The judgement of the Supreme Court in
ONGCv.Western Geco International Ltd.(2014) 9 SCC 263 ("Western Geco")
continues to create havoc in the arbitration jurisprudence of
To elaborate, the Supreme Court explained in
Pipes Ltd.(2003) 5 SCC 705 ("Saw
Pipes") that an award can be set aside under Section
34(2)(b)(ii) on the ground that it violates the public policy on
India, if the award is inconsistent with: (a)
fundamental policy of Indian law; or (b) the
interest of India; or (c) justice or morality; or
(d) if it is patently illegal.
Subsequently, in Western Geco., the Court further
elaborated on the expression 'fundamental policy of
Indian law', holding that it refers to the principles
providing basis for administration of justice and enforcement of
law in this country which included judicial approach, i.e. not
acting arbitrarily or whimsically and acting in a fair, reasonable
and objective manner without taking into account any extraneous
consideration, following the principles of natural justice, i.e.
taking a decision by due application of mind and by recording
reasons and taking rational decision which can be decided on the
touchstone of Wednesbury.
Thus, as the law stands in India at present,
"Public Policy of India" can be
(a) Fundamental policy of Indian law which
Violation of principles of natural justice
Perversity or irrationality of decisions
If on facts proved before them the arbitrators fail to draw an
inference which ought to have been drawn or if they have drawn an
inference which is on the face of it, is untenable resulting in
miscarriage of justice.
(b) The interest of India; or
(c) Justice or morality; or
(d) If it is patently illegal.
The Supreme Court has recent relied on the decision of Western
Geco to set aside an award dated 29th June, 2003, passed by Retired
Justice B.K Behera in the case of State of Orissa
("State") v. M/s. Samantary Constn. Pvt. Ltd.
("Contractor") 2015 SCC OnLine SC 856.
Facts of The Case:
The parties entered into an agreement for the construction of a
barrage vide Agreement dated 11th February, 1986. Despite extension
of the contract, the work could not be completed in time. Thus,
vide letter dated 21st April, 1988, the contract was terminated.
The Parties went into arbitration and the vide award dated 29th
June, 2003, the arbitrator allowed the claims of the Contractor
amounting to Rs. 6.99 crore and the counter claim of the State to
the extent of Rs. 1.37 crores.
The present matter revolves around a claim of Rs. 68,44,332 (as
calculated up to 31st October, 1989) made by the Contractor for
hire charges for machinery and equipment (Item no. 18 in the Claim
Statement). This claim was upheld by the Tribunal and quantified at
Rs. 3 crore in accordance with hire charges as per Government
rates, since the Tribunal reasoned that the seizure of the
machinery and other equipment was illegal as termination of
contract itself was illegal. The Tribunal increased the amount of
the claim since the Contractor had calculated the claim only till
31st October, 1989, but the claim was for the entire period for
which the Contractor was deprived of the machinery and the
This award was challenged under Section 34 and the District
Judge reduced the award with respect to Item no. 18 to Rs.
6,844,332. In appeal, the High Court reversed the judgement of the
District Judge and upheld the arbitral award.
Subsequently, the matter went into appeal to the Supreme Court
where the State argued that the claim based on hire charges could
not be for indefinite period and could in no case exceed the price
of the machinery and other equipment. The Court accepted the
arguments of the State and set aside the award with respect to Item
no. 18. In the interest of preventing further delay, the court
assessed the claim and awarded Rs. 50 lakhs under Item no. 18.
The Court reasoned that there was a "non-application of
mind in awarding the amount of Rs. 3 crores towards the hire
charges... We are conscious that we are not to substitute our
opinion for that of the Arbitrator but since this part of the Award
is out rightly perverse and not based on application of minds, we
modify the award."
The Tribunal had awarded a certain amount based on evidence and
reasoning. This amount had been confirmed by the High Court also.
Therefore, the judgement of the Supreme Court that the arbitral
award was out rightly perverse and not based on application of
minds is dubious, if not downright erroneous.
This judgement is another example of the flaws in the Indian
arbitration regime. The scope of "public
policy" has been extended far too wide and the Courts
now sit in appeal over an arbitral award. The result in inordinate
delay(more than 12 years in the present case) and unnecessary
interference in an arbitral award.
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guide to the subject matter. Specialist advice should be sought
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Singhania & Partners LLP, Solicitors and Advocates
Under the Arbitration and Conciliation (Amendment) Act, 2015. There are two avenues available for the enforcement of foreign awards in India, viz., the New York Convention and the Geneva Convention, as the case may be.
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