Failure to Adjudicate on a 'Fundamental Issue' could render an Arbitral Award contrary to 'Public Policy'

The Delhi High Court recently passed an important judgment pertaining to the power of courts to set aside arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996. The case involved a dispute between the National Highway Authority of India ("NHAI") and Ssangyong Engineering & Construction Co. Ltd. ("Ssangyong") regarding the construction of a highway project.

 

NHAI had awarded the contract for the project to Ssangyong. The agreement between the parties contained an arbitration clause for resolution of disputes. A dispute arose between the parties regarding certain payment certificates issued by the engineer. Ssangyong invoked arbitration.

Before the arbitral tribunal, NHAI raised several objections to the payment certificates. However, the tribunal passed an award in favor of Ssangyong. Aggrieved by the award, NHAI approached the Delhi High Court seeking to set aside the award under Section 34 of the Arbitration Act.

 

NHAI's primary contention was that the tribunal failed to adjudicate on key issues raised during the arbitration proceedings. It argued that the tribunal did not examine NHAI's objections to the payment certificates and simply concluded that the amount was accepted by NHAI without demur.

 

The Delhi High Court agreed with NHAI's arguments. It held that non-adjudication of issues going to the root of the matter would violate principles of natural justice and render the award opposed to public policy. By not examining NHAI's objections to the payment certificates, the tribunal failed to discharge its basic functions.

 

The Court thus set aside the arbitral award, holding that non-adjudication of a key issue referred to arbitration amounts to an award contrary to public policy under Section 34 of the Arbitration Act. This judgment reinforces the importance of a full and fair adjudication of disputes by arbitral tribunals.

JUDGMENT