Court says international commercial arbitral awards cannot be challenged on “patent illegality” grounds; rejects SAIL’s objections on NOR validity, COVID-19 force majeure, cyclone-related delay and interest.
The Delhi High Court has dismissed Steel Authority of India Limited’s challenge to an arbitral award in favour of Norvic Shipping North America Inc., upholding the tribunal’s decision to grant freight, demurrage, interest and costs under a Contract of Affreightment for limestone shipments.
Justice Avneesh Jhingan held that the dispute was an international commercial arbitration seated in Delhi, since the respondent was a Canadian company and the contract fixed Delhi as the seat of arbitration. As a result, the Court ruled that the wider ground of “patent illegality” under Section 34(2A) of the Arbitration and Conciliation Act, 1996 was not available to the petitioner. The challenge had therefore to be tested only within the narrower limits of Section 34(2).
The case arose from a 2019 shipping contract under which Norvic Shipping was to transport 16 lakh metric tonnes of limestone from the UAE to India. Disputes later emerged over laytime calculations, demurrage and freight for seven vessels, including MV Pegasus, MV Esperia, MV Cas Avanca, MV Vishva Ekta, MV Jay, MV Blue Ripple and MV Sparrow.
SAIL argued that the tribunal ignored key evidence and failed to give proper reasons, making the award non-speaking and contrary to public policy. It also contended that the Notice of Readiness issued for MV Pegasus was premature because the vessel later faced a generator problem, and that laytime should have been recalculated. Similar objections were raised for MV Esperia, where SAIL claimed the vessel was not ready and that discharge was delayed due to a misunderstanding between the vessel owner and the respondent.
A major part of the challenge related to the COVID-19 pandemic. SAIL argued that force majeure clauses in the contract should have applied to several vessels and relied on port circulars, ministry orders and Section 53 of the Major Port Trusts Act, 1963. It also claimed that, as a “State” under Article 12 of the Constitution, it deserved special treatment in the contractual dispute. For MV Sparrow, SAIL further argued that the tribunal failed to exclude the period affected by cyclone-related disruption.
The High Court rejected all these submissions. It held that the tribunal had considered the contract clauses, vessel-wise facts and the evidence on record, and had given intelligible reasons for its conclusions. The Court found no basis to say the award was bereft of reasons. It also noted that the Ministry of Shipping’s COVID-19 circulars treated cargo movement and port operations as essential services, and did not show that discharge operations were prevented. The Court said the port circulars relied upon by SAIL related to port charges and did not alter the contractual position between the parties.
On MV Pegasus, the Court upheld the tribunal’s finding that the NOR issued on 10 May 2019 was valid and that a later generator problem did not invalidate it. On MV Esperia, it agreed that the alleged misunderstanding arose later and did not justify excluding the earlier period. On the COVID-19 vessels, the Court held that SAIL had failed to prove that cargo discharge was actually prevented or hindered. The Court also found that the cyclone-related objection regarding MV Sparrow had not been properly pleaded and, in any event, the tribunal had already accounted for the affected period.
The Court further rejected SAIL’s objection to the interest award. It held that the formula of “LIBOR + 3 percentage points or 12% per annum, whichever is less” was clear and not open-ended.
Concluding that no ground under Section 34(2) was made out, the Court dismissed the petition and upheld the award in full.
Bottom Line :
Arbitration and Conciliation Act, 1996 Section 34 challenge to international commercial arbitral award - Scope of interference is limited - Patent illegality ground under Section 34(2A) not available in international commercial arbitration seated in India - Award dealing with demurrage, freight, COVID-19 force majeure, validity of NOR and interest upheld - Port circulars treating services as essential did not establish prevention of discharge operations - Court cannot reappreciate evidence or sit in appeal over arbitral findings.
Statutory provision(s): Section 2(1)(f), Section 2(2), Section 31(3), Section 34, Section 34(2A) of the Arbitration and Conciliation Act, 1996, Section 53 of the Major Port Trusts Act, 1963, Article 12 of the Constitution of India
