Arbitration Act | 2G Judgment A 'Change In Law', Court Can't Set Aside Majority Award And Uphold Minority's: Delhi High Court

While dismissing a Section 34 petition under the Arbitration Act, the Delhi High Court recently observed that the 2G judgment, whereby the Supreme Court quashed the First-Come-First-Serve (“FCFS”) policy, constituted a “change in law” for grant of spectrum/licenses. “By passing the 2G judgment, the Hon'ble Supreme Court scrapped the FCFS Policy which was the earlier usual procedure under the law for grant of spectrum/licenses and later on the Hon'ble Supreme Court passed directions that the spectrum/licences would only be granted after conducting fresh auctions, hence, it is apparent that the decision in the aforesaid judgment would amount to change in law”. Justice Chandra Dhari Singh rejected the contention that the court was empowered to set aside a majority Award and uphold the minority Award, opining that the same would amount to modification of the Award. “A party cannot file a petition under Section 34 for setting aside of a majority or a dissenting opinion…In the event the Courts follow the trend of setting aside the majority award, the same would mean as modification of an award which is not permissible under the Act, 1996”. Relying on the Supreme Court's decision in Hindustan Construction Co. Ltd. v. National Highways Authority of India, it was said that if an Award passed by majority members of the Arbitral Tribunal is set aside, the underlying disputes are required to be decided afresh. The issue had arisen in the context of a Master Services Agreement (“MSA”) entered by petitioner-Indus Towers Limited, a leading telecom infrastructure company, with respondent-Sistema Shyam Teleserivices Limited. Under this agreement, it was agreed that the petitioner would provide the respondent with passive infrastructure to facilitate installation of its equipment in 11 telecom circles. In 2010, however, the judgment in Centre for Public Interest Litigation v. Union of India (“2G Judgment”) came to be passed, whereby licenses granted to private operators, and subsequent allocation of spectrum to licensees, were quashed. The FCFS policy was held arbitrary, leading to freeing up of the spectrum bundled up with quashed licenses, which was directed to be auctioned. Following the same, the respondent, which had obtained licenses under the FCFS policy, announced closure of business and exit from certain telecom circles. It wrote to the petitioner that the licenses quashed as per the 2G judgment were the foundation of the MSA and the service contracts under it. As such, the MSA had been frustrated. Disputing the respondent's stance, the petitioner filed a Section 9 petition, claiming Exit Charges of over Rs.87 crores alongwith interest of more than 39 crores. It averred that taking a commercial decision, the respondent selectively participated in fresh auction of only 8 circles, whereas it could have re-obtained all affected licenses and continued operations. As such, pre-mature termination of the service contracts by the respondent attracted levy of Exit Charges. The 3-member Tribunal, by a majority of 2:1, held in favor of the respondent, opining that the quashing of the erstwhile licenses allotted under the FCFS policy constituted change in law, and thus, the respondent was exempted from paying Exit Charges. Further, it was held that the quashing of licenses was a Force Majeure event, and the MSA did not obligate the respondent to re-obtain a quashed license. Aggrieved, the petitioner filed the Section 34 petition, alleging that the respondent's decision to continue operations in some circles and to exit from others clearly showed that the 2G judgment was used as a pretext for exiting from the concerned circles under the MSA. Dealing with the issue as to whether the 2G judgment constituted a change in law, the court said that the termination of the service contracts by respondent was not “voluntary” and it was not under an obligation to re-obtain the quashed licenses. “…due to the supervening event which is 'change in law' by way of the 2G judgment which frustrated the FCFS Policy by virtue of which the respondent had initially obtained licenses, the contract among the parties stood infructuous since the respondent was under no obligation to re-obtain the licence in the fresh auction”. Answering the second issue, Justice Singh said that setting aside of the majority Award and upholding of the minority/dissenting view was impermissible. “This Court under Section 34 of the Act, 1996, cannot in any manner modify the award and petitioner by way of his plea of seeking setting aside of the impugned majority Award and upholding the minority Award is seeking modification of the Arbitral Award and in the even the said is allowed, the same would require the issued to be decided a fresh which is beyond the powers of this Court under Section 34 of the Act, 1996.” Finding no reason to interfere with the...

Arbitration Act | 2G Judgment A 'Change In Law', Court Can't Set Aside Majority Award And Uphold Minority's: Delhi High Court

Debby Jain

Tags