The Supreme Court emphasized the significance of displaying restraint when scrutinizing the validity of arbitral awards to avoid interference with the decision-making process. The Apex Court stressed that such awards possess a distinct status and are not considered regular adjudicatory orders. Hence, they should not be interfered with by the Courts.
However, the court also observed that the High Court had exceeded its jurisdiction by examining the evidence presented before the Arbitral Tribunal and overturning the award in a manner that went beyond the scope of the Arbitration and Conciliation Act, 1996.
Brief Facts of the Case:
Two Civil Appeals had been filed before the Supreme Court challenging the judgment and order of the Goa Bench of the Bombay High Court. Reliance Infrastructure Limited filed one appeal, and the State of Goa filed the other. The Supreme Court considered both appeals together and issued a common judgment.
The High Court had dealt with an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Act, 1996”), read with Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Divisions of High Courts Act, 2015, in its impugned judgment and order. The High Court overturned the Principal District & Sessions Judge's order dismissing the application filed under Section 34 of the Act, 1996, and partially set aside the award made by the Arbitral Tribunal.
Brief Background of the Case:
On 10 January 1997, the appellants entered into a Power Purchase Agreement with the Government of Goa to operate a power generation station with a capacity of 39.8 MW for the period from 14 August 1999 to 13 August 2014. Various supplementary agreements were entered into between the parties from September 1997 to November 2001, which included converting the generating station from Open Cycle Generating Station to a Combined Cycle Generating Station with a capacity of 48 MW. The contracted capacity was increased to 46560 KW, and the appellants were authorized to sell power over 39.8 MW to consumers.
In March 2013, the Government of Goa intended to stop purchasing power from the appellants, but the appellants proposed to supply power using Regassified Liquefied Natural Gas. The appellants’ monthly invoices were paid until March 2013, but from May 2013 onwards, they were unpaid.
Procedural History:
In May 2015, the appellants submitted a petition to the Joint Electricity Regulatory Commission requesting the recovery of their dues. The disputes were referred to the Sole Arbitrator in December 2015, and the Arbitral Tribunal issued an award on February 16, 2018. The Tribunal ordered the State to pay the appellants Rs. 278.29 crores as the principal amount and interest until October 31, 2017 and entitled them to interest at a rate of 15% per annum from the date of the award until the full payment of the amount, including interest as of the date of the award. If the non-appellants paid the entire amount, including interest, within two months from the award date, they would not be responsible for interest after the award date.
The State challenged the award under Section 34 of the Act, 1996, before the Commercial Court, which upheld the award and rejected the State's application. The State appealed the Commercial Court's decision under Section 37 of the Act, 1996 to the High Court of Judicature at Bombay, Goa Bench, which partially allowed the appeal by reversing significant parts of the award's findings and reducing the rate of interest to 10% from 15% p.a.
The High Court found no fault with the computations attached to the award as Schedules 2 and 3 but observed that the Commercial Court did not independently apply its mind to the contentions raised while disposing of the application under Section 34 of the Act, 1996.
Contentions of the Appellants:
The appellants argued that Section 37 of the Act, 1996 limited interference with an award to only the grounds mentioned in Section 34 and re-appreciation of evidence or review on merits was not permissible unless the award was in conflict with the public policy of India or vitiated by patent illegality appearing on the face of the award. The appellants also opposed the State's application for the appointment of an expert under Section 26 of the Act, 1996. They pointed out that the State had deleted its prayer seeking the appointment of an expert and had not challenged the rejection of its counterclaim.
Regarding the variable charges of about Rs. 24.66 crores, the appellants argued that re-appreciation of evidence was not permissible in an appeal under Section 37 of the Act, 1996. The appellants further contended that the High Court had erroneously re-appreciated the evidence in relation to issues concerning the supply of backup power and the calculation of variable charges. They stated that the High Court had substituted its own view with the Arbitral Tribunals view.
They argued that the post-award interest was awarded under Section 31(7)(b) of the Act, 1996 and justified an award of interest at 15% p.a. based on the appellants' statement that the prime lending rate was approximately 13% p.a. and above. They contended that the High Court's decision to reduce the interest post-award from 15% to 10% p.a. was not based on the principles of proportionality and reasonableness.
