Re-arbitration Rejected: Insights From The Jaiprakash Associates Limited vs. NHPC Limited

Introduction

Arbitration has become a prominent mechanism for resolving commercial disputes in India, favoured for its potential to offer efficient and final resolution outside the traditional court system. The judiciary in India generally adopts a supportive stance towards arbitration, encouraging parties to adhere to their agreed-upon dispute resolution process. However, questions arise regarding the scope and finality of arbitral awards, particularly when an award is challenged and subsequently set aside by a court. A significant judgment addressing the intricacies of this issue is the Delhi High Court's decision in the case of M/S Jaiprakash Associates Limited vs M/S NHPC Limited¹. This ruling delves into the crucial question of whether a second round of arbitration can be initiated after an initial arbitral award pertaining to the same dispute has been overturned by a court. This article will undertake a comprehensive analysis of this judgment, examining the specific legal issue addressed by the Delhi High Court and contextualizing its decision within the broader framework of Indian arbitration law concerning the permissibility of re-arbitration following the setting aside of an award.

Issue before the Court

The fundamental legal issue before the Delhi High Court in M/S Jaiprakash Associates Limited vs M/S NHPC Limited was the maintainability of the Petitioner's application under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the recommencement of arbitration proceedings and the appointment of an arbitrator to adjudicate disputes for which a previous arbitral award had already been set aside by the court. Specifically, the Court had to determine whether the Petitioner could invoke the arbitration clause once more for the same claim after the initial award was nullified.

Relevant statutory provisions

The issue at hand as discussed in the case encapsulates the following key provisions of the Arbitration and Conciliation Act, 1996 (the “Act”), alongside established legal principles and precedents laid down by Indian courts.

• Section 11(6): Appointment of Arbitrator, specifically by intervention of the Court.
• Section 34: Setting aside of the arbitral award
• Section 43(4): Limitations, specifically sub clause (4) which states that where a court orders an arbitral award to be set aside, fresh proceedings in respect of the whole or part of the dispute may be initiated within the time prescribed under the Limitation Act, 1963

Facts of the case

The dispute in M/S Jaiprakash Associates Limited vs M/S NHPC Limited arose from a contract dated April 9, 1997, for the execution of the Dulhasti Hydro Electric Project, which was initially stipulated to be completed within 33 months but was ultimately finished in 2007. M/S Jaiprakash Associates Limited (the Petitioner) raised claims for additional costs amounting to Rs. 360.56 crores, citing delays and an extended stay at the project site, which were rejected by M/S NHPC Limited (the Respondent). This led to the invocation of the arbitration clause, and an Arbitral Tribunal was constituted.

The majority of the Arbitral Tribunal, despite acknowledging that the Petitioner had not provided sufficient evidence to substantiate the claim for delay-related costs, awarded a sum of Rs. 60 crores to the Petitioner based on the principle of "good conscience and reasonable and proper estimate". This award was challenged by both parties. The Respondent argued that the award of Rs. 60 crores was unsustainable, while the Petitioner sought an enhancement of this amount.

The Learned Single Judge of the Delhi High Court, in a judgment dated May 26, 2023, set aside the majority award, specifically quashing the grant of Rs. 60 crores. The court reasoned that the Tribunal's approach was contradictory – on one hand, it found a lack of evidence to support the claim, and on the other hand, it awarded a significant sum based on "good conscience," which was deemed contrary to public policy and Section 28(2) of the Arbitration and Conciliation Act, 1996, as the parties had not expressly authorized the Tribunal to apply such principles.

Following the setting aside of the award, the Petitioner filed the present petition under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the recommencement of arbitration and the appointment of a nominee arbitrator on behalf of the Respondent to adjudicate the disputes. The Petitioner contended that the initial award did not decide the underlying dispute on its merits and relied on Section 43(4) of the Act. The Respondent, however, objected to this, arguing that the matter had already been adjudicated in the previous arbitration round, with the Tribunal finding no material basis for the claim.

Ruling: The Court dismissed the petition holding that the present case was demonstrably ‘non-arbitrable' as there was no live dispute between the parties and re-adjudication of JP Associates' claim would be a waste of resources and an improper use of the arbitration process. It was also noted that even though the ordinary rule was to refer any dispute to arbitration, the instant case fell under the exception.

Analysis of legal principles and precedents

The interplay between setting aside an arbitral award and the possibility of initiating fresh arbitration has been the subject of judicial scrutiny in India. Several principles and precedents have emerged, offering guidance on this regard, which are summed up as under.

