Supreme Court Stresses Need For High Courts' Orders To Demonstrate Adequate Judicial Analysis In Arbitral Award Challenges

Supreme Court Stresses Need For High Courts' Orders To Demonstrate Adequate Judicial Analysis In Arbitral Award Challenges

The Supreme Court emphasized the necessity for High Courts to ensure that their orders, dealing with challenges to arbitral awards, adequately reflect judicial consideration of the case's merits.

The Bench, consisting of Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra, was hearing a challenge to the Delhi High Court Division Bench's order. This order had set aside a Single Judge decision that upheld an arbitral award of ₹270 crores against cash-strapped SpiceJet and its Chairman, Ajay Singh. The impugned order was challenged by Kalanithi Maran, in whose favor the award stood.

Chief Justice Chandrachud expressed displeasure at the lack of judicial application by the Single Judge in addressing the grounds of challenge under Section 34 of the Arbitration and Conciliation Act, 1996. Section 34 outlines the grounds on which a court can interfere with and set aside an arbitral award.

"This is atrocious; this is not the way to write an order under Section 34. Just writing pages and pages and extracting judgments of the Supreme Court. You really have to apply your mind to the merits of the challenge. I have been scrolling down to see where he has even applied his mind."

On July 31, 2023, the Single Judge upheld the tribunal's award, stating that SpiceJet failed to demonstrate any illegality in the arbitral decision. The court dismissed Maran's request to reinstate his 58.46% stake in SpiceJet and his demand for damages.

The arbitral award directed SpiceJet to refund ₹270 crores to media baron Kalanithi Maran and his company, KAL Airways, with additional interest rates of 12% per annum on warrants and 18% per annum on the awarded sums if not paid timely. SpiceJet challenged this under Section 34 of the Arbitration and Conciliation Act before Justice Chandra Dhari Singh.

The Supreme Court, while upholding the impugned order, asked the Chief Justice of the Delhi High Court to reassign the matter to a different judge. It noted that the impugned order, while setting aside the Single Judge order, had sent it back for reconsideration.

"It is well settled that interference with an arbitral award under Section 34 must be carefully calibrated on the grounds admissible under the statute. Reading the order of the single judge, we find no discernible reason made by the single judge, and there is no application of mind to the outcomes urged before the single judge. In this view, we don't find that the Division Bench of the High Court erred in remitting the matter back to the Single Judge."

The Court further clarified that all rights and contentions of the parties are kept open.

Senior Advocate AM Singhvi appeared for Ajay Singh and SpiceJet, while Kalanithi Maran was represented by Senior Advocate Maninder Singh.

The Delhi High Court Division Bench of Justices Yashwant Varma and Ravinder Dudeja noted that an award is perverse if it fails to address contentions that could significantly impact its foundation. If a party argues that an arbitral tribunal's directive contradicts contractual terms, this contention deserves thorough scrutiny unless deemed fallacious by the Section 34 Court. It held that the judgment must reflect a careful consideration of such challenges, which the Single judge's judgment did not adequately provide. Thus, the High Court found merit in the appellants' arguments.

The High Court noted that the single judge did not substantively address these arguments. The appellants consistently maintained that without a breach on their part, the refund was unjustified, especially given the Arbitral Tribunal's findings that KAL and Mr. Maran were in breach of their contractual obligations. It noted that the Single Judge merely summarized these contentions and concluded that the procedure adopted by the Arbitral Tribunal did not contravene any substantive law without a detailed examination of the applicability of Section 65 or addressing the specific breaches by KAL and Mr. Maran.

The High Court considered the primary contention regarding the direction for the refund of ₹270,86,99,209/-. The appellants argued that this directive must be scrutinized under Section 65 of the Indian Contract Act, 1872, which deals with the restitution of benefits when an agreement is discovered to be void or becomes void. They contended that the refund direction violated the SSPA, under which there was no stipulation for such repayment, and any repayment obligation was intended to arise only after eight years.

The High Court noted that there was a failure to engage with the arguments pertaining to Section 65 and the contractual breaches. The Single Judge's contention that the Arbitral Tribunal provided "adequate reasoning" for the refund lacked an exploration of whether the reasoning aligned with the principles of Section 65 and whether the Arbitral Tribunal's directions resulted in a de facto rewriting of the contract.

Moreover, concerning the award of interest, the appellants argued that the arbitral tribunal's imposition of 12% pendente lite interest for warrants and 18% post-award interest lacked statutory basis and sufficient reasoning. The Single Judge acknowledged the Arbitral Tribunal's discretion to award interest but did not evaluate whether this discretion was exercised correctly in light of the statutory amendments brought by the 2015 Amendment Act, which prescribed post-award interest at a rate of 2% above the prevailing "current rate of interest."

The High Court held that the statutory amendments shifted the paradigm for awarding post-award interest, yet the Arbitral Tribunal did not discuss or identify the "current rate of interest" prevailing at the time of the award. It held that this oversight is significant, and the single judge's judgment did not reflect a consideration of this statutory change or its implications.