Alternative Dispute Resolution

Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India

(2019) 15 SCC 131

Facts

NHAI awarded Ssangyong a highway-construction contract.
The contract contained a price-adjustment formula linked to a specified wholesale price index.
The original index was later discontinued and replaced by a new series.
NHAI issued a circular prescribing a method for linking the old and new indices.
Ssangyong objected that:
the circular was unilateral;
it did not form part of the contract;
and it substantially reduced the price adjustment payable.
The three-member tribunal produced:
a majority award accepting NHAI’s circular; and
a dissenting opinion accepting Ssangyong’s contractual calculation.
The majority relied on material not properly introduced into the arbitration and effectively substituted the circular for the agreed formula.
Lower courts declined to set aside the award.
Ssangyong appealed to the Supreme Court.

How the 2015 amendments changed “public policy of India.”
What constitutes patent illegality after the amendment.
Whether the tribunal could replace the contract with NHAI’s unilateral circular.
Whether reliance on material outside the record violated natural justice.

After the 2015 amendment:
“fundamental policy of Indian law” does not permit merits review;
the broad Western Geco judicial-approach test is removed;
justice or morality is confined to the most basic notions;
and patent illegality under Section 34(2A) applies only to domestic awards, not international commercial awards seated in India.
An award may still be set aside where:
the tribunal decides contrary to an express contractual provision;
adopts an impossible interpretation;
travels beyond the contract;
gives no reasons;
or relies on material without giving the parties an opportunity to respond.
Evidence cannot be reappreciated.

The tribunal was required to apply the contractual price-adjustment formula.
NHAI’s circular had never been incorporated through a contractual amendment.
By using it, the majority tribunal did not merely interpret an ambiguous term.
It introduced a new bargain.
The majority also relied upon governmental material and calculations that were not properly placed before the tribunal through the agreed procedure.
Ssangyong had no meaningful opportunity to meet that material.
This violated the principle that each party must be given a full opportunity to present its case.
The Supreme Court held that the award fell outside the parties’ submission and offended the basic contractual foundation of arbitration.
Since Ssangyong was a foreign company, the arbitration was an international commercial arbitration seated in India.
Section 34(2A) patent illegality was technically unavailable.
However, the majority award could still be set aside because:
it dealt with matters beyond the contract; and
the procedure violated natural justice.
Ordinarily, setting aside would require a fresh arbitration.
In the exceptional circumstances:
the proceedings had already continued for years;
the dissenting arbitrator had fully analysed the same issue;
and both parties consented to the practical solution.
The Supreme Court used Article 142 to declare the dissenting view operative.
It clarified that a dissent is not normally an award and cannot routinely be substituted by a Section 34 court.

The Supreme Court set aside the majority award.
It held that the tribunal had improperly replaced the contractual formula with a unilateral circular and relied on material outside the proper record.
By consent and under Article 142, the dissenting result was given effect.
Use this case for: the controlling post-2015 scope of public policy, natural justice and contractual excess under Section 34.