Ssangyong Engineering & Construction Co. Ltd. vs National Highways Authority of India (NHAI)

Ssangyong Engineering & Construction Co. Ltd. vs National Highways Authority of India (NHAI) - Supreme Court Important Judgment 2019 - 

On 8th May, 2019, in the case of Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) [Civil Appeal No.4779 of 2019], the Supreme Court of India examined the scope of appeal against an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.

In the case at hand, dispute arose out of a contract between the parties for construction of a four-lane bypass on National Highway. Under the contract, price adjustment was payable to the appellant towards certain components to be used in the construction by using the Wholesale Price Index [WPI] published by the Ministry of Industrial Development, which followed the years 1993-94 = 100 [Old Series]. However, later, the Ministry stopped publishing the WPI for the Old Series and started publishing indices under the WPI series 2004-05 = 100 [New Series]. On 15.02.2013, Respondent issued a Policy Circular, in which a new formula for determining indices was used by applying a “linking factor” based on the year 2009-10. Respondent stated that the NHAI Circular would have to be applied to the contract in question, and thus, a linking factor would have to be provided by which the Old Series was connected to the New Series, but, this was disputed by the Appellant. A three member arbitral tribunal, per majority, held against the appellant stating that the NHAI Circular could be applied as it was within contractual stipulations. Subsequently, Appellant filed a Section 34 petition which was rejected by the High Court, whereupon the Appellant put forth challenge before the Supreme Court primarily relying upon three sub-sections of s.34, namely, s.34(2)(a)(iii), s.34(2)(a)(iv) and s.34(2)(b)(ii).

As regards the ground under s.34(2)(a)(iv), i.e. decision on matters beyond scope of submission to arbitration, the Supreme Court observed that, on facts, the dispute was “certainly something which would fall within the arbitration clause or the reference to arbitration that governs the parties” and “this being the case”, Section 34(2)(a)(iv) “would not be attracted.”

However, with regard to the ground under s.34(2)(a)(iii), i.e. inability of a party to present its case, the Supreme Court observed that in the facts of the case, there was no doubt “that the government guidelines that were referred to and strongly relied upon by the majority award to arrive at the linking factor were never in evidence before the Tribunal” and in fact, the Tribunal relied “upon the said guidelines by itself” stating “that they are to be found on a certain website”. Observing that “the respondent also agreed that these guidelines were never, in fact, disclosed in the arbitration proceedings”, the Supreme Court held that it was “clear that the appellant would be directly affected as it would otherwise be unable to present its case, not being allowed to comment on the applicability or interpretation of those guidelines” and “for this reason, the majority award needs to be set aside under Section 34(2) (a)(iii).”

On the ground of appeal under s.34(2)(b)(ii), i.e. arbitral award in conflict with public policy of India, the Supreme Court observed that “this ground can be attracted only in very exceptional circumstances when the conscience of the Court is shocked by infraction of fundamental notions or principles of justice.” It was observed by the Supreme Court that “indeed, the Circular itself expressly stipulates that it cannot apply unless the contractors furnish an undertaking/affidavit that the price adjustment under the Circular is acceptable to them” but “the appellant gave such undertaking only conditionally and without prejudice to its argument that the Circular does not and cannot apply.” The Supreme Court held that it was clear “that the majority award has created a new contract for the parties by applying the said unilateral Circular and by substituting a workable formula under the agreement by another formula de hors the agreement. This being the case, 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, the Supreme Court also added a note of caution that the ground under Section 34(2)(b)(ii) “is available only in very exceptional circumstances, such as the fact situation in the present case” and “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” since “that would be an entry into the merits of the dispute which”, “is contrary to the ethos of Section 34 of the 1996 Act”.

Accordingly, on facts, the Supreme Court allowed the appeal and set aside the majority arbitral award with the observation that “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.” However, it was also noted by the Supreme Court that “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.” Therefore, “in order to do complete justice between the parties”, invoking its’ “power under Article 142 of the Constitution of India, and given the fact” that there was a minority award which awarded “the appellant its claim based upon the formula mentioned in the agreement between the parties”, the Supreme Court upheld the minority award, stating “that it is this award, together with interest, that will now be executed between the parties.”