Arbitration Re-Initiated: Supreme Court Orders Fresh Adjudication in NHAI vs. Progressive Construction Dispute (12 February 2021)

LEGAL ISSUE: Whether an arbitral award can be set aside on the ground of incorrect inferences drawn from documents and non-consideration of vital evidence. CASE TYPE: Arbitration. Case Name: National Highways Authority of India vs. M/s. Progressive Construction Ltd. Judgment Date: 12 February 2021

Introduction

Date of the Judgment: 12 February 2021
Citation: Civil Appeal No. 542 of 2021 (Arising out of SLP (Civil) No. 10851 of 2020)
Judges: Justice Indu Malhotra and Justice Ajay Rastogi

Can a court set aside an arbitral award merely because it disagrees with the tribunal’s interpretation of evidence? The Supreme Court of India addressed this question in a recent case involving the National Highways Authority of India (NHAI) and M/s. Progressive Construction Ltd. The court ordered a fresh arbitration, setting aside a previous order by the Delhi High Court, to ensure a fair resolution of the dispute. The judgment was delivered by a bench of Justice Indu Malhotra and Justice Ajay Rastogi.

Case Background

The dispute arose from a contract between the National Highways Authority of India (NHAI) and M/s. Progressive Construction Ltd. The matter was initially referred to a three-member arbitral tribunal. The tribunal issued an award on April 27, 2016. However, the Single Judge of the High Court, in an order dated April 10, 2019, substantially set aside this award. The Single Judge observed that the arbitral tribunal had drawn incorrect inferences from the documents on record and had not considered vital and relevant evidence. Consequently, a significant number of claims and counterclaims were rejected, with liberty granted to the parties to re-agitate their claims and counterclaims afresh. Aggrieved by this decision, both parties filed cross-appeals before the Division Bench of the Delhi High Court.

The Division Bench, in its interim order dated December 4, 2019, directed that the appeals be confined to the findings related to claim nos. 1(i) and (ii) and counter claim (a). The NHAI then filed the present appeal before the Supreme Court challenging this interim order.

Timeline

Course of Proceedings

The matter was initially adjudicated by a three-member arbitral tribunal, which issued an award on April 27, 2016. The Single Judge of the High Court, in an order dated April 10, 2019, set aside the arbitral award, observing that the tribunal had drawn incorrect inferences from the documents on record and had not considered vital evidence. Both parties filed cross-appeals against this order before the Division Bench of the Delhi High Court. The Division Bench, in its interim order dated December 4, 2019, limited the scope of the appeals to specific claims and counterclaims. This interim order of the Division Bench was challenged by the NHAI before the Supreme Court.

Legal Framework

The judgment references the following provisions of the Arbitration and Conciliation Act, 1996:

• Section 34 of the Arbitration and Conciliation Act, 1996: This section deals with applications for setting aside an arbitral award.
• Section 37 of the Arbitration and Conciliation Act, 1996: This section provides for appeals against certain orders of the court.
• Section 26 of the Arbitration and Conciliation Act, 1996: This section allows the arbitral tribunal to appoint experts.
• Section 12 of the Arbitration and Conciliation Act, 1996: This section deals with the grounds for challenging the appointment of an arbitrator.
• Section 29A of the Arbitration and Conciliation Act, 1996: This section specifies the time limit for arbitral proceedings.

Arguments

The judgment does not explicitly detail the arguments made by each party. However, it can be inferred that:

• NHAI challenged the interim order of the Division Bench of the High Court, which had limited the scope of the appeals.
• M/s. Progressive Construction Ltd. likely supported the High Court’s decision to set aside the arbitral award, given that the Single Judge’s order was in their favor.

The primary contention of the NHAI was against the High Court’s interference with the arbitral award. The High Court had set aside the award based on its own assessment of the evidence, which is generally not within the scope of judicial review under Section 34 of the Arbitration and Conciliation Act, 1996. The NHAI likely argued that the High Court had exceeded its jurisdiction by re-appreciating the evidence.

