2021 (7) TMI 1456 - SC - Indian Laws

Validity of Arbitral Award - change in law that entitled the Licensee to invoke Article 14.3 of the Agreement - conversion of contract from a royalty payment module to a revenue-sharing module - Section 37(1)(c) of the Arbitration and Conciliation Act, 1996 - HELD THAT - There was a law when the Agreement was entered into between the parties, which provided royalty as a pass-through and that the said law has been changed for the first time in 2003 and subsequently again changed in 2005, is a finding based on 'no evidence'. Had the Arbitral Tribunal perused the tariff orders of 1999 and 2002, it would have found that in the 1999 tariff order TAMP has specifically observed that its approval of the tariff should not be construed as its implicit approval of royalty-related issue and the 2002 tariff order specifically states that royalty was not permitted to be factored in the cost while determining tariff. The Arbitral Tribunal has totally failed to take into consideration this aspect of the matter. The intention of TPT is apparent from its various communications and its stand before the Arbitral Tribunal, that it was not agreeable for amendment of the Agreement from 'royalty payment method' to 'revenue-sharing method' - The 'royalty payment method' has been totally substituted by the Arbitral Tribunal, with the 'revenue-sharing method'. It is thus clear, that the Award has created a new contract for the parties by unilateral intention of SICAL as against the intention of TPT. Appeal dismissed.

Issues Involved:
1. Whether the Arbitral Tribunal was justified in finding a change in law that entitled the Licensee to invoke Article 14.3 of the Agreement.
2. Whether the Arbitral Tribunal was justified in converting the contract from a royalty payment module to a revenue-sharing module.

Issue-wise Detailed Analysis:

1. Change in Law:
The Arbitral Tribunal found that there was an existing policy allowing royalty to be factored into the cost while fixing tariffs, which was later changed by government notifications in 2003 and 2005. However, the Supreme Court disagreed, noting that when the bid document was published in April 1997, there were no guidelines in place. The guidelines issued in February 1998 did not provide for royalty to be factored in cost while determining the tariff. The 1999 TAMP order clarified that its approval of the tariff should not be interpreted as an implicit approval of royalty-related issues. The 2002 TAMP order explicitly rejected factoring royalty as a cost. Thus, the Tribunal’s finding of a change in law was based on "no evidence" and ignored vital evidence, making it perverse.

2. Conversion to Revenue-Sharing Module:
The Tribunal’s decision to convert the contract from a royalty payment module to a revenue-sharing module was also deemed improper. The Supreme Court emphasized that a contract duly entered into between parties cannot be unilaterally altered without mutual consent. The Tribunal’s award effectively created a new contract, which was beyond its jurisdiction. This amounted to a breach of fundamental principles of justice, as a unilateral addition or alteration of a contract cannot be foisted upon an unwilling party. The Supreme Court cited that an arbitrator must arbitrate within the terms of the contract and cannot travel beyond it, as doing so would be acting without jurisdiction.

Conclusion:
The Supreme Court upheld the High Court’s decision to set aside the Arbitral Tribunal’s award, finding it to be based on "no evidence" and constituting a "patent illegality." The Tribunal’s actions in altering the contract terms were beyond its jurisdiction and contrary to fundamental principles of justice. The appeals were dismissed, and the observations made by the High Court regarding other aspects of the matter were clarified to not affect the rights of either party in pending or future proceedings.

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