Not Every Procedural Irregularity Vitiates An Arbitral Award: Allahabad High Court
The Allahabad High Court at Lucknow has recently held that not every procedural irregularity would vitiate an arbitral award or justify interference under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996.
A Division Bench of Chief Justice Arun Bhansali and Justice Jaspreet Singh made the ruling in a dispute between the U.P. State Highways Authority and the concessionaire appointed to develop and operate the Meerut-Karnal Road project under a public-private partnership.
“Not every procedural irregularity can have the effect of vitiating an award nor would it permit the Court under Section 34 or this Court under Section 37 of the Act of 1996 to interfere.”, it held.
The dispute arose out of a public-private partnership concession agreement dated 16.12.2011 for the four-laning of the Meerut-Karnal Road Section (SH-82) on a design, build, finance, operate and transfer basis. The concessionaire, Abhijeet Meerut Karnal Toll Road Limited, was to complete the work within 730 days of the appointed date and hold a concession for 25 years. The appointed date was never fixed.
U.P. State Highways Authority (UPSHA), which was obliged as a condition precedent to procure 90% of the right of way, issued a notification under Section 4 of the Land Acquisition Act, 1894 but took no further step, and no notification under Section 6 followed. The concessionaire terminated the agreement on 13.01.2014 and invoked arbitration. Before the tribunal was constituted, UPSHA encashed the performance security of Rs 29.16 crores.
The tribunal returned a split award. The majority allowed the claim for loss of profits, scaling down a claim of Rs 640.50 crores to Rs 157.57 crores, and allowed Rs 25.53 crores towards payments made to EPC contractors. The Presiding Arbitrator, in a minority opinion, rejected both. Section 34 petitions filed by both sides were dismissed by the Commercial Court in Lucknow.
Thereafter, the parties approached the High Court under Section 37 of the Act.
Counsel for U.P. State Highways Authority argued that there was unequal treatment of parties under Section 18 of the Act as three new documents were placed by the respondent before the Tribunal after the judgment was reserved, alongwith the written statement. After objections, a clarificatory hearing took place, where the tribunal decided to take the 3 documents on record.
It was argued that taking such documents on record without giving chance to UPSHA to rebut the documents was violation of principles of natural justice. It was argued that the irregularity went to the root of the matter.
The Court observed that the tribunal had taken three documents on record after arguments closed while reserving the question of their admissibility and relevance to the merits stage, and had then never decided that question. It held that it may be a procedural infraction, but an arbitral tribunal is not bound by technical rules of procedure and is entitled to frame its own.
“In absence of any prohibition in law and certainly no embargo was placed by the parties, while agreeing on the procedure to be followed during the proceedings, hence, it cannot be said that the Arbitral Tribunal did not possess the jurisdiction or authority to hold a clarifactory hearing and to prime facie consider whether the documents filed after conclusion of arguments, could be taken on record.”, the court ruled.
The court observed that UPSHA failed to demonstrate that it had sought and been denied an opportunity to rebut the additional documents, or explain how those documents had prejudiced its case
Observing that UPSHA could not demonstrate the prejudice caused to it by those documents, the Court held
“If any procedural irregularity which impacts the jurisdiction of the Arbitral Tribunal to try the matter before it or it has the impact of violating principles of natural justice which is occasioned with a failure of justice, can definitely be looked into and in a befitting case, can even be a ground for setting aside the award provided it can be established that one party due to such procedural irregularity was unable to present its case effectively and in its entirety.”
It held that it was the burden of UPSHA to prove how the documents caused it prejudice.
Accordingly, the Court held that there was no procedural irregularity in the award to intervene in the arbitral award.
Case Title: U.P. State Highways Authority v. M/s Abhijeet Meerut Karnal Toll Road Limited, Appeal Under Section 37 of Arbitration and Conciliation Act 1996 No.41 of 2025,
Counsel for Appellant(s) : Apoorva Tewari, Dipak Seth, Harsh Vardhan, Pranjal Krishna
Counsel for Respondent(s) : Sudeep Seth, Sr. Adv. with Satvik Misra