PATEL ENGINEERING LTD. versus NORTH EASTERN ELECTRIC POWER CORPORATION LTD. (NEEPCO)
[2020] 4 S.C.R. 156, Supreme Court of India, 2020
Outcome: Dismissed (Dismissed)
Segment: Ratio
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[2020] 4 S.C.R. 156
PATEL ENGINEERING LTD.
v.
NORTH EASTERN ELECTRIC POWER
CORPORATION LTD. (NEEPCO)
(Special Leave Petition (C) Nos. 3584-3585 of 2020)
MAY 22, 2020
[R. BANUMATHI, INDU MALHOTRA
AND ANIRUDDHA BOSE, JJ.]
Arbitration and Conciliation Act, 1996 – ss. 34 and 37 – The
respondent-North Eastern Electric Power Corporation Ltd.
(NEEPCO) filed three applications u/s. 34 of the Act, 1996
challenging the three arbitral awards dated 29.03.2016 – The
Additional Deputy Commissioner (Judicial) vide common judgment
dated 27.04.2018 rejected the applications and upheld the three
arbitral awards – The respondent-NEEPCO filed appeals u/s. 37 of
the Act, 1996 before the High Court and the same were allowed by
judgment dated 26.02.2019 and the judgment dated 27.04.2018
passed by the Additional Deputy Commissioner was set aside –
Aggrieved, the petitioner preferred Special Leave Petitions, which
were dismissed – After the dismissal of the SLPs, the petitioner filed
review petitions before the High Court on the ground that the
judgment of the High Court dated 26.02.2019 suffered from error
apparent on the face of the record – The said review petitions were
dismissed by the High Court by order dated 10.10.2019 – On appeal,
held: In the instant case, the High Court in its judgment dated
26.02.2019 has referred to the Supreme Court judgment in Associated
Builders at length and arrived at the correct conclusion that an
arbitral award can be set aside u/s. 34, if it is patently illegal or
perverse – This finding of the High Court was in conformity with
the Supreme Court judgment in Ssangyong Engineering – The High
Court held that no reasonable person could have arrived at a
different conclusion while interpreting clauses 2.7 and 3.4 of the
BoQ and clauses 32(ii) (a) 33(iii) of the conditions of contract –
The case was decided on the ground that the arbitral award is a
perverse award and on a holistic reading of all the terms and
conditions of the Contract, the view taken by the Arbitrator is not
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even a possible view – The view of the High Court was correct –
Thus, the High Court rightly dismissed the review petitions by the
impugned order dated 10.10.2019 – Resultantly, all the Special Leave
Petitions are dismissed.
Ssangyong Engineering and Construction Company
Limited v. National Highways Authority of India (NHAI)
(2019) 15 SCC 131 : [2019] 7 SCR 522; Associate
Builders v. Delhi Development Authority (2015) 3 SCC
49; [2014] 13 SCR 895 – relied on.
Bussa Overseas and Properties Private Limited and
Another v. Union of India and Another (2016) 4 SCC
696 : [2016] 1 SCR 266; Durga Shankar Mehta v.
Thakur Raghuraj Singh and Others [1955] 1 SCR 267;
Shanker Motiram Nale v. Shiolalsing Gannusing Rajput
(1994) 2 SCC 753; Thungabhadra Industries Ltd. v.
Government of Andhra Pradesh Represented by the
Deputy Commissioner of Commercial Taxes, Anantapur
[1964] 5 SCR 174; Oil & Natural Gas Corporation
Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 : [2003] 3
SCR 691; Oil & Natural Gas Corporation Ltd. v. Western
Geco International Limited (2014) 9 SCC 263 : [2014]
12  SCR 1; HRD Corporation (Marcus Oil and
Chemical Division) v. GAIL (India) Limted (2018) 12
SCC 471: [2017] 11 SCR 857; Board of Control for
Cricket in India v. Kochi Cricket Private Limited and
Others (2018) 6 SCC 287 : [2018] 2 SCR 829 –
referred to.
Case Law Reference
[2016] 1 SCR 266
referred to
Para 8
[1955] 1 SCR 267
referred to
Para 8
(1994) 2 SCC 753
referred to
Para 8
[1964] 5 SCR 174
referred
to
Para 10
[2003] 3 SCR 691
referred to
Para 13
[2014] 12 SCR 1
referred to
Para 13
[2017] 11 SCR 857
referred to
Para 13
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[2019] 7 SCR 522
relied on
Para 13
[2018] 2 SCR 829
referred to
Para 15
[2014] 13 SCR 895
relied on
Para 17
CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) Nos. 3584-3585 of 2020.
