Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India

The NHAI awarded the appellant, a Korean company, a contract for a four-lane highway bypass. The contract provided for price adjustment using the wholesale price index published by the Government. When that index series was replaced in 2010, the NHAI issued a policy circular in 2013 prescribing a 'linking factor' between the old and new series, which the appellant accepted only under protest. The majority of the arbitral tribunal applied the circular, using a method drawn from government guidelines that had not been placed before the parties; the dissenting arbitrator held the circular extraneous to the contract. The Delhi High Court declined to set aside the majority award.

The Court held that the amended Section 34 applies to applications made on or after 23 October 2015, whenever the arbitration began. After the amendment, the 'fundamental policy of Indian law' reverts to the narrow meaning given in Renusagar Power Co. Ltd. v. General Electric Co.; the wider reading in ONGC Ltd. v. Western Geco International Ltd. no longer holds, and the inquiry cannot entail a review on the merits. The ground of the 'most basic notions of morality or justice' applies only where the award shocks the conscience of the court.

'Patent illegality appearing on the face of the award' applies only to domestic awards and means illegality that goes to the root of the matter, not a mere erroneous application of the law. Reappreciation of evidence is not permitted. A perverse finding, as explained in Associate Builders v. Delhi Development Authority, still falls within this ground, including a finding based on no evidence or on material taken behind the backs of the parties.

On the facts, the majority relied on guidelines never disclosed to the parties, so the appellant was unable to present its case. By applying a circular issued unilaterally by one party, the award also replaced the agreed formula with another, in effect making a new contract for the parties. That breached a fundamental principle of justice, that a unilateral alteration of a contract cannot be foisted on an unwilling party, and shocked the conscience of the Court.