Arbitration Weekly Update-Ssangyong Engineering & Construction Co. Ltd. v. National Highway Authority of India

“This alert brings to you the decision of the Supreme Court in Ssangyong Engineering & Construction Co. Ltd. v. National Highway Authority of India.

National Highway Authority of India (Respondent) and Ssangyong Engineering & Construction Co. Ltd. (Appellant), a Korean company entered into a contract for the construction of a bypass on the national highway in the State of Madhya Pradesh.

During the term of the contract, the Respondent amended the contractually agreed formula for computing the price adjustment payable by the Respondent to the Appellant and thus, disputes arose between the parties. While the Appellant referred the disputes to arbitration, the arbitral tribunal held in favor of the Respondent by a 2:1 majority and made an award (Award) allowing the application of the new formula to the contract to compute the amounts payable to the Appellant.

The issue which arose for consideration before the Supreme Court was whether the Award was against the public policy of India and ought to be set aside under section 34 of the Arbitration and Conciliation Act, 1996 (the Act). In reaching its conclusion, the Supreme Court inter alia examined the below listed parameters to challenge an award under section 34 of the Act:
a. Party unable to present its case – Pursuant to section 34(2) (a) (iii) of the Act, an arbitral award can be set aside if a party is unable to present its case. Referring the literature on this principle, the Supreme Court held that when the tribunal has taken materials behind the parties’ back and the parties had no opportunity to comment on such material, the ground under section 34(2) (a) (iii) of the Act would stand attracted.
b. Most Basic Notions of Justice – the Supreme Court observed that the expression “most basic notions of morality or justice” in Explanation 1 of section 34 (2)(b)(iii) of the Act, refers to the breach of a fundamental principle of justice which would shake the conscience of the court.

Applying the above tests to the facts of the present case, the apex court concluded that the most basic notions of justice under the ground of public policy had been breached and that a unilateral alteration of contract cannot be foisted upon an unwilling party. The apex court held that such a course of conduct was contrary to fundamental principles of justice and shocked the conscience of the court. The Supreme Court allowed the appeal and set aside the Award and the order passed by the division bench of the Delhi High Court.

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