ADR CA4

1. NHAI v. B Nagaraju
https://blogs.compliancecalendar.in/national-highways-authority-of-india-versus-sri-p-
nagaraju-fcs-deepak-p-singh-3198
An arbitral award can be set aside under §34 of the Arbitration and Conciliation Act
1996 on limited grounds and a further appeal lies under §37. The Supreme Court has
recently held that if such challenges are successful, then the Court cannot modify the
award but only set aside the award and remand the matter back to the Tribunal.

Facts

Notifications were issued under the National Highways Act 1956 (NH Act) for land
acquisition pursuant to which a Special Land Acquisition Officer was appointed to
determine the compensation for land acquired. Disputes arose between the
Respondents and the Appellant in relation to quantum of the compensation payable. As
per §3G(7) of the NH Act, an arbitrator was appointed to determine compensation. The
arbitrator increased the amount of compensation to be paid to the Appellant. In appeal,
both the District and Sessions Court as well as the Karnataka High Court upheld the
award. The Appellant then approached the Supreme Court.

Decision

The Supreme Court allowed the appeal and relied on National Highway Authority of India
v M Hakeem & Anr2. The Supreme Court held that since the scope of interference by a
court is limited, it would not be open to the court to modify an award and alter the
compensation payable. The appropriate course to be adopted in such event is to set
aside the award and remit the matter back to the Tribunal in terms of §34(4) of the Act.

Conclusion

In a challenge to an arbitral award, a court cannot modify the award but can only set it
aside and remit the matter back to the Tribunal.

9. Firstly, when we are of the opinion that the learned Arbitrator has committed
patent illegality in applying two different notifications in determining the market value,
keeping in view the scope available under Section 34 of Act, 1996 it would not be
open for this Court to substitute our view to that of the learned Arbitrator and modify
the award. 
11. In the circumstance where we have opined that the award passed by the learned
Arbitrator suffers from patent illegality and appropriate consideration is necessary,
the only course open is to set aside the award and allow the learned Arbitrator to
reconsider the matter on that aspect. 
12. From the conclusion reached above, in both the set of cases it is evident that
awards passed by the learned Arbitrator is to be set aside and the matters be
remanded in terms of Section 34(4) of Act, 1996 so as to enable the learned
Arbitrators to assign reasons to arrive at their conclusion.

2. NHAI v. M Hakim
https://www.mondaq.com/india/trials-appeals-compensation/1162216/project-director-
nhai-v-m-hakeem-analysis-on-supreme-court39s-power-to-modify-arbitral-
award#:~:text=The%20appellants%20referred%20to%20the,specifically%20restricted
%20the%20grounds%20of
The Supreme Court, found that Section 34 of the Arbitration Act only provided for
limited grounds on which the arbitral award could be set aside under sub-sections (2)
and (3) of Section 34. The court highlighted that this provision is in fact modeled on the
UNCITRAL Model Law and that the legislative policy for the same is to preserve the
principle of minimum interference of the courts in the arbitral process. The court also
noted several judgments such as SsangYong Engg & Construction Co. v. NHAI 3 and
Renusagar Co. Ltd. v. General Electric Co.4 which held that a challenge under Section 34
did not mean that there would be challenge on the merits of the dispute.
In this regard, the Court also cited itself in the earlier case of McDermott International
Inc. v. Burn Standard Co.5wherein it had held, "The 1996 Act makes provision for the
supervisory role of courts, for the review of the arbitral award only to ensure fairness.
Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias
by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the
arbitrators." It also highlighted a recent case of the SC which in following
the McDermott case had held that Section 34 did not include a power to modify an
arbitral award.6 The judgement also refers to the decision of the Delhi HC in the case
of Cybernetics Network Pvt. Ltd. v. Bisquare Technologies Pvt. Ltd.7 wherein the court
held that the power of the court under Section 34 is not akin to that of the powers of an
appellate court and hence, it could not deal with claims which have been already dealt
with by the arbitral tribunal. If it did so, the court would be acting contrary to the
statutory scheme of Section 34.

