award of interest for the pre-reference period and during the arbitration proceedings was upheld by the High Court. However, the High Court reduced the post-award interest rate from 15% to 10%, which the Supreme Court found to be unjustified. The Tribunal's decision to award 15% interest was deemed appropriate given the prevailing interest rates.Conclusion:The Supreme Court set aside the High Court's modifications to the award and restored the Tribunal's award in its entirety, emphasizing the limited scope of interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996. The appeal filed by the claimant was allowed, and the appeal filed by the State was dismissed.