Case Title: PATEL ENGINEERING LTD. V. NORTH EASTERN ELECTRIC POWER CORPORATION LTD.
According to the Supreme Court, an arbitral award that is obviously unlawful or perverse may be revoked under Section 34 of the Arbitration and Conciliation Act.
The Arbitration and Conciliation Act was amended in 2015, and the bench comprising Justices R. Banumathi, Indu Malhotra, and Aniruddha Bose noted that the issue of patent illegality is one that can be used by the law to overturn a domestic judgement.
The arbitrator's judgement may be deemed plainly unlawful if it is shown to be perverse, unreasonable, or if no fair or reasonable person would have reached the same conclusion. It may also be determined that the arbitrator's interpretation of the contract is not even a viable interpretation.
In this instance, the appeals made by North Eastern Electric Power Corporation Ltd. (NEEPCO) before the Additional Deputy Commissioner (Judicial), Shillong under Section 34 of the Arbitration and Conciliation Act, 1996, appealing the three arbitral verdicts against it, were denied. The High Court upheld the award after allowing the appeal against these directives.
The Apex Court addressed history of the "Patent illegality" basis while reaffirming the High Court's position. It noted that the Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd and Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited (2014) provided the first explanation for this type of a factor for overturning a domestic award. It observed that Section 34(2A) of the 1996 Act later gave the "patent illegality" defence statutory authority for setting aside domestic awards. It further noted:
"The present case arises out of a domestic award between two Indian entities. The ground of patent illegality is a ground available under the statute for setting aside a domestic award, if the decision of the arbitrator is found to be perverse, or, so irrational that no reasonable person would have arrived at the same; or, the construction of the contract is such that no fair or reasonable person would take; or, that the view of the arbitrator is not even a possible view. 23. In the present case, the High Court has referred to the judgment in Associate Builders v. Delhi Development Authority (2015) 3 SCC 49 at length in paragraph (42) of its judgment dated 26.02.2019 and arrived at the correct conclusion that an arbitral award can be set aside under Section 34 if it is patently illegal or perverse. This finding of the High Court is in conformity with paragraph (40) of the judgment of this Court in Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) (2019) 15 SCC 131.."
The 2015 Amendment to the Arbitration and Conciliation Act included Section 34(2A), which gave the "patent illegality" defence formal authority for throwing aside domestic awards.
In Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) and Associate Builders v. Delhi Development Authority, the Supreme Court observed the introduction of a new "patent illegality" basis that would apply to Section 34 petitions submitted on or after October 23, 2015 (the date on which the 2015 amendment came into force).