Orissa High Court: In an arbitration appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (‘the Act’) against the Single Judge’s Order of the Orissa High Court, whereby the Arbitral Tribunal’s interpretation of the contractual provisions was upheld, the Division Bench of S. Talapatra, CJ. and S.K Panigrahi, J.* allowed the arbitration appeal and set aside the impugned orders of Arbitral Tribunal and Single Judge for holding that shocked the conscience of the Court.
In the matter at hand, the dispute arose between the GMR Kamalanga Energy Ltd. (‘GKEL’) and SEPCO Electric Power Construction Corporation (‘SEPCO’) regarding the delays in construction and various technical issues relating to the construction and operation of the thermal power plant. Both the parties had entered into agreements for the execution of the three 350 MW coal fired thermal power plants at Kamalanga village, Dhenkanal, Odisha. SEPCO initiated arbitration proceedings against GKEL. The Arbitral Tribunal held that the GKEL was liable to pay Rs. 1100 crores to SEPCO. Subsequently, GKEL preferred a petition under Section 34 of the Act against the arbitral award before the Court. However, the Single Judge dismissed the petition, and held that the Arbitral Tribunal had not re-written the contract and that the that the parties had agreed to waive the issuance of notices as per the contractual provisions between both the parties. GKEL was aggrieved by the said decision, hence, the present appeal.
Analysis of the Issues
1. Whether the Tribunal interpreted the contractual provisions correctly while assessing that the issuance of notices before raising a claim under the contract is a condition precedent? Can the condition of issuance of notice be waived and whether a party can claim estoppel consequent thereto?
The Court noted that the Tribunal had while interpreting the articles of the agreement laid down that “although the provision did not expressly state that it was a condition precedent in contrast to language used elsewhere in the agreement, the parties have made their intention clear that they intended the clause to operate nonetheless as a condition precedent by expressly stating the consequences of failing to give the required notice”.
Regarding the question that whether the issuance of notice being a condition precedent could have been waived by the parties, the Court perused an Article of the agreement which provided for ‘no waiver or variation’. Another article in the agreement which provided that “if any variation, amendment, supplement, modification or waiver of the Agreement is to be held to be effective, the same shall not be effective unless in writing and signed by or on behalf of each Party” was also noted by the Court. The Court also noted that the Tribunal had concluded that there was waiver ‘by conduct’ of the GKEL against the mandatory condition precedent and the same attracted the principle of estoppel binding the parties. The Court said that it was unable to find any substance, evident or unambiguous conduct whether by words or manner, which indicated that the parties had any intention to completely forgo the condition of issuance of notices. Further, the Court said that the Tribunal could not have arrived at the conclusion of waiver and estoppel in the manner which it did as the terms of the agreement between the parties explicitly barred waiver or variation/ modification by conduct or orally without satisfying the twin conditions postulated in the agreement.
The Court said that an Arbitral Tribunal, being a creature of contract, is bound to act in terms of the contract under which it is constituted. The Court also stated that an Arbitral Tribunal is entitled to interpret the terms and conditions of a contract, while adjudicating a dispute. An error in interpretation of a contract in a case where there is valid and lawful submission of arbitral disputes to an Arbitral Tribunal is an error within jurisdiction, the Court said. The Court opined that in the present matter, the Tribunal chose to completely ignore the existing mandatory terms of the contract and while doing so, the Tribunal rewrote the contract, altered its nature, which it was not permitted to do, being the creature of the same contract. Further, the Court said that it is the exclusive domain of the arbitrator to interpret the contractual provisions or construe the facts of the case in a certain way, however, while arriving at such a decision, the arbitrator is not permitted to travel beyond the four-corner of the contract.
Therefore, the Court held that issuance of notice, being a condition precedent, could not have been waived without the parties following the manner and method for amending the relevant clauses stipulated within the agreement.
Regarding the question of estoppel, the Court noted that the agreement between the parties consisted of a ‘no waiver clause’ apart from having a ‘no oral modification clause’. The Court said that the parties had very evidently not elected to waive off the requirement for notices at any point of time and as it flows, if there is no waiver, there can be no estoppel in the matter at hand. The Court also explained that even if it is assumed that there was a ‘mutual’ waiver of the condition precedent to issue notices, even then, as a natural corollary, both the parties would be equally entitled to receive the benefit of the same principle in the adjudication of their claims by the Tribunal. The Court said that the Tribunal did not clarify that the waiver of requirement of issuance of notices was limited to certain kinds of notices and not to the entire contract. The Court said that the Tribunal had adopted a different standard for the two parties while adjudicating the dispute and there was unequal treatment which would shock the conscience of any court.
2. Whether the Single Judge was correct in dismissing the appellant’s petition under Section 34, at the stage of admission without considering all the arguments made by the parties and in dismissing the contentions pertaining to the Arbitral Tribunal’s bias?
