Arbitration Ruling: Supreme Court Overturns High Court Order in Highway Project Dispute

The case of National Highways Authority of India v. Gwalior Jhansi Expressway Limited is a significant judgment concerning arbitration disputes in infrastructure projects. The Supreme Court was called upon to determine the validity of an arbitration tribunal’s decision regarding the right of first refusal (ROFR) granted to the respondent in a bidding process. The Court ultimately ruled in favor of the National Highways Authority of India (NHAI), overturning the Delhi High Court’s order that had upheld the arbitral award.

Background of the Case

The dispute arose from a Concession Agreement dated December 17, 2006, between the National Highways Authority of India (NHAI) and the respondent, Gwalior Jhansi Expressway Limited. The agreement pertained to the widening of a section of National Highway No. 75 from two lanes to four lanes. However, the project faced several delays, with NHAI alleging that the respondent failed to meet construction deadlines due to inadequate deployment of resources.

As a result, NHAI issued a Cure Period Notice on October 19, 2013, requiring the respondent to rectify breaches within 30 days, failing which termination proceedings would be initiated. The respondent denied these allegations. Subsequently, NHAI issued letters expressing its intention to terminate the contract. The respondent then approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking an injunction against NHAI’s termination proceedings.

Arguments by the Parties

Appellant’s (NHAI) Arguments

• The respondent failed to complete the project as per the agreement, achieving only 62% completion by March 2012 before abandoning the site.
• NHAI had to consider alternative measures, including completing the project at its own expense.
• While an arbitral tribunal granted the respondent a right of first refusal (ROFR) in future tenders, this decision was beyond the tribunal’s jurisdiction and against public policy.
• The requirement to participate in the tender process was essential for fair competition, and the respondent had failed to do so.
• The arbitral tribunal’s order effectively modified the terms of the bidding process, interfering with NHAI’s right to set its own tender conditions.

Respondent’s (Gwalior Jhansi Expressway Limited) Arguments

• The respondent had already completed a significant portion of the project and had invested over Rs. 715 crores in construction.
• The arbitral tribunal’s order on July 23, 2016, granting ROFR, was binding and could not be overturned.
• The respondent was not required to participate in the tendering process to exercise its ROFR.
• The tribunal’s order was issued in public interest, as allowing a third party to take over the balance of the project would lead to further delays.
• The High Court had rightly upheld the tribunal’s decision, ensuring continuity in the project’s execution.

Supreme Court’s Observations

The Supreme Court carefully analyzed the arbitral tribunal’s award and the High Court’s decision, making the following observations:

• The tribunal’s decision granting ROFR without requiring the respondent’s participation in the bidding process was inconsistent with fundamental principles of competitive bidding.
• The concession agreement did not explicitly provide the respondent with a right to match the lowest bid without participating in the bidding process.
• The public interest and fair competition required that all bidders, including the respondent, participate in the process before exercising any preferential rights.
• The High Court erred in failing to scrutinize whether the arbitral tribunal’s award was in line with public policy and the fundamental principles of contract law.

Final Judgment

The Supreme Court set aside the Delhi High Court’s order and ruled in favor of NHAI. The key directives were:

• The arbitral tribunal’s order granting ROFR to the respondent without participation in the tendering process was quashed.
• NHAI was permitted to proceed with awarding the contract as per its tender conditions, ensuring transparency and competition.
• The respondent could no longer claim a right to match the lowest bid without fulfilling the necessary requirements.
• Future disputes regarding the project would have to be adjudicated based on the original concession agreement, without modifications imposed by the tribunal.

This ruling reinforces the principle that arbitration awards must align with public policy and that judicial intervention is necessary when tribunals exceed their jurisdiction. It also clarifies the importance of fair competition in public infrastructure projects, ensuring that contract enforcement is carried out transparently and without undue favoritism.

Petitioner Name: National Highways Authority of India.
Respondent Name: Gwalior Jhansi Expressway Limited.
Judgment By: Justice Dipak Misra, Justice A.M. Khanwilkar, Justice D.Y. Chandrachud.
Place Of Incident: Madhya Pradesh & Uttar Pradesh.
Judgment Date: 13-07-2018.

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