SSANGYONG ENGINEERING AND CONSTRUCTION CO LTD VS NATIONAL HIGHWAY AUTHORITY OF INDIA : CASE SUMMARY

The Supreme Court in Ssangyong Engineering & Construction Co. Ltd. Vs. National Highway Authority of India (2015) 3 SCC 49  held that 2015 amendment to Arbitration and Conciliation Act, 1996 will be applicable to Section 34 proceedings for setting aside of arbitral awards initiated after coming in effect of 2015 amendment although arbitral proceedings might have been initiated prior to that. The Supreme Court also analyzed  impact of 2015 amendment on scope of “public policy”.

FACTS OF THE CASE

Ssangyong Engineering & Construction Company ( a company registered under Republic of Korea )  has been awarded contract for construction of four lane bypass on National Highway Twenty Six. Price adjustment was being paid to the Ssangyong on the basis of Wholesale Price Index having base year 1993-94. New base year 2004-5 was notified by the Ministry of Industrial Development with effect from 14.09.2010. NHAI issued policy circular whereby new formula was issued applying linking factor on the basis of new series.

Ssangyong  filed Writ Petition against the new policy which was not entertained. Ssangyong approached Delhi High Court seeking interim protection under Section 9 of Arbitration and Conciliation Act, 1996 against any recovery which was granted by the Delhi High Court. Dispute was referred the Dispute Adjudicating Board wherein Ssangyong did not get appropriate relief. Ssngyong filed claim before Arbitral Tribunal which was rejected. Ssagyong filed Application under Section 34 of the Arbitration and Conciliation Act, 1996 for setting aside of the award before Delhi High Court which was rejected. Section 37 Appeal before the Delhi High Court was also rejected. Ssangyong finally approached the Supreme Court.

APPLICABILITY OF 2015 AMENDMENT

2015 amendments of Arbitration and Conciliation Act, 1996 had made important changes.   The Court held that 2015 amendment will be applicable to all Section 34 proceedings which have been filed after coming in force of 2015 amendment irrespective of the fact that the arbitration proceedings may have commenced prior to that date.

THE GROUND OF PUBLIC POLICY

Before the 2015 amendment, Arbitration and Conciliation Act, 1996 provided various grounds for setting aside arbitral award under Section 34 including grounds of “conflict with the public policy” under Section 34 (2) (b) (ii).  Explanation to Section 34 (2) (b) provided that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. Similar grounds were also provided under Section 48 for refusal of enforcement of  foreign arbitral awards.

In Renusagar Power Co. Ltd. Vs General Electric Co. , 1994 (1) SCC 644, the Supreme Court observed in context of a foreign award that contravention of (i) the fundamental policy of Indian law (ii) Interest of India and (iii) Justice or Morality will be treated as contraventions of public policy.

The Supreme Court in ONGC Ltd Vs. Saw Pipes Ltd (2003 ) 5 SCC 705  added another ground i.e. patent illegality under the scope of public policy.

Public Policy was further expanded in  ONGC Ltd. Vs. Wetern Geco International Ltd, 2014 (9) SCC 263 to include judicial approach; principle of natural justice; and perversity and irrationality.

On the basis of  176^th Law Commission Report, Arbitration and Conciliation Act was amended in 2015.

The scope of “public policy” was narrowed down. Explanation I provided that an award will be treated as in conflict with the Public Policy of India only (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81 or (ii) it is in contravention of fundamental policy of Indian Law or (iii) it is in conflict with basic notion of morality or justice. It was also provided in Explanation 2 that contravention of public policy of Indian Law shall not entail a review on the merits of the dispute.

Section 2A was also inserted which provided for ground of patent illegality appearing on face of award. Patent illegality was not to include erroneous application of law or reappreciation of evidence.

The Ground of patent illegality was not made available in case of international commercial arbitration.

INABILITY OF PRESENT CASE

The Supreme Court noted that one of the grounds for setting aside of arbitral award is inability of a party to present case under Section 34 (2) (a) (iii). The Court noted that Section 18, Section 24 (3) and Section 26 provides the essence of the said ground. Section 18 provides that each party has to be given full opportunity to present its case. Section 24 (3) provided that all statements, documents, or other information supplied by one party have to be communicated to other party. Section 26  provides for sharing of expert’s report with any party who makes request.

BEYOND SUBMISSION TO ARBITRATION

The Supreme Court also noted that one of the grounds under Section 34 (2) (a) (iv)  for setting aside the arbitral award is if dispute does not fall within terms of the submission to arbitration or it contains decisions on matters beyond the scope of the submission to arbitration.

CONFLICT WITH MOST BASIS NOTION OF MORALITY AND JUSTICE

The Supreme Court noted that one of the grounds provided in Explanation 1 is award being in conflict with basic notions of morality and justice. Essence of this principle is breach of fundamental principles of justice which shocks conscience of the Court.

The Supreme Court on aforesaid parameters set aside the award on the ground that government guidelines were not part of record. Agreement could not have been unilaterally  modified by NHAI. The Supreme Court observed that unilateral actions are such that it shocks the conscience of the Court.

The Court noted that objective of the Arbitration and Conciliation Act, 1996 is speedy resolution of arbitral disputes. The Court invoked its power under Article 142 and upheld the minority award.

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