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Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India (NHAI)

Civil Appeal · 2019 INSC 647Decided 8 May 2019
Civil Appeal No. 4779 of 2019
Justice Rohinton Fali Nariman · Justice Vineet Saran

Background

Ssangyong, a Korean construction company, had a highway construction contract with NHAI that included a formula-based price adjustment clause tied to a government-published Wholesale Price Index (WPI) series. When the government discontinued that old WPI series and replaced it with a new one, NHAI unilaterally issued a circular substituting a different (linking-factor) formula for calculating price adjustments, which Ssangyong disputed. In the ensuing arbitration, a majority of the three-member tribunal accepted NHAI's substituted formula, while one arbitrator dissented and awarded Ssangyong its claim based on the original contractual formula; Ssangyong's challenge to the majority award failed before both a Single Judge and a Division Bench of the Delhi High Court.

Decision Breakdown

The Supreme Court held that a court's power to set aside an arbitral award under Section 34 is narrow and does not allow re-examining the merits of a dispute, but an award can still be struck down if it breaches fundamental principles of justice: such as by effectively rewriting the parties' contract. It found that the majority award had done exactly that: by applying NHAI's unilateral circular, it substituted a workable contractual formula with one the parties never agreed to, unilaterally imposing a new bargain on an unwilling party, which the Court held "shocks the conscience" and is impermissible even under the limited grounds for interference. Rather than remit the dispute for a fresh arbitration (which would cause delay, against the Arbitration Act's goal of speedy resolution), the Court used its special constitutional power under Article 142 to directly uphold the minority arbitrator's award, awarding Ssangyong its claimed price adjustment plus interest.

Lesson Learnt

Courts will not interfere with an arbitrator's decision just because they disagree with it on the merits, but an award that effectively rewrites the contract the parties actually signed, imposing terms neither side agreed to, crosses the line into a breach of fundamental justice that can still be set aside.

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

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