From the Judgment and Order dated 10.10.2019 of the High Court
of  Meghalaya at Shillong in Review Petition No. 16 of 2019 and MC
(Review Petition) No. 14 of 2019 respectively.
With
Special Leave Petition (Civil) Nos. 3438-3439, 3434-3435 of 2020.
Tushar Mehta, SG, Harish Salve, Neeraj Kishan Kaul, Huzeffa
Ahmadi, Sr. Advs., Syed Jafar Alam, Ketan Gaur, Ashish Bhan, Rajendra
Dangwal, Mohit Rohatgi, Aayush Mitruka, Deepak Joshi, Ms. Liz Mathew,
Advs. for the appearing parties.
The following Order of the Court was passed:
O R D E R
1. These special leave petitions arise out of the impugned order
dated 10.10.2019 passed by the High Court of Meghalaya at Shillong in
and by which the High Court declined to entertain the review petitions
filed by the petitioner seeking review of the judgment and order dated
26.02.2019 in Arbitration Appeal Nos.3, 4 and 5 of 2018 on the ground
that no ground for review is made out and that there is a delay in filing
the application for review.
2. We have heard Mr. Harish Salve and Mr. Neeraj Kishan Kaul,
learned Senior counsel appearing on behalf of the petitioner. On behalf
of the respondent, we have heard Mr. Tushar Mehta, learned Solicitor
General and Mr. Huzeffa Ahmadi, learned Senior counsel at
some length,
even at the time of the admission.
3. The learned sole arbitrator has passed the arbitral award dated
29.03.2016 in respect of Package-I holding as follows:-
“Based on my findings above, I have no hesitation in
coming to the considered finding that the contract itself
provides rate(s) for payment of extra lead in item Nos.2.7
and 3.4 of the BOO for surface and underground structures
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respectively. Admittedly material had been transported from
a lead much longer than that envisaged at the time of award
of work in favour of the claimant. It is also an admitted case
of the parties that the claimant is entitled to extra payment
for the extra lead. The only point at issue is whether Clause
33(ii)(a) or Clause 33(iii) would be applicable for working
out the rate payable for transportation. In view of my findings,
I have no hesitation in holding that the payment of extra lead
is to be determined in accordance with Clause 33(ii)(a) for
the item which has deviated being already available in the
contract.
I, therefore, answer the reference as follows:
The rate for extra lead for transportation of sand and
boulders from Government approved quarries to the work
site for package-I works under KaHEP shall be decided in
terms of Clause 33(ii)(a) of Part-III, Volume-I, Conditions of
Contract of Book-II of Contract Agreement No.NEEPCO/ED/
QP/C&P/R/C/KaHEP/560 of 2004-05 dated 17.12.2004.”
Similar Declaratory Arbitral Awards dated 29.03.2016 were
passed by the learned sole arbitrator in respect of the other two Arbitral
References in respect of contracts pertaining to Package-II and Package-
III of the project.
4. Respondent-North Eastern Electric Power Corporation Ltd.
(NEEPCO) filed three applications under Section 34 of the Arbitration
and Conciliation Act, 1996 before the Additional Deputy Commissioner
(Judicial), Shillong challenging the three
arbitral awards dated 29.03.2016
in respect of Packages-I, II and III. The Additional Deputy Commissioner
(Judicial) vide common judgment dated 27.04.2018 rejected the
applications under Section 34 of the Act and upheld all the three arbitral
awards. The respondent-NEEPCO filed three appeals under Section 37
of the Act before the High Court in Arbitration Appeal No(s).3, 4 and 5
of 2018. By the common judgment dated 26.02.2019, the High Court
allowed the respondent’s appeals and set aside the common judgment
dated 27.04.2018 passed by the Additional Deputy Commissioner
(Judicial).
5. Aggrieved by the common judgment dated 26.02.2019, the
petitioner preferred special leave petitions before the Supreme Court in
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SLP (C) Nos.13629-13631 of 2019. After hearing both the parties, the
Supreme Court vide order dated 19.07.2019 dismissed all the three SLPs
filed by the petitioner holding that the Court is not inclined to interfere in
the matters.
