Oil and Natural Gas Corporation Ltd. vs. Western Geco international Ltd. (04.09.

2014 - SC) :
MANU/SC/0772/2014

Question) How was the term fundamental policy defined in this case?

In the opinion of learned judges’ fundamental policy include all such fundamental principles as
providing a basis for administration of justice and enforcement of law in this country. Without
meaning to exhaustively enumerate the purport of the expression "Fundamental Policy of Indian
Law", we may refer to three distinct and fundamental juristic principles that must necessarily be
understood as a part and parcel of the Fundamental Policy of Indian law. (Para 26)

1) It was stated that the court or adjudicating authority must adopt a ‘judicial approach’
while determining the rights of a citizen. This implies that the act cannot be arbitrary,
capricious or on whimsical manner. Judicial approach ensures that the authority acts
bonafide and deals with the subject in a fair, reasonable and objective manner and that its
decision is not actuated by any extraneous consideration. (Para 26)
2) Secondly it was held that court or the quasi-judicial bodies should adjudicate adhering to
the principles of natural justice Besides the celebrated 'audi alteram partem' rule one of
the facets of the principles of natural justice is that the Court/authority deciding the
matter must apply its mind to the attendant facts and circumstances while taking a
view one way or the other. Application of mind is best demonstrated by disclosure of the
mind and disclosure of mind is best done by recording reasons in support of the decision
which the Court or authority is taking and this is deeply embedded in our jurisprudence
henceforth can be described as fundamental policy. (Para 28)
3) Thirdly, that a decision which is perverse or so irrational that no reasonable person
would have arrived at the same will not be sustained in a Court of law. Perversity or
irrationality of decisions is tested on the touchstone of Wednesbury's principle of
reasonableness. (Para 29)

Associate Builder v. Development Authority

Public Policy

It is important to note that the Supreme Court in the Associate Builders case held that only the
grounds specifically provided in Section 34 of the Act can be used for interfering with an
arbitral award and held that merits of the award can be looked into only under the broad head of
‘public policy’. Further, the court in the Associate Builder’s case held that whether a particular
arbitral award can be struck down on the ground of ‘public policy’ would depend on factors
such as a) disregarding orders of superior courts; b) lack of judicial approach, or an arbitrary
approach; c) lack of application of principles of natural justice; d) a decision is so perverse or so
irrational that no reasonable person would have arrived at the same conclusion. In fact, the Court
went to the extent of observing that an arbitrator is the sole judge with respect to quality and
quantity of facts.

The Court in Associate Builders not only referred to Saw Pipesand Renusagar, but also relied on
the Western Geco decision. It further elaborated on the concept of fundamental policy of Indian
law, interest of India, justice, morality and patent illegality as held in several prior decisions and
in particular further expounded the position of law laid down inWestern Geco.As a result,
Associate Builder has accelerated the expansion of challenge jurisdiction, despite having upheld
the award on facts.

The Court however, also stated that" while applying the public policy test to an arbitration
award, it [the court] does not act as a court of appeal and consequently errors of fact cannot be
corrected "and that" the arbitrator is the ultimate master of the quantity and quality of evidence
relied upon when he delivers the arbitral award. "Whilst on one hand, the Apex Court held that
the Division Bench had exceeded its jurisdiction by interfering with a possible view of the
Arbitrator; on facts the Apex Court upheld the award based on its own assessment that the
arbitrator's views were indeed correct.

Fundamental Policy

To understand the concept of fundamental policy the court relied on the judgment of ONGC and
the factors laid down in it kindly refer above.

However, they went on to add It is neither necessary nor proper for us to attempt an
exhaustive enumeration of what would constitute the fundamental policy of Indian law nor is
it possible to place the expression in the straitjacket of a definition. What is important in the
context of the case at hand is that 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, untenable resulting in miscarriage of justice, the adjudication even when made by an
Arbitral Tribunal that enjoys considerable latitude and play at the joints in making awards will be
open to challenge and may be cast away or modified depending upon whether the offending part
is or is not severable from the rest."