- Ragini Agarwal[1] and Mayank Udhwani[2]
In an application for setting aside parts of the arbitral award under §34 of the Arbitration and Conciliation Act, 1996 [“the A&C Act”], the Delhi High Court in GMR Vijaywada v. NHAI[3] on August 4, 2020, directed that the quantum of compensation be determined by a new court-appointed arbitral tribunal. While the position of law on the correct course of action once an award has been set aside is unclear, respecting party autonomy has always been the fundamental principle on which arbitral proceedings are based. In this post, after delineating the factual matrix of the dispute [A], the authors explain the erroneous nature of suo moto appointment of sole arbitrator by the Delhi High Court [B]. The authors then proceed to discuss the ordinary course of treatment of an award which is set aside by the court, which remains a grey area [C].
A. Brief Facts
In 2009, a Concession Agreement was entered between GMR Vijaywada Expressways Ltd. [“GMR”] and National Highways Authority of India [“NHAI”]. Owing to a change in the Sand Mining Policy in 2012 and the bifurcation of Andhra Pradesh into two states in 2014, GMR suffered substantial losses. Consequently, GMR sought compensation from NHAI pursuant to the “change in law” clause under the Concession Agreement. Dispute arose between the parties after NHAI rejected the demand for compensation and a three-member arbitral tribunal [“Tribunal”] was established as per the terms of the Concession Agreement. The Tribunal had to decide two issues. First, whether the aforementioned events, which had caused GMR to suffer losses, amounted to “change in law”. Second, if the answer to the first question is in affirmative, then what would be the quantum of compensation owed by NHAI to GMR.
The Tribunal reached a unanimous conclusion with respect to the aforementioned events amounting to a “change in law”, thereby entitling GMR to receive compensation. However, the Tribunal reached a split-verdict in relation to the second issue. The majority award held that the NHAI should determine the compensation owed by it to GMR, whereas the minority award opined that the quantum of compensation should be decided by the Tribunal itself. The decision of the Tribunal was challenged by both the parties under §34 of the A&C Act before the Delhi High Court. GMR challenged the decision of the Tribunal to give discretion to NHAI in the determination of the quantum of compensation whereas NHAI contested the decision of the Tribunal granting a right of compensation in favour of GMR.
While the Delhi High Court agreed with the Tribunal on the first issue, it set aside the majority award on the second issue wherein the Tribunal had granted discretion to NHAI to determine the amount of compensation owed by it to GMR. Going a step further, the Delhi High Court appointed a sole arbitrator to decide the issue of quantum of compensation. It is this issue that the authors find particularly contentious.
B. Suo Moto Appointment of a Sole Arbitrator Undermines Party Autonomy
In ¶65 of the judgment, the Delhi High Court observed that the Tribunal itself could have decided the issue of compensation owed by NHAI to GMR. Furthermore, it was noted that the Tribunal could have taken assistance from a third entity to reach the quantum of compensation owed by NHAI and such an entity would have been an extension of the Tribunal (See §26, A&C Act). Since the majority award had allowed NHAI to determine the quantum of compensation owed to GMR, the High Court had rightly set aside that decision on grounds that NHAI, being a party to a dispute, cannot assume the role of an arbitrator, i.e., become an extension of the tribunal. This was in accordance with §12(5) of the A&C Act. However, the High Court steered in the wrong direction when it proceeded to suo moto appoint a retired judge of the Supreme Court as the sole arbitrator to determine the issue of quantum of compensation owed by NHAI to GMR. The authors contend that such an appointment was bad in law as it undermines party autonomy thereby creating a bad precedent.
§11 of the A&C Act, which provides a very limited scope of judicial intervention, provides that an arbitrator is to be appointed by the parties to the contract in a manner agreed upon by the parties themselves. It is only when the parties fail to abide by procedure that they had agreed upon while appointing an arbitrator can the court exercise its jurisdiction to appoint an arbitrator. In the present case, the scenario which warrants intervention of the court in appointment of arbitrators did not exist. GMR had only prayed that an independent firm of Chartered Accountants be appointed to determine the quantum of compensation (¶6). Despite that, the Delhi High Court appointed a sole arbitrator without a prayer to that effect or the consent of the parties, thereby undermining the consecrated principle of party autonomy in arbitration.
If fresh arbitration was indeed the appropriate course according to the Court, at the very least, appointment of the arbitrator should have been done in accordance with the provisions of the Concession Agreement between GMR and NHAI which presumably provided for a three-member tribunal to adjudicate upon the disputes between the parties. Therefore, appointing a sole arbitrator is in contravention of the provisions of the Concession Agreement. In this regard, it has been held by the Supreme Court in Central Organisation for Railway Electrification v. M/s ECI-SPIC-SMO-MCML (JV) (2019) that the High Court cannot appoint an independent arbitrator without following the procedure prescribed for appointing an arbitrator under the contract between the parties (¶22).
Further, in Union of India v. Parmar Construction Company (2019), the Supreme Court held as follows:
“44. To conclude, in our considered view, the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties.”
Setting aside the award with liberty to the parties to establish a new tribunal to determine the quantum of compensation or pursue any other appropriate remedy under law would have been the ideal direction.
C. Post-Award Treatment of Disputes: A Grey Area
§34 of the A&C Act allows the Courts to set aside the award in exercise of its supervisory jurisdiction if the award is faulty on the parameters of any one of the given grounds. However, it is not very clear what happens once an award or part of it is set aside. The ordinary courses of action are a) correction of error or modification of the award by the court; or b) mere setting aside of the award with liberty to the parties to pursue further remedies.
