2019 Supreme(SC) 589

SUPREME COURT OF INDIA
R.F. NARIMAN, VINEET SARAN, JJ.
Ssangyong Engineering & Construction Co. Ltd. - Appellant
Versus
National Highways Authority of India (NHAI) - Respondent
CIVIL APPEAL NO.4779 OF 2019 (Arising out of Special Leave Petition (Civil) No.19033 of 2017)
Decided On : 08-05-2019

IMPORTANT POINTS
Explanations introduced by 2015 Amendment are prospective.
Grounds of challenge u/s 34 after 2015 amendment.
An arbitral award cannot be challenged on merits.
If copy of expert opinion obtained by Tribunal is not supplied to each party with opportunity to question the expert and present their own expert, award will be vitiated u/s 34(2)(a)(iii).
Jurisdictional error can be corrected on ground of patent illegality, but not in case of international commercial arbitration.
Tribunal cannot create a new contract for the parties.
Interfering into award on ground the ground that justice has not been done in the opinion of the Court would amount to entering into merits of the award which is not permissible.

Headnote:

(a) Arbitration and Conciliation Act, 1996 - Section 34(2)(b)(ii) and Section 34(2A) - Inserted by Arbitration and Conciliation (Amendment) Act, 2015 - Whether applicable to petitions filed u/s 34 after 23.10.2015 - Expression “for the avoidance of any doubt” occurring in Explanations 1 and 2 to Section 34(2)(b)(ii) absent in Section 34(2A) - Substantive law changed substantively by Section 34(2A) by introducing a new ground of “patent illegality”, with inbuilt exceptions, doing away with expansion of “public policy of India” by the Supreme Court - Held therefore explanations, even though for removal for doubt and thus apparently clarificatory, cannot be retrospective. (Para 11, 12)

       (2018) 6 SCC 287; (2005) 12 SCC 717 - Relied upon

       (2003) 5 SCC 705; (2014) 9 SCC 263 - Referred

       (b) Arbitration and Conciliation Act, 1996 - Section 28 and 34 after Amendment 2015 - Challenge to award u/s 34 - Grounds - Contrary to the fundamental policy of Indian law - Against basic notions of justice or morality - Patent illegality going to the root of the matter and appearing on the face of the award - Perversity - Error of jurisdiction by arbitrator in travelling beyond the contract - Re-appreciation of evidence not permitted under the ground of patent illegality appearing on the face of the award. (Para 25, 26, 27, 29, 30)

       (2015) 3 SCC 49 - Relied upon

       1994 Supp (1) SCC 644 : AIR 1994 SC 860; (2003) 5 SCC 705; (2008) 13 SCC 80; (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12 - Referred

       (c) Arbitration and Conciliation Act, 1996 - Section 34/48 - An arbitral award cannot be challenged on merits. (Para 33)

       1994 Supp (1) SCC 644 : AIR 1994 SC 860 - Relied upon

       (d) Arbitration and Conciliation Act, 1996 - Section 34(2)(a)(iii) r/w Section 18, 24(3), 26 - Opportunity to each party to present its case - Supply of all materials submitted to Tribunal to the other party - Supply of expert opinion obtained by Tribunal to each party with opportunity to question the expert and present their own expert - If this opportunity is not given, ground u/s 34(2)(a)(iii) would be made out. (Para 37)

       [1999] CLC 647 - Referred

       (e) Arbitration and Conciliation Act, 1996 - Section 34(2)(a)(iv) - Expression “submission to arbitration” - Either refers to the arbitration agreement itself, or to disputes submitted to arbitration - Disputes connected with the matter in issue are also covered within the expression - Grounds u/s 34(2)(a)(iv) must be construed narrowly - Arbitrator wandering outside the contract and dealing with matters not allotted to him - Would be jurisdictional error - Could be corrected on ground of patent illegality - Not apply to international commercial arbitration. (Para 39, 43)

       (2012) 12 SCC 581 - Relied upon

       [2011] SGCA 33; 508 F.2d 969; [2005] 3 All ER 789 [HL] : [2006] 1 AC 22; [2018] IEHC 660 (High Court of Ireland, 2018) - Referred

       (f) Arbitration and Conciliation Act,1996 - Section 34(2)(b)(iii), Explanation 1 - Expression “most basic notions of … justice” - Should be construed narrowly - Refers to some fundamental principle of justice breached of which shocks the conscience of the Court - Instantly Arbitral Tribunal relying upon alleged guidelines stated to be found on certain website - Not placed before the Tribunal and not supplied to appellant - Award relying on such guidelines - Held, hit by Section 34(2)(b)(iii), Explanation 1. (Para 44, 46)

