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M.P. Power Generation Co. Ltd. & Anr. v. Ansaldo Energia SPA & Anr.

Civil Appeal · 2018 INSC 345Decided 16 Apr 2018
Civil Appeal No. 3804 of 2018
Justice S.A. Bobde · Justice L. Nageswara Rao

Background

M.P. Power Generation Co. Ltd. (the Board, formerly the Madhya Pradesh Electricity Board) contracted with the Italian company Ansaldo Energia to refurbish two units of a thermal power plant, with the Board warranting that the units could actually operate at their rated 120 MW capacity. After disputes arose over missing technical records and a required "Letter of Comfort" from a financial institution, Ansaldo treated the contract as terminated and the Board invoked bank guarantees and also issued its own termination notice; an Arbitral Tribunal later ruled largely in Ansaldo's favour, finding the Board had misrepresented the plant's capacity and wrongfully terminated the contract, and a trial court and then the High Court disagreed with each other on whether that award should stand.

Decision Breakdown

The Supreme Court held that courts have only limited power to interfere with an arbitral award: they cannot re-examine the facts or substitute their own view for a reasonable one taken by the arbitrator, and can step in only for reasons like patent illegality or a result that shocks the conscience of the court. Applying that limited standard, the Court agreed with the Arbitral Tribunal's factual findings that the Board had made a genuine misrepresentation about the plant's 120 MW operating capacity and had failed to supply a required Letter of Comfort, and that the Board's termination of the contract was therefore unlawful. However, the Court modified the award on one specific point, holding that Ansaldo was not entitled to recover two particular bank guarantee amounts because those amounts represented money the Board had actually advanced to Ansaldo. With that one modification, the Court upheld the balance of the Arbitral Tribunal's award and dismissed the Board's appeal.

Lesson Learnt

Courts reviewing an arbitration award will not reopen the underlying factual findings or substitute their own judgment for the arbitrator's reasonable view: an award can be fine-tuned on a narrow, clearly wrong point, but a losing party cannot use a court appeal to relitigate the whole dispute.

Official source (sci.gov.in)View Judgment (PDF)

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