INTRODUCTION
In
the last post, we had discussed the case of Oil and Natural Gas
Corporation Ltd. (ONGC) v. Discovery Enterprises Pvt. Limited (DEPL) &
Another, 2022 SCC OnLine SC 522, and the issue that can a non-Signatory
be bound by an Arbitration Agreement? And after discussing various observations
of the Court, we had found out that a non-Signatory may indeed be bound
by an Arbitration Agreement.
On this post, we will discuss another very pertinent
question that was raised by the Court in the present case, that is: -
When
can an Arbitral Award be said to be in conflict with Public Policy of India for
adjudicating under S. 34 of the Arbitration & Conciliation Act, 1996 (In
short, “Arbitration Act”)?
GROUNDS OF CHALLENGE UNDER SECTION 34
To answer this question, we need to understand
what exactly Section 34 of the Arbitration Act is. Section 34 provides remedy
to the parties for getting an Arbitral Award set aside on the following
grounds: -
a. If the party making the Application under S.34
was under some incapacity; or
b. If the Arbitration is not valid under any law;
or
c. If proper notice for appointment of arbitrator
was not served; or
d. If the Arbitral Tribunal exceeded its mandate in
passing the Arbitral Award; or
e. If the composition of the Arbitral Tribunal was
not according to the Agreement or the Arbitration Act; or
f. If the Court finds that the subject-matter of
Arbitration is non-arbitrable; or
g. If the Arbitral Award is in conflict with the
Public Policy of India; or
h. If the Arbitral Award is vitiated by patent
illegality appearing on the face of the Award.
S. 34 further provides that an Arbitral Award
is in conflict with the Public Policy of India only when: -
i. The Award was induced or affected by fraud or
corruption or lack of confidentiality or non-disclosure of material evidence;
or
ii. It contravenes with the fundamental policy of
Indian Law; or
iii. It is in conflict with the most basic notions
of morality or justice.
HOW THE COURT CONSTRUES PUBLIC POLICY AND
PATENT ILLEGALITY
The above-stated are the grounds on which a party
may move an Application for setting aside the Arbitral Award under S. 34 of the
Arbitration Act. In the present case, we are mostly concerned with point (g)
and (h) that talk about Conflict with Public Policy and Patent Illegality
in Award. While considering whether an Arbitral is against the Public Policy
or is patently illegal under Section 34, the Court spelt out the following
conditions and parameters that it takes into account while adjudicating upon
the same: -
“(i) A mere contravention of substantive law
is not a ground to set aside an award;
(ii) The court while exercising the power of
judicial review should not reappreciate evidence;
(iii) The construction of a contract is
essentially a matter for the arbitral tribunal to decide;
(iv) An award can be construed to be
perverse only if it is based on no evidence or has ignored vital evidence;
(v) The illegality of an award must be of
such a nature or character so as to go to the root of the award; and
(vi) Judicial intervention under Section 34
would not be warranted only because an alternative view on facts or the
construction of the award is available.”
CONCLUDING REMARKS
Thus, it is based on the above-stated contours
that a Court adjudicates upon an Application under S.34 for setting aside of an
Arbitral Award and understanding the conflict with public policy or patent illegality.
The grounds mentioned in S. 34 cannot be made applicable in a mechanical manner
and only when the Court satisfies itself in relation to the above-stated contours
that it may choose to exercise its power under S. 34.
In the next post, we will discuss a similar
provision under the Arbitration Act, Section 37 that provides what orders are
appealable under the Arbitration Act. To read the next post click here.
POST – I - CAN A NON-SIGNATORY BE BOUND BY ANARBITRATION AGREEMENT?
POST – II – PUBLIC POLICY AND SECTION 34 OFARBITRATION ACT
POST – III – SECTION 37 OF THE ARBITRATION ACT ANDTHE ISSUE OF JURISDICTION
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