Ssangyong Engineering & Construction Co.
Ltd. v. NHAI 2019
Case Brief
Facts:
A contract was awarded by NHAI(Respondent) in favor of Ssangyong Engineering &
construction Co. Ltd.(Appellant) a company registered under the laws of the Republic of
Korea, for the construction of a four lane bypass on National Highway 26 in the state of
Madhya Pradesh.
The terms of the contract provided for Price Adjustment to be paid to the appellant every
month using the agreed formula as per the Wholesale Price Index(WPI) method
following the years 1993-1994 as the base year.
However, the respondent later 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.
This reduced the price adjustment available to the appellant via the Wholesale Price
Index under the contract.
The appellant never accepted this and knocked at the doors of the High Court of Madhya
Pradesh, the High Court granted an injunction in favour of Ssangyong restraining NHAI
from implementing the said Circular retrospectively. However, it disposed of the writ
petition with the observation that there exists a dispute resolution mechanism through the
Dispute Adjudication Board.
After the arbitration proceedings, two out of the three members which amounted to the
majority of the arbitral tribunal, by their award dated 02.05.2016 made at New Delhi,
after noting the arguments of both sides, held that this Circular could be applied as it was
within the contractual stipulations. The minority, however, held the revision to be de hors
the contract.
Hence, the appellant challenged challenged the award dated 02.05.2016 under section 34
of the Arbitration and Conciliation Act 1996 before the Delhi High court under it being
against the public policy of India and in violation of the terms of the contract.
The judge adjudicating upon the matter held by a judgment and order dated 09.08.2016
that a possible view was taken by the majority arbitrators which, therefore, could not be
interfered with, given the parameters of challenge to arbitral awards. This decision was
then appealed under Section 37 of the Arbitration and conciliation Act 1996 before the
Division Bench of the High Court, however, it yielded the same result. After which the
matter was assailed before the supreme court via a special leave petition.
Issues:
Whether the majority award had created a new contract by applying a unilateral circular?
Is the 2015 amendment made to section 34 of the Arbitration and conciliation Act 1996
prospective in nature?
Could the majority award passed by an arbitral tribunal be challenged under section 34?
What are the parameters of review of arbitral awards?
Holdings:
The court held that the government guidelines that were referred to were never presented
before the arbitral tribunal. Hence, the appellant was affected directly as they weren’t
allowed to present their case properly. For this reason, the majority was set aside under
Section 34 (2)(a)(iii)
That there was no violation of section 34 (2)(a)(iv) as the dispute as to application of the
circular is certainly something which would fall within the arbitration clause or the
reference to arbitration that governs the parties.
That the majority award passed has created a new contract, without the consent of the
appellant. Due to which a fundamental principle of justice has been breached. Which is in
violation of Section 34 (2)(b)(ii) of the act and is a ground to set aside the award.
Hence, the majority award was set aside.
Rule of law:
Amendments made in section 34 of the Arbitration and conciliation (Amendment) Act
2015, were prospective in nature i.e. applicable to applications filed under Section 34 of
the act to set aside arbitral awards made after 23.10.2015. In this matter the court held
that the Amendment act 2015, apply to section 34 petitions that are made after
23.10.15(relying on Board of Control for Cricket in India v. Kochi Cricket (P.) Ltd. and
Ors., (2018) 6 SCC 287)
Secondly, the meaning of ‘public policy of Indian law’ is now constricted to
Firstly, that a domestic award is contrary to the fundamental policy of Indian law
or secondly, that such award is against basic notions of justice
The defence under Section 34 (2)(A) of patent illegality doesn’t apply in international
commercial arbitration and can only be used in a purely domestic arbitration.
the construction of the terms of a contract is primarily for an arbitrator to decide, unless
the arbitrator construes the contract in a manner that no fair-minded or reasonable person
would. In short, that the arbitrator’s view is not even a possible view to take.
when matters that are not strictly in issue are brought up due to being connected with
other matters in issue, they would not readily be held to be matters outside the scope of
submission to arbitration for the purposes of Section 34 (2)(b)(ii).
Conclusion
Firstly, I believe when it comes to the Amendment made to Section 34 of the Arbitration
and conciliation Act being prospective or retrospective in nature the court has
misunderstood some facts when it held the act was prospective, I believe the amendments
made to the act should apply to ongoing cases retrospectively too as the explanations 1&2
were supplanted in the Amendment act to clarify some doubts, the judgement by the
court defeats that purpose.
However, I believe the court’s decision to limit the scope of challenging an arbitral award
under Section 34 & 48 of the Arbitration and Conciliation Act by not allowing a judicial
body to get into the merits of an arbitration decision was a correct one. The court
adequately justified its reasoning in this matter. An Arbitral tribunals view when it comes
to International Arbitration should be final and the ground of challenging the award
should be very limited, as constant interference by the judiciary would defeat the purpose
of Arbitration and prevent it from being an efficacious and speedy method for alternative
dispute resolution. However, when it comes to purely domestic arbitrations, I believe, the
court should be given wider powers to review an arbitral award so as to uphold the
substantive law in India and limit erroneous application of law and perverse proceedings
by smaller and unexperienced arbitral tribunals.
Hence, this law will cause a major reform when it comes to arbitration and give it more
power and in turn reduce the burden on the judiciary when it comes to adjudication while
providing a speedy and efficacious remedy for dispute resolution. This judgment could
also restore faith in foreign investors as it would compel the government and state bodies
to uphold arbitral awards. However, the judiciary should introduce certain checks and
balances to make sure some arbitral tribunals don’t act in a perverse way.