Drawing a reference to the Gayathri Balaswamy case8, which had been cited by the

respondents, the court held that in that judgment the cases relied on were such that the
modification of the award was in the exercise of the powers under Article 142 of the
Constitution. Therefore, the court opined that it was erroneous to read this judicial
trend into the wording of Section 34 of the Arbitration as a power to modify, revise and
change awards. This would be inconsistent with the plethora of judgments as well as
the scheme of the Arbitration Act, which sought to limit judicial interference.

Interestingly, to substantiate the aforementioned findings, the court in the present case
stated, "in interpreting a statutory provision, a Judge must put himself in the shoes of
Parliament and then ask whether Parliament intended this result. Parliament very clearly
intended that no power of modification of an award exists in Section 34 of the Arbitration
Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the
experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with
other legislations the world over."9 Therefore, through this extensive analysis of the
provision of Section 34, the Court settled the law that Section 34 could not be
interpreted to include a power to the court to modify the arbitral award.

Conclusion: The decision of the court in the present case helps solve the
inconsistencies in previous judgments of various courts and settle the law on the scope
of powers granted to courts under Section 34 of the Arbitration Act. This is a welcome
decision as it strengthens the pro-arbitration rhetoric of the court in recent judgments
by limiting the judicial interference in the arbitral process. However, in spite of the
court's decision on the law, the appeal was dismissed on the merits of the case. The
court refused to exercise its jurisdiction under Article 136 in favor of the appellants, with
respect to the facts of the case. The rationale for the same is that it would be unfair that
the awards be sent back to an arbitrator who is also appointed by the Central
Government on a non-consensual basis so that he can merely render the same award
again, without ensuring any real remedy to the respondents. Therefore, the Court
dismissed the appeal on the facts of the case but overturned the position of the HC with
respect to the law laid down regarding Section 34.
 3. McDermott Intl v. Burn Standard Ltd.
After the 1996 Act came into force, under Section 16 of the Act the party questioning the
jurisdiction of the arbitrator has an obligation to raise the said question before the
arbitrator. Such a question of jurisdiction could be raised if it is beyond the scope of his
authority. It was required to be raised during arbitration proceedings or soon after
initiation thereof. The jurisdictional question is required to be determined as a preliminary
ground. A decision taken thereupon by the Arbitrator would be subject matter of
challenge under Section 34 of the Act. In the event, the arbitrator opined that he had no
jurisdiction in relation thereto an appeal thereagainst was provided for under Section
37 of the Act.

The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral
award only to ensure fairness. Intervention of the court is envisaged in few circumstances
only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The
court cannot correct the errors of the arbitrators. It can only quash the award leaving the
parties free to begin the arbitration again if it desired. So, the scheme of the provision aims
at keeping the supervisory role of the court at minimum level and this can be justified as
parties to the agreement make a conscious decision to exclude the court’s jurisdiction by
opting for arbitration as they prefer the expediency and finality offered by it.

4. Dakshin Narayan Bijli Vitharan v. Navigant Technologies

While passing the judgement the court took made the following points:
 For an arbitral award to be legally finalised, it should be signed by all the members
of the tribunal.
 The award should be passed on one particular date i.e., both the awards should be
delivered simultaneously on the same date. As, after the final award the tribunal’s
duty officially comes to an end.
 The opinion of the minority in the tribunal, would stand supportive to the appellant’s
objections as the court would take the same into consideration.
It was then held by the court that it does not matter that the award was announced on 27th
April 2018 but what matters is when the signed copies were made available i.e., 19th May
2018. On 27th April 2018, the copies were only provided to be reviewed by the parties for
any issues whereas as no issues were brought up by the parties, the award was finalised and
signed on 19th May 2018. And hence, the period of limitation for filing the objections would
be computed from the date when the signed copies of the award were received by the parties.
This case tried to clear the cloudiness that rides the inter-relation of the Arbitration and
Conciliation Act, 1996 and limitation period. An award can be objected to from the date of
receipt of the award, it can be objected to within a limitation period of 3 months.
Under Section 34, an extension of 30 days can be allowed after the completion of the period
of limitation if the applicant can explain the cause of the delay. Whereas Section 31(5) of the
said act, states that the delivery of the award is sufficient for the termination of proceedings.
Section 3 of the same act states that the communication of the award stands equal to
receiving. All these making it hard to figure that whether the limitation period starts from the
date of receipt of the award or from the date it was delivered, which was the issue that was
discussed in this particular case.
Through this verdict, the court cleared the issue by stating that the limitation period should be
calculated from the day of receipt of the signed copies of the award. The court further gave
value to the contradicting opinion of the minority in the tribunal by stating that the award
should be signed by all the members of the tribunal to make it valid.

