Delhi High Court sets aside arbitration award of over ₹50 crore against CRPF for "patent illegality"

The Delhi High Court recently set aside an arbitral award directing the Central Reserve Police Force (CRPF) to pay over ₹50 crore to a private company for breach of an agreement [Director General Central Reserve Police Force v Fibroplast Marine Pvt Ltd]..Justice Vibhu Bakhru held that while it did not find any fault with the sole arbitrator’s view that the CRPF was indeed in breach of the agreement, the award suffered from patent illegality and it was in conflict with the public policy of India.The award also deserved to be set aside considering the fact that there was an inordinate and unexplained delay of nearly 18 months in rendering the same, the Court held.“As noted at the outset, the impugned award was rendered after an inordinate and unexplained delay. Further, considering the impugned award on merits, this Court is of the view that the same is vitiated by patent illegality and in conflict with the public policy of India,” the Court has said..Justice Bakhru was dealing with a petition filed by the Director General of CRPF challenging the award of an arbitral tribunal dated May 31, 2019.The Court was told that the CRPF had floated a tender in July 2008 inviting bids for supply of 288 Boat Assault Universal Type (CAUT) and 288 50HP Out Board Motor (OBM). In July 2019, a company named Fibroplast Marine entered into an agreement with the CRPF at a consideration of ₹16.87 crore.Later, some concerns were raised by the Inspecting Agency under the Directorate General Quality Assurance, Ministry of Defence (CQAE) regarding the pilot samples which were rejected due to discrepancies in some of the materials used.Fresh samples were submitted for evaluation and they were cleared for bulk production. On April 4, 2011, the respondent company asked the CRPF to re-fix the delivery period of the bulk supplies for six months from the date of the clearance certificate received. However, on the same day, it was informed that only 48 BAUTs and OBMs were now required instead of the earlier 288.The company, however, denied the request for supply of reduced quantities and said it had already made a substantial investment for execution of the project. A meeting was also held between the parties at the office of Joint Secretary, Ministry of Home Affairs in December 2011, where a proposal was once again made to reduce the supplies. The respondent said it was willing to negotiate the contract terms for a reduced quantity of 180 OBMs on the condition that it may be allowed to supply the balance to any international brand.The company later claimed that the CRPF had failed to re-fix the delivery period and did not amend the agreement. Though several communications were sent in this regard, they remained unanswered, after which the company invoked the arbitration clause in the agreement.Though communications continued between the parties, a petition was filed by the company before the High Court after which a sole arbitrator was appointed in September 2019 for adjudication of disputes under the aegis of the Delhi International Arbitration Centre (DIAC).The award was rendered on May 31, 2019 which was later corrected on August 9, 2019..In its order, the Court said that one of the principal reasons for ensuring that the arbitral award is rendered within a reasonable period of time is to ensure that the efficacy of oral submissions is not lost.“A large time gap between hearing of the oral submissions and rendering the decision would, in effect, debilitate the purpose of resorting to arbitration for expeditious adjudication of the disputes. No person can be expected to remember the same after a long period of time.”It was noted that the DIAC Rules provide that an arbitral tribunal must render the final award within a period of six months from the date on which it received the file and the time can only be extended up to a further period of six months.“It is difficult to accept that a period of almost one and a half years is reasonable in the given facts and circumstances of this case,” Justice Bakhru held..The Court highlighted that there are differing views in two previous judgments of the Delhi High Court on whether inordinate and unexplained delay can be the ground for setting aside an award. However, given the circumstances of this case, the delay makes the award amenable to challenge under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, it held..Though the tribunal had held in favour of the company on almost all of its claims when it came to quantification of damages, Justice Bakhru found most of the award to be manifestly arbitrary and falling foul of the public policy of India.On the issue of the arbitrator awarding pre-reference and future interest at the rate of 18% per annum in favour of the respondent, Justice Bakhru held that though it is undeniable that the tribunal has wide discretion in the regard, the awarded rate is on the higher side and therefore warrants interference from the Court.“The total amount that was thus awarded is in excess of ₹50 crores. This is against an order for purchase of BAUTs for an aggregate value of ₹16,87,79,520/-. Although, the respondent was awarded complete costs of the inventory along with interest and further costs purportedly incurred therewith, there is no mention in the award for delivery of the manufactured BAUTs to the petitioner.”.Justice Bakhru therefore set aside the order and said that it will be open for the parties to re-agitate the disputes afresh..Advocates Praveen Kumar Jain Bhavna Ruia appeared for the CRPF. The respondents were represented by Senior Advocate Sudhanshu Batra along with Advocates Gurinderpal Singh and Jaya Bajpai..[Read Judgment]