Contentions of the Respondents:
The respondents argued that the High Court was correct to intervene in the award due to its illegalities. They believed the Arbitral Tribunal had not considered relevant contractual clauses, which led to these illegalities. They claimed that the award could be set aside under Section 34(2A) of the Act, 1996, due to patent illegality because the Tribunal could not rewrite the contract and made the award in ignorance of vital evidence. The respondents also argued that natural justice principles were violated since the Tribunal did not consider the appellants' application for an expert's appointment and the production of 13 documents. Additionally, the Tribunal did not grant the State's request to file additional written submissions, even after the appellants had submitted additional written submissions.
They also contended that the Tribunal did not consider the applicability of clauses 12.4 to 12.7 of the PPA in the award, which affected the liability of the Government of Goa to pay Rs. 24.66 crore for variable charges related to a change in fuel from Naphtha to RLNG. The respondents made other submissions about the calculation of the awarded amount, stating that the appellants inflated bills and did not provide details of the electricity sold to third parties. They argued that the amount payable could not be determined due to this reason. The Tribunal did not consider the submission that the principal amount to be paid would be Rs. 60.76 crores instead of Rs. 70.58 crores claimed by the appellants.
Observations of the Court:
The Supreme Court agreed with the High Court's decision that the government had made the application under Section 26 of the Act, 1996 obsolete. The Arbitral Tribunal had decided, based on the entitlement to raise invoices on fluctuating fuel prices and the dollar rate, and the Court saw no illegality or perversity in their decision. The Court emphasized that arbitral awards are not ordinary adjudicatory orders and should not be interfered with by the Courts.
The Court found that the High Court had overstepped its jurisdiction by examining the evidence presented before the Arbitral Tribunal and overturning the award in a way that was beyond the scope of the Act, 1996. The Apex Court held that the High Court's view should not substitute the arbitrator's decision without a specific finding of an error in the decision being challenged.
The Court also found that the High Court was right in upholding the interest for the pre-reference period, during which the proceedings were pending before the Arbitral Tribunal. The Court disagreed with the State's argument that interest could not have been awarded during the period of reference to the Arbitrator. The Court also found the High Court's decision to reduce the interest rate from 15% to 10% unjustified. The Court noted that Section 31(7)(b) states that the sum payable under the arbitral award shall carry interest at the rate of 2% higher than the current interest rate from the date of the award to the date of payment.
The Court emphasized that restraint is required while examining the validity of arbitral awards by the Courts. Otherwise, interference with the award after reassessing the factual aspects would defeat the object of the Act, 1996.
The decision of the Court:
The Supreme Court decided to partially quash the High Court's judgment and order that interfered with the award in question. The Apex Court then proceeded to restore the award in its entirety.
Case Title: Reliance Infrastructure Ltd. v State of Goa
Case No.: Civil Appeal No. 3615 of 2023
Citation: 2023 Latest Caselaw 459 SC
Coram: Hon’ble Mr. Justice Dinesh Maheshwari and Hon’ble Mr. Justice Sanjay Kumar
Advocates for Petitioner: Mr. R. Venkataramani, AG, Mr. Ritin Rai, Sr. Adv., Ms. Ruchira Gupta, Adv., Mr. Shishir Deshpande, AOR, Mr. Shreeharsha Peechara, Adv., Ms. Nancy Shah, Adv., Mr. Parag P. Tripathi, Sr. Adv., Mr. Mahesh Agarwal, Adv., Mr. Rishi Agrawala, Adv., Ms. Niyati Kohli, Adv., Ms. Sukriti Bhatnagar, Adv., Mr. Anirudh Dusaj, Adv., Mr. Rajesh Kumar, Adv. and Mr. E. C. Agrawala, AOR
Advocates for Respondent: Mr. Parag P. Tripathi, Sr. Adv., Mr. Mahesh Agarwal, Adv., Mr. Rishi Agrawala, Adv., Ms. Anjali C, Adv., Mr. Surendra Khot, Adv., Mr. Agni Som, Adv., Ms. Niyati Kohli, Adv., Mr. E. C. Agrawala, AOR, Mr. R. Venkataramani, AG, Mr. Ritin Rai, Sr. Adv., Ms. Ruchira Gupta, Adv., Mr. Shishir Deshpande, AOR, Mr. Sreeharsha Peechara, Adv. and Ms. Nancy Shah, Adv.
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