The Court referred to the Single Judge’s order and said that despite the finding that the waiver of notice was based on no evidence and was incorrect, the Single Judge was reluctant to interfere with the Arbitral award. The Court stated that when a petition under Section 34 of the Act is dismissed at a preliminary stage, i.e., at the stage of admission, the grounds are usually limited to delay or jurisdiction. The Court said that however, the Single Judge had partially considered the case on merits but dismissed the matter at a preliminary stage. The Court considered this as an unusual departure from the practice and norm of hearing a petition under Section 34. Regarding the question that whether the single Judge was correct in dismissing the appellant’s contentions pertaining to arbitral tribunal’s bias, the Court said that the appellant’s contention was based on an extension of the equal treatment specified under Section 18 of the Act. The Court said that the concept of ‘bias’ and ‘unequality’ under Section 18 of the Act are separate and distinct concepts juristically. The Court also said that the appellant did not explain the delay or reasons for non-adherence to the procedure and time window prescribed under Section 13(2) of the Act, hence the issue of ‘bias’ at a belated stage before the Court in a petition under Section 34, in gross contravention of the mechanism provided in the Act cannot be raised at this stage.
3. Whether the Tribunal’s and Single Judge’s orders shocked the conscience of the Court or are contrary to the basic notions of Justice or are in express violation of the Section 28(3) of the Act, necessitating the Court’s interference under Section 37 of the Act?
The Court observed that the law relating to scope of interference under Sections 34 and 37 of the Act is now well settled and no longer res integra, that the scope of interference by the Courts in arbitration proceedings and arbitral awards is narrow, more so, in an International Commercial Arbitration seated within or outside India, especially after the 2015 amendment. The Court noted the grounds available to a party to challenge an arbitral award, as follows:
contravention of the fundamental policy of Indian Law.
contravention of the principles of natural justice.
contravention of the most basic notions of justice and morality.
The Court said that the standard of ‘review’ of an Arbitral Award under Section 34 and 37 of the Act is quite different as compared to adjudicating the dispute afresh. The Court explained that while adjudication of a fresh dispute, the Arbitrator is tasked with a complete and exhaustive perusal of the evidence produced on record, however, at the stage of adjudicating a challenge to the award, the Court cannot look at the merits of the dispute ‘again’. The Court while testing if an award did not pass the muster of being “in conflict with the fundamental policy of Indian law” or being “in conflict with the most basic notions of justice” will necessarily have to undertake an assessment of the way/manner in which the award was made, and while doing so, the Courts must ensure that they are acting within the contours of the provisions.
The Court referred to a catena of judgments, whereby two categories of cases have been identified which can be challenged under the Act as follows:
where the arbitrator exercises his power within or in excess of jurisdiction;
When the arbitrator rewrites the terms of the contract, acting in excess of the jurisdiction.
The Court noted that the rewriting of the contract, while interpreting the contract, would ‘shock the conscience of the Court’. The Court said that in the matter at hand, the Tribunal ignored the express terms of the contract while arriving at its findings rewrote certain clauses thereby grossly exceeding the scope of its jurisdiction and the same did shock the conscience of the Court. The Court said that the Tribunal had acted in derogation of the express terms of the two clauses, i.e., the ‘no oral modification clause’ and the ‘no waiver clause’, hence, committing a grave error of stepping into the shoes of the parties of the contract and altering the nature of the contract and the manner in which it was envisioned to be performed. Further, the Court said that the Tribunal had also disregarded various principles laid down by the Supreme Court. Therefore, the Court said that this action of Tribunal would be considered as a contravention of the fundamental policy of Indian Law. The Court also said that if there is no equal treatment of the parties, the Arbitral Award is liable to be set aside, as a contravention of the principles of natural justice which postulates the principle of treating all the parties equally. Therefore, the Court said that the Tribunal’s finding that the parties had mutually decided to ‘waive’ the requirement of issuance of contractual notices and disallowing the GKEL’s counterclaims on the ground that no such notices were given is nothing, but violation of the equality principle enshrined under Section 18 of the Act. The Court said that the Tribunal’s finding for the damages relating to delay for prolongation or disruption costs and the grant of 5 percent of contractual price upon completion of tests was liable to be set aside Thus, the Court opined that the present case shocked the conscience of the Court and necessitated interference.
The Court stated that the “Arbitrator is a Judge chosen by the parties and his decision is final as long as it is founded in fairness and justice”. The Court also said that an award cannot be passed on the ipse dixit of the arbitrator. Therefore, on meticulous examination of the present matter the Court allowed the appeal and set aside the impugned Single Judge decision and the Tribunal’s award.
[GMR Kamalanga Energy Ltd. v. SEPCO Electric Power Construction, 2023 SCC OnLine Ori 5882, Decided on: 27-09-2023]
*Judgment Authored by: Justice S.K Panigrahi
Advocates who appeared in this case :
For the Appellant: Senior Advocate Ashok Kumar Parija, Senior Advocate S.P. Mishra, Advocate Manav Gill, Senior Advocate Ciccu Mukhopadhaya, Advocate Anupam Rath, Advocate Hriday Kochhar, Advocate Navneet Dadhichi, Advocate Aiswarya Ray, Advocate Manisha Mishra, Advocate Prashant Pakhidey, Advocate Swastika Parija, Advocate S. Satyakam, Advocate Amritesh Mohanty, Advocate Adhyasa Kar, Advocate Nikhil Pratap, Advocate Swadha Rath
For the Respondent: Senior Advocate Jayant Mehta, Senior Advocate Gautam Misra, Advocate Samar Singh Kachwaha, Advocate Ankit Khushu, Advocate Prasenjeet Mohapatra, Advocate Anupam Dash, Advocate Adhiraj Mohanty, Advocate Bhavna Chandak, Advocate Raghav Bhatia
*Deeksha dabas, Editorial Assistant has reported this brief.