Arbitral Award Cannot Be Set Aside On The Ground That It Is Based On Insufficient Material : Orissa High Court

The Single Bench of Justice K.R. Mohapatra held that even if the material available before the Arbitral Tribunal is not sufficient to come to the conclusion arrived at by the Tribunal, the award cannot be set aside on this ground alone.

The petitioner GMR Kamalanga Energy Limited entered into an agreement with the respondent SEPCO Electric Power Construction Corporation, a Chinese Company, for construction of a Thermal Power Plant in Odisha. After certain disputes arose between the parties, the respondent invoked the arbitration clause and initiated arbitration proceeding against the petitioner. The Arbitral Tribunal passed an award whereby the petitioner was directed to pay Rs. 995 Crores to the respondent. Against the arbitral award, the petitioner filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Orissa High Court.

The petitioner GMR Kamalanga Energy submitted before the High Court that the respondent was required to issue a notice before raising a claim under the contract. The petitioner averred that the Arbitral Tribunal had erroneously held that the parties had waived the requirement to issue contractual notices and that the petitioner was estopped from seeking compliance with the said precondition of serving a contractual notice. Thus, the petitioner contended that the Arbitral Tribunal had effectively modified the contract between the parties.

The petitioner averred that with respect to the various claims made by the respondent before the Arbitral Tribunal, the petitioner had raised a plea that the respondent had failed to fulfil the pre-condition of serving a contractual notice. The petitioner submitted that the said plea of the petitioner was rejected by the Arbitral Tribunal.

However, the petitioner contended that the Arbitral Tribunal had rejected the counter-claims made by it before the Arbitral Tribunal on the ground that the petitioner had failed to serve the contractual notices. Thus, the petitioner averred that the Arbitral Tribunal had treated the parties unequally by applying a different standard to each of them.

The petitioner submitted that if the Arbitral Tribunal had held that the parties had waived the requirement to issue contractual notices, the Tribunal should have applied such waiver equally to both the parties. The petitioner added that it was not given any opportunity by the Arbitral Tribunal to plead or lead evidence against the respondent's claim that the said precondition of serving contractual notices was waived or that the petitioner was estopped from seeking its compliance. Therefore, the petitioner contended that the arbitral award violated Section 18 and Section 34 (2)(b)(ii) of the A&C Act since it was in conflict with the most basic notions of morality and justice.

Thus, the petitioner averred that the petition filed by it fell within the scope of Section 34 of the A&C Act.

The respondent SEPCO Electric Power Construction submitted that Section 34 of the A&C Act does not permit the petitioner to seek a factual, evidentiary or legal review of the findings of the Arbitral Tribunal. The respondent added that the merit of an international commercial arbitral award is completely outside the scope of challenge under Section 34 of the A&C Act. The respondent averred that the petitioner by raising the issues of bias and violation of natural justice, was camouflaging its attempt to argue on the merits of the dispute, which is against the scheme of the A&C Act.

Section 34 (2A) of the A&C Act provides that an arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award. The proviso to Section 34 (2A) provides that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

The Court observed that an arbitral award can be challenged under Section 34 of the A&C Act only in accordance with Section 34 (2) and Section 34 (3). The Court noted that Section 34(2A) provides that an international commercial arbitral award cannot be challenged on the ground of 'patent illegality appearing on the face of the award'. The Court added that in view of Section 34 (2A), an arbitral award cannot be set aside merely on the ground of erroneous application of law or by re-appreciation of evidence.

The Court noted that the Supreme Court in the case of Ssangyong Engg. & Construction Co. Ltd. versus NHAI (2019) had held that an arbitral award can be set aside on the ground that it is in conflict with justice or morality under Section 34 (2)(b)(ii) of the A&C Act only if it shocks the conscience of the Court.

The Court held that an opportunity was given to the petitioner to produce materials in support of its contentions regarding estoppel and waiver. The Court observed that the Arbitral Tribunal had relied upon the email received by the representative of the petitioner asking the respondent to not issue any formal notice to it in any matter in the future. Thus, the Court ruled that the findings arrived at by the Arbitral Tribunal regarding waiver of notice was not perverse and that it was based on evidence.

The Court ruled that in view of the law laid down by the Supreme Court in Associate Builders versus DDA (2014), an award cannot be held to be invalid on the ground that it is based on little evidence or on the ground that it is based on evidence which does not measure up in quality. The Court ruled that it cannot re-appreciate the evidence relied upon by the Arbitral Tribunal and comment upon the quantity and quality of the evidence, unless the findings arrived at by the Tribunal shock the conscience of the Court.

Therefore, the Court held that though the material available before the Tribunal may not be sufficient to come to the conclusion that the pre-condition of serving a notice was waived, as alleged by the petitioner, however, the award cannot be set aside on this ground.

The Court noted that the pre-condition of serving a notice was not waived with respect to the issues raised by the petitioner before the Arbitral Tribunal. The Court observed that this was because the nature of the petitioner's counter claims was not comparable with the claims raised by the respondent before the Arbitral Tribunal.

Thus, the Court dismissed the contentions of the petitioner that the Arbitral Tribunal had modified the contract between the parties by holding that the requirement of issuing a contractual notice was waived by the parties.

The Court ruled that allegation of 'bias' against the Arbitral Tribunal is a serious allegation which has to be viewed with circumspection. The Court added that the A&C Act is a complete Code in itself which provides the mechanism to raise the issues regarding bias before the Arbitral Tribunal. The Court held that the petitioner had an opportunity to raise the issue of bias before the Arbitral Tribunal under Section 13 of the A&C Act, however, no such objection was raised by the petitioner.

The Court added that allegation of 'bias' against the Arbitrator must be proved beyond any reasonable doubt and that it must be supported with material particulars.

The Court held that the petitioner had failed to prove that the Arbitral Tribunal had treated the parties unequally in violation of the provisions of Section 18 of the A&C Act. Thus, the Court ruled that it could not be said that the principles of natural justice were violated or that the parties to the arbitration were treated unequally.

The Court ruled that the findings of the Arbitral Tribunal did not shock the conscience of the Court, therefore, it cannot be said that the arbitral award is contrary to the public policy of India. Thus, the Court held that the arbitral award could not be interfered with under Section 34 of the A&C Act, on the plea of breach of fundamental principles of justice.

Hence, the Court dismissed the petition under Section 34 of the A&C Act.

Case Title: GMR Kamalanga Energy Ltd. versus SEPCO Electric Power Construction Corporation

Citation : 2022 LiveLaw (Ori) 106

Dated: 17.06.2022 (Orissa High Court)

Counsel for the Petitioner: Dr. Abhisekh Manu Singhvi, Senior Advocate, being assisted by Mrs. Pami Rath, Advocate

Counsel for the Respondent: Mr. Jayant Mehta, Senior Advocate, being assisted by Mr. N. Paikray, Advocate

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