5. Renu Sagar
- Here there was a foreign award under the Foreign Awards Act. Enforcement of
foreign award would be refused when it is contrary to public policy on grounds – (i)
contrary to fundamental policy of Indian Law or (ii) interests of india or (iii) justice or
morality. In relation to the ‘fundamental policy of Indian law’, the Court held that “(i)
the award must invoke something more than merely a violation of Indian law to be
refused enforcement; (ii) a violation of economic interests of India is contrary to
public policy; (iii) it is the fundamental principle of law that orders of courts must be
complied with and a disregard for such orders would be contrary to public policy
- a breach of some legal principles or legislation which is so basic to Indian law that it
is not susceptible of being compromised. “Fundamental Policy” refers to the core
values of India’s public policy as a nation, which may find expression not only in
statutes but also time-honoured, hallowed principles which are followed by the Court

6. Gemini Bay v. Integrated Sales Service

NON-SIGNATORIES TO ARBITRATION AGREEMENT MAY BE BOUND BY THE
FOREIGN AWARD

Gemini Bay Transaction Pvt. Ltd. v. Integrated Sales Services Ltd. & Anr. 1

In Gemini Bay Transaction Pvt. Ltd. v. Integrated Sales Services Ltd. & Anr. the Supreme Court of India (SC)
dealt with some vital questions arising out of Part II of the Arbitration and Conciliation Act, 1996 (Arbitration
Act) on the topic of recognition and enforcement of foreign awards. Crucially, the SC held that foreign awards
can be binding against non- signatories to the arbitration agreement.

FACTUAL BACKGROUND

On September 18, 2000, Integrated Sales Services Ltd. (ISS), Hong Kong entered into a Representation
Agreement (Agreement) with DMC Management Consultants Ltd. (DMC), Nagpur, India under which ISS was
to assist DMC in selling its goods and services to prospective customers, and in consideration thereof was to
receive commission. By virtue of an amendment, the Agreement was to be governed by the laws of the State
of Delaware, U.S.A. (Delaware Laws). In 2008, DMC terminated contracts with clients that were introduced
and serviced by ISS. Disputes arose between ISS and DMC. ISS alleged that upon termination of the contracts,
DMC through related parties signed new contracts with these customers that were introduced by ISS, thereby
depriving ISS of commissions. Arbitration was commenced by ISS against DMC and the related parties which
included Mr. Arun Dev Upadhyay (Chairman), DMC Global Inc., Gemini Bay Consulting Limited (GBCL) and
Gemini Bay Transcription Pvt. Ltd. (GBT).

The arbitrator issued an award on March 28, 2010 (Award) in which he held that DMC, DMC Global Inc., GBCL
and GBT along with the Chairman were jointly and severally liable to recompense ISS. In doing so, the
arbitrator applied Delaware Laws and also found in favour of ISS that the corporate veil of DMC and DMC’s
related parties could be lifted as they had acted in collusion. Thus, the Award was issued as against non-
signatories. The Award was not challenged in USA.

ISS approached the High Court of Judicature at Bombay (HC), Nagpur Bench for enforcement of the Award.
Although the learned judge enforced the Award as against DMC, it found that the Award could not bind the
non-signatories to the arbitration clause. In the appeal before the Division Bench of the HC, the Division Bench
held that the award was enforceable as against the non-signatories as well.

