2019 (5) TMI 1879 - SC - Indian Laws

Interpretation of the agreement in which the arbitrators view is final - majority award contained decisions on matters beyond the scope of the submission to arbitration - whether the amendments made in Section 34 are applicable to applications filed under Section 34 to set aside arbitral awards made after 23.10.2015? - Applicability of Section 34(2)(a)(iv) of the 1996 Act. HELD THAT - There is no doubt that the amendments made in Explanations 1 and 2 to Section 34(2)(b)(ii) have been made for the avoidance of any doubt, which language, however, is not found in Section 34(2A). Apart from the anomalous position which would arise if the Section were to be applied piecemeal, namely, that Explanations 1 and 2 were to have retrospective effect, being only to remove doubts, whereas sub-section (2 A) would have to apply prospectively as a new ground, with inbuilt exceptions, having been introduced for the first time, it is clear that even on principle, it is the substance of the amendment that is to be looked at rather than the form. Therefore, even in cases where, for avoidance of doubt, something is clarified by way of an amendment, such clarification cannot be retrospective if the earlier law has been changed substantively. A fundamental principle of justice has been breached, namely, that a unilateral addition or alteration of a contract can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party. Clearly, such a course of conduct would be contrary to fundamental principles of justice as followed in this country, and shocks the conscience of this Court. However, we repeat that this ground is available only in very exceptional circumstances, such as the fact situation in the present case. Under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court. The judgments of the Single Judge and of the Division Bench of the Delhi High Court are set aside. Consequently, the majority award is also set aside. Under the Scheme of Section 34 of the 1996 Act, the disputes that were decided by the majority award would have to be referred afresh to another arbitration. This would cause considerable delay and be contrary to one of the important objectives of the 1996 Act, namely, speedy resolution of disputes by the arbitral process under the Act - what is awarded to the appellant is the principal sum of INR 2,01,42,827/- towards price adjustment payable under sub-clause 70.3 of the contract, for the work done under the contract from September 2010 to May 2014, as well as interest at the rate of 10%, compounded monthly from the due date of payment to the date of the award, i.e., 02.05.2016, plus future interest at the rate of 12% per annum (simple) till the date of payment. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Validity of the Circular dated 15.02.2013.
2. Jurisdictional error and new contract creation by the arbitral tribunal.
3. Applicability of the Arbitration and Conciliation (Amendment) Act, 2015.
4. Grounds for setting aside the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

1. Validity of the Circular dated 15.02.2013:
The respondent issued a Circular introducing a new formula for determining indices using a "linking factor" based on the year 2009-10. The Circular required contractors to furnish an undertaking that the price adjustment was acceptable and they would not make any future claims. The appellant challenged the Circular, arguing it was not part of the original contract. The Dispute Adjudicating Board and the arbitral tribunal applied the Circular, leading to the appellant's dissatisfaction and further legal proceedings.

2. Jurisdictional Error and New Contract Creation by the Arbitral Tribunal:
The appellant argued that the majority award created a new contract by applying a formula outside the original agreement, amounting to a jurisdictional error. The majority award applied government guidelines that were not part of the arbitration proceedings, leading to the appellant's claim that it was unable to present its case. The Supreme Court found that the guidelines were not disclosed during arbitration, violating Section 34(2)(a)(iii) of the Arbitration and Conciliation Act, 1996, and set aside the majority award.

3. Applicability of the Arbitration and Conciliation (Amendment) Act, 2015:
The amendments to Section 34 introduced by the Amendment Act, 2015, apply to applications made after 23.10.2015. The Supreme Court clarified that the amended Section 34, which narrows the grounds for setting aside an arbitral award, applies to the present case. The amendments limit the scope of "public policy of India" and introduce "patent illegality" as a ground for setting aside domestic awards, but not for international commercial arbitrations.

4. Grounds for Setting Aside the Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996:
The appellant argued that the majority award was beyond the scope of the submission to arbitration and violated the public policy of India. The Supreme Court held that the majority award's reliance on undisclosed government guidelines violated Section 34(2)(a)(iii), as the appellant was unable to present its case. The Court also found that the majority award created a new contract, violating fundamental principles of justice and shocking the conscience of the Court, thus attracting the "most basic notions of justice" ground under Section 34(2)(b)(ii).

Conclusion:
The Supreme Court set aside the judgments of the Single Judge and the Division Bench of the Delhi High Court, as well as the majority award. Invoking its power under Article 142 of the Constitution of India, the Court upheld the minority award, which awarded the appellant its claim based on the original contract formula. The appeal was allowed, and the minority award was to be executed between the parties, including the principal sum and interest as specified.