Ssangyong Engineering And ... vs National Highways Authority Of ...

3. The price adjustment was being paid to the appellant every month in terms of the agreed formula under sub-clause 70.3 by using the Wholesale Price Index [“WPI”] published by the Ministry of Industrial Development, which followed the years 1993-94 = 100 [“Old Series”]. However, with effect from 14.09.2010, the Ministry of Industrial Development stopped publishing the WPI for the Old Series and started publishing indices under the WPI series 2004-05 = 100 [“New Series”]. It is important to note that even under this New Series, the WPIs for the previous years beginning from April, 2005 were also being published by the Ministry. This being so, as both the indices C 1 and Co were available to the appellant under the New Series for calculating price adjustment, the appellant raised its bills accordingly. It is undisputed that payments of 90% of the monthly bills on this basis were made for the period September, 2010 to February, 2013. On 15.02.2013, the respondent issued a Policy Circular [“Circular”], in which a new formula for determining indices was used by applying a 3 “linking factor” based on the year 2009-10. However, this Circular expressly stated:

The Dispute Adjudicating Board, by its majority recommendation dated 31.10.2013, recommended a certain linking factor and then arrived at the figures of price adjustment in the aforesaid four materials by applying such linking factor. However, one of the members of the Dispute Adjudicating Board gave a dissenting note in favour of the appellant, recommending that in view of the express terms of the contract, the provisions contained in the impugned Circular cannot be applied for calculation of price adjustment. Aggrieved by the recommendations of the Dispute Adjudicating Board, the appellant 5 issued a notice of dissatisfaction dated 19.11.2013, and referred the dispute to an arbitral tribunal consisting of three members. The appellant raised a claim of INR 2,01,42,827/- towards unpaid price adjustment for the period September 2010 up to May 2014, plus INR 1,00,86,417/- for interest on the aforesaid unpaid amount. The dispute that was thus referred to arbitration was a narrow one, namely, as to whether price adjustment would continue under the terms of the contract, or whether the Circular dated 15.02.2013, applying the linking factor, would have to be applied. Two out of three members of the arbitral tribunal, by their award dated 02.05.2016 made at New Delhi, after noting the arguments of both sides, held that the Circular could be applied as it was within contractual stipulations, as has been held by the Dispute Adjudicating Board, and hence, rejected the appellant’s claim. While doing so, the majority award applied certain government guidelines of the Ministry of Commerce and Industry, as per which it was stated that the establishment of a linking factor to connect the Old Series with the New Series is imperative, and therefore, required. The appellant’s argument that the linking factor is de hors the contract and not at all required was, therefore, rejected. The majority award further made it clear that these guidelines are available on a certain website, as they were not on record. Paragraph 13 of the guidelines was then 6 referred to, and applying the arithmetic conversion method, which is one of the three methods referred to in the said paragraph, a linking factor was applied in accordance with the formula prescribed in the said method which is as follows:

According to him, therefore, this appeal should be dismissed.

21) 24 “21. A court does not sit in appeal over the award of an Arbitral Tribunal by reassessing or reappreciating the evidence. An award can be challenged only under the grounds mentioned in Section 34(2) of the Act. The Arbitral Tribunal has examined the facts and held that both the second respondent and the appellant are liable. The case as put forward by the first respondent has been accepted. Even the minority view was that the second respondent was liable as claimed by the first respondent, but the appellant was not liable only on the ground that the arbitrators appointed by the Stock Exchange under Bye-law 248, in a claim against a non- member, had no jurisdiction to decide a claim against another member. The finding of the majority is that the appellant did the transaction in the name of the second respondent and is therefore, liable along with the second respondent. Therefore, in the absence of any ground under Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decision can be arrived at.”

With the passage of time, some difficulties in the applicability of the Act have been noticed. Interpretation of the provisions of the Act by courts in some cases have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act . With a view to overcome the difficulties, the matter was referred to the Law Commission of India, which examined the issue in detail and submitted its 176th Report. On the basis of the said Report, the Arbitration and Conciliation (Amendment) Bill, 2003 was introduced in the Rajya Sabha on 22-12-2003. The said Bill was referred to the Department-related Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice for examination and report. The said Committee, submitted its Report to Parliament on 4-8-2005, wherein the Committee recommended that since many provisions of the said Bill were contentious, the Bill may be withdrawn and a fresh legislation may be brought after considering its recommendations. Accordingly, the said Bill was withdrawn from the Rajya Sabha.