Although DMC filed a special leave petition against the decision of the Division Bench, as it did not comply with
pre-deposit requirements, the SC dismissed the petition, and the Award became enforceable as against DMC.
The non-signatory parties moved the SC likewise against the decision of the Division Bench. These came up
before the SC.

FINDINGS OF THE COURT

The award holder does not need to prove that the award is binding on non-signatories

Since it was contended that the award holder must discharge the burden of proof that the foreign award is
binding as against non-signatories to the arbitration agreement, the SC examined the process of enforcement
of a foreign award and came to the conclusion that under Section 44 and 47 of the Arbitration Act the
enforcing court must simply be satisfied that the award is a foreign award. This means that (1) the award must
be an arbitral award on differences between persons arising out of legal relationships; (2) the differences may
be in contract or outside of contract; (3) the legal relationship must be commercial under the Indian law; (4)
the award must be made on or after the 11 day of October, 1960; (5) the award must be a New York
Convention (NY Convention) award and; (6) the award must be made in one of such territories which the
Central Government (GOI) by notification declares to be territories to which the NY Convention applies. As
such, the SC concluded that there is no burden of proof on the award holder to establish that the foreign
award can bind the non-signatory to the arbitration agreement. The SC held that the proof required under
Section 47 is only in respect of demonstrating that the award is a foreign award. Section 47 does not require
substantive evidence to “prove” that a non- signatory to an arbitration agreement can be bound by a foreign
award.

Foreign Award is enforceable as against non-signatories

The SC examined Section 46 and found that a foreign award is binding between persons and not parties,
thereby indicating a broader intent as compared to Section 35 (which deals with domestic awards and limits
itself to be binding as against parties and persons claiming under them). Thus, the SC held that the foreign
award is binding on non-signatories to the arbitration agreement.

Non-signatory to arbitration agreement cannot oppose enforcement under Section 48 (1)(a)

Keeping in mind the pro-enforcement policy as expressed in the NY Convention, the decisions of the SC in
Ssangyong Engg. & Construction Co. Ltd. v. NHAI2 and Vijay Karia v. Prysmian Cavi E Sistemi SRL 3, the SC held
that non-signatories to arbitration agreement cannot oppose enforcement under Section 48(1) (a). The SC held
that Section 48(1) (a) (which permits objections to the enforcement of an award on the ground of invalidity of
the arbitration agreement or incapacity of the parties thereto) restricts itself to parties to the agreement, thus,
excluding non-parties.

Importantly, the SC considered the decision in Dallah Real Estate and Tourism Co v Ministry of Religious Affairs
of the Government of Pakistan4 (Dallah) wherein a non-signatory to the arbitration agreement successfully
resisted enforcement of a foreign award on the ground that it was not party to the arbitration agreement. The
SC stated that Dallah was distinguishable on facts and also based on the wording of the Arbitration Act. The SC
also distinguished the decision of the Supreme Court of Victoria in IMC Aviation Solutions Pty Ltd. v Altain
Khuder LLC5 where a non-signatory to the arbitration agreement resisted enforcement of a foreign award. The
SC held that the Australian International Arbitration Act, 1974 was materially different from the Arbitration Act
as the former restricted the binding effect of the foreign award to “parties to the arbitration agreement”.

Rejection of plea under Section 48(1) (b) and (c)

The SC also rejected the plea that the Award ought not to be enforced under Section 48(1) (b) as the arbitrator
had not given adequate reasons to justify the lifting of corporate veil under Delaware Laws. The SC correctly
held that the said provision deals with a situation where the party against whom the award is invoked was not
given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise
unable to present his case. The plea that the arbitrator had not given adequate reasons could not be equated
to a violation of the rule of natural justice. Thus, a disguised review of the Award was not permitted under this
Section. It was also contended that since the damages were given in tort, the Award thus considered matters
outside the scope of the arbitration agreement and hence the Award was not enforceable under Section 48(1)
(c). The SC rejected this argument stating that it is well settled law that tort claims may be decided by an
arbitrator provided they are disputes that arise in connection with the agreement.