6. After dismissal of the SLPs, the petitioner filed review petitions
before the High Court on the ground that the judgment of the High Court
dated 26.02.2019 suffers from error apparent on the face of the record
as it had not taken into consideration the amendments made to Arbitration
and Conciliation Act, 1996 by Amendment Act of 2015. The said review
petitions came to be dismissed by the High Court vide the impugned
orders.
7. We heard the matter at some length at the time of admission
and carefully considered the submissions of the learned counsel appearing
for the parties and the judgments relied upon by both the sides and the
judgment of the High Court dated 26.02.2019 and other materials on
record.
8. Contention of the learned Senior counsel for the petitioner is
that dismissal of the earlier SLP vide order dated 19.07.2019 is a    non-
speaking order and not on merits and hence no objection could be taken
for filing of the review petition. Placing reliance upon Bussa Overseas1
and Constitution Bench decisions in Durga Shankar Mehta2, it was
submitted that Article 136 of the Constitution confers on the Supreme
Court special or residuary powers which are exercisable outside the
purview of the ordinary laws in cases where the needs of justice demand
interference by the Supreme Court. It was submitted that in paragraph
(30) of Bussa Overseas3, the Supreme Court held that though the decision
in Shanker Motiram Nale4 referred to Order 47 Rule 7 of the Code of
Civil Procedure bars an appeal against the order of the court rejecting
the review, it is not to be understood that the court has curtailed the
plenary jurisdiction under Article 136 of the Constitution by taking recourse
to the provisions in the Code of Civil Procedure.
1 Bussa Overseas and Properties Private Limited and Another v. Union of India and
Another  (2016) 4 SCC 696
2 Durga Shankar Mehta v. Thakur Raghuraj Singh and Others (1955) 1 SCR 267
3 Bussa Overseas and Properties Private Limited and Another v. Union of India and
Another (2016) 4 SCC 696
4 Shanker Motiram Nale v. Shiolalsing Gannusing Rajput (1994) 2 SCC 753
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9. Mr. Tushar Mehta, learned Solicitor General also relied upon
Bussa Overseas5and contended that the appeal is not maintainable
against the order rejecting the application for review of judgment and
such appeal is not against the main judgment.  In support of his contention,
learned Solicitor General has placed reliance upon paragraph (22), which
reads as under:-
“22. Recently in Sandhya Educational Society vs. Union of
India (2014) 7 SCC 701, the Court referred to the decision in
Vinod Kapoor vs. State of Goa (2012) 12 SCC 378 and opined
thus: (SCC p. 706, para 16)
“16. This Court in Vinod Kapoor v. State of Goa (2012) 12
SCC 378, has categorically observed that once the special leave
petition is dismissed as withdrawn without obtaining appropriate
permission to file a special leave petition once over again after
exhausting the remedy of review petition before the High Court,
the same is not maintainable.”
10. After considering the Constitution Bench decision in Durga
Shankar Mehta6 and number of other judgments, in Bussa Overseas7,
the Court held that consistency is the cornerstone of the administration
of justice and courts have evolved and formulated a principle that if the
basic judgment is not assailed and the challenge is only to the order
passed in review, the Supreme Court is obliged not to entertain such
special leave petitions. In paragraphs (30) and (31) of Bussa Overseas8,
the Supreme Court held as under:-
“30. The decisions pertaining to
maintainability of special leave
petition or for that matter appeal have to be seemly understood.
Though in the decision in Shanker Motiram Nale Shiolalsing
Gannusing Rajput (1994) 2 SCC 753, the two-Judge Bench
referred to Order 47 Rule 7 of the Code of Civil Procedure that
bars an appeal against the order of the court rejecting the review,
it is not to be understood that the Court has curtailed the plenary
jurisdiction under Article 136 of the Constitution by taking recourse
5 Bussa Overseas and Properties Private Limited and Another v. Union of India and
Another  (2016) 4 SCC 696
6 Durga Shankar Mehta v. Thakur Raghuraj Singh and Others (1955) 1 SCR 267
7 Bussa Overseas and Properties Private Limited and Another v. Union of India and
Another  (2016) 4 SCC 696
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to the provisions in the Code of Civil Procedure. It has to be
understood that the Court has evolved and formulated a principle
that if the basic judgment is not assailed and the challenge is only
to the order passed in review, this Court is obliged not to entertain
such special leave petition. The said principle has gained the
authoritative status and has been treated as a precedential principle
for more than two decades and we are disposed to think that
there is hardly any necessity not to be guided by the said precedent.
