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

The Delhi High Court has ruled that non-consideration of a clause of the Agreement executed between the parties, cannot be said to be an error made by the arbitral tribunal which is opposed to the fundamental policy of Indian law. The court added that the same also cannot render the arbitral award patently illegal if the view of the Arbitrator is a plausible one. 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...

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

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

Parina Katyal

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Parina Katyal

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