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Unilateral Addition To Contract By Arbitral Tribunal Violates Most Basic Notions Of Justice

In CIVIL APPEAL NO. 4779 OF 2019, Ssangyong Engineering & Construction Co. Ltd. vs National Highways Authority of India (NHAI), the matter arose out of a 2005 work contract between the National Highway Authority of India(NHAI) and Ssangyong Engineering and Construction Company, a Korean company. The contract had a price adjustment formula, which applied the Wholesale Price Index published by Union Government based on the year 1993-94. From 2010 onwards, the Union Ministry started publishing WPI based on 2004-05. The contractor raised the bills accordingly. In 2013, the NHAI issued a circular adopting a new formula applying a "linking factor" based on 2009-10 to the old formula.

The contractor opposed the application of 2013 circular as a unilateral modification of the formula . The dispute was referred to arbitration.

The arbitral tribunal by a 2:1 majority upheld the application of 2013 circular. While doing so, the majority award applied certain government guidelines of the Ministry of Commerce and Industry, which stated that the establishment of a linking factor to connect the Old Series with the New Series is necessary. The majority award further made it clear that these guidelines are available on the official website, though they were not on record in the proceedings.

The dissenting arbitrator expressly stated that neither the Circular nor the guidelines could be applied as they were de hors the contract between the parties.

The challenge made to the award under Section 34 before the Delhi High Court was not successful and the matter reached the Supreme Court at the instance of the Korean contractor.

Referring to BCCI v Kochi Cricket Club, the Supreme Court held that observed that where an arbitral tribunal has rendered an award which decides matters either beyond the scope of the arbitration agreement or beyond the disputes referred to the arbitral tribunal, the arbitral award could be said to have dealt with decisions on matters beyond the scope of submission to arbitration. The bench further added the Section 34(2)(a)(iv) has to be construed narrowly and that it was not possible to say that the misinterpretation of contract by the tribunal would mean that it had gone beyond the scope of submission to arbitration "if otherwise the aforesaid misinterpretation (which would include going beyond the terms of the contract), could be said to have been fairly comprehended as "disputes" within the arbitration agreement.

 Article referred: https://www.livelaw.in/top-stories/sec34-arbitration-act-unilateral-addition-to-contract-by-arbitral-tribunal-violates-most-basic-notions-of-justice-sc-144900

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