31. In this context, we may profitably reproduce a passage from
State of A.P. v. A.P. Jaiswal (2001) 1 SCC 748, wherein a three-
Judge Bench has observed thus: (SCC p. 761, para 24)
“24. Consistency is the cornerstone of the administration of
justice. It is consistency which creates confidence in the system
and this consistency can never be achieved without respect to
the rule of finality. It is with a view to achieve consistency in
judicial pronouncements, the courts have evolved the rule of
precedents, principle of stare decisis, etc. These rules and
principle are based on public policy….” (emphasis supplied)
The Supreme Court held that the decision rendered in
Thungabhadra Industries Ltd.9 is not correct.
11. It was submitted by the learned Solicitor General and
learned Senior counsel appearing on behalf of the respondent that the
earlier SLP was heard at length and thereafter, the SLP came to
be
dismissed as there was no ground to interfere in the matters. After
dismissal of the SLP and without seeking for liberty, the petitioner
thereafter filed the review petition.
12. In our considered view, it is not necessary to go into the question
of maintainability of these SLPs preferred against the order rejecting
the review, after the challenge to the main judgment had been rejected
in the earlier SLPs. As noted earlier, in this case, the judgment of the
High Court under Section 37 of the Act was challenged before the
Supreme Court and the SLPs were dismissed by the Supreme Court
after hearing the Senior Counsel for the parties vide order dated
8 Bussa Overseas and Properties Private Limited and Another v. Union of India and
Another (2016) 4 SCC 696
9 Thungabhadra Industries Ltd. v. Government of Andhra Pradesh Represented by the
Deputy Commissioner of Commercial Taxes, Anantapur (1964) 5 SCR 174
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19.07.2019. Be it noted when the earlier SLPs were dismissed, no liberty
was taken to file the review before the High Court. Be that as it may,
we are not inclined to go into this aspect any further.
13. On behalf of the petitioner, Mr. Harish Salve and Mr. Neeraj
Kishan Kaul, learned Senior counsel mainly contended that in the
judgment of the High Court dated 26.02.2019, the High Court erroneously
applied the provisions as applicable prior to the Amendment Act, 2015
and the judgment of the High Court suffers from error apparent on the
face of the record since the High Court relied upon the decision in Saw
Pipes Ltd.10and Western Geco International Limited11, which are no
longer good law after the Amendment Act, 2015 brought into effect
from 23.10.2015. It is submitted that the judgment of the High Court
dated 26.02.2019 suffers from error apparent on the face of the record
and therefore, the petitioner is justified in seeking the review of the
judgment dated 26.02.2019 and the High Court was not right in rejecting
the review petition. In support of the contention of the petitioners, reliance
was placed upon HRD Corporation12and Ssangyong Engineering and
Construction Company Limited13.
14. Mr. Tushar Mehta, learned Solicitor General and Mr. Huzeffa
Ahmadi, learned Senior counsel have submitted that at the time when
the earlier SLP(C) Nos.13629-13631 of 2019 were heard, they were
heard at length and all the arguments including the effect of the
amendment
to Section 34 was also raised and only thereafter, the earlier
SLPs came to be dismissed. It was submitted that though the dismissal
of order dated 19.07.2019 is a non-speaking order, the petitioner had
raised all contentious points, now urged, and faced an order of dismissal,
and the petitioner cannot be allowed to reagitate the matter by filing a
review petition.
15. In Board of Control for Cricket in India14, the Supreme
Court held that the Amendment Act, 2015 would apply to Section 34
10 Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705
11 Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited (2014) 9
SCC 263
12 HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Limted
(2018) 12 SCC 471
13 Ssangyong Engineering and Construction Company Limited v. National Highways
Authority of India (NHAI) (2019) 15 SCC 131, Para No.19
14 Board of Control for Cricket in India v. Kochi Cricket Private Limited and Others
(2018) 6 SCC 287
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petitions that are made after 23.10.2015 (the day on which the
Amendment Act came into force). In the present case, admittedly, after
the arbitral awards are dated 29.03.2016, the applications under Section
34 of the Act were filed before the Judicial Commissioner, Shillong as
per the decision in Board of Control for Cricket in India15, the provisions
of the Amendment Act would apply.