1. General Principle of Restoration to Pre-Award Position: A widely accepted principle is that when an arbitral award is set aside by a court, the parties are generally restored to the position they were in before the award was rendered. This restoration often implies that the underlying disputes that were the subject of the set-aside award can be re-agitated, potentially through a fresh arbitration if the arbitration agreement remains valid. The Supreme Court in McDermott International Inc. v. Burn Standard Co. Ltd. (2006) explicitly stated that when an award is quashed, the parties are "free to begin the arbitration again if it is desired".
2. Exceptions to the General Principle: While the general principle favors the possibility of re-arbitration, Indian courts have recognized certain exceptions where a second round of arbitration may not be permissible. These exceptions are typically invoked to prevent abuse of the arbitration process, ensure finality in dispute resolution, and uphold public policy.
   • Dispute Found Non-Arbitrable: If the initial award was set aside on the ground that the underlying dispute itself was not arbitrable under the law, then a second arbitration on the same dispute would clearly not be maintainable.
   • Conclusive Adjudication on Merits: Even if the award is set aside due to a technical flaw, if the arbitral tribunal has already rendered a conclusive finding on the merits of the dispute, and this finding remains undisturbed by the court setting aside the award, a second arbitration on the same merits may be disallowed.
   • "Deadwood" Claims: Courts have shown reluctance to refer parties to arbitration for claims that are considered "deadwood," meaning they lack any substantial basis in evidence or are ex facie frivolous. This is particularly true at the post-award stage.
3. Public Policy and Abuse of Process: Allowing a second arbitration in certain circumstances might be deemed contrary to public policy, especially if it would lead to endless litigation, cause undue hardship to one of the parties, or otherwise constitute an abuse of the legal process.
4. "Eye of the Needle" Test at Post-Award Stage: Referral courts under Section 11, especially when considering applications at the post-award stage, often apply a more stringent scrutiny, sometimes referred to as the "eye of the needle" test. While generally maintaining a limited scope of intervention, the court may step in to prevent manifest injustice or the reference of claims that are clearly non-arbitrable or constitute "deadwood." This approach recognizes the need to balance the pro-arbitration stance with the imperative of preventing abuse of the process and ensuring that arbitration serves its intended purpose of providing speedy and effective dispute resolution.

Tabular comparison of recent cases allowing and disallowing recommencement of arbitration

Reasoning by Delhi High Court

The court emphasized the crucial role of a referral court at the post-award stage in preventing the misuse of the arbitration process to perpetuate injustice. It recognized that while the general rule favors referring disputes to arbitration, this principle is not absolute, especially when the arbitration process is invoked for claims that have already been substantially considered and found lacking merit.

A significant aspect of the court's reasoning was the undisturbed finding of the Arbitral Tribunal that the Petitioner had failed to provide any material evidence to substantiate its claim for additional costs incurred due to the delay. The Learned Single Judge, while setting aside the award of Rs. 60 crores, did not disturb this fundamental finding of the Tribunal. The High Court reasoned that referring the matter back to arbitration would essentially be asking a new tribunal (or even the same one) to re-examine the same claim for which the initial tribunal had already concluded there was no evidentiary basis. This would amount to re-adjudicating an issue that had already been decided.

The court applied the "eye of the needle" test, a principle used by referral courts to conduct a preliminary scrutiny to prevent manifest injustice. It concluded that the Petitioner's claim, in the context of seeking a fresh arbitration after the initial award was set aside due to a contradictory finding, fell squarely within the definition of "dead wood". Allowing the Petitioner to initiate another costly and time-consuming arbitration process on the same claim, which had already been found to lack evidentiary support, would be an abuse of the process.

Furthermore, the court noted that the Petitioner did not file an appeal under Section 37 of the Act against the order of the Learned Single Judge setting aside the award. This lack of further challenge to the setting aside order suggested an acceptance of the finding that the award was flawed, particularly the contradictory reasoning of awarding compensation despite the absence of evidence.

The Delhi High Court also distinguished the present scenario from cases where re-arbitration might be permissible. In this instance, the setting aside of the award was not solely due to a procedural irregularity or the non-adjudication of an issue. Instead, it was a consequence of the Tribunal's own finding of a lack of evidence for the claim, coupled with an unsustainable application of the principle of good conscience.

The court explicitly stated that referring the parties back to arbitration in this situation would be against public policy. The aim of the Arbitration and Conciliation Act, 1996, is to provide speedy justice and bring finality to disputes. Allowing repeated rounds of arbitration on the same claim, especially after it has been found to lack merit by the initial tribunal, would undermine this objective.

Finally, the court also observed that the Petitioner did not seek leave from the Section 34 court for fresh adjudication or any specific directions on how a de novo arbitration should proceed. This procedural aspect further supported the court's decision to dismiss the Section 11 petition.

Conclusive Remarks

The Delhi High Court's judgment in M/S Jaiprakash Associates Limited vs M/S NHPC Limited has significant implications for the interpretation and application of Indian arbitration law. It reinforces the supervisory role of the court under Section 11 at the post-award stage, highlighting the judiciary's willingness to intervene to prevent the misuse of the arbitration process. The judgment suggests a growing trend towards greater scrutiny by referral courts to filter out ‘deadwood' claims, even after an award has been set aside. This approach aims to ensure that arbitration remains an efficient and effective dispute resolution mechanism and is not used as a tool for perpetuating litigation on claims lacking a genuine basis.

This case serves as a crucial reminder of the importance of finality in dispute resolution and the need to prevent parties from repeatedly resorting to arbitration for claims that have already been thoroughly examined and found wanting. It emphasizes the supervisory role of the courts in ensuring that the arbitration process is used fairly and efficiently, aligning with the overarching objectives of the Arbitration and Conciliation Act, 1996.

Footnotes

1. 2025 SCC OnLine 2025.

2. 2025 SCC OnLine Bom 580.

3. 2021 SCC OnLine Cal 2465.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.