Reliance Infrastructure Ltd. V. State Of Goa

Case Number: Civil Appeal No. 3615 of 2023

Judges Name: Hon’ble Judges Mr. Justice Dinesh Maheshwari, Mr. Justice P.V.Sanjay Kumar 

Order Dated: 10.05.2023

Facts of the Case:

  1. Reliance Infrastructure entered into various agreements regarding electrical power production and purchase under a Power Purchase Agreement with the State of Goa to run a power generation plant from 14/08/1999 to 13/08/2014.
  2. By mutual agreement, Reliance Infrastructure converted their generating stations from an open Cycle Generating Station to a Combined Cycle Generating Machine, which consequently raised the price of the generated power, causing the Government of Goa to consider stopping further purchase of power from Reliance Infrastructure.
  3. Reliance proposed to use Reclassified Liquefied Natural Gas brought up to Goa by GAIL, which convinced the Government of Goa to continue with their agreement, now purchasing the power at the current rates for electrical supply, based on the RLNG prices and INR/USD prices upto the expiry of their Agreement.
  4. Reliance (“Claimant”) filed a petition before the Joint Electricity Regulatory Commission for the recovery of dues not paid for the month of May 2013 not paid by the Government of Goa despite multiple notices for the same supplied to them by the Claimant. The Commission referred the matter to arbitration, where the Tribunal passed an award for the State to pay an amount of Rs. 278.29 Cr with interest.
  5. The State filed a petition challenging the award passed by the Tribunal at the Commercial Court under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”), and, displeased with the ruling of the Commercial Court, proceeded to file an appeal before the High Court under Sec 37 of the Act. The High Court reviewed and re-assessed the entire case including all evidence and submissions by the parties, and proceeded to partially set aside the impugned award and enforce the rest under Section 34 of the Act.
  6. The Claimant filed a Special Leave Appeal before the Supreme Court challenging the decision of the High Court, the issue raised being the validity of the interference by the High Court into the impugned judgment and order of the Commercial Court.

Supreme Court Observed/ Held As Follows:

  • The Supreme Court mainly sought to properly understand the intricacies of Sections 34 and 37, with reference to the use of the patent illegality, as well as the level of interference permissible for the Courts in arbitration proceedings. 
  • By a proper reading of the Act, this Court found that for the provisions regarding the limited scope of patent illegality, there had to be a matter affecting the public policy of the nation, with further criteria to make it completely applicable. This Court held that the matters discussed by the Respondent while explaining the validity of this use of power by the High Court were all merely errors on the part of the arbitral tribunal and were not defined specifically to be a matter of patent illegality. 
  • The Supreme Court cited the case of Delhi Airport Metro Express Ltd. V. Delhi Metro Rail Corporation Ltd to bring into focus the applicability of Section 34. It stated that despite the limited jurisdiction under Section 37 allowing appeals to be made to the Courts in response to any award passed by an arbitral tribunal, this power was still subject to the provisions as per Section 34, meaning that the claim made by the Respondents regarding the patent illegality of the arbitral proceedings had to be available as per Sec 34(2)(b)(ii). Furthermore as per the aforementioned case and recent section, this Court stated that patent illegality had to be determined on the face of the award only, and not by delving into the intricacies of the award, evidence or proceedings. 
  • The Supreme Court held the proceedings of the High Court in complete reassessment and appreciation of the proceedings, evidence and award passed by the tribunal first and reaffirmed by order of the Commercial Court, to be out of its jurisdiction, for even in the case of patent illegality, it was forbidden for Courts to reassess the same, and instead can only set aside the award. The High Court was held to have wielded powers only meant for the arbitral tribunal, effectively reducing the objective of the Arbitration and Conciliation Act, 1996, for there did not exist any valid reasoning behind their actions, nor were they allowed to do the same as per the Act. 
  • The Hon’ble Supreme Court set aside the impugned Order of the High Court and restored the award in its entirety, stating that there existed no breach of the limited scope of patent illegality in the proceedings, with any expressions made regarding the same merely amounting to errors, and the High Court having no power to reassess the entire award in any part of the Act. The appeal of the Claimant was allowed accordingly, the same of the State dismissed, without any order as to costs.

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