Delhi High Court: In an arbitration petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 (‘the Act’) by Jaiprakash Associates Limited (‘JP Associates’) seeking recommencement of the arbitration and appointment of nominee Arbitrator on behalf of the NHPC Limited (‘NHPC’) for adjudication of their disputes, the Single Judge Bench of Subramonium Prasad, J., dismissed the petition holding that the present case was demonstrably ‘non-arbitrable’ as there was no live dispute between the parties and re-adjudication of JP Associates’ claim would be a waste of resources and an improper use of the arbitration process.
Background
NHPC invited bids for the execution of the Dulhasti Hydro Electric Project since the project had been abandoned by a previous awardee. JP Associates submitted its bid, and the parties entered into a contract. The contract stipulated that the work should be completed within 33 months, but an extension was granted till 2007. After the issuance of the competition certificate, JP Associates raised bills.
It was contended that these bills included certain additional costs incurred by JP Associates due to overstaying at the site. The total claim amount of the additional costs was Rs. 360.56 Crores. NHPC rejected this claim. Thus, the arbitration clause in the contract was invoked, and an Arbitration Tribunal of three Arbitrators was constituted (‘the Tribunal’).
In the majority award, even though it was found that no evidence had been provided by JP Associates to substantiate the claim of cost incurred due to the delay, Rs. 60 Crores were awarded to JP Associates on the principle of good conscience and reasonable and proper estimate. The award was challenged by both parties. NHPC claimed that the award was unsustainable, whereas JP Associates claimed enhancement of the award amount.
In the case titled NHPC Ltd. v. Jaiprakash Associates Ltd. 2023 SCC OnLine Del 3294, the Single Judge set aside the award and quashed the finding qua the grant of Rs 60 crores as additional compensation. It was held that JP Associates had failed to produce any material to substantiate its claim, yet, the Tribunal awarded Rs.60 crores on the basis of good conscience against public policy. The Single Judge opined that since the parties had not expressly authorized the Tribunal to apply the principle of good conscience and equity, it could not award the said amount as it was contrary to Section 28(2) of the Act. Thus, the present petition was filed.
Issues
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Whether, after such findings having been arrived at by the Tribunal that there was no evidence at all based on which the claim could be granted, this Court should once again send the parties back for fresh adjudication?
Analysis and Decision
The Court reiterated that the referral Court under Section 11 of the Act does not dwell into detail on the question of whether there was an arbitral dispute. A referral Court primarily had to look into the existence of an arbitration agreement and whether disputes arose between the parties. If there was an arbitration agreement, and disputes arose between the parties, then a referral Court, exercising jurisdiction under Section 11, would refer the matter to the Arbitration. The Court also reiterated that, while exercising jurisdiction under Section 11, the principle of ‘when in doubt, refer’ is to be followed.
In this regard, the Court relied on Vidya Drolia v. Durga Trading Corpn. (2021) 2 SCC 1. The Court stated that the scope of judicial review under Section 11 was extremely limited and that the Arbitral Tribunal was the first-preferred authority to decide all questions of non-arbitrability. The Court added that the restricted and limited examination was to protect parties from being forced to arbitrate when the matter was demonstrably non-arbitrable and to cut off dead wood.
In the matter at hand, the Court noted that in the award, the Arbitrators held that the ascertainment of the additional costs was not possible since the amount was not claimed during the subsistence of the contract and was therefore not estimated simultaneously with other expenses incurred from time to time. They opined that JP Associates based its claim according to its accounts for the extension period, i.e., 2001-2007, which were not proved in accordance with the law. Additionally, there was no material to decide whether the time-related cost was a part of overheads. Thus, the Arbitrators concluded that the Tribunal could not indicate the amount payable to JP Associates under each head and under how many heads was the claim made. The Court further noted that despite this conclusion, the Arbitrators based on pleadings, evidence, and merits and demerits of each party’s case, awarded a sum of Rs. 60 crores.
The Court stated that since the Tribunal had carefully scrutinized the contentions and concluded that there was no evidence or material for the grant of such a claim, referring the same issue back to the same Tribunal or a new Tribunal would be re-agitating it. The only reason why the award was rejected by the Single Judge was that it was self-contradictory. The Single Judge had also held that there was no basis or reasoning given for granting the amount. However, the Single Judge did not set aside the finding that there was no evidence to substantiate JP Associates’ claim.
