India: Applicability Of The Arbitration & Conciliation (Amendment) Act, 2015: Ssangyong Engineering v. National Highway Authority Of India

The purpose of this article is to analyse the Judgment delivered by the Apex Court of India in the case of Ssangyong Engineering and Construction Ltd. v. National Highway Authority of India, Civil Appeal No. 4779 of 2019. This article shall attempt to analyze the implications of the said Judgment on the Arbitration regime in India.

Factual Background

The Appellant, a Korean Company filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act')[1] before the Supreme Court of India for the setting aside of an Arbitral Award passed in favor of the Respondent – National Highway Authority of India. The Parties had disagreements on whether a Circular issued by the Respondent could be made applicable to the Contract. The significance of the Circular was such that if incorporated, it would alter the way the outstanding debts were to be calculated. The Tribunal held that the Circular could be made applicable to the Contract.

The Appellant submitted that the Tribunal had erred in passing the said award by taking into consideration such factors that were not part of the Contract between the parties. It was contended that this violated principles of natural justice, hence vide s. 34(2)(a)(iii) of the Act was liable to be set aside. Further, the Appellant contended that the Tribunal had adjudicated upon matters that were beyond its jurisdiction. Consequently, it ought to be set aside in light of s. 34(2)(a)(iv) of the Act. It is pertinent to mention that several amendments had been introduced to the Act in 2015[2] and thus the primary issue before the court was whether such amendments could be made applicable to the present dispute.

Judgment

The Supreme Court in its earlier decision[3] had clarified that in view of s. 26 of the Amending Act of 2015, the application of the said Act would only be restricted to arbitration proceedings commenced on or after 23.10.2015 or if the parties expressly consented to the Application. Therefore the Amending Act had to be applied prospectively and not retrospectively.

In the present case, the Supreme Court ruled that the amended Section 34 shall be applicable to all cases in which the application under Section 34 of the Act was filed on or after 23.10.2015. This was to be case irrespective of when the Arbitration proceedings commenced.

Further, the Court set aside the majority award under s. 34(2)(a)(iii) considering that the material on which the Tribunal had placed reliance (the guidelines of the Ministry of Industrial Development) was not placed on record by either of the two parties. This prevented the Appellant from presenting his case as envisaged by s. 34(2)(a)(iii) of the Act.

The second contention of the Appellant was rejected which pertained to setting aside of the award vide Section 34(2)(a)(iv) of the Act. While exercising its powers under Article 142 of the Constitution of India, the Court upheld the minority award passed by the Tribunal for the speedy resolution of the dispute.

Analysis

This judgment proves to be a landmark judgment for two reasons – (i) The Supreme Court overturned to an extent its previous decision in Kochi Cricket by giving retrospective effect to Section 34 of the Act; (ii) The Supreme Court for the first time not only set aside an award under a Section 34 Application, but also upheld a minority award passed by an Arbitration Tribunal.

This decision of the Court is bound to have several implications on the Arbitration regime in India. To begin with, giving retrospective effect to a specific provision when arbitration proceedings have already been commenced is counterproductive as the party never intended for the same. This is more so because Section 34 also applies to International Commercial Arbitration where the place of arbitration is India.

Arbitration is a contractual creation, where party autonomy is vital. It is important to bear in mind, that each party contracts keeping in mind the prevailing law of any Jurisdiction. The fact that Arbitration Proceedings have already commenced before any amendments were introduced to the law of the place of arbitration implies that the parties had no intention to be bound by the same. Thus when provisions with substantive changes are given retrospective operation, they undermine party autonomy. The parties have absolutely no say in such application and further when made applicable at the setting aside stage, they have no time to contemplate the same either. It is also worthwhile to mention that such an approach adopted by the Court leads to confusion about the relevant provisions of the Applicable Law. Considering that ignorance of law is not a defense in law, such an approach is extremely problematic.

Advocates of retrospective operation would in this case argue that these substantive changes have only been introduced to further safeguard the interests of the parties. For example, Section 34 of the Act vide sub-section (2A) now enumerates another safeguard for the party seeking setting aside of the Award. This sub-section pertains to an award being set aside on the ground of it being 'patently illegal.' From a cursory glance therefore, this Judgment of the Court would be well appreciated considering it provides to the parties an additional ground to safeguard their interests. However, in a past decision[4] (later overturned[5]) the Supreme Court has already voiced the ground enshrined therein as being part of the 'public policy of India.' Therefore this new approach of the Court of giving retrospective operation to a provision that contains a stipulation that has been previously rejected is unexpected and will adversely affect the arbitration regime of the country.

With regard to the second aspect of the Judgment that pertains to setting aside the majority award and upholding the minority award, it can be argued that exercising extraordinary constitutional powers vide Article 142 reflects the farsightedness of the Supreme Court. Such a decision was taken in the interest of speedy disposal of the dispute and in the interest of justice. On the flip side, it can also be argued that such an approach is not very conducive for the growth prospects of International Commercial Arbitration in India. This is because the Court by substituting its own reasoning acts as an Appellate Court and undermines party autonomy. Since the parties have explicitly contracted to settle their disputes through arbitration, the matter should be reverted back to the arbitral tribunal and the dispute resolution process should be commenced again through Arbitration.

Conclusion

This landmark judgment of the Apex Court of India will have serious repercussions on the Arbitration Regime in India. If India is to boost its chances of becoming a leading destination for International Commercial Arbitration, the first thing that needs to be done is clarify the applicability of the various provisions of the Applicable Law. This is especially important in light of the fact that no individual/company would choose a jurisdiction in which the Courts are continuously interpreting the law and changing the interpretation from time to time. Those arbitrating in an international setting primarily seek clarity in the relevant provisions of the Applicable Law and only that law is opted for that suits their interests. Thus giving retrospective operation to a certain provision adversely impacts India's chances of boosting its growth prospects. Reiterating the arguments against such operation, such an action not only undermines party autonomy but also further adds to confusion about the relevant law. In the future, parties may not opt for India as Applicable Law in light of the fact that the Courts might again change their interpretation and understanding of the relevant provisions. The Supreme Court has itself in the past[6] held that simplification of law is required to ensure that the law is not misused and is free from the clutches of interpretation.

Moreover, substituting its own reasoning for the reasoning of the Tribunal by upholding a minority award also impacts the Arbitration regime of the country negatively. The fact that Arbitration is a contractual creation should at no point in time be forgotten and thus it is imperative that only the Arbitrators who have been appointed by the Parties have a decisive say in the final verdict. The Court should restrict its intervention only to examining whether any ground encapsulated in s. 34 is being violated. It should not exercise its discretion and change the method of dispute resolution from Arbitration to Litigation.

It is imperative that the Court's deliver their judgments in harmony with the very objectives of the Act, which is creating an Arbitration friendly regime in the Country. By giving retrospective operation to provisions and upholding minority views, the Courts act contrary to the objectives of the Act. Before pronouncing such judgments, the Courts must bear in mind, that speedy justice is not the only reason why parties opt for Arbitration instead of litigation, but there are other factors involved as well like confidentiality, absence of prejudices, etc.