       (1995) 2 SCC 630; (2001) 6 SCC 356; (2009) 9 SCC 462 : (2009) 2 SCC (L&S) 689; (2018) 12 SCC 471; (1980) 1 SCC 139 : 1980 SCC (Tax) 67; (1981) 2 SCC 585, 598 : AIR 1981 SC 1274; (2001) 8 SCC 24; (1997) 1 SCC 352; (1997) 5 SCC 482; (1948) 1 KB 223 : (1947) 2 All ER 680 (CA); 1992 Supp (2) SCC 3121992 Supp (2) SCC 312; (1999) 2 SCC 10 : 1999 SCC (L&S) 429; (2012) 1 SCC 594 : (2012) 1 SCC (Civ) 342; 364 F.3d 274, 287-88 (5th Cir. 2004); [2012] EWCA Civ 609; PC, 381 F.3d 793, 800 (8th Cir. 2004); [2012] SGCA 35; [2007] 1 SLR 597; 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960); 453 F.2d 1209 (2d Cir.), cert. denied, 406 U.S. 949, 92 S.Ct. 2045, 32 L.Ed.2d 337 (1972); [2013] IEHC 285; [2015] IEHC 436; [2015] IEHC 820; 224 N.Y. 99, 111, 120 N.E. 198 (1918); [2008] SGHC 67; [2018] SGHC 275; (2014) 2 SCC 433; Arb. 258 (1979); [2006] EWCA Civ. 222; 980 F.2d 141 (2nd Cir. 1992); (1982) VII Y.B. Comm. Arb. 382; [2007] 3 SLR(R) 86; [2010] 3 SLR 1; [1987] 2 Lloyds’ Rep 246; [2001] 1 Lloyd’s Rep 715; [2011] 4 SLR 739; 400 F. Appx. 654 (3d Cir. 2010); 819 F. Supp. 2d 270, 277 (S.D.N.Y 2011); 2013 WL 203361 (2d Cir.); 216 F.3d 589 (7th Cir. 2000); 489 F.3d 623 (5th Cir. 2007); 239 F. Supp. 2d 812 (N.D. III. 2003); XIX Y.B. Comm. Arb. 708 (Amsterdam Court of Appeals) (1992); Arb. 664 (Supreme Court of Hong Kong) (1994); 244 F.3d 580 (7th Cir. 2001); 2006 Rev. arb. 687 (Paris Cour d’appel), Judgment of 30 June 2005; XXXV Y.B. Comm. Arb. 330 (Brazilian Tribunal de Justiça) (2010), Judgment of 19 August 2009 - Referred

       (g) Arbitration and Conciliation Act,1996 - Section 34(2)(a)(iv) - Circular dated 15.02.2013 - New formula and linkage with old formula - Admissibility of - Not possible to apply old formula without a linking factor for applying new formula - Linkage factor had to be introduced - Held, would fall within reference to arbitration. (Para 47)

       (h) Arbitration and Conciliation Act, 1996 - Section 34(2)(b)(iii), Explanation 1 - Expression “most basic notions of … justice” - Circular dated 15.02.2013 - Stating that it could not be applied until contractor gives undertaking accepting and abiding by it - Appellant giving conditional undertaking without prejudice to its rights - Circular could not bind appellant - In fact appellant raising issue of applicability before the Tribunal - Despite that Tribunal applying the Circular and substituting a workable formula under the agreement by another formula de hors the agreement - Thus creating a new contract for the parties - Not permissible - In the exceptional circumstances of the case majority judgment of the tribunal set aside and minority judgment upheld. (Para 48)

       (i) Arbitration and Conciliation Act, 1996 - Section 34 - Interfering into award on ground the ground that justice has not been done in the opinion of the Court - Amounting to entering into merits of the award - Not permissible. (Para 48)

       Facts of the case:

       The appellant is a company registered under the laws of the Republic of Korea, whereas the respondent is a Government of India undertaking, responsible for construction of National Highways throughout the territory of India. The appellant’s bid was accepted vide its letter of acceptance dated 30.12.2005, for a total contract value of INR 219,01,16,805/-. The components used in execution of work for which price adjustment was payable to the appellant are labour, plant and machinery, petroleum, oil and lubricant (POL), cement, steel, bitumen, and other local materials. Price adjustment for four of these components, i.e., cement, steel, plant and machinery, and other local materials was agreed to be calculated as per a formula given in sub-clause 70.3 of the contract.

       Payments of 90% of the monthly bills on this basis were made for the period September, 2010 to February, 2013. On 15.02.2013, the respondent issued a Policy Circular, in which a new formula for determining indices was used by applying a “linking factor” based on the year 2009-10.

       The dispute that was thus referred to arbitration was a narrow one, namely, as to whether price adjustment would continue under the terms of the contract, or whether the Circular dated 15.02.2013, applying the linking factor, would have to be applied. Two out of three members of the arbitral tribunal held that the Circular could be applied as it was within contractual stipulations, as has been held by the Dispute Adjudicating Board, and hence, rejected the appellant’s claim. The appellant’s argument that the linking factor is de hors the contract and not at all required was, therefore, rejected.

       A Section 34 petition which was filed by the appellant was rejected by the Single Judge of the High Court.

       Finding of the Court:

       Majority award of the Tribunal is not sustainable.

       Result: Appeal allowed.