Scope Of Review U/S 37(2)(b) Of Arbitration Act Is Very Limited, Courts Cannot Change Tribunal's Conclusion Based On Detailed Inquiry: Delhi HC

The High Court of Delhi of Justice Sachin Datta has held that the scope of review of an interlocutory order is very narrow when the tribunal examines the factual scenario in detail before formulating an opinion in Section 17. The court cannot change the conclusion reached by the tribunal when the same is based on an intricate factual examination of the matter.

Facts:

The ongoing arbitral proceedings concerning a Concession Agreement (CA) entered between the parties for the work of "six laning Shamlaji to Motachilodha (93.210 km section) of the NH-8" in the State of Gujarat (The Project). The respondent granted the petitioner the exclusive right, under Article 3.1 of the CA, over the license and authority to construct, operate and maintain the project during the construction period of 730 days from the Provisional Commercial Operation Date (PCOD). Clause 4.4 of the CA stipulates that the appointed date for the commencement of the Concession period shall be the date on which financial closure is achieved, and all the conditions precedent outlined in Clause 4.1 of the CA are fulfilled.

An extension of time was granted to the appellant. However, the entire project could not completed till the extended period. The appellant sought to separate the unexecuted portion of the highway, where work could not proceed due to the non-availability of land. A formal request was submitted to the Independent Engineer (IE) by the appellant to issue a provisional completion certificate, per Clause 14.3.2 of the contract agreement, as, according to the appellant, the construction was completed on the site made available to them.

The IE considered the portion of the project where no work could be executed and acknowledged the remaining work that needed to be completed in the available areas. Consequently, the IE prepared two lists: "Balance Work List-A (Punch List-A)" and "Balance Work List-B (Punch List-B)," outlining the tasks that remained to be executed. While recommending that the concessionaire be granted a provisional completion certificate for the partially completed project, the Independent Engineer made the issuance of this certificate contingent upon completing many punch list items. The concessionaire was also required to provide an undertaking regarding the outstanding tasks and execute a supplementary agreement.

There were difficulties in issuing a provisional completion certificate, and the respondent (NHAI), on 11 March 2024, issued a suspension notice under Clause 30.1 of the CA. Following this, the appellant approached the Delhi High Court u/s 9 of the A&C Act seeking a stay of suspension notice and prayed for a PCOD grant. The single judge vide order dated 20 March 2024 stayed the effect in the operation of the suspension notice till the next date of hearing.  The respondent, feeling aggrieved, moved an appeal under Section 37(1)(b) before the division bench. The division bench vide order dated 14 May 2024 disposed of the appeal while giving directions pertaining to NHAI taking over the complete site and the parties at liberty to move a Section 17 application before the tribunal. Following this, the appellant filed a Section 17 application before the tribunal, which was disposed of vide order dated 02 September  2024. The tribunal vacated the suspension notice's stay of effect and operation.

This appeal is filed under Section 37 (2)(b) of the A&C Act, challenging the order of the tribunal passed under Section 17.

Submissions:

The petitioner made the following submissions:

• The division bench's order clearly stated that the stay on the suspension notice would continue. In the absence of any application moved by the respondent about the vacation of the said order, the tribunal had no authority to modify the interim directions given by the division bench.
• The order does not give any reasons for the vacation of the suspension notice.

The respondent made the following submissions:

• Submissions of the appellant do not satisfy the principles governing interference with the appeals of this nature. The tribunal has neither exercised its jurisdiction arbitrarily nor ignored the settled principles of law regulating the grant or refusal of an interlocutory injunction.
• Concerning the issue of suspension of the appellant not being an issue before the tribunal, they raised the same in the pleadings, and extensive arguments were also advanced by the parties on this aspect.

Analysis of the Court:

The court observed that the tribunal had considered the series of events leading to the issuance of the IE letter/communication dated 25 October 2023 and the suspension notice dated 11 March 2024 in detail. The tribunal noted shortcomings in many items of works included in Punch List A & B, despite them not strictly being punch list items as contemplated per Clause 42.1 of the CA. After perusing Clauses 14.3.1 and 14.3.2 of the CA, the tribunal concluded that IE did not possess the exclusive authority to issue a provisional certificate for a portion of the project. The tribunal, therefore, dismissed the Section 17 application, holding that the respondent (appellant in this case) had not achieved PCOD, the parent company of the respondent (appellant in this case), Chetak Enterprises Pvt. Ltd., had sponsored the appellant and the project to the lenders. The parent company had executed an undertaking if the appellant failed to meet its financial obligations to the lenders. The respondent (appellant in this case) can request its parent company to inject funds into the project's escrow account to ensure the repayment of debts due by 31 August 2024. The respondent would not suffer from irreparable harm if the interim directions were not granted by the tribunal.

The tribunal then examined the factual aspects leading to the issuance of the suspension notice. The tribunal vacated the stay on the operation of the suspension notice dated 11 March 2024 because the appellant, despite the issuance of cure period notices to the appellant per Clause 31.1 of the CA. The appellant failed to rectify the defects specified in those notices. This failure led to a 'concessionaire default' as defined under Clause 31.1 of the CA. The appellant was given numerous opportunities to cure the defects before the invocation under Clause 30.1 of the CA, to suspend the appellant's rights and engage a third party to complete the balance work. The tribunal held that concerning the safety of the users, using the national highways is more important than the revenue collection of the national highway. The court observed that the tribunal took detailed note of the circumstances, which compelled the respondent to issue a suspension notice. The tribunal's order cannot be termed “unreasoned” one.

The court observed that the factual aspects influencing the denial of the appellant's request for the grant of a provisional completion certificate are closely linked to the issue of the suspension of the concessionaire under Clause 30.1 of the CA. The same facts that led to the rejection of the appellant's request for a provisional completion certificate also serve as the basis for initiating suspension action against the appellant. In clear terms, the division bench ordered the staying of the suspension notice until the time the tribunal considers the questions of interim measures. The aspect of suspension was quintessential when considering the request for interim protection. The conclusions reached by the Arbitral Tribunal result from a detailed examination of the factual matrix, as required by the order dated 14 May 2024 issued by the Division Bench. In World Window Infrastructure Pvt. Ltd. v. Central Warehousing Corporation 2021: DHC: 3798, a coordinate bench held that the scope against an order passed u/s 17 is very limited. The restraint to be applied while hearing a section 34 petition equally applies to a challenge to an interlocutory order u/s 37(2)(b). Therefore, the court dismissed the appeal.

Case Title: Shamlaji Expressway Private Limited v. National Highways Authority Of India

Case Number: ARB. A. (COMM.) 50/2024 and IA No.40486/2024

Counsel for the Petitioner: Mr Tejas Karia, Dr Amit George, Mr Abhishek Gupta, Mr Suyuash Gupta, Mr Prakhar Deep, Mr Nishant Doshi, Mr Anirveda Sharma, Mr Mukesh Kumar, Ms Meenakshi Sood, Mr Arvind Singh and Ms Nitya Nath, Advocates.

Counsel for the Respondent: Mr Manish Bishnoi, Ms Gunjan Sinha Jain, Ms Muskaan Gopal, and Mr Khubaib Shakeel, Advocates.

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