Patel Engineering Ltd. Vs. North Eastern Electric Power Corporation Ltd. (NEEPCO) - (Supreme Court) (22 May 2020)

Ground of patent illegality is available under the statute for setting aside a domestic award, if decision of arbitrator is perverse

MANU/SC/0447/2020

Arbitration

In the facts of present case, learned sole arbitrator has passed the arbitral award dated 29th March, 2016 in respect of Package-I holding. Similar Declaratory Arbitral Awards were passed by the learned sole arbitrator in respect of the other two Arbitral References in respect of contracts pertaining to Package-II and Package-III of the project.

Respondent-North Eastern Electric Power Corporation Ltd. (NEEPCO) filed three applications under Section 34 of the Arbitration and Conciliation Act, 1996 before the Additional Deputy Commissioner (Judicial), challenging the three arbitral awards. The Additional Deputy Commissioner (Judicial) vide common judgment rejected the applications under Section 34 of the Act and upheld all the three arbitral awards. The Respondent- NEEPCO filed three appeals under Section 37 of the Act before the High Court. By the common judgment, High Court allowed the Respondent’s appeals and set aside the common judgment passed by the Additional Deputy Commissioner (Judicial).

Aggrieved by the common judgment, the Petitioner preferred special leave petitions before the Supreme Court. The Supreme Court vide order dismissed all the three SLPs filed by the Petitioner holding that, the Court is not inclined to interfere. After dismissal of the SLPs, the Petitioner filed review petitions before the High Court on the ground that, the judgment of the High Court suffers from error apparent on the face of the record as it had not taken into consideration the amendments made to Arbitration and Conciliation Act, 1996 by Amendment Act of 2015. The said review petitions came to be dismissed by the High Court vide the impugned orders.

In Board of Control for Cricket in India v. Kochi Cricket Private Limited and Others, the Supreme Court held that the Amendment Act, 2015 would apply to Section 34 petitions that are made after 23rd October, 2015 (the day on which the Amendment Act came into force). In the present case, admittedly, after the arbitral awards are dated 29th March, 2016, the applications under Section 34 of the Act were filed before the Judicial Commissioner, the provisions of the Amendment Act would apply.

Patent illegality as a ground for setting aside a domestic award was first expounded in the judgment of Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. where this Court was dealing with a domestic award. This Court gave a wider interpretation to the ‘public policy of India’. 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.

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. The Petitioner has failed to make out any error on the face of the judgment. The High Court by the impugned order rightly dismissed the review petitions and there is no ground warranting interference with the impugned order. Petitions dismissed.

Tags : AWARD PATENT ILLEGALITY ARBITRATOR