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

The Orissa High Court has reiterated that an arbitral award cannot be set aside on the ground of breach of fundamental principles of justice, if the findings of the Arbitral Tribunal do not shock the conscience of the 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...

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

Parina Katyal

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