Arbitral Award with Contradictory Findings can be Set Aside under Section 34 of the Arbitration And Conciliation Act

Petitioner: NHAI

Respondent: M/s Ssangyong Engineering & Construction Co. Ltd.

Court: Hon’ble High Court of Delhi

Date: April 8, 2024

Coram: Justice Chandra Dhari Singh

Citation: OMP(COMM)340/2021

Coram: Justice Chandra Dhari Singh

Facts:

1. The case involves a contract between NHAI and Ssangyong Engineering for a highway construction project in Madhya Pradesh. The contract included provisions for dispute resolution through arbitration and outlined payment processes, including Interim Payment Certificates (IPCs).
2. Ssangyong Engineering received a Taking Over Certificate (on April 6, 2013) and a Defect Liability Certificate (on April 4, 2014) as per the terms of the contract.
3. Ssangyong Engineering submitted a Draft Final Statement for payment, but NHAI approved only a partial payment through a certificate dated August 31, 2014. This led to a dispute between the parties.
4. Ssangyong Engineering claimed the August 31, 2014 certificate as a Final Payment Certificate, whereas NHAI claimed it to be merely an Interim Payment Certificate and not a Final Payment Certificate and hence, Ssangyong Engineering invoked arbitration.
5. The arbitral tribunal ruled in favour of Ssangyong Engineering, awarding the claimed amount and classifying the certificate as a Final Payment Certificate.
6. As a result, NHAI challenged the decision under Section 34 of the Act, disputing both the classification of the certificate and the awarded amount.

Issue:

Whether the impugned award suffers from illegality and therefore can be termed against the public policy of the country or not?

Judgement:

The Court emphasized the limited grounds for setting aside an arbitral award under Section 34 of the Act, ruling that the ground of ‘patent illegality’ cannot be invoked in the case of an award from international commercial arbitration involving a foreign entity.

The court criticized the tribunal’s contradictory findings regarding the issuance of a final payment certificate, highlighting the absence of a mandatory written discharge and errors in addressing critical issues raised by the petitioner. The Court also noted inconsistencies in the tribunal’s decisions on similar issues within the same contract, stressing the need for coherence. Consequently, the Court granted the petition and set aside the award to rectify these anomalies and uphold the principles of natural justice.

Conclusion:

The Delhi High Court held that an arbitration award conflicting with the tribunal’s observations violates ‘public policy’ under Section 34 of the Act. The bench emphasized that inconsistent awards on identical issues with the same parties and contractual conditions warrant setting aside of the same by the Court to rectify such anomalies.