16. Patent illegality as a ground for setting aside a domestic award
was first expounded in the judgment of Saw Pipes Ltd.16 where this
Court was dealing with a domestic award. This Court gave a wider
interpretation to the ‘public policy of India’ in Section 34(2)(b)(ii) in Part
I of the 1996 Act. The Court held that an award would be “patently
illegal”, if it is contrary to the substantive provisions of law; or, provisions
of the 1996 Act; or, terms of the contract.
17. In the subsequent judgment of Associate Builders17, this Court
discussed the ground of patent illegality as a ground under public policy
for setting aside a domestic award. The relevant extract of the judgment
in Associate Builders case (supra) reads as follows:-
“40. Patent Illegality
We now come to the fourth head of public policy namely, patent
illegality. It must be remembered that under the explanation to
Section 34(2)(b), an award is said to be in conflict with the public
policy of India if the making of the award was induced or affected
by fraud or corruption.
This ground is perhaps the earliest ground
on which courts in England set aside awards under English law.
Added to this ground (in 1802) is the ground that an arbitral award
would be set aside if there were an error of law by the
arbitrator….”
“42. In the 1996 Act, this principle is substituted by the ‘patent
illegality’ principle which, in turn, contains three sub heads-
42.1 (a) a contravention of the substantive law of India would
result in the death knell of an arbitral award. This must be
understood in the sense that such illegality must go to the root of
15 Board of Control for Cricket in India v. Kochi Cricket Private Limited and Others
(2018) 6 SCC 287
16 Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705
17 Associate Builders v. Delhi Development Authority (2015) 3 SCC 49, paras 40 to 45.
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the matter and cannot be of a trivial nature. This again is a really
a contravention of Section 28(1)(a) of the Act, which reads as
under:
28. Rules applicable to substance of dispute.—(1) Where the
place of arbitration is situated in India,-
(a) in an arbitration other than an international commercial
arbitration, the arbitral tribunal shall decide the dispute
submitted to arbitration in accordance with the substantive
law for the time being in force in India;
42.2 (b) a contravention of the Arbitration Act itself would be
regarded as a patent illegality-for example if an arbitrator gives
no reasons for an award in contravention of Section 31(3) of the
Act, such award will be liable to be set aside.
42.3 (c) Equally, the third sub-head of patent illegality is really a
contravention of Section 28(3) of the Arbitration Act, which reads
as under:
28. Rules applicable to substance of dispute.-
(3) In all cases, the arbitral tribunal shall decide in accordance
with the terms of the contract and shall take into account the
usages of the trade applicable to the transaction.
This last contravention must be understood with a caveat. An
arbitral tribunal must decide in accordance with the terms of the
contract, but if an arbitrator construes a term of the contract in a
reasonable manner, it will not mean that the award can be set
aside on this ground. Construction of the terms of a contract is
primarily for an arbitrator to decide unless the arbitrator construes
the contract in such a way that it could be said to be something
that no fair minded or reasonable person could do.” (emphasis
supplied)
18. The Law Commission in its 246th Report18 recommended the
insertion of the ground of ‘patent illegality’ for setting aside a domestic
award by the insertion of clause (2A) in Section 34 of the Act. The
relevant extract from the Report of the Law Commission is extracted
herein below:-
18 Available at : http://lawcommissionofindia.nic.in/reports/Report246.pdf
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“It is for this reason that the Commission has recommended the
addition of section 34 (2A) to deal with purely domestic awards,
which may also be set aside by the Court if the Court finds that
such award is vitiated by “patent illegality appearing on the face
of the award.” In order to provide a balance and to avoid excessive
intervention, it is clarified in the proposed proviso to the proposed
section 34 (2A) that such “an award shall not be set aside merely
on the ground of an erroneous application of the law or by
reappreciating evidence.” The Commission believes that this will
go a long way to assuage the fears of the judiciary as well as the
other users of arbitration law who expect, and given the
circumstances prevalent in our country, legitimately so, greater
redress against purely domestic awards. This would also do away
with the unintended consequences of the decision of the Supreme
Court in ONGC v. Saw Pipes Ltd, (2003) 5 SCC 705, which,
although in the context of a purely domestic award, had the
unfortunate effect of being extended to apply equally to both
awards arising out of international commercial arbitrations as well
as foreign awards, given the statutory language of the Act. …”
(emphasis supplied)
To give effect to the said recommendation, it was suggested that:
“(iii) After the Explanation in sub-section (2), insert sub-section
‘(2A) 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. 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.’
