Commercial Court and Arbitration - A critical evaluation in the backdrop of importance of plain facts

Plain Facts are due to play the role of an important catalyst in arbitration proceedings by making out a case, which is hard to argue from both sides. It is necessitated due to availability of limited grounds viz. violation of principles of natural justice and/or fundamental legal policy of India in most of cases for challenging an arbitration award. Alternatively, invoking the powers of Commercial Court by not having clause for alternative dispute resolution beyond conciliation, presently, is a more effective and reliable mechanism for dispute resolution.

The Arbitration Law has had a tumultuous journey, which took a course correction with Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644 to enter the rough water again with passing of judgement in the matter of ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 and journeyed on through Phulchand Exports Ltd vs Ooo Patriot (2011) 10 SCC 300, ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263, Shri Lal Mahal v Progetto Grano Spa, (2014) 2 SCC 433 and Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49.

It prompted the Legislature to make path breaking amendment to the Arbitration Law in 2015. The Judiciary similarly responded through the words of Justice R F Nariman in the landmark verdict of Ssangyong Engineering & Construction Co. Ltd Vs National Highways Authority Of India (2019) 15 SCC 131. The whole exercise was to give an arbitration award a finality and to make it immune to challenge except in exceptional cases.

Based on the above amendments and landmark verdict in Ssangyong Case, the following major grounds have emerged to challenge an arbitration award:-

1.    Violation of principles of natural justice

2.    Lack of judicial approach

3.    Conflict with most basic notions of morality or justice.

4.    Patent illegality appearing on the face of the award

However, it is to be noted that:-

1.    Arbitrator is merely required to take into account the terms of a contract [Sec 28 (3) of The Arbitration and Conciliation Act] as opposed to being bound by a contract till the amendment of 2015 in the arbitration law. Further, an arbitrator can even take such a view on the terms of contract, which may not be even a possible view. Though, Board of Control for Cricket in India Vs Deccan Chronicle Holding Ltd (2021) Bombay has held that an award needs to be in strict compliance to the terms of the contract.  

2.    Patent illegality must go to the root of the matter and it does not mean erroneous application of law.

3.    The ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the “most basic notions of morality or justice”. Though Supreme Court in its recent judgement has held that this is not an institution to sermonise the society on morality.

4.    The construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator is not obliged even to take a possible view.

5.    If an arbitrator is alleged to have wandered outside the contract and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected on the ground of “patent illegality”, which would not apply to international commercial arbitration.

Therefore, seemingly simple situation is not that simple. Having said that, it is an axiomatic truth that unless facts are established and proved in court/arbitration proceedings, it is difficult to apply correct law. Importantly, application of legal principles becomes even more challenging to reach a verdict, which is immune to any challenge. Currently, an arbitration is free from the terms of contract in strict sense, evidence law and CPC. It calls for presenting plain facts, which are truthful and in its entirety in an arbitration proceedings. Otherwise, it is highly probable that incorrect law/principles come to be applied due to distorted facts. Challenging an award also may not any bear fruits in such cases because of availability of very limited grounds. Plain facts go a long way and bring out violation of legal law/principles, if any, and application of correct law/principles.

Interestingly, plain facts open up one more avenue to get redressal of disputes in the form of commercial courts, which are equally efficacious and prompt, provided arbitration clause is not negotiated and incorporated in a contract. The Commercial Court follows a time bound process and strictly observes evidence law and CPC. Moreover, in large disputes, prosecuting a case before a commercial court, if Original Side Court happens to be a High Court - such as in Delhi, cuts down a layer of litigation. Because, in variably all large disputes, settled through arbitration, are challenged in High Court.

In disputes under engineering contracts, disputes can also be backed by expert evidence but not used often presently. Determination of delays and quantum of losses under engineering contracts are main disputes. It involves evaluation of time related costs for prolongation, acceleration, disruption and other financial costs in addition to estimation of variation claims, escalation and loss of profit. Besides, delay analysis and determination of ‘excusable’, ‘non-excusable’, ‘compensable’ and ‘non-compensable’ factors/events including identifying any ‘mitigation’ and ‘acceleration measures’ implemented are very useful to support claims and being based on hard facts, are difficult to be argued against.

Another good feature of the said exercise is that it saves a lot of time and compensate more than the cost spent on it later in the arbitration/court. Delay and quantum determination calls for forensic analysis by an exert agency, which are available now in India as well. The expert agencies can be engaged for the required analysis and determination and can be presented as an expert evidence in an arbitration/court proceedings to fortify the claims.

In this consideration, it is plain facts in arbitration or in commercial court (which is equally efficacious choice), which clinch a verdict beyond challenge.