Skip to main content

Arbitration - Patent illegality necessitating judicial interference discussed

In Delhi Airport Metro Express Pvt. Ltd v. Delhi Metro Rail Corporation Ltd, appeal was filed before  the Supreme Court against order of the Delhi High Court Division Bench setting aside an Arbitral Award.

First the SC observed that the Court has in several other judgments interpreted Section 34 of the 1996 Act to stress on the restraint to be shown by courts while examining the validity of the arbitral awards. However, the difficulty arises in applying the well-established principles for interference to the facts of each case that come up before the courts. There is a disturbing tendency of courts setting aside arbitral awards, after dissecting and reassessing factual aspects of the cases to come to a conclusion that the award needs intervention and thereafter, dubbing the award to be vitiated by either perversity or patent illegality, apart from the other grounds available for annulment of the award. This approach would lead to corrosion of the object of the 1996 Act and the endeavours made to preserve this object, which is minimal judicial interference with arbitral awards. 

Patent illegality should be illegality which goes to the root of the matter. In other words, every error of law committed by the Arbitral Tribunal would not fall within the expression patent illegality. Likewise, erroneous application of law cannot be categorised as patent illegality. In addition, contravention of law not linked to public policy or public interest is beyond the scope of the expression patent illegality. What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award. The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account. The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality. Also, consideration of documents which are not supplied to the other party is a facet of perversity falling within the expression patent illegality. 

Section 34 (2) (b) refers to the other grounds on which a court can set aside an arbitral award. If a dispute which is not capable of settlement by arbitration is the subject-matter of the award or if the award is in conflict with public policy of India, the award is liable to be set aside. Explanation (1), amended by the 2015 Amendment Act, clarified the expression public policy of India and its connotations for the purposes of reviewing arbitral awards. It has been made clear that an award would be in conflict with public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the 1996 Act, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice. In Ssangyong (supra), this Court held that the meaning of the expression fundamental policy of Indian law would be in accordance with the understanding of this Court in Renusagar Power Co. Ltd. v. General Electric Co. 1994 Supp (1) SCC 644 In Renusagar (supra), this Court observed that violation of the Foreign Exchange Regulation Act, 1973, a statute enacted for the national economic interest, and disregarding the superior courts in India would be antithetical to the fundamental policy of Indian law. Contravention of a statute not linked to public policy or public interest cannot be a ground to set at naught an arbitral award as being discordant with the fundamental policy of Indian law and neither can it be brought within the confines of patent illegality as discussed above. In other words, contravention of a statute only if it is linked to public policy or public interest is cause for setting aside the award as being at odds with the fundamental policy of Indian law. If an arbitral award shocks the conscience of the court, it can be set aside as being in conflict with the most basic notions of justice. The ground of morality in this context has been interpreted by this Court to encompass awards involving elements of sexual morality, such as prostitution, or awards seeking to validate agreements which are not illegal but would not be enforced given the prevailing mores of the day.(Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (NHAI) (2019) 15 SCC 131) 


Comments

Most viewed this month

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...

Flat owner without legal title has consumer rights

In a significant judgment, the South Mumbai Consumer Forum has held that a flat owner legally occupying the flat would be a consumer, even if his title to the flat might be in dispute before a competent court. Thurlow owned a flat in a co-operative society. Appuswami was residing with him. In 1976, Appuswami got married in the same flat, and his wife started residing in the same flat. They had three children, born and brought up in the same flat. After Thurlow expired in 2004, Appuswami approached the High Court for inheritance to Thurlow's estate but expired while the matter was pending. His wife and children were brought on record. Subsequently, the society intervened, contending Appuswami did not have any right to the flat and it should be handed over to the Society. The Appuswami family continued to reside in the flat, and even pay the society's outgoings and maintenance charges. Later, the society stopped collecting maintenance charges from all members, as it earned...

NCLT - Mere admission of receipt of money does not qualify as a financial debt

Cause Title : Meghna Devang Juthani Vs Ambe Securities Private Limited, National Company Law Tribunal, Mumbai, CP (IB) No. 974/MB-VI/2020 Date of Judgment/Order : 18.12.2023 Corum : Hon’ble Shri K. R. Saji Kumar, Member (Judicial) Hon’ble Shri Sanjiv Dutt, Member (Technical) Citied:  Carnoustie Management India Pvt. Ltd. Vs. CBS International Projects Private Limited, NCLT Swiss Ribbons Pvt. Ltd. & Anr vs. Union of India & Ors. (2019) Sanjay Kewalramani vs Sunil Parmanand Kewalramani & Ors. (2018) Pawan Kumar vs. Utsav Securities Pvt Ltd 2021 Background Application was filed under section 7 of the Insolvency and Bankruptcy Code, 2016 alleging loan of Rs, 1.70 cr is due. The Applicate identified herself as the widow and heir of the lender but could not produce any documents proving financial contract between her Late husband and the CD but claimed that the CD has accepted that money was received from her husband. The applicant subs...