[NOTE: The proposed S.34(2A) provides an additional, albeit
carefully limited, ground for setting aside an award arising out of
a domestic arbitration (and not an international commercial
arbitration). The scope of review is based on the patent illegality
standard set out by the Supreme Court in ONGC Ltd. v. Saw
Pipes Ltd., (2003) 5 SCC 705. The proviso creates exceptions for
erroneous application of the law and re-appreciation of evidence,
which cannot be the basis for setting aside awards.]” (emphasis
supplied)
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19. Pursuant to the recommendations of the Law Commission,
the 1996 Act was amended by Act 3 of 2016, which came into force
w.e.f. 23.10.2015. The ground of “patent illegality” for setting aside a
domestic award has been given statutory force in Section 34(2A) of the
1996 Act. The ground of “patent illegality” cannot be invoked in
international commercial arbitrations seated in India. Even in the case of
a foreign award under the New York Convention, the ground of “patent
illegality” cannot be raised as a ground to resist enforcement, since this
ground is absent in Section 48 of the 1996 Act. The newly inserted sub-
section (2A) in Section 34, reads as follows:-
“(2A) 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 :
Provided that an award shall not be set aside merely on the ground
of an erroneous application of the law or by reappreciation of
evidence.”
20. In Ssangyong Engineering and Construction Company
Limited19, this Court was considering a challenge to an award passed in
an international commercial arbitration, between the Appellant – company
a foreign entity registered under the laws of Korea, and the Respondent,
a Government of India undertaking. In paragraph (19) of the judgment,
this Court noted that the expansive interpretation given to “public policy
of
India” in the Saw Pipes (supra) and Western Geco International
Limited20 cases, which had been done away with, and a new ground of
“patent illegality” was introduced which would apply to applications under
Section 34 made on or after 23.10.2015. In paragraphs (36) and (37) of
the judgment, this Court held that insofar as domestic awards are
concerned, the additional ground of patent illegality was now available
under sub-section (2A) to Section 34. However, re-appreciation of
evidence was not permitted under the ground of “patent illegality”
appearing on the face of the award.
21. In paragraphs (39) and (40) of Ssangyong Engineering
(supra), the Court reiterated paragraphs (42.2) and (42.3) of Associate
19 Ssangyong Engineering and Construction Company Limited v. National Highways
Authority of India (NHAI) (2019) 15 SCC 131
20 Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited (2014) 9
SCC 263
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Builders (supra) wherein, it was held that the construction of the terms
of a contract is primarily for an arbitrator to decide, unless the arbitrator
construes a contract in a manner which no fair minded or reasonable
person would take i.e. if the view taken by the arbitrator is not even a
possible view to take. In paragraphs (39) and (40), the Supreme Court
held as under:-
“39. To elucidate, para 42.1 of Associate Builders v. Delhi
Development Authority (2015) 3 SCC 49, namely, a mere
contravention of the substantive law of India, by itself, is no longer
a ground available to set aside an arbitral award. Para 42.2 of
Associate Buildersv. Delhi Development Authority (2015) 3 SCC
49, however, would remain, for if an arbitrator gives no reasons
for an award and contravenes Section 31(3) of the 1996 Act, that
would certainly amount to a patent illegality on the face of the
award.
40. The change made in Section 28(3) by the Amendment Act
really follows what is stated in paras 42.3 to 45 in Associate
Builders v. Delhi Development Authority (2015) 3 SCC 49,
namely, that the construction of the terms of a contract is primarily
for an arbitrator to decide, unless the arbitrator construes the
contract in a manner that no fair-minded or reasonable person
would; in short, that the arbitrator’s view is not even a possible
view to take. Also, if the arbitrator wanders outside the contract
and deals with matters not allotted to
him, he commits an error of
jurisdiction. This ground of challenge will now fall within the new
ground added under Section 34(2-A).” (emphasis supplied)
22. The present case arises out of a domestic award between
two Indian entities. The ground of patent illegality is a ground available
under the statute for setting aside a domestic award, if the decision of
the arbitrator is found to be perverse, or, so irrational that no reasonable
person would have arrived at the same; or, the construction of the contract
is such that no fair or reasonable person would take; or, that the view of
the arbitrator is not even a possible view.
