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Court Not to Re-examine Contract Unless Patent Illegality

The Delhi High Court, in the case of National Highway Authority of India v. GVK Jaipur Expressway Pvt. Ltd. [O.M.P. (COMM) 540/2020, I.A. 10478/2020, I.A. 10479/2020 and I.A.
10480/2020] held on December 11, 2023, that an arbitral tribunal has the higher degree of autonomy in the interpretation of a contract and that a court does not have the scope of re-examining the provisions of the contract under Section 34 of the Arbitration and Conciliation Act, 1996. Further, it was also held that the court cannot interfere with the award of an arbitral tribunal unless there is patent illegality in the manner of interpreting the contract or agreement.

A concession agreement was entered into between a consortium of GVK International NV and M/s B. Seenaiah and Company and the National Highways Authority of India (NHAI) for the execution of the work of widening of the Project Highway on build, operate and transfer (BOT) basis in May, 2000. In terms of the concession agreement, GVK commenced the levying and collection of toll fees from users of the Project Highway and was entitled to the collection of the same till 17 March, 2023. However, due to the demonetization of Rs.500/- and Rs. 1000/- notes in November 2016 by a notification issued by the Ministry of Finance, NHAI was advised to issue instructions to all concessionaires and other toll collection agencies to completely suspend the collection of toll fees. Suitable compensation was also envisaged to be paid to toll operators for the loss incurred due to this suspension.

On 24 November, 2016 the Ministry of Road Transport and Highways wrote to NHAI stating that toll collection could commence from the midnight of 2 December, 2016. NHAI subsequently communicated this decision to GVK on the same date. GVK sought compensation from NHAI for the period of suspension of toll collection under the provisions of “Change in Law” in the concession agreement. NHAI opposed this claim stating that GVK was entitled to compensation under the provisions for “Force Majeure” and not “Change in Law”. As matters had reached at a stalemate, the arbitration clause under the Concession Agreement was invoked. The Arbitral Tribunal in its award, held in favour of GVK stating that having, in principle accepted that GVK was entitled to compensation for the loss suffered owing to suspension of toll collection, NHAI was estopped in law from contending to the contrary by misconstruing the provisions of the Concession Agreement. Aggrieved by this award, the NHAI approached the court under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Arbitration Act”).

NHAI, the petitioner in the present case, contended that while GVK’s entitlement to compensation for the loss suffered on account of suspension of toll collection was not disputed, the compensation was sought under the wrong provision of the concession agreement. Therefore, NHAI contended that the award of the arbitral tribunal has committed an error in the interpretation of the clauses of the concession agreement which has resulted in unjust enrichment to GVK, as the amount awarded was in far excess of what would have been earned if the toll plaza was functional during the period of suspension.

The respondent, GVK, contended in response to the submissions of the petitioner that under the scope of Section 34 of the Arbitration Act, the court had no occasion to interfere with the award of the arbitral tribunal which rightly supported its claim that it was entitled to receive the compensation from the petitioner.

On analyzing the contentions made by both parties, the court observed that the arbitral tribunal has a higher degree of autonomy in the matter of interpretation of contractual covenants as compared to traditional courts and in the interest of preserving the integrity of the arbitral process and establishment, the court must keep its hands off an arbitral award that has considered the relevant contractual clauses and curb its own examination of the contract. The court further noted that, in an application under Section 34 of the Arbitration Act, it merely looks into the manner in which the arbitral tribunal has interpreted the agreement and whether there is a case of patent illegality, and does not re-examine the contract and its clauses. Where there is no patent illegality, an interference by the Court with an arbitral award in exercise of its jurisdiction under Section 34 of the Arbitration Act is prohibited. It was further observed by the court that the law firmly proscribes the court from interfering with the award only because in its view the, the contractual clauses should have been interpreted differently. Thus, in noting that the award of the arbitral tribunal was a well-reasoned one, the court held that there was no patent illegality present in the manner of the arbitral tribunal interpreting the clauses of the concession agreement and therefore no interference of the court was warranted under Section 34 of the Arbitration Act.