This case is a part of our Annual Arbitration Review 2020.
Judgment Name: Patel Engineering Ltd. v. North Eastern Power Corporation Ltd.
Citation: (2020) SCC OnLine SC 466
Court: Supreme Court of India
Coram: R. Banumathi, Indu Malhotra, Aniruddha Bose, JJ.
Date: 3rd June 2020
Keywords: Patent Illegality, 2015 Amendment.
The current case related to the standard of patent illegality and is a landmark judgment in terms of determining the scope with respect to the same. Various past case laws with respect to Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”) and the effect of the 2015 amendment on patent illegality were discussed.
The sole arbitrator in this case passed three arbitral awards with respect to the interpretation of a contract and held in favor of the Petitioner. The Respondent aggrieved by this decision of the arbitrator filed three applications before the Additional Deputy Commissioner in Shillong challenging the awards under Section 34 of the Act. The Commissioner upheld all three awards which lead to the Respondent filing an appeal under Section 37 of the Act before the High Court of Shillong. The High Court set aside the three awards. After this a Special Leave Petition (“SLP”) was filed in the Supreme Court was dismissed. Then a review petition in the High Court was preferred by the petitioners which lead to the same result as earlier. Thus, the Petitioner appealed to the Supreme Court under Article 136 of the Constitution.
1. Whether the current SLP was maintainable?
2. Whether the 2015 Amendment is applicable to the current case?
3. Whether the decision of the High Court was erroneous in view of precedent that was not good in law?
It was challenged by the Respondents in the current case that the SLP was not maintainable. The Court after hearing arguments from both the sides, opined that it was not necessary to go into a question of maintainability. It was noted that when the SLP was admitted previously, no review petition had been filed before the High Court.
With respect to the second issue, the case of Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. And Ors. was cited to state that the 2015 amendment would apply to Section 34 petitions that are made after 23rd October 2015 In the current case, the awards and the applications before the Judicial Commissioner were filed after the said date and hence, the provisions of the 2015 amendment Act would apply.
Next, with respect to the ground of patent illegality under Section 34(2)A, the Court discussed its jurisprudential history and the wider shift in interpretation from ONGC v. Saw Pipes which relied more on a ‘public policy argument’ than BCCI where the Court held that an award would be “patently illegal”, if it is contrary to the substantive provisions of law; or, provisions of the 1996 Act; or, the terms of the contract. Then the judgments in Associate Builders v. Delhi Development Authority and Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India ("NHAI") were discussed to state that the new ‘patent illegality’ standard would apply to awards where the contracts were construed in a manner that no reasonable person would construe. Further the 246th Law Commission Report was discussed where Ssangyong Engineering was taken into account while formulating the new ground with respect to the 2015 Amendment Act.
Finally, the argument of ONGC v. Saw Pipes and Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited i.e., limited judgments being cited despite being bad law was taken into account by the Court. It was stated that the final conclusion arrived at by the High Court was with respect to the ground that the arbitral award was perverse and that the view taken by the arbitrator was perverse. It was held that the High Court followed the test laid down in Associate Builders and Ssangyong correctly and thus, there was no need for interfering.
This judgment reaffirms the principle that a challenge for patent illegality under Section 34(2)A can be made only when the arbitrator comes to an award through a reasoning that is so perverse that a reasonable person could not come to such conclusion.