23. In the present case, the High Court has referred to the judgment
in Associated Builders (supra) at length in paragraph (42) of its judgment
dated 26.02.2019 and arrived at the correct conclusion that an arbitral
award can be set aside under Section 34 if it is patently illegal or perverse.
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This finding of the High Court is in conformity with paragraph (40) of
the judgment of this Court in Ssangyong Engineering (supra).
24. In the present case, the High Court in paragraph (51) has held
that no reasonable person could have arrived at a different conclusion
while interpreting Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a)
and 33(iii) of the Conditions of Contract. Any other interpretation of the
above clauses would definitely be irrational and in defiance of all logic.
The relevant extract reads:-
“51. …Clause 33(iii) specifically provides that “if the rates for
such items of work cannot be determined in the manner as specified
in Clause 33(ii), the rates for such items to be executed shall be
determined by the Engineer-in-Charge on the basis of actual and
analysed cost taking the following into consideration the rates for
such items of works as are required to be executed due to
deviations as stated in sub-clause shall be payable in the manner
as stated hereunder…..”. We are of the firm view that this is the
only possible interpretation of Clauses 2.7 and 3.4 of the BoQ and
Clauses 32(ii)(a) and 33(iii) of the Conditions of Contract. No
reasonable person would arrive at a different conclusion while
interpreting Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a)
and 33(iii) of the Conditions of Contract. Any other interpretation
of the above clauses would definitely be irrational and defiance of
all logic.” (emphasis supplied)
25. The
High Court in paragraph (52) came to the finding that the
findings in the award suffer from the vice of irrationality and perversity,
and held as follows:-
“52. The Arbitral Awards and the findings of the learned Arbitrator
suffer from the vice of perversity. The learned Arbitrator has
taken into account various factors irrelevant in coming to the
decision and has ignored vital clauses of the tender documents
like Clause 2 and various Sub-clauses i.e. Sub-clauses 2.1 to 2.8.7
under Clause 2 and Clause 3 and various Sub-Clauses i.e. Sub-
clauses 3.1 to 3.7 under Clause 3 of the BoQ, Clause 2 and various
Sub-clauses i.e. Sub-clause 2.1 to 2.17.7 under Clause 2 and
Clause 3 and various Sub-clauses i.e. Sub-clause 3.1 to 3.10.5
under Clause 3 of “Particular Technical Specifications”, Vol. 2,
Part II. The learned Arbitrator has taken into consideration an
PATEL ENGINEERING LTD. v. NORTH EASTERN ELECTRIC
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irrelevant fact that while making provisional payment, the initial
lead of 3.0 km has been deducted and that this shows that Clause
2.7 and 3.4 of the BoQ are applicable. The provisional payment
was an interim arrangement and was preceded by meetings dated
07.12.2012 and 08.12.2012 wherein it was specifically agreed
between the parties that HoP, NEEPCO would take steps for
referring the dispute to arbitration and that till the arbitral award,
the payment would be made as per the prevailing provisional rate
without any escalation and that final rate payable for transportation
of sand and boulder shall be done on implementation of the arbitral
award. As such the fact that provisional payment was made by
deducting initial lead of 3.0 km was an irrelevant fact for deciding
the issue. The findings of the learned Arbitrator having been arrived
at by taking into account irrelevant factors and by ignoring vital
clauses, the same suffers from vice of irrationality and perversity.
It must be borne in mind that the Arbitral Awards in question are
Declaratory Arbitral Awards and involved interpretation of Clauses
2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii) of the
Conditions of Contract and the learned arbitrator was required to
interpret the same in accordance with the established rules of
interpretation. The findings of the learned Additional Deputy
Commissioner (Judicial), Shillong while upholding the arbitral
awards of the learned Arbitrator also suffer from the similar vice.
