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An Award Is Said To Be Suffering From 'patent Illegality' Only If It Is An Illegality Apparent On The Face Of It And Not To Be Searched Out By Way Of Re-appreciation Of Evidence- Supreme Court

Diya Pradeep ,
  17 May 2023       Share Bookmark

Court :
In The Supreme Court Of India
Brief :

Citation :
Civil Appeal No. 3615 OF 2023

Case title:

Reliance Infrastructure Ltd. vs State Of Goa

Date of Order:

10 May 2023

Bench:

Dinesh Maheshwari, Sanjay Kumar

Parties:

Appellant - Reliance Infrastructure Ltd

Respondent - State Of Goa

SUBJECT

Arbitration is a process whereby two parties to a dispute come together in a non-court setting. A neutral third party, the arbitrator, decides the outcome of the dispute. This process is often chosen by parties because it is cheaper and less time-consuming than a court trial. The process begins with each side presenting their case and then the arbitrator makes a decision, either through a written decision or orally. The decision is generally binding, meaning it is legally enforceable. In the present case, Reliance Infrastructure won an arbitration dispute against the State of Goa over delayed payments for a power plant.

IMPORTANT PROVISIONS

  • Arbitration and Conciliation Act, 1996
  • Section 26
  • Section 28
  • Section 34
  • Section 37

OVERVIEW

  • Reliance Infrastructure entered into a Power Purchase Agreement with the State of Goa to run a power generation station from 14.08.1999 to 13.08.2014.
  • Several other agreements were entered into between the parties. Three primary ones concern electrical power production and purchase.
  • The Government of Goa planned to stop the purchase of power from the claimant. However, the claimant proposed to supply power using Regassified Liquefied Natural Gas, which was brought up in Goa by GAIL. On 26.04.2013, the Goa Government agreed to continue purchasing power from the claimant.
  • The claimant sought an explanation from the Government regarding the formula-based tariff payable for electricity supply, which was based on the existing RLNG price and INR/USD exchange rate. The Government agreed to purchase it considering the current rates of fuel and dollars up to the expiry of the PPA. This required documentation, showing the fuel price and dollars included in the claimant's bills.
  • Nevertheless, monthly invoices were not paid from May 2013, and the claimant was aggrieved. Several communications were exchanged between both parties, but the grievance still wasn’t addressed. The plant closed in April 2014.
  • The claimant filed a petition with the Joint Electricity Regulatory Commission for recovery of its dues.
  • The Arbitral Tribunal passed an award dated 16.02.2018, ordering the State to pay Rs. 278.29 crore to the claimant, together with interest for the period up to 31.10.2017, and further interest from 31.10.2017 at 15% per annum. It also clarified that if the state paid the entire amount together with interest within two months from the date of the award, they wouldn’t have to reimburse the interest amount. 
  • The claimant has challenged the High Court's decision to partially set aside the award and approached the Supreme Court of India through a Special Leave Petition.

ISSUE RAISED

  • Does the impugned judgment and Order by the Commercial Court upholding the impugned Award warrant interference?

ARGUMENTS ADVANCED BY THE APPELLANT

  • Mr. Parag P. Tripathi learned senior counsel represented the claimant.
  • The counsel contended that the scope of interference under Section 37 of the Act of 1996 is restricted to the grounds mentioned in Section 34.
  • It was submitted that re-appreciation of evidence or review on merits is not allowed under the provisions of the Act unless the award is in conflict with public policy or negated by ‘patent illegality appearing on the face of the award’.
  • The counsel cited cases, Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd [(2022) 1 SCC 131] and Haryana Tourism Ltd. v. Kandhari Beverages Ltd [(2022) 3 SCC 237] to substantiate the above point.
  • The high court noted that the parties had agreed that electricity sales would be determined by the shifting price of US dollars and fuel. Additionally, it was noted that the Government of Goa had even agreed to the formula to calculate tariffs for alternate fuel. Subsequently, the Government of Goa took power from the claimant without dispute and the supposed non-compliance with clauses was brought up before the Arbitral Tribunal.

ARGUMENTS ADVANCED BY THE RESPONDENT

  • Mr. R. Venkataramani, the learned Attorney General for India, contended that the High Court correctly interfered with the award. 
  • The Attorney General has cited various Court decisions regarding the scope of interference under Sections 34 and 37 of the Act of 1996. The cases cited include Ssangyong Engineering and Construction Co. Ltd. v. NHAI [(2019) 15 SCC 131], MMTC Limited v. Vedanta Limited (2019) 4 SCC 163], and PSA SICAL Terminals (P) Ltd. v. Board of Trustees of V.O. Chidambranar Port Trust Tuticorin and Ors[(2021) SCC Online SC 508]. 
  • Counsel argued that the patent was illegal due to blatant ignorance of relevant contractual clauses, and cited the cases, State of Chhattisgarh and Ors. V. Saludyog PVT. Ltd [Civil Appeal No. 4353 of 2010] and Associate Builders v. Delhi Development Authority [Civil Appeal No. 10531 of 2014] to substantiate this point.
  • It was also argued that the High Court overlooked the objective behind the appointment of an expert under Section 26 of the Act of 1996. The State has argued that the Arbitral Tribunal's failure to consider the application for the appointment of an expert violated natural justice principles as it denied the State an equal opportunity to present its case. 
  • The learned Attorney General has submitted that the award should be set aside for patent illegality under Section 34(2A) of the Act of 1996.

JUDGEMENT ANALYSIS

  • The Supreme Court of India set aside the impugned High Court order and restored the award in its entirety.
  • The bench consisting of Justices Dinesh Maheshwari and Sanjay Kumar held that the High Court had made an erroneous decision while calculating the merits of the award.
  • The court cited Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd [(2022) 1 SCC 131], where it was held that while examining the validity of the arbitral award the courts must show restraint. If not, the interference with the award caused after reassessing the factual aspects will be against the 1996 Act's object.
  • The court also ruled that the limited scope of “patent illegality” cannot be breached by the usage of expressions that do not refer to “patent illegality” and only to an "error."
  • The bench noted that nothing related to “patent illegality” had been discovered in the face of the award, and the alleged errors in the case do not fall within the ambit of Section 34 of the Act of 1996.

CONCLUSION

The Arbitration and Conciliation Act, 1996 is an Act of the Parliament of India. It consolidates and amends the law relating to domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards and related matters. The present case dealt with many provisions of this act, especially section 34. Section 34 of the act provides for the application for setting aside arbitral awards. The respondent urged that the award in question be set aside for patent illegality under Section 34(2A). This submission was rejected by the court. The Supreme Court of India in the present case pronounced valuable findings regarding “patent illegality”. The court reiterated the findings of the case Delhi Airport Metro Express (supra) and stated that if restraint isn’t exercised while examining arbitral awards, several judicial decisions would be set aside and categorized as “patently illegal” without appreciating the contours of these expressions.
 

 
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