India’s Supreme Court Finds Award Shocks The Conscience Of The Court

Khaitan & Co review the Indian High Court’s decision in Ssangyong Engineering & Construction Co Ltd v National Highways Authority of India (Civil Appeal (4779/2019)), where, in relation to a long-term contract concerning the construction of a highway containing a price adjustment mechanism, the authority sought to retrospectively impose a new price adjustment mechanism via the publication of a circular.  Ssangyong referred the matter to arbitration with the tribunal agreeing with the authority, holding that the circular could be applied as it was within the terms of the contract.  Ssangyong’s efforts to have the award set aside were refused and the matter ended up in the Supreme Court where Ssangyong argued that:

  • The majority award was liable to be set aside under Section 34(2)(a)(iv) since it contained decisions on matters beyond the scope of the submission to arbitration. Further, the appellant stated that the majority award was passed erroneously exercising jurisdiction over a matter which was beyond the scope of arbitration since the old contract had been substituted by the majority award.
  • Section 34(2)(b)(ii) would also apply since the award rewrote the terms of the contract – which ought to shock the conscience of the court. The award conflicted with India’s public policy, being contrary to the fundamental policy of Indian law as well as the most basic notions of justice.
  • The award was in violation of Section 34(2)(a)(iii) since the guidelines had not been produced before the arbitrators, and the arbitrators had applied the guidelines without the parties’ knowledge.

The Authority argued that the award should be upheld since applying the circular was necessary for the contract to be workable; and this was a matter of interpretation of the agreement in which the arbitrators’ view is final.

Setting aside the award, the Supreme Court held, inter alia, that by substituting a workable formula under the agreement by another formula outside of the agreement, the majority award had created a new contract between the parties. This was held to be contrary to India’s fundamental principles of justice and shocked the conscience of the court.  However, the court made it clear that this ground was available only in exceptional circumstances and that the court could not interfere with an award on the ground that justice has not been done in the opinion of the court.

Interestingly, under Section 34, the disputes decided by the majority award would have to be referred afresh to another arbitration.  However, as this would result in significant delay and contradict the aim of the act – that is, the speedy resolution of the disputes – the court invoked Article 142 of the Constitution and upheld the minority award which had awarded the entire claim to Ssangyong.

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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