Resolving commercial disputes

October 06, 2021 4:30 AM

Arbitration has the potential to offer an opportunity of inter partes dialogue, which is missing in litigation

Court JusticeThey neither have the time (due to backlog) nor the technical wherewithal to examine facts themselves or through third-party experts.

By Arijit Maitra

Every sectoral legislation—be it in energy, power, aviation, oil & gas or infrastructure projects—provides for multilevel resolution of commercial and contractual disputes. The affected party has to approach the first court, appellate court and a second appeal before the apex court. This is a time-consuming and costly affair to say the least, apart from the challenges when the opposite party is a governmental instrumentality of any sort. Courts usually hesitate to take an anti-revenue approach. All of this and other factors have led large investments into bankruptcy proceedings before the NCLT.

The purpose of this argument is that the way the law of arbitration in India—i.e. the Arbitration and Conciliation Act, 1996—has developed with several amendments made to it only underscores the aspect of finality to an arbitral award.

Recently, the Supreme Court passed a judgment (on 9-9-2021) in Delhi Airport Metro Express Pvt Ltd (DAMEPL) Vs. Delhi Metro Corporation Ltd (DMRC), pertaining to challenge an arbitration award dated 11-5-2017 wherein the arbitral tribunal had held in favour of DAMEPL. The parties had agreed to refer their differences to resolution by arbitration.

The dispute before the arbitral tribunal concerned the grievance of DAMEPL that DMRC failed to cure defects in the civil structure and related aspects of the airport metro line within the maximum period of 90 days of receipt of the notice issued by DAMEPL, and consequently DAMEPL issued a notice of termination of the concession agreement and claimed termination compensation. The arbitral award travelled to the Supreme Court.

While noting the Objectives and Reasons of the 1996 Act as well as the Arbitration and Conciliation (Amendment) Act, 2015, the Supreme Court underscored the principle objective to minimise the supervisory role of the courts in arbitral awards.

Referring to sub-section (2A) of section 34 brought in by the 2015 amendment, the Supreme Court clarified that mere erroneous application of law by the arbitral tribunal is not a ground for setting aside an arbitral award. It has been held that re-appreciation of evidence cannot be permitted under the ground of patent illegality appearing on the face of the arbitral award within the meaning of the said sub-section (2A). Even a mere contravention of the substantive law of India by itself is no longer a ground available to set aside an arbitral award.

Ssangyong Engineering & Construction Co Ltd Vs. NHAI was noticed where it was held that interpretation of a contract is primarily for an arbitrator to decide, subject to the caveat that the arbitrator should not have construed a contract in a manner that no fair-minded or reasonable person would do.

The Supreme Court reiterated that limited ground is available for annulment of arbitral awards and that there is a disturbing tendency to set aside arbitral awards by dubbing the awards to be vitiated by either perversity or patent illegality, which leads to corrosion of the 1996 Act that mandates minimal judicial interference with arbitral awards, apart from making related judicial pronouncements of Supreme Court a dead letter.

The Supreme Court noted that the members of the arbitral tribunal were engineers and their award was not meant to be scrutinised in the same manner as that prepared by legally-trained persons.

In view of this recent judgment of the Supreme Court, the set legal standards for judicial review of arbitral awards stand sealed. This is especially so in relation to legal and procedural propriety and rationality requirements. The Supreme Court has passed a landmark judgment.

Contractual disputes in energy, power, aviation, oil & gas and infrastructure projects are complex in nature. A lot of issues are factual. Pure legal issues are less. Courts do not engage themselves in fact-finding. They neither have the time (due to backlog) nor the technical wherewithal to examine facts themselves or through third-party experts. Plus, there is a large vacancy at the tribunals—something the apex court recently frowned upon. On the other hand, there is no dearth of technical experts and engineers with domain expertise. Most importantly, arbitration has the potential to offer an opportunity of inter partes dialogue, which is missing in litigation. Difficult issues can be solved by dialogue with the help of legal brains and technical experts.

The author is independent counsel & regulatory expert. Views are personal


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