Division Bench, albeit correct in its conclusion, applied the law incorrectly in some parts

The SC also reproached the Division Bench of the HC for satisfying itself that the arbitral tribunal had correctly
applied the legal principles of Delaware Laws in the lifting of the corporate veil. The SC stated that Section 48
does not contain any ground for resisting enforcement of a foreign award that permits the enforcing court to
examine whether the foreign award is contrary to the substantive law agreed to by the parties. The SC held
that a review of the merits of the matter is impermissible during enforcement proceedings.

CONCLUSION

It is abundantly clear that the SC adopted a pro-enforcement stand in this decision. Appropriately, it permitted
enforcement of a foreign award which was issued against non-signatories to an arbitration agreement. Now, it
is settled law that (i) a domestic award is enforceable against non-signatories if they fall within the parameters
of the words persons claiming under the signatories6 in Section 35 and that (ii) a foreign award is similarly
enforceable if the non-signatories amount to persons within the ambit of Section 46.

The SC’s decision that non-signatories to an arbitration agreement cannot even raise an objection under
Section 48(1) (a) that they are not party to the arbitration agreement seems debatable though. If the award
debtor who is a signatory to the arbitration agreement is permitted to take up such a stand, it does not appear
correct that a non-signatory is not permitted to do so likewise. The reasoning in Dallah wherein the non-
signatory was permitted to resist enforcement of a foreign award seems to be aligned with the global
interpretation of NY Convention. In fact, the Arbitration Act itself under Section 48(1)(a) states that the parties
who can object to enforcement are – parties to the agreement referred to in Section 44. The said Section 44 in
turns uses the word “persons” which as recognized by the SC itself is a broad phrase that covers non-
signatories. Thus, as a corollary even a non-signatory should be permitted to object to the enforcement of a
foreign award on the ground that it is not a party to the arbitration agreement.

In any event what is overwhelming is that the SC has given a strong and clear message that foreign awards are
capable of being enforced as against non-signatories to the arbitration agreement. This only bodes well for
award holders.

7. Sangyong Engineering v NHAI

-circular being issued by respondent and unilaterally applied as binding on the other party
– upheld by the majority tribunal- new contract created for parties-contrary to
fundamental principles of justice as unilateral addition or alteration of contract- shocked
conscience of court- inherent powers of court invoked under art142.
The decision of the Supreme Court of India (“SC”) in Ssangyong Engineering &
Construction Co. Ltd. v. National Highways Authority of
India (NHAI) (“Ssansyong”), has led to three notable developments: (1) it
clarifies the scope of the “public policy” ground for setting aside an award as
amended by the Arbitration and Conciliation (Amendment) Act 2015 (“2015
Act”), (2) affirms the  prospective applicability of the 2015 Act and (3) adopts a
peculiar approach towards recognition of minority decisions.
Facts
The dispute arose out of a contract between the parties for construction of a
four-lane bypass on a National Highway in the State of Madhya Pradesh. The
appellant, Ssangyong Engineering, was to be compensated under the contract
for inflation in prices of components to be used in construction of the highway.
The agreed method of compensation for inflated prices was the Wholesale
Price Index (“WPI”) following 1993 – 1994 as the base year. However, National
Highways Authority of India (“NHAI”) subsequently issued a circular revising
the WPI to follow 2004 – 2005 as the base year for calculating the inflated
cost, which was disputed by Ssangyong. The parties referred this dispute to a
three member arbitral tribunal. The majority award upheld the revision of WPI
as being within the terms of the contract. The minority decision opined
otherwise, and held that the revision was de hors the contract. Aggrieved by
the majority finding, Ssangyong unsuccessfully challenged the award as being
against public policy before Delhi High Court, and consequently sought
remedy from the SC in appeal.
Scope of “Public Policy” under Section 34 
The public policy ground under Section 34 (2)(b)(ii) (challenge to domestic
awards) and Section 48(2)(b) (conditions for enforcement of foreign awards) of
the 1996 Act became a cause for concern due to a broad interpretation given
to the phrase “fundamental policy of Indian law” by the SC in ONGC Ltd. v.
Western Geco International Ltd. (“Western Geco”) – one of the three
explanations given to public policy under the aforesaid provisions. This has
already been discussed here. The impact of Western Geco, and later Associate
Builders v. DDA (“Associate Builders”) following Western Geco, was such that
“fundamental policy of Indian law” was left to be exploited for refusing
enforcement to foreign awards, and allowing domestic awards to be reviewed
on merits. This was changed by the 2015 amendments. The SC in
the Ssangyong case held that the broad interpretation given to “fundamental
policy” in Western Geco does not find place under Section 34, as amended by
the 2015 Act. It relied on the 246th Report of the Law Commission of India
which stated that public policy ground cannot have the same scope under
Section 34 and Section 48 [para 18]. The Report further stated that even
though grounds of court intervention in a domestic award ought to be wider,
the same was recognized by introducing “patent illegality” in Section 34(2A) by
the 2015 Act without making the same amendment to Section 48. The SC also
relied on the Supplementary to the 246th Report which was released in
February 2015 as a consequence of the SC’s judgments in Western
Geco and Associate Builders[para 20]. The Report stated that the amendments
to Section 34 ‘were suggested on the assumption that other terms such as
“fundamental policy of Indian law” or conflict with “most basic notions of morality
or justice” would not be widely construed.’
Therefore, the SC held that the wide import given to “fundamental policy of
Indian law” in Western Geco and Associate Builders is improper, and not in
accordance with the intent and purpose of the amended Sections 34 and 48 of
the 1996 Act [para 23]. The SC also clarified that the following interpretation
be given to the respective species of public policy under Section 34(2)(b)(ii),
and to “patent illegality” under Section 34(2A):

