Department of Transport GNTCD v. Star Bus Service Private Limited

Advertisements

Introduction:

1. The cases of accident were increasing due to the rash and negligent driving of blue line bus drivers and in public service litigation titled as “Court on its own motion vs. State of Delhi & Ors.”, the Division Bench took suo moto action directing the GNTCD to formulate a policy to provide better public transport services.
2. A policy was formulated by Delhi Integrated Mechanism of Transportation System Ltd. to formulate policies for GNTCD.
3. In 2008, the respondent invites bids for the provision of bus services. In 2010 a concession agreement was made between the petitioner and respondent according to which the respondent was required to provide 231 low-floor CNG buses for the route. The concession period was 10 years according to the contract from the date of commencement. 
4. The Respondent was obliged to create a consolidated depot at Gadaipur, Delhi, with the civil infrastructure amenities specified therein, in accordance with the terms agreed upon between the Claimant and the Respondent in CA. Due to the respondent’s termination of the aforementioned contract on 4.2.2016, disagreements developed between the parties during the duration of the agreement.

Facts of the case:

1. The Department of Transport, GNCTD (“Petitioner”) invited bids for extending bus services in Delhi. In response, Star Bus Services Private Limited (“Respondent”) submitted its proposal. Accordingly, the parties entered into a concession agreement dated April 12, 2010 (“CA”) whereby the Respondent was inter alia required to induct 231 (two hundred thirty one) buses; and provide a consolidated depot at Gadaipur, Delhi. 
2. During the subsistence of the CA, issues arose between the parties due to the termination of the CA by the Respondent on February 4, 2016.
3.  Consequently, the Respondent initiated arbitration proceedings against the Petitioner in terms of the CA. 
4. A Ld. Sole Arbitrator (“Arbitrator”) was appointed under the CA to settle the parties’ disputes by means of an order dated March 11, 2016 issued by the Delhi HC (“Order of Appointment”). 
5. The arbitrator issued the award (“Impugned Award”) after hearing from the parties. But 18 (eighteen) months after the date of the arbitral proceedings’ last hearing, the the contested award was made. According to the Impugned Award, the Petitioner’s failure to furnish the consolidated depot constitutes a violation of the CA contested award was made. According to the Impugned Award, the Petitioner’s failure to furnish the consolidated depot constitutes a violation of the CA.
6. The Petitioner was directed by the Impugned Award to pay the Respondent INR 57,04,47,373 (Indian Rupees fifty seven crore four lakh forty seven thousand three hundred seventy three) plus interest at the rate of nine percent percent annually from June 5, 2016, until the date of fulfillment. The Petitioner filed the current petition under Section 34 of the Arbitration Act, citing grievances with the Impugned Award.

Issues raised:

1. Is the contested award clearly unlawful, corrupted by fraud, and against Indian public policy?
2. Is the award invalid because it was not announced until after the conclusion of the last arguments?

Arguments of the Petitioner:

1. At first, the Petitioner argued that it was harmed by significant and inexplicable delays in the Impugned Award’s issue. 
2. The Petitioner contends that the Arbitrator did not respond to its allegations in a way that followed the parameters stated in the Order of Appointment. Invoking Supreme Court precedents such as Hari Engg. Works (P) Ltd v. Bharat Heavy Electricals Ltd and State of Punjab v. Hardyal, the Petitioner contended that the Impugned Award could potentially be set aside due to the Arbitrator’s failure to provide a convincing justification for the delay.
3. The Petitioner further claimed that the Arbitrator omitted important documentary evidence, which resulted in incorrect findings on the Petitioner’s alleged violation of the Contract Agreement (CA).
4.  In addition, the petitioner claimed that the arbitrator misrecorded most of the facts, ignored important key facts, and rejected the petitioner’s evidence.
5.  As a result, the Petitioner contended that the Impugned Award was against Indian national policy and other legal statutes in addition to being incorrect.
6. In addition, the Petitioner argued that the Respondent’s concealment of the diversion of a sizeable sum of money to Argentum Auto Private Limited for the alleged purchase of 100 buses—none of which were ever purchased—had contaminated the Impugned Award with fraud. Since this non-disclosure was found to be false, the Petitioner’s case for overturning the Impugned Award was strengthened even more.
7. Given these points, the Petitioner requested the Impugned Award be annulled, pointing forth a number of purported flaws such as the Respondent’s deceptive behavior, factual errors, delays, and legal mistakes.

