Patel Engineering Ltd. v. North Eastern Electric Power Corporation Ltd.

I. Details:

1. Case Number/Citation: Special Leave Petitions No. 3584-85 of 2020

2. Forum: Supreme Court

3. Date of Judgement: 22.05.2020

4. Coram: Bench of Justices R. Banumathi, Indu Malhotra and Aniruddha Bose

II. Facts/Challenge

Three arbitral awards dated 29.03.2016 were passed by the Sole Arbitrator in respect of the Packages I, II and III of a Project. North Eastern Electric Power Corporation Ltd. (“Respondent”) filed three application under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) before the Additional Deputy Commissioner (Judicial), Shillong. By a common judgment, the Additional Deputy Commissioner (Judicial) rejected the applications under Section 34 of the Act and upheld all the arbitral awards.

The Respondent, then, filed three appeals under Section 37 of the Act before the high Court of Meghalaya. By a common judgment dated 26.02.2019, the High Court allowed the appeals and set aside the common judgment passed by the Additional Deputy Commissioner (Judicial).

Aggrieved by the judgment passed by the High Court as above, Patel Engineering Ltd. (“Petitioner”) preferred special leave petitions which were dismissed by the Hon’ble Supreme Court of India. Thereafter, the Petitioner filed review petitions in the High Court of Meghalaya on the ground that the said Court’s judgment dated 26.02.2019 suffers from error apparent on the face of the record as it had not taken into consideration the amendments made to the Act by the Amendment Act of 2015. The review petitions were dismissed by the High Court on 10.10.2019 and two special leave petitions arose out of the same before the Hon’ble Supreme Court of India. Leave was granted.

III. Contention/Issue

Contentions

On behalf of the Petitioner, Mr. Harish Salve, contended that in the judgment of High Court dated 26.02.2019, the High Court erroneously applied the provisions as applicable prior to the Amendment Act, 2015 and the judgment suffers from error apparent on the face of the record since the High Court relied upon ONGC v. Saw Pipes Ltd. [(2003) 5 SCC 705] and ONGC v. Western Geco International Ltd. [(2014) 9 SCC 263], which are no longer good law after the Amendment Act, 2015.

The Petitioner, thus, contended that the judgment of High Court dated 26.02.2019 suffers from an error apparent on the face of record. The reliance was placed upon HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (Inida) Ltd. [(2018) 12 SCC 471] and Ssangyong Engineering and Construction Co. Ltd. v. NHAI [(2019) 15 SCC 131]

The learned Solicitor General, Mr. Tushar Mehta, submitted that when the earlier special leave petitions were filed, there were heard at length and all the arguments including the effect of the amendment to Section 34 were also raised. Only thereafter, the SLPs were dismissed. It was argued that the Petitioner could not be allowed to reagitate the matter by filing a review petition.

Issue

Whether the judgment dated 26.02.2019 passed by the High Court of Meghalaya is valid?

IV. Findings and Conclusion

The Supreme Court, while confirming the view of the High Court of Meghalaya and dealing with the history of “patent illegality” ground, observed that:

1. An arbitral award can be set aside under Section 34 of the Act if it is patently illegal or perverse. The ground of patent illegality is a ground available under the statute for setting aside a domestic award made after the Amendment Act 2015.

2. If the decision of the arbitrator is found to be perverse, or, so irrational that no reasonable person would have arrived at the same, or the construction of the contract is such that no fair or reasonable person would take, or that the view of the arbitrator is not even a possible view, the award could be termed as patently illegal.

3. While dealing with the appeal under Section 37 of the Act, the high court has considered the matter at length, and held that while interpreting the terms of the contract, no reasonable person could have arrived at a different conclusion and that the awards passed by the arbitrator does not suffer from the vice of irrationality and perversity.

4. In the present case, the High Court referred to the judgment in Associate Builders Delhi Development Authority [(2015) 3 SCC 49] at length in its judgment dated 26.02.2019 and arrived at the correct conclusion that an arbitral award can be set aside under Section 34 if it is patently illegal or perverse. This finding of the High Court is in conformity with paragraph (40) of the judgment in Ssangyong Engineering (supra) and the test set out in paragraph (42.3) of Associate Builders (supra).