CHENNAI: A division bench of the Madras High Court has ruled against an arbitral award of Rs. 125.49 crore against the Neyveli Lignite Corporation finding the award of the sole arbitrator patently illegal and perverse for oversight of the crucial evidence placed during the previous litigations and arbitral proceedings.
The bench consisting of Justices R Subramanian and R Sakthivel in a recent order set aside the arbitral award passed by the former Chief Justice of India RC Lahoti in 2016 directing the public sector undertaking to pay Rs. 125.49 crore to Delhi-based Metro Machinery Traders while adjudicating in a dispute over removal of scrap machineries from the premises of the fertiliser manufacturing unit of NLC.
The NLC had awarded the tender for removing scrap machineries from the fertiliser manufacturing plant to the Metro Machinery Traders in 2005 after the latter became the highest bidder at Rs. 132.01 crore. As per the tender, a total period of 370 days, up to May 30, 2006, was allowed for removal of the material.
However, the tender ran into several litigations reaching up to the Supreme Court. Meanwhile the Directorate of Revenue Intelligence too entered the scene with proceedings on tax concessions provided for importing the machineries.
Former CJI Lahoti was appointed as the sole arbitrator, before whom, the Metro Machineries laid a claim for a total of Rs. 125.78 crore.
The arbitrator passed the award granting Rs. 125.49 crore with an interest of 12% per annum from the date of the award till the date of payment, apart from awarding a cost of Rs. 10 lakh to the company.
Citing the proceedings of the Directorate of Revenue Intelligence against NLC, the arbitrator had concluded that it has lost the rights (title) on the property.
NLC’s appeal against this award was dismissed by the Principal District Court in Cuddalore. Challenging this order and the arbitral award, the PSU approached the Madras High Court.
Pointing out the contract and the subsequent removal of materials for the entire period short of just a day, the bench said the decision of the arbitrator to conclude that the contract would be a void under section 24 of the Indian Contract Act, 1872 “is clearly unconscionable and against the fundamental policy of the Indian law.”
Referring to oversight of the evidence placed before the Delhi High Court on the value of the scrap material (95,000 tons) amounting to Rs. 352.24 crore, it said the action of the arbitrator would amount to ‘patent illegality’ and leading the award to suffer the ‘vice of perversity’.
Pointing to the fact that 90,350 tons of scrap material were removed by the respondent company, the bench said the arbitrator has ‘completely overlooked’ these documents and the Principal District Court too had omitted to notice these very important evidence.
The bench said that it concludes that the failure of the arbitrator ignoring the evidence, which was made part of the record before him demonstrating the quantity of the scrap, vitiates the entire award and makes it patently illegal.
“Hence, we have no other option but to set aside the award on the ground of patent illegality and perversity,” it said in the order while allowing the appeal filed by NLC.
Moreover, the bench ordered award of Rs. 10 lakh costs to NLC.
Additional Solicitor General (ASG) AR L Sundaresan appeared for NLC while senior counsel AL Somaiyagi represented the Metro Machineries in the High Court.