Delhi High Court set aside arbitral award as it suffers from patent illegalities, and fraud and conflicts with the Public Policy of India

Delhi High Court

   

Delhi High Court: In a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (‘the Act’) for setting aside of the arbitral award dated 14.09.2015 allowing the claim of the respondent, Sanjeev Sachdeva, J. has held that the impugned award dated 14.09.2015 suffers from patent illegalities, and fraud and conflicts with the Public Policy of India.

The Court noted that the Arbitral Tribunal in the award dated 14.09.2015 has held that the termination of the Contract on the part of the petitioner amounted to wrongful repudiation of the contract and accordingly Article 7(b) of the contract did not limit respondent company’s entitlement to alleged damages that it suffered by reason of such repudiation of the agreement.

The Court observed that the findings of the Tribunal were unreasonable, as it has committed a patent illegality in not appreciating the International Bar Association (IBA) Rules on taking of evidence, that are applicable only in the case of International Arbitration and that too with the consent of parties. Further, the Tribunal has not recorded any finding that the evidence of pre-contractual negotiations was covered by any of the conditions or circumstances stipulated in Article 9(2) and 9(3) of the contract, which permits exclusion of the evidence and there was any request from the respondent company that said evidence was liable to be excluded.

The Court observed that the Tribunal has clearly misdirected itself in rejecting the evidence of pre-contractual negotiations and the interpretation of Article 7 is clearly contrary to the intention of the parties. Therefore, the Tribunal has committed a patent illegality, as the finding returned is contrary to several findings returned by the Tribunal itself in this very award.

The Court observed that the Tribunal has also noted that the CCS decided that “the Government will not be able to provide orbit slot in S band to the petitioner for commercial activities” and observed that this direction of the CCS clearly shows that the petitioner did not have the orbital slot coordination and there was no counter by the respondent to the committee’s decision. Thus, this clearly contradicts the reasoning of the Tribunal when it holds that the petitioner could not resort to Article 7(c) as it did not cover inability to retain a clearance.

The Court further observed that the reasoning of the Tribunal is self-contradictory, and the award suffers from patent illegality on the face of it, as on the one hand the Tribunal rejected the contention of the respondent to disregard the petitioner’s distinct legal entity merely because it was the government’s marketing arm or performed commercial activities for government benefit and it also rejected the contention that the petitioner itself instigated the force majeure event. However, on the other hand it holds the CCS decision was beyond the petitioner’s control once it was made, but it could have prevented the CCS from receiving a proposal to annul the Contract.

Placing reliance on the ruling in HPA International v. Bhagwandas Fateh Chand Daswani, (2004) 6 SCC 537, the Court observed that repudiatory breach presupposes a breach on the part of one party and breach of the contract would arise when one party by its conduct commits a fundamental breach of the contract. Further, to establish breach, it must be first established that a party is able to perform its obligations under the contract but is refusing to do so and breach cannot be held to be committed if the party is prevented from performing its obligations on account of factors beyond its control.

Further, it was observed that the award suffers from patent illegality as the Tribunal had overlooked the provisions of Article 25 of the contract that stipulates that the agreement shall not be binding on the respondent or petitioner until and unless the petitioner receives all the requisite governmental and other regulatory approvals.

The Court noted that the petitioner sought winding up of the respondent company under Section 271(c) read with Section 272(1)(e) of the Companies Act, 2013 before the National Company Law Tribunal (NCLT) alleging that the respondent company was formed for a fraudulent and unlawful purpose and its affairs had been conducted in a fraudulent manner. Thus, a provisional liquidator was appointed by the NCLT and by a final order NCLT allowed winding up of the respondent company. The order of winding up was challenged by the respondent company before the National Company Law Appellate Tribunal (NCLAT) and thereafter before the Supreme Court, and both dismissed the appeals.

The Court relied on the ruling of Devas Multimedia Private Ltd. v. Antrix Corporation Ltd., 2022 SCC OnLine SC 46 wherein it was held that “the very seeds of the commercial relationship between the petitioner and the respondent were a product of fraud perpetrated by the respondent and thus every part of the plant that grew out of those seeds, such as the Agreement, the disputes, arbitral awards etc., are all infected with the poison of fraud”.

The Court also relied on the ruling of Delhi Airport Metro Express (P) Ltd. v. DMRC, (2022) 1 SCC 131, wherein it was held that the grounds for setting aside an arbitral award are limited. Further, if a domestic award is contrary to the fundamental policy of Indian law, and if there is a patent illegality in the award an award may be set aside. However, patent illegality should be illegality which goes to the root of the matter and every error of law committed by the arbitral tribunal would not fall within the expression of “patent illegality”. Similarly, erroneous application of law, contravention of law not linked to public policy or public interest cannot be categorised as patent illegality.

Thus, the Court held that the Tribunal has incorrectly excluded the evidence pertaining to the pre-contractual negotiations which it could not have, further as findings of the Tribunal on some issues are contradicted by the findings on other issues and are also contradicted by the reasoning given to reach the said conclusions, thus it committed a patent illegality in the award.

Moreover, it viewed that the findings on fraud by the Supreme Court clearly establish that award contravenes the fundamental policy of Indian law conflicting with the most basic notions of justice and is also contrary to the national economic interest, thus antithetical to the fundamental policy of Indian law. Thus, the impugned award dated 14.09.2015 was set aside.

[Antrix Corpn. Ltd. v. Devas Multimedia (P) Ltd., 2022 SCC OnLine Del 2622, decided on 29.08.2022]


Advocates who appeared in this case:

For the Appellants: Additional Solicitor General N. Venkataraman;

Additional Solicitor General Chetan Sharmawith;

Advocate V. Chandrashekar,;

Advocate Ajay Bhargava;

Advocate Arvind Ray;

Advocate Karan Gupta;

Advocate Varsha S. Suneja;

Advocate Ram Narayan;

Legal Officer Bhasker Singh;

For the Respondent: Senior Advocate Maninder Singh;

Advocate A. Sebastian;

Advocate Prabhas Bajaj;

Advocate Ajay Sabharwal;

Advocate. Angelika Awasthi;

Advocate Prashant Jain;

Advocate Senior Advocate Suhail Dutt;

Advocate Anuradha Dutt,;

Advocate Lynn Pereira;

Advocate Ekta Kapil;

Advocate Priyanka M.P;

Advocate Chaitanya Kaushik;

Advocate Amber Bhushan,;

Advocate Shivangi Sud;

Advocate Azhar Alam;

Advocate Sankalp Goswami.

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