We are, therefore, of the considered view that that the common
order dated 27.04.2018 passed by the learned Additional Deputy
Commissioner (Judicial), Shillong in Arbitration Case No. 5 (T)
2016, Arbitration Case No. 6 (T) 2016 and Arbitration Case No. 7
(T) 2016 as well as the 3 (three) Arbitral Awards dated 29.03.2016
passed by the learned Arbitrator warrant interference in these
appeals under Sec. 37 of the Arbitration and Conciliation Act,
1996.
53. There are additional reasons for interfering with order dated
27.04.2018 passed by the learned Additional Deputy Commissioner
(Judicial), Shillong and the Arbitral Awards dated 29.03.2016
passed by the learned Arbitrator. As the learned counsel for the
appellant has submitted, the potential effect of the Arbitral Award
on public exchequer is that the appellant, which is a public sector
undertaking, will have to pay a sum of about Rs. 3.56 Lakh for
every truckload of 10 cubic metre of sand or boulder (travelling
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for 100 km) and the total potential effect would be about Rs.
1,000 Crore. We are of the considered view that payment of Rs.
3.56 Lakh per truck (10 Cubic Metre) of sand or boulder (100 km
distance) is definitely a case of unjust enrichment which is contrary
to the Fundamental Policy of Indian Law. Unjust enrichment being
contrary to the Fundamental Policy of Indian Law is a ground for
interference with an Arbitral Award under Sec. 34(2) of the Act.
The Bombay High Court in Angerlehner Structural and Civil
Engineering co. v. Municipal Corporation of Greater Mumbai has
recognized unjust enrichment of a party at the cost of public
exchequer as being against the fundamental policy of Indian law.
The Bombay High Court has held:
“If the argument of the Contractors is accepted, it lead to them
blatantly enriching themselves over and above what they are
entitled. Such completely unjust enrichment, that too at the
cost of public funds, is abhorrent under the fundamental policy
of Indian Law. The award in AJECT, which permits such blatant
enrichment is therefore is also vitiated on the ground that it is
against the fundamental policy of Indian Law.”
We are also of the considered view that the Arbitral Award which
would potentially result in unjust enrichment of the respondent to
the extent of about Rs. 1,000 Crores is against the fundamental
policy of Indian law and, therefore, warrant interference on this
count as well.
Though this court is not sitting in appeal
over the award of the
arbitral tribunal, the presence of grounds under Section 34[2] of
the Act and the satisfaction arrived at by this Court in this regard,
warrants interference more so, as the Arbitral Awards in question
are Declaratory Arbitral Awards and involved interpretation of
Clauses 2.7 and 3.4 of the BoQ and Clauses 32(ii)(a) and 33(iii)
of the Conditions of Contract and the learned arbitrator was
required to interpret the same in accordance with the established
rules of interpretation and in line with the fundamental policy of
Indian law.”
(emphasis supplied)
26. Even though the High Court in paragraph (44) of the judgment
referred to various judgments, including Western Geco (supra) [which
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is now no longer good law], the case has been decided on the ground
that the arbitral award is a perverse award and on a holistic reading of
all the terms and conditions of the contract, the view taken by the arbitrator
is not even a possible view. The High Court has rightly followed the test
set out in paragraph (42.3) of Associate Builders (supra), which was
reiterated in paragraph (40) of the Ssangyong Engineering judgment
(supra).
27. In our view, while dealing with the appeal under Section 37 of
the Act, the High Court has considered the matter at length, and held
that while interpreting the terms of the contract, no reasonable person
could have arrived at a different conclusion and that the awards passed
by the arbitrator suffer from the vice of irrationality and perversity.
28. The learned Solicitor General Mr. Tushar Mehta and
Mr. H. Ahmadi, Senior Advocate for the respondent, submitted that all
these contentions were raised in the earlier round when challenge to the
substantive Judgment dated 26.02.2019 was made. The said challenge
was repelled by this Court vide Order dated 19.07.2019 by dismissal of
the earlier SLPs. It is now not open to re-open the matter by filing a
review petition on the same grounds, which have been rightly dismissed
by the High Court. The Petitioner has failed to make out any error on
the face of the judgment dated 26.02.2019. The High Court by the
impugned order dated 10.10.2019
rightly dismissed the review petitions
and we do not find any ground warranting interference with the impugned
order.
29. In the result, all the special leave petitions are dismissed with
no order as to costs.
Ankit Gyan
Special Leave Petitions dismissed.