Arguments of the respondent: 

1. The Respondent, among other points, contended that the Petitioner’s claim of being prejudiced by the delay in issuing the Impugned Award lacked merit. 
2. Upon examination of the Impugned Award, it was evident that the Arbitrator carefully considered the pleadings, evidence, and submissions from both parties. 
3. The Respondent argued that the adequacy of consideration, validity of conclusions, and reasoning behind those conclusions did not constitute grounds for challenging under Section 34 of the Arbitration Act. 
4. Regarding the Petitioner’s assertion that the Impugned Award was tainted by fraud, the Respondent countered that the Petitioner was aware of the payment of INR 26,73,29,885 to Argentum Auto Private Limited, which was voluntarily disclosed in the Respondent’s Affidavit of Evidence.
5. Based on these points and considering the fundamental breaches committed by the Petitioner, the Respondent contended that it would be highly unjust for the Impugned Award to be overturned.

Judgement: 

1. Under Section 34 of the Arbitration Act, interference with an arbitral award is limited in scope. The courts should not probe into the case’s facts; instead, they should only review the award. According to Section 34 of the Arbitration Act, a court cannot hear an appeal while also considering a challenge to an award.
2. The High Court (HC) stated at the outset that the primary question on the Arbitral Tribunal’s agenda was whether the Petitioner’s failure to give the Respondent access to the depot as required by the contract constituted a fundamental breach of that agreement. Regarding this, HC noted that the Arbitrator had taken into account the Petitioner’s claims and the Respondent’s responses, and he had provided thorough justification for his conclusion that the Petitioner had committed a fundamental breach, leaving the Respondent with no choice but to terminate the contract, or at the very least, be entitled to do so.
3. In Hari Engg. Works (P) Ltd v. Bharat Heavy Electricals Ltd, the Delhi HC has inter alia held that since courts have limited power to set aside awards, the Arbitration Act imposes an additional responsibility and obligation upon arbitrators to make and publish awards within a reasonable time and without undue delay. An award passed after undue delay is – (a) contrary to justice; and (b) defeats the fundamental basis for alternative dispute redressal.
4. The HC noted that some jurisdictions, such as Italy and Belgium, have provisions giving parties the freedom to choose the window of time within which Arbitral Tribunals must make an Award, while other jurisdictions, such as Turkey, Taiwan, Egypt, Syria, Sudan, and even India, have time limits incorporated into their national laws. e After analyzing the case’s facts and circumstances and adopting the previously stated legal position, HC came to the conclusion that there is a significant 1.5-year gap between the date the Award was reserved and the date of the award.
5. The Supreme Court examined the term “public policy of India” in ONGC Ltd. v. Saw Pipes Ltd. under Section 34(2)(b)(ii) of the Arbitration Act and concluded, among other things, that an award that flagrantly violates statutory provisions cannot be deemed to be in the public interest because it is likely to have a negative impact on the administration of justice.
6. The High Court held that the impugned award is vitiated for two reasons: first, it was reserved more than 1.5 years ago, which was an excessive, unexplained, and substantial delay that went against Indian public policy. Secondly, the Act’s Section 29A(1) r/w Section 29A(4) states that the arbitrator’s lack of jurisdiction terminated the award, putting it in the teeth of the law. In light of this, the HC revoked the contested award.

Analysis:

The conclusions of this ruling emphasize how crucial it is to follow the deadlines set forth in the Arbitration Act for the issuance of an arbitral verdict. Although the Arbitration Act stipulates that an arbitrator’s remuneration may be reduced for delays that the arbitrator caused, the courts have not yet properly implemented this provision. Enforcing Section 29-A of the Arbitration Act strictly and effectively will be a positive step towards establishing India as a center for arbitration and offering a prompt dispute resolution process.

Furthermore, in order to prevent an award from being thrown aside due to lack of jurisdiction, it is advised that parties take the initiative to request an extension of the arbitrator’s mandate if necessary.

Conclusion:

India has long aspired to be a centre for arbitration, and having deadline-based dispute resolution procedures will undoubtedly help. Therefore, the purpose of amending Section 29A is to guarantee that arbitration disputes are resolved within a set amount of time. As was previously mentioned, all proceedings must be concluded within a year following the arbitral tribunal’s entry upon referral, according to Section 29A of the Act. With the parties’ permission, an additional six-month extension may be given. But once this time frame passes, the tribunal’s mandate is nullified unless a civil court decides to prolong it.This Court believes that the impugned award is vitiated by patent illegality and is in conflict with Indian public policy. As noted at the outset, the learned Sole Arbitrator rendered the impugned award after an excessive, substantial, and unexplained delay. Additionally, the provision of Section 29A(1) and the bar of Section 29A(4), which state that the arbitrator’s mandate shall be terminated, support this opinion. Thus, the contested award is revoked.

References:

1. https://indiankanoon.org/doc/39676720/?type=print 
2. https://www.lexology.com/library/detail.aspx?g=93652b3e-cba9-47da-8b6a-b60e1401eb12 
3. https://www.mondaq.com/india/arbitration–dispute-resolution/1330876/dispute-resolution–arbitration-monthly-update-%7C-june-2023 

This article is written by Ishika Trivedi, a student of Himachal Pradesh National Law University, Shimla; intern at Legal Vidhiya. 

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.

Admin