Ordinary Courses of Action
Under the Arbitration Act, 1940, §15 allowed for modification of the award by the courts and §16 provided for remission of the award back to the tribunal. These provisions were conspicuously missing in the A&C Act that ushered in a new regime of arbitration based on the principles of respecting party autonomy and minimising supervisory jurisdiction of courts. In McDermott International Inc. v. Burn Standard Co. Ltd. (2006), the Supreme Court had held that the jurisdiction of courts under §34 does not extend to correction of awards. Furthermore, it was held that what is permissible is the quashing of the award while leaving the parties free to pursue fresh arbitration if they so desired. The rationale behind this was to respect the party’s conscious choice to exclude court jurisdiction when choosing arbitration.
However, a single-judge bench of the Madras High Court in Gayatri Balaswamy v. ISG Novasoft Technologies Ltd.(2014), held that the phrase “recourse against arbitral awards” under §34 would include the power to modify the award for the benefit of the parties (¶¶51,52). This decision was confirmed by the division bench of the Madras High Court wherein modification of compensation by the single-judge bench was upheld (¶44). The holding of the Madras High Court seems to be in conformity with the current trend of modification of the quantum of compensation by the courts.
Grant of interest is one of the areas, wherein the courts frequently end up modifying awards instead of setting it aside. Delhi High Court’s V4 Infrastructure Private Limited v. Jindal Biochem Private Limited (2020) and Madras High Court’s J.K. Fenner (India) Ltd. v. Neyveli Lignite Corporation (2013) are cases in point. Even in the McDermott case, the Supreme Court had exercised its jurisdiction under Art. 142 of the Constitution to modify the interest from 10% to 7.5%. In Sterlite Technologies Ltd. v. BSNL (2019), the Madras High Court analysed a conspectus of judgments on the limited power of courts to modify awards and recommended that the Law Commission should revisit the power of courts to modify or correct awards (¶44).
At the same time, since the setting aside of the award does not lead to a determination on issues and cannot operate as res judicata, courts often leave the parties to their own devices for the further course of action. In Turner Morrison Ltd. v. Rani Parvati Devi (2020), the Delhi High Court set aside part of the award that reduced interest while allowing parties to seek a fresh reference to arbitration with respect to interest payable. This view of fresh arbitration being the valid course of action is supported by the text of the A&C Act as well. §43(4) for instance, states that limitation period for commencement of proceedings (including arbitration) with respect to a specific dispute would exclude the time between commencement of the previous arbitration and the date of setting aside an arbitral tribunal’s award on the specific dispute by the court.
Remission of the Award
The A&C Act does not permit revision of the award by the same arbitral tribunal. This was clarified in Radha Chemicals v. Union of India (2018) that §34(4) providing for remitting of the award would not apply to awards that have already been set aside. §34(4) operates on an application by parties as an alternative to setting aside of the award if the defect is a curable one. The idea behind preventing this remission is to prevent the parties from getting a second bite at the cherry to get their award reviewed and rewritten.
In the case under analysis presently, the Court in GMR Vijaywada v. NHAI chose to appoint a sole arbitrator to determine the quantum of compensation payable to the party. In the opinion of the authors, this decision was flawed since such an appointment falls beyond the jurisdiction of the Court under §34. The Indian literature on powers of the court to appoint arbitral tribunals in pursuance of post-award remedies is scarce. Since §34(4) of the A&C Act is broadly similar to the Model Law on Arbitration which the Singaporean law is also based on, the authors derive guidance on this point from the Singaporean jurisdiction.
Singaporean courts have delineated upon this aspect on a few occasions. In AKN v. ALC (2015), the Singapore Court of Appeals dealt with the issue of whether courts had the power to remit the matter to a new tribunal. Significantly, it noted that both the parties agreed on the aspect that the clear language of Art. 34(4) (pari materia with §34(4) of the A&C Act) did not permit remission of the award to a newly constituted tribunal (¶¶10,11).
This view was supported by its previous decision in BLC and others v BLB and another (2014) (¶¶119,120). Since remission is a reconsideration of the issue in dispute, the courts exercise caution in applying this power. If there are additional considerations, however, the matter may be remitted to a new tribunal in a post-award stage. One of such considerations is when there is a specific prayer by a party to that effect. Front Row Investment Holdings v. Daimler South East Asia (2010) is an example of the Singapore High Court appointing a fresh tribunal to determine the counterclaim of one of the parties, when a party prayed for the same.
Thus, if the law as interpreted by Singaporean courts is relied upon, it seems clear that to respect the party autonomy in the arbitral process and act within the contours defined under the A&C Act, the Court should have refrained from appointing a new tribunal to determine the dispute after setting aside the award.
Concluding Remarks
The change in regime of arbitration through the A&C Act, 1996 was welcomed as a step towards speedy and effective resolution of disputes reinforcing respect for party autonomy. The decision of the Delhi High Court in this case, however, undermines the ability of the parties to tailor the arbitration according to their needs. It sets a bad precedent because it suggests that if a tribunal reaches a split-verdict, then the High Court can give a go-by to the rules of appointment of arbitrator under the contract between the parties. Undoubtedly, the post-award treatment of disputes needs more clarity. At the same time, it cannot be gainsaid that the Delhi High Court decision gravely undermines the party autonomy in arbitration. Such a decision falls under the realm of excessive judicial supervision, taking India a step back in its progressive attempts towards making the jurisdiction arbitration-friendly.
[1] Ragini Agarwal is a graduate of National Law University, Jodhpur. She can be contacted at: ragini.nluj@gmail.com [2] Mayank Udhwani is a graduate of National Law University, Jodhpur. He can be contacted at: mayank.udhwani@nlujodhpur.ac.in. [3] 2020 SCC Online Del 923.