Issues Framed by the Supreme Court

The Supreme Court did not frame specific issues in this order. However, the core issue before the court was:

1. Whether the High Court was justified in setting aside the arbitral award based on its own assessment of the evidence.

Treatment of the Issue by the Court

Authorities

The judgment does not explicitly cite any authorities. However, it implicitly refers to the principles governing judicial review of arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996. The court also refers to Section 26 of the Arbitration and Conciliation Act, 1996 for appointment of expert and Section 29A of the Arbitration and Conciliation Act, 1996 for time limit of arbitration.

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision to order fresh arbitration indicates a preference for resolving the dispute through a fair and comprehensive process. The court was likely influenced by the fact that the High Court had set aside the arbitral award based on its own assessment of the evidence, which is generally not within the scope of judicial review under Section 34 of the Arbitration and Conciliation Act, 1996. The court’s decision to appoint a sole arbitrator with the consent of the parties suggests that it aimed to provide a fresh opportunity for both parties to present their claims and counterclaims, without being constrained by the previous proceedings.

The Supreme Court, instead of delving into the merits of the High Court’s decision, chose a path that would ensure a fresh and impartial adjudication of the dispute. This decision reflects the court’s emphasis on the importance of arbitration as a dispute resolution mechanism and the need to maintain its integrity. The court’s decision can be seen as a way to avoid a potentially protracted legal battle and to provide a more efficient and effective resolution for both parties.

The Supreme Court’s decision is based on the following reasons:

• The parties consented to fresh adjudication.
• The previous arbitral award was set aside by the High Court.
• The court wanted to ensure a fair and impartial resolution.

“During the pendency of the present Appeal, the parties agreed to a fresh adjudication of all the claims and counter claims made by the parties before a Sole Arbitrator to be appointed by this Court.”

“We direct that the arbitral proceedings be conducted afresh by the Indian Council of Arbitration, Federation House, Tansen Marg, New Delhi­110001 in accordance with its Rules.”

“Accordingly, with the consent of the Counsel for the parties, we appoint Justice G. S. Singhvi, former Judge of this Court, as the Sole Arbitrator, who will adjudicate all the claims and counter claims afresh.”

Key Takeaways

• The Supreme Court has emphasized the importance of resolving disputes through arbitration.
• The court has shown a preference for a fresh adjudication of disputes when the previous process has been compromised.
• The decision highlights the limited scope of judicial review of arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996.
• The parties have been given a fresh opportunity to present their claims and counterclaims.

Directions

The Supreme Court gave the following directions:

• The arbitral proceedings are to be conducted afresh by the Indian Council of Arbitration.
• Justice G. S. Singhvi, former Judge of the Supreme Court, was appointed as the Sole Arbitrator.
• The Sole Arbitrator can appoint experts under Section 26 of the Arbitration and Conciliation Act, 1996.
• The Sole Arbitrator is to fix his fees after consultation with the parties.
• The parties are directed to approach the Indian Council of Arbitration within a period of 2 weeks to fix the date of the arbitral proceedings.
• The arbitral proceedings should be completed within the statutory period of 12 months under Section 29A of the Arbitration and Conciliation Act, 1996.

Development of Law

The ratio decidendi of the case is that when both parties agree, the Supreme Court can order a fresh arbitration to ensure a fair and impartial resolution of the dispute. The court’s decision reinforces the principle that arbitration is a preferred method of dispute resolution and that judicial interference should be limited. This case does not create a new position of law but reinforces the existing legal framework for arbitration in India.

Conclusion

The Supreme Court’s decision in the case of National Highways Authority of India vs. M/s. Progressive Construction Ltd. demonstrates the court’s commitment to ensuring fair and efficient dispute resolution through arbitration. By ordering a fresh arbitration and appointing a sole arbitrator, the court has provided a new opportunity for both parties to present their claims and counterclaims, thus setting aside the previous order of the Delhi High Court. The judgment underscores the importance of respecting the arbitral process and limiting judicial interference, while also ensuring that parties have a fair chance to be heard.