The Court reiterated that there was no impediment in law for the parties to an arbitration agreement in initiating fresh proceedings if the Court sets aside an arbitral award on any undecided issue. However, in the present case, all issues stood concluded since the claim for additional costs was held to not have any basis. Since this finding of the Tribunal was undisturbed and no appeal under Section 37 of the Act was filed by JP Associates, the Court held that there was no live dispute between the parties.
The Court noted that JP Associates wanted to send the matter back to the Tribunal once again to see whether there was any basis to grant Rs. 60 crores. The Court held that since this exercise had already been undertaken by the Tribunal, it could not be allowed again.
The Court stated that while it was conscious that the general rule favoured referring disputes to arbitration, it was equally settled that ‘manifest injustice’ remained a key exception to this rule. The Court opined that to realise the true and correct meaning of the Court’s role of exercising its supervisory role under the Act, Referral Courts, especially at the post-award stage, must step in to prevent the arbitration process from being misused to perpetuate injustice. The concept of manifest injustice extended to scenarios where the dispute was so evidently flawed that it was clear that relegating the parties to arbitration would serve no purpose. The Court stated that the present matter was one such matter. Allowing such claims to go forward would be a waste of resources and an improper use of the arbitration process. The present matter fell in the category where ‘legitimate interference’ was necessary to prevent the wastage of public and private resources. Applying the ‘eye of the needle’ test, the Court stated that the prima facie scrutiny of the facts led to a clear conclusion that the claim was undoubtedly non-arbitrable.
The Court said that it was the duty of the Referral Court, especially at the post-award stage, to protect the parties from being forced to arbitrate when the matter was demonstrably non-arbitrable. Furthermore, the primary rationale behind the enactment of the Act was speedy justice and bringing finality to an ongoing dispute. The legislative intent was to provide an efficient alternative dispute resolution system that gave litigants an expedited resolution of disputes while reducing the burden on the courts. The Court further stated that if this duty within the limited compass was not exercised and the Court became too reluctant to intervene, it might undermine the effectiveness of both, the arbitration and the Court.
The Court added that it could not be expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of an arbitrator, else in a situation such as the present one where an award was set aside, and the aggrieved party wanted to initiate another round of arbitration only to take a second bite at the cherry, the process of the Court would be susceptible to abuse wherein the parties would litigate endlessly. If this practice were encouraged, the finality of an award would always be in limbo.
The Court noted that JP Associates did not take leave of the Court under Section 34 to get directions seeking fresh adjudication, or at which stage the de novo arbitration would begin, or whether the matter would be sent back to the same Tribunal or a fresh Tribunal and instead filed the present petition. Noting this, the Court stated that in the facts and circumstances of this case, even if the parties were relegated to fresh arbitration, the new Tribunal would not be able to allow fresh evidence to be taken on record unless consented to by both the Parties and go beyond the finding of the earlier Tribunal that there was no evidence in support of JP Associates’ claim.
Thus, the Court held that the present petition fell under the definition of dead wood and would force NHPC to participate in a time-consuming and costly arbitration process. The present case was demonstrably ‘non-arbitrable’ and failed to meet the conditions specified in Vidya Drolia (supra) to make a case for referral.
The Court stated that it was mindful that it was a referral Court, but at the post-award stage, it was performing a judicial function of affirming and upholding the integrity and efficacy of arbitration as an alternative dispute resolution mechanism. Thus, referring the parties again to the Tribunal, which was the norm, would be against public policy. The Court said that the principle that a party could not be permitted to re-adjudicate the same issue, was based on public policy. The Courts of competent jurisdiction had to ensure that no one was made to face the same kind of litigation twice over as such a process was contrary to fair play and justice.
Thus, the Court dismissed the petition, holding that though the ordinary rule was to refer any dispute to arbitration, the instant case fell under the exception.
[Jaiprakash Associates Limited v. NHPC Limited, Arbitration Petition No. 1061 of 2023, decided on 14-01-2025]
Advocates who appeared in this case:
For the petitioner: Senior Advocate Lovkesh Sawhney and Rohit Kumar
For the respondent: Gauhar Mirza, Hiral Gupta, Sukanya Singh, Rohit Rahar, and Devarshi Mohan
