Non-Consideration Of Clause In Agreement: Can’t Say Opposed To Fundamental Policy Of Indian Law: Delhi High Court

The bench comprising Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad was dealing with an arbitral award which was challenged on the ground that the Arbitrator had ignored the relevant clause of the Concession Agreement while passing the award.

Noting that the findings of the Arbitral Tribunal were reasoned and a plausible one, the court remarked that the concession agreement was neither a statute, nor was it a law which protected the national interests of the country. Therefore, a mere failure of the arbitral tribunal to consider an argument on the same would not render the arbitral award in contravention of the fundamental policy of Indian law, the court held.

The bench reiterated that mere contravention of a statute, if the same does not affect the protection of national interest, would not constitute as a violation of the “fundamental policy of Indian law” under Section 34(2) of the Arbitration and Conciliation Act, 1996(A&C Act).

The appellant, National Highways Authority of India (NHAI), entered into a Concession Agreement with the respondent, GVK Jaipur Expressway Pvt Ltd, for construction of Toll Plazas. After some dispute arose between the parties, the matter was referred to arbitration. The Arbitral Tribunal, by a majority award, rejected the claim for compensation raised by the respondent for construction of additional toll lanes. The Tribunal found that the construction of the additional toll lanes was not outside the scope of work awarded to the respondent. Thus, it rejected the respondent/claimant’s claim for compensation under Section 70 of the Indian Contract Act, 1882.

The respondent, GVK Jaipur Expressway, challenged the arbitral award under Section 34 of the A&C Act before the Single Judge of the Delhi High Court. The Single Judge set aside the award on the ground that the same was contrary to the terms of the contract as it ignored the relevant clause (Clause 18.4) of the Concession Agreement.

Against this, the appellant, NHAI, filed an appeal under Section 37 of the A&C Act before the Division Bench.

NHAI argued before the court that despite noting that the interpretation given by the majority Arbitral Tribunal is a plausible opinion, the Single Judge had still set aside the arbitral award.

To this, the respondent contended that in view of non-consideration of Clause 18.4 of the Concession Agreement, the award was patently illegal and was in contravention of the fundamental policy of Indian law.

At the outset, the bench remarked that the court in exercise of its appellate powers under Section 37, cannot re-appreciate evidence or enter into the merits of an arbitral award. The court can only adjudicate upon the order challenged in the proceedings to determine whether the Section 34 court had exceeded its jurisdiction under Section 34 or not, the court said.

Referring to a catena of judgments of the Supreme Court, the court said that “fundamental policy of Indian law” means contravention of a law protecting national interest or disregarding orders of a superior court. It added that mere contravention of a statute, if the same does not affect the protection of national interest, would not constitute as a violation of “fundamental policy of Indian law” under Section 34(2) of the A&C Act.

Similarly, the bench said that an erroneous application of law does not constitute patent illegality. It added that patent illegality has been interpreted to mean an illegality that goes to the root of the matter. “An arbitral award can be said to be illegal if the arbitral tribunal takes a ground which is not a possible one, interprets a clause in the contract which no fair person minded (fair minded person) would conclude, makes an error of jurisdiction or states no reason for its decision,” the court said.

The court noted that the Arbitral Tribunal in its majority award had held that making provision of additional toll lanes was a part and parcel of the respondent’s obligations;accordingly, it fell under ‘operation and maintenance’ under Clause 18.1. Therefore, the Tribunal had opined that the said work could not be said to be outside the ‘scope of work’ of the project awarded to the respondent. Thus, the Tribunal had dismissed the respondent’s claim for compensation under Section 70 of the Indian Contract Act, 1882.

The court, however, observed that in the Section 34 application, the Single Judge re-interpreted Clause 18.1 of the Concession Agreement and then proceeded to hold that it did not agree with the Arbitral Tribunal’s interpretation.

Accepting the submissions made by NHAI, the court said that if the arbitral tribunal has given its reasons for a finding on an issue and the same is a plausible view, then the Court should not interfere with the award under Section 34.

“Upon a reading of Clauses 18.1 and 18.4 of the Concession Agreement and the Arbitral Award as reproduced hereinabove, it is apparent that the view as taken by the majority of the Arbitral Tribunal is a plausible view. The majority undertakes a thorough discussion on Clause 18.1 of the Concession Agreement, what the obligations of the Concessionaire are under the agreement, particularly with regards to the operation and maintenance of the project and whether the same includes the construction of additional toll lanes or not. The majority has discussed whether the construction of additional toll lanes would require a change of scope notice under the Concession Agreement,” the bench held.

Noting that Clause 18.4 squarely provides that it is applicable only if a maintenance work is not a part of the project, the court said that it would not be necessary for the Arbitral Tribunal to refer to the said clause after it had concluded that the work of additional toll lanes was a part of the Project.

“It is thus clear, that the findings of the majority of the Arbitral Tribunal is a view that is reasoned and plausible and interference by a Court under Section 34 of the Arbitration Act was not necessary”, the court remarked.

The court further held that non-consideration of Clause 18.4 of the Concession Agreement cannot be said to be an error made by the Arbitral Tribunal which is opposed to the fundamental policy of Indian law, nor can the same be said to be patently illegal. “The concession agreement is neither a statute, nor is it a law which protects the national interests of this nation and a mere failure of the arbitral tribunal to consider an argument on the same would not render the arbitral award in contravention of the fundamental policy of Indian law,” said the court. It added that non-consideration of Clause 18.4 cannot be said to be an error that goes into the root of the award and thus, it cannot amount to a patent illegality.

Noting that the reasoning given by the Arbitral Award, which was based upon an interpretation of Clause 18.1, was a plausible view, the court said, “The re-interpretation of Clause 18 of the Concession Agreement by the ld. Single Judge would amount to a re-appreciation of evidence which is impermissible under Section 34 of the Arbitration Act. The Ld. Single Judge had correctly in the Impugned Judgment observed that its disagreement with view of the arbitral tribunal pertaining to the interpretation of Clause 18.1 is beyond the scope of its jurisdiction under Section 34 of the Arbitration Act.”

The court thus allowed the appeal and set aside the judgment of the Single Judge.

Case Title: National Highways Authority of India vs GVK Jaipur Expressway Private Limited

Citation: 2023 LiveLaw (Del) 618

Counsel for the Appellant: Mr. Manish K. Bishnoi and Mr. Nirmal Prasad, Advocates.

Counsel for the Respondent: Mr. Samudra Sarangi, Ms. Shruti Raina and Ms. Abhilasha Khanna, Advocates

Click Here To Read/ Download Order