Arbitral Award Can Be Considered To Be Suffering From Patent Illegality Only If It's An Illegality Apparent On The Face Of The Award- SC

A Supreme Court Bench of Justice Dinesh Maheshwari and Justice Sanjay Kumar has observed that an arbitral award can be said to be suffering from a patent illegality only if it is an illegality apparent on the face of the award, and it is not to be searched out by re-appreciating the evidence.

Senior Counsel Parag P Tripathi appeared for the claimant. AG Venkataramani appeared for the State.

In this case, Reliance Infrastructure had constructed a power plant for the State of Goa under a power purchase agreement (PPA). Reliance sought arbitration in 2016, after the State failed to pay for the power generated by the plant. Subsequently, in 2018, the arbitrator awarded Reliance a sum of Rs. 292.22 crore along with an interest of 15% per annum from 1st August 2013 till the date of payment.

The State of Goa challenged the arbitrator's decision before the Bombay High Court, which reduced the interest rate awarded to 10%. This was challenged by Reliance before the Supreme Court. 

On hearing the submissions of the parties and perusing the provisions of the Arbitration and Conciliation Act, 1996, the Supreme Court observed that "we do not find the High Court justified in making a comment about framing of points for determination by Commercial Court and then observing that the Commercial Court merely reproduced the findings of the award. The Commercial Court dealing with Section 34 application was not acting as a Court of Appeal. Yet, looking to the long-drawn arguments, the Commercial Court enumerated the issues raised and then returned the findings after examining the record and while rejecting the submissions made on behalf of the State. There had been no such flaw in the judgment and order passed by the Commercial Court which called for interference by the High Court on the parameters and within the periphery of Sections 34/37 of the Act of 1996".

Further, the Court observed that "The narrow scope of “patent illegality” cannot be breached by mere use of different expressions which nevertheless refer only to “error” and not to “patent illegality”. We are impelled to reiterate what has been stated and underscored by this Court in Delhi Airport Metro Express (supra) that restraint is required to be shown while examining the validity of arbitral award by the Courts, else interference with the award after reassessing the factual aspects would be defeating the object of the Act of 1996. This is apart from the fact that such an approach would render several judicial pronouncements of this Court redundant if the arbitral awards are set aside by categorizing them as “perverse” or “patently illegal” without appreciating the contours of these expressions". 

In similar context, it was observed that "Fact of the matter remains that nothing of a patent illegality apparent on the face of the award has been pointed out. The submissions essentially are of indicating some alleged errors on the merits of the case which, as noticed, do not fall within the parameters of Section 34 of the Act of 1996". 

In light of the same, the High Court's order was set aside and the award was restored in its entirety. No costs were awarded.

Cause Title: Reliance Infrastructure Ltd. vs State of Goa

Click here to read/download the Judgment