Delhi HC Sets Aside ₹2.43 Crore Award In NTPC-Tarapore Dispute Over Serving NTPC Officials As Arbitrators

The Delhi High Court has set aside an arbitral award directing Tarapore & Company to pay over ₹2.43 crore to National Thermal Power Corporation Limited in a dispute arising from the Farakka Super Thermal Power Project.

The court held that the arbitral process was vitiated by a reasonable apprehension of bias, as both the original and substitute arbitrators were serving NTPC officials, with the substitute arbitrator having been appointed by an interested NTPC official.

The Single Bench of Justice Jasmeet Singh noted that T. Shankarlingam, then a General Manager of NTPC, was initially appointed as arbitrator. After being elevated as Chairman and Managing Director of NTPC, he appointed another serving NTPC officer, G.J. Deshpande, as substitute arbitrator.

This created a reasonable apprehension regarding the independence and impartiality of the arbitral process.

The Court further held that the award suffered from patent illegality. It said the findings on key issues were “cryptic and unreasonable” and unsupported by proper analysis of evidence.

The Bench observed that "At the outset, I am of the considered view that the Award stands vitiated by the vice of bias. A detailed analysis which follows, shows that the initial Arbitrator, Mr. T. Shankarlingam, was a serving General Manager of NTPC and the substituted Arbitrator, Mr. Deshpande, who passed the Award was likewise a serving employee of NTPC, having been appointed by the previous Arbitrator, Mr. Shankarlingam upon his promotion to the position of Chairman and Managing Director. The very fact that the appointment of the subsequent Arbitrator was made by an interested official of NTPC, gives rise to reasonable apprehension regarding lack of independence and impartiality in the arbitral process. The doubt further deepens as the impartiality of the previous Arbitrator was already called into question twice by Tarapore at different stages of the Arbitral Proceedings."

NTPC issued a tender on May 4, 1987 for construction of an ash bund structure for fly ash disposal at the Farakka Super Thermal Power Project in West Bengal.

Tarapore emerged as the successful bidder and was awarded the ₹6.57 crore contract through a Telex of Award dated February 16, 1988. A Letter of Award followed on March 28, 1988.

The work was to be completed within 22 months from February 16, 1988.

According to NTPC, Tarapore delayed mobilization and commenced work only on May 6, 1988. NTPC also alleged that Tarapore suspended work between June 11, 1988 and January 1989, and ultimately abandoned the project after completing only 19% of the work.

NTPC thereafter issued a notice dated April 20, 1990 under Clause 41 of the General Conditions of Contract. It directed Tarapore to resume work within 21 days, failing which the balance of work would be completed at its risk and cost.

After Tarapore allegedly failed to resume work, NTPC terminated the contract on September 21, 1990. It awarded the remaining work to Murshidabad Zila Parishad the next day and claimed an additional expenditure of ₹2,65,83,518.

Tarapore, however, claimed that persistent trade union interference, deteriorating law-and-order conditions, and unsafe site circumstances severely impeded execution of the work. Tarapore also alleged that NTPC failed to provide a safe working environment. It invoked arbitration through a legal notice dated July 11, 1990.

By an order dated October 7, 1996 under Section 20 of the Arbitration Act, 1940, the Delhi High Court directed NTPC to appoint its General Manager as arbitrator in terms of Clause 56 of the arbitration agreement.

NTPC initially appointed T. Shankarlingam as arbitrator. After his elevation as Chairman and Managing Director, he appointed G.J. Deshpande as substitute arbitrator, who passed the award on March 14, 2008.

The award directed Tarapore to pay NTPC ₹2,55,21,532.85. After adjustment of ₹11,73,292 awarded to Tarapore, the net liability came to ₹2,43,48,240.85.

The award was challenged before the High Court in separate proceedings. NTPC filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996. Tarapore initially filed objections under Section 33 of the Arbitration Act, 1940, which were later treated as objections under Section 34 of the 1996 Act.

Tarapore argued that the proceedings were biased because hearings were repeatedly held at Farakka and later Kolkata. It said this was despite earlier court observations indicating Delhi as the preferred neutral and convenient venue.

It also relied on representations dated March 5, 2002 alleging bias and misconduct.

Accepting the objections, the court held that the hierarchical relationship between the two arbitrators struck “at the very root of the arbitral process.”

The court also held that the award merely reproduced pleadings, contractual clauses, and correspondence. It said there was no meaningful analysis of evidence on crucial issues, including law-and-order disturbances and the alleged abandonment of work.

Holding that the award was vitiated by bias and patent illegality, the Court set it aside.

For NTPCL: Advocate Kanika Agnihotri.

For Tarapore & Company: Senior Advocate Priya Kumar and Advocate Neelampreet Kaur.