Calcutta High Court upholds ₹1,354 crore award in favour of Reliance Infra, says India in dire need of arbitration reform

India is in dire need of arbitration reform, the Calcutta High Court recently said while upholding a ₹1,354 crore arbitral award in favour of Reliance Infrastructure, stemming from its deal with Damodar Valley Corporation for the construction of a thermal power plant in West Bengal's Raghunathpur [Damodar Valley Corporation v. Reliance Infrastructure Limited]..Justice Shekhar B Saraf stated in the judgment that courts should ordinarily be slow to interfere with arbitral awards under Section 34 of the Arbitration and Conciliation Act.The single-judge also flagged the larger concern that the arbitration process in India is being burdened because of increasing judicial interference at every stage of the process.“Presently, it seems that arbitration process in India itself is finding it hard to bear the weight of the increasing judicial interference at every stage of the process. This not only impacts the viability of arbitration as a dispute resolution mechanism, but further demotes India’s standing as a business friendly destination in a globalised world...To amend such a standing, there is dire need of arbitration reform in India. This reform must not only reflect in the legislation itself, but also in the mindset of all the stakeholders,” he underscored..The judgment was passed in an appeal by Damodar Valley Corporation challenging a 2019 award by an arbitral tribunal directing it to pay ₹1,354 crore to Reliance Infrastructure. The award stemmed from a 2007 contract between the parties worth ₹2,271 crore for the setting up of the thermal power plant. When disputes arose over payments related to the project, the parties resorted to arbitration. The arbitral tribunal ruled in favour of Reliance Infra asking Damodar Valley Corporation (DVC) to pay ₹1,354 crore including a bank guarantee of ₹354 crore..The High Court held that the award was correct, barring a few of its findings, which were found to be suffering from patent illegality. In effect, DVC is not required to pay the entire arbitral award amount..Pertinently, the Court ruled that while examining the validity of arbitral awards, courts can look beyond the plain text of the award and examine the entire record of arbitral proceedings, even if such records are not expressly mentioned in the arbitral award.Justice Saraf opined that while 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 arbitral award.The judge acknowledged that there have been earlier judgments indicating that a court’s examination of the arbitral award should be confined to what is recorded in the award itself. However, he underscored that the law has since changed after the 1996 Act was brought in to replace the 1940 Arbitration Act.“The law as it exists today permits the Courts to go beyond the mere text of the arbitral award,” the Court said..However, it was held that such power can only be exercised to check whether the arbitral award is perverse, patently illegal or erroneous on the face of the record.“To say that the courts under Section 34 can only look at the award and a document incorporated within the award, in my humble opinion, would be a fallacious reading of the law. In my view, even if a document has not been incorporated or referred to in the award, but was a part of the record of arbitral proceedings, and was within the knowledge of the arbitral tribunal, the same can be taken into account by the Court while adjudicating a challenge under Section 34,” the judgment stated..Moreover, the Court reiterated that arbitral awards can be severed so that valid portions of the award are upheld and invalid parts are set aside.It added that the practice of partly upholding arbitral awards should be encouraged rather than setting aside an entire award because of 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 for 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 for Reliance Infrastructure Limited.In the judgment, the Court specifically thanked the lawyers who argued in the case for assisting the Court.Notably, Justice Saraf also expressed his appreciation for judicial clerks cum research assistants Anirudh Goyal, Labeeb Faaeq, Aarya Srivastava and Millia Dasgupta and judicial intern Jaspreet Singh for they put work put into researching and proof-reading the 255-page judgment..[Read Judgment]