3. On a reference made again in pursuance of the above, the Law Commission examined and submitted its 246th Report on “Amendments to the Arbitration and Conciliation Act, 1996” in August, 2014 and recommended various amendments in the Act. The proposed amendments to the Act would facilitate and encourage Alternative Dispute Mechanism, especially arbitration, for settlement of disputes in a more user- friendly, cost effective and expeditious disposal of cases since India is committed to improve its legal framework to obviate in disposal of cases.

Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciating evidence.

31. Given the fact that the amended Act will now apply, and that the “patent illegality” ground for setting aside arbitral awards in international commercial arbitrations will not apply, it is necessary to 43 advert to the grounds contained in Section 34(2)(a)(iii) and (iv) as applicable to the facts of the present case.

scrutinize the panel’s language and leap to the conclusion that it exceeded its power in formulating the award” [Certain Underwriters at Lloyd’s v. BCS Ins. Co., 239 F. Supp. 2d 812,817 (N.D. III. 2003)].

Accordingly, enforcement was ordered.”

existence of a valid and binding arbitration clause, or other grounds that go to the adjudicability of the claim determined by the arbitral tribunal). Second, an award may be challenged on procedural grounds (eg, failure to give proper notice of the appointment of an arbitrator), and, third, the award may be challenged on substantive grounds (eg, breach of the public policy of the place of arbitration).” xxx xxx xxx

31. It is useful, at this juncture, to set out some of the legal principles underlying the application of Art 34(2)(a)

(iii) of the Model Law. First, Art 34(2)(a)(iii) is not concerned with the situation where an arbitral tribunal did not have jurisdiction to deal with the dispute which it purported to determine. Rather, it applies where the arbitral tribunal improperly decided matters that had not been submitted to it or failed to decide matters that had been submitted to it. In other words, Art 34(2)(a)(iii) addresses the situation where the arbitral tribunal exceeded (or failed to exercise) the authority that the parties granted to it (see Gary B Born, International Commercial Arbitration (Wolters Kluwer, 2009) at vol 2, pp 2606–2607 and 2798–2799). This ground for setting aside an arbitral award covers only an arbitral tribunal’s substantive jurisdiction and does not extend to procedural matters (see Robert Merkin & Johanna Hjalmarsson, Singapore Arbitration Legislation Annotated (Informa, 2009) (“Singapore Arbitration Legislation”) at p 117).

denied, 406 U.S. 949, 92 S.Ct. 2045, 32 L.Ed.2d 337 (1972).

[32] In order to decide whether section 68(2)(b) is engaged it will be necessary to focus intensely on the particular power under an arbitration agreement, the 73 terms of reference, or the 1996 Act which is involved, judged in all the circumstances of the case. In making this general observation it must always be borne in mind that the erroneous exercise of an available power cannot by itself amount to an excess of power. A mere error of law will not amount to an excess of power under section 68(2)(b).

[33] For these reasons the Court of Appeal erred in concluding that the tribunal exceeded its powers on the currency point. If the tribunal erred in any way, it was an error within its power.

11. Reference to arbitration can be in respect of all disputes between the parties or all disputes regarding a contract or in respect of specific enumerated disputes. Where “all disputes” are referred, the arbitrator has the jurisdiction to decide all disputes raised in the pleadings (both claims and counterclaims) subject to any limitations placed by the arbitration agreement. Where the arbitration agreement provides that all disputes shall be settled by arbitration but excludes certain matters from arbitration, then, the arbitrator will exclude the excepted matter and decide only those disputes which are arbitrable. But where the reference to the arbitrator is to 78 decide specific disputes enumerated by the parties/court/appointing authority, the arbitrator’s jurisdiction is circumscribed by the specific reference and the arbitrator can decide only those specific disputes.”

Most Basic Notions of Justice

This being the case, and given the authorities cited hereinabove, it is clear that the appellant would be directly affected as it would otherwise be unable to present its case, not being allowed to comment on the applicability or interpretation of those guidelines. For example, the appellant could have argued, without prejudice to the argument that linking is de hors the contract, that of the three methods for linking the New Series with the Old Series, either the second or the third method would be preferable to the first method, which the majority award has applied on its own. For this reason, the majority award needs to be set aside under Section 34(2)(a)(iii).

50. The appeal is allowed in the aforesaid terms.