India is currently facing a pressing need for reform in the field of arbitration, as stated by the Calcutta High Court. This statement was made in the context of upholding a significant arbitral award of ₹1,354 crore in favor of Reliance Infrastructure, arising from their agreement with Damodar Valley Corporation for the construction of a thermal power plant in Raghunathpur, West Bengal (Damodar Valley Corporation v. Reliance Infrastructure Limited).
Justice Shekhar B Saraf, in his judgment, emphasized that courts should generally exercise caution when interfering with arbitral awards under Section 34 of the Arbitration and Conciliation Act. The judge also highlighted a broader concern regarding the excessive judicial interference at every stage of the arbitration process, which is burdening the arbitration system in India.
The judge expressed that the current situation not only undermines the effectiveness of arbitration as a means of resolving disputes but also diminishes India's reputation as a business-friendly destination in the globalized world. To rectify this situation, the judge stressed the urgent need for arbitration reform in India. This reform should not only be reflected in the legislation itself but also in the mindset of all stakeholders involved.
This judgment was delivered in response to an appeal by Damodar Valley Corporation, challenging a 2019 arbitral award that directed them to pay ₹1,354 crore to Reliance Infrastructure. The award was based on a contract entered into by the parties in 2007, valued at ₹2,271 crore, for the establishment of the thermal power plant. When disputes arose regarding payment issues related to the project, the parties turned to arbitration.
The arbitral tribunal ruled in favor of Reliance Infrastructure, ordering Damodar Valley Corporation (DVC) to pay ₹1,354 crore, including a bank guarantee of ₹354 crore. The High Court upheld the majority of the award, except for certain findings that were deemed to be clearly illegal.
Furthermore, the Court reiterated that arbitral awards have the potential to be severed, whereby valid portions of the award are upheld and invalid parts are set aside. The Court emphasized that the practice of partially upholding arbitral awards should be encouraged, rather than setting aside an entire award due to a few invalid portions.
Senior Advocate Ratnanko Banerjee, along with Advocates Vineeta Meharia, Amit Meharia, Urmila Chakraborty, Kanishk Kejriwal, Paramita Banerjee, Subika Ray, and Sayan Dey, appeared on behalf of Damodar Valley Corporation. Senior Advocates Harish Salve, JJ Bhatt, and Tilak Bose, along with Advocates Anuj Singh, Anjali Chandurkar, Atanu Roychaudhrui, Paritosh Sinha, Shreyashee Das, Rohit Banerjee, and Pushan Majumdar, appeared on behalf of Reliance Infrastructure Limited.
In the judgment, the Court specifically expressed its gratitude to the lawyers who argued in the case for their assistance. Notably, Justice Saraf also conveyed his appreciation for judicial clerks cum research assistants Anirudh Goyal, Labeeb Faaeq, Aarya Srivastava, and Millia Dasgupta, as well as judicial intern Jaspreet Singh, for their diligent work in researching and proofreading the 255-page judgment.
The Court has ruled that when examining the validity of arbitral awards, courts have the authority to consider the entire record of arbitral proceedings, even if such records are not explicitly mentioned in the award.
Justice Saraf expressed the view that when deciding on a challenge to an arbitral award under Section 34 of the Arbitration Act of 1996, a court can take into account all documents, submissions, and evidence presented before the arbitral tribunal, even if they are not expressly mentioned in the award.
The judge acknowledged that previous judgments suggested that a court's examination of the award should be limited to what is recorded in the award itself. However, he emphasized that the law has changed since the introduction of the 1996 Act, replacing the 1940 Arbitration Act.
The Court stated that the current law allows courts to go beyond the text of the arbitral award. Nevertheless, it was determined that this power can only be exercised to assess whether the award is perverse, patently illegal, or erroneous based on the record. The judgment stated that it would be incorrect to interpret the law as only allowing courts to consider the award and documents incorporated within it under Section 34.
In the judge's opinion, even if a document is not incorporated or referred to in the award but was part of the record of arbitral proceedings and known to the arbitral tribunal, the court can take it into account when adjudicating a challenge under Section 34.
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TAGS: Calcutta High Court Arbitration Arbitration and Conciliation Act 1996
