Case Note & Summary
The petitioner, Oil & Natural Gas Corporation Limited (ONGC), filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996, challenging an arbitral award dated 26th October 2015. The award directed ONGC to immediately withdraw and cancel its letter dated 22nd April 2014, which had blacklisted the respondent, International Certification Services Private Limited, and to permit the respondent to participate in all ongoing and future tenders where they were qualified, and to restore their business credibility. The dispute arose from a contract between ONGC and the respondent for supervision, quality control, and measurement of maintenance and painting work on ONGC's offshore platforms. The contract was awarded in 2009 and completed in 2012. Subsequently, ONGC received a vigilance complaint regarding the work of the painting contractor, M/s J.K. Surface Coating Pvt. Ltd., and initiated action. ONGC issued a letter on 22nd April 2014 blacklisting the respondent. The respondent invoked arbitration, claiming amounts due for work done and challenging the blacklisting. The arbitrator passed an award directing withdrawal of the blacklisting letter and restoration of business credibility. ONGC challenged the award on the ground that the arbitrator exceeded the scope of reference, as the reference was limited to claims for payment and did not include the validity of the blacklisting. The court analyzed the terms of the arbitration agreement and the reference to arbitration. It found that the disputes referred were only regarding payment of dues and not the blacklisting action. The court held that the arbitrator had no jurisdiction to adjudicate on the blacklisting letter or grant relief in respect thereof. The court further held that the award was contrary to the public policy of India as it violated the fundamental policy of Indian law and the terms of the contract. The court set aside the award, allowing the petition.
Headnote
A) Arbitration Law - Section 34 of Arbitration and Conciliation Act, 1996 - Setting Aside of Award - Public Policy - The court examined whether an arbitral award directing a public sector undertaking to withdraw a blacklisting letter and permit participation in tenders was contrary to public policy. The court held that the arbitrator exceeded the scope of reference by adjudicating on the validity of the blacklisting letter, which was not part of the disputes referred to arbitration. The award was set aside as it violated the fundamental policy of Indian law and the terms of the contract. (Paras 1-14) B) Arbitration Law - Scope of Arbitration - Terms of Reference - The court considered whether the arbitrator could decide on matters not referred to arbitration. The court held that the arbitrator's jurisdiction is limited to the disputes referred; any decision on matters outside the reference is without jurisdiction and liable to be set aside. In this case, the reference was limited to claims for payment, and the arbitrator could not grant relief regarding the blacklisting letter. (Paras 5-10) C) Contract Law - Blacklisting by Government Entity - Natural Justice - The court noted that blacklisting by a government entity is a serious matter affecting the right to carry on business and must be done in accordance with principles of natural justice. However, the validity of the blacklisting was not within the scope of arbitration, and the arbitrator could not direct its withdrawal. (Paras 11-14)
Issue of Consideration
Whether the arbitral award directing ONGC to withdraw its letter blacklisting the respondent and to permit participation in tenders is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, on the ground that the arbitrator exceeded the scope of reference and the award is contrary to public policy.
Final Decision
The court allowed the petition and set aside the arbitral award dated 26th October 2015.
Law Points
- Arbitration award contrary to public policy
- Arbitrator exceeding terms of reference
- Natural justice violation
- Section 34 of Arbitration and Conciliation Act
- 1996
- Blacklisting by government entity
- Scope of arbitration clause
