Court’s Decision
The Delhi High Court dismissed the petitions seeking to set aside the arbitral award, upholding the award directing the deposit of ₹229.50 crores as Termination Payment into the Escrow Account along with applicable interest and costs. The Court held that the interpretation by the Arbitral Tribunal (AT) was a plausible view, which does not shock the conscience of the Court, and thus, the award cannot be interfered with under the limited jurisdiction available under Section 34 of the Arbitration and Conciliation Act, 1996.
Facts
The matter involved disputes arising from a concession agreement executed for the construction of sections of highways in Tamil Nadu under a Design, Build, Finance, Operate, and Transfer annuity basis. The South Indian Bank and Union Bank of India had disbursed loans to the concessionaire through an Escrow Agreement (EA) and Substitution Agreement (SA) linked with the concession project. Delays in handing over encumbrance-free land by the authority and subsequent delays in project completion led to a series of communications, including the issuance and abrupt abeyance of a Provisional Completion Certificate (PCC). Subsequently, the concession agreement was terminated, and the lenders demanded Termination Payment, which was denied on the ground that the commercial operation date had not occurred. Arbitration was invoked under the EA and SA, leading to an award directing payment, which was challenged under Section 34.
Issues
- Whether the AT exceeded its jurisdiction by adjudicating the Termination Payment claim under EA and SA when the disputes primarily arose from the concession agreement.
- Whether the interpretation of the contractual scheme by the AT was patently illegal or contrary to public policy.
- Whether the issuance of the PCC and its subsequent abeyance were valid actions under the contract.
- Whether the quantum of the Termination Payment adjudicated by the AT was beyond the reference scope.
Petitioner’s Arguments
The petitioner contended that the AT exceeded its jurisdiction as Termination Payment disputes could only be adjudicated under the concession agreement, not under EA and SA. It was argued that the PCC was rightly kept in abeyance, and the AT’s interpretation of the contract was flawed, making the award patently illegal. The petitioner also argued that since the commercial operation date had not occurred, no Termination Payment was payable, and the concession agreement was only annexed to the EA and SA without forming an integral part of these agreements.
Respondent’s Arguments
The respondent argued that the arbitration clauses in EA and SA covered disputes arising in connection with these agreements, including the concession agreement which formed an integral part of EA and SA by explicit incorporation. It was contended that the AT’s interpretation of the terms of the agreements was plausible and within its exclusive domain, and the limited jurisdiction under Section 34 precluded re-evaluation of findings of fact. The respondent emphasised that the PCC, once issued, could not be kept in abeyance, and the lender banks were entitled to 90% of the debt due through the Escrow Account as per the contractual terms.
Analysis of the Law
The Court reiterated the limited scope of interference under Section 34, which allows setting aside an award only on grounds such as patent illegality or being in conflict with public policy, as reiterated in Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corporation Ltd. (2024) 2 SCC 375. It discussed the principles in ONGC Ltd. v. Western Geco International Ltd. (2014) 9 SCC 263 regarding perversity in awards and noted that as long as the view taken by the AT is plausible, the court cannot act as an appellate authority.
Precedent Analysis
The Court relied on:
- Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corporation Ltd., clarifying Section 34’s narrow scope.
- ONGC Ltd. v. Western Geco International Ltd., which held that an award could only be interfered with if it is perverse, irrational, or shocks the conscience of the court.
- State of Haryana v. Gopi Nath & Sons (1992 Supp (2) SCC 312) and Kuldeep Singh v. Delhi Police (1999) 2 SCC 10, explaining the scope of reviewing findings for perversity.
- Associate Builders v. DDA (2015) 3 SCC 49, emphasising that the arbitrator is the final judge of facts.
These were used to highlight that the AT’s plausible interpretation could not be substituted by the Court under Section 34.
Court’s Reasoning
The Court found that the EA and SA explicitly incorporated the concession agreement, and disputes regarding Termination Payment were within the scope of arbitration under EA and SA. The AT’s interpretation that the PCC, once issued, could not be kept in abeyance was found plausible. The award was not patently illegal and did not violate public policy. Further, the calculation of the Termination Payment was within the AT’s domain, and there was no ground for interference.
Conclusion
The Delhi High Court dismissed the petitions, upholding the arbitral award directing the deposit of ₹229.50 crores into the Escrow Account with applicable interest and costs, reiterating that the plausible interpretation of the AT could not be interfered with under the limited scope of Section 34.
Implications
- Strengthens finality in arbitration: Reinforces the principle that courts cannot substitute the arbitrator’s plausible interpretation under Section 34.
- Clarifies lender rights under concession-linked agreements: Confirms that lenders can invoke arbitration under EA and SA for Termination Payments.
- Contractual interpretation principles affirmed: Once a PCC is issued, it cannot be arbitrarily kept in abeyance without clear contractual provisions.
FAQs
Q1: Can a court set aside an arbitral award if it disagrees with the arbitrator’s interpretation of the contract?
No. Under Section 34, a court cannot interfere with a plausible interpretation of the contract by the arbitrator unless it is perverse or shocks the conscience of the court.
Q2: Is a Provisional Completion Certificate issued under a concession agreement revocable by the authority?
Once issued, a PCC cannot be kept in abeyance unless explicitly provided under the contract, as held in this case.
Q3: Can lenders demand Termination Payment under an Escrow Agreement linked with a concession project?
Yes, if the Escrow and Substitution Agreements explicitly incorporate the concession agreement, lenders can seek Termination Payment under the arbitration clauses of EA and SA.
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