 “fundamental policy of Indian law” – contravention of a law protecting

national interest; disregarding orders of superior courts in India;
principles of natural justice such as audi alteram partem (in line
with Renusagar Power Co. Ltd. v. General Electric Co.) [paras 23 – 25];
 “most basic notions of morality or justice” – the SC adopted the ratio
of Associate Builderswherein it was observed that an award would be
against justice and morality when it shocks the conscience of the court;
 morality, however, would be determined on the basis of “prevailing
mores of the day” [para 24];
 “patent illegality” – illegality which goes to the root of the matter, but
excluding erroneous application of law by an arbitral tribunal or re-
appreciation of evidence by an appellate court. However, this ground
may be invoked if (a) no reasons are given for an award, (b) the view
taken by an arbitrator is an impossible view while construing a contract,
(c) an arbitrator decides questions beyond a contract or his terms of
reference, and (d) if a perverse finding is arrived at based on no
evidence, or overlooking vital evidence, or based on documents taken as
evidence without notice of the parties [paras 26 – 30].

The SC also affirmed its findings in BCCI v. Kochi Cricket where it held that the
2015 Act amending Section 34 is entirely prospective in nature and shall apply
to applications filed on or after 23.10.2015 (date of commencement of the
2015 Act), even if arbitration proceedings were commenced prior to the said
date [paras 10 – 12]. This would allow parties to such arbitrations to also
benefit from the findings of the SC in Ssangyong, eliminating exploitative use of
“public policy” and “patent illegality” to unduly interfere with domestic and
foreign awards.
Minority Decisions
The SC in Ssangyong set aside the judgments of the Single Judge and Division
Bench of the Delhi High Court. It also exercised its plenary power under Article
142 of the Constitution of India to declare the minority decision as the award
between the parties. Article 142 gives the SC power to make such orders
which may be necessary for doing “complete justice” in a case. This power has
been deliberately left undefined and elastic enough to grant suitable reliefs in a
given situation [Delhi Development Authority v. Skipper Construction
Company]. However, the prevailing view is that the SC cannot by-pass
statutory considerations while exercising its power under Article 142
[Supreme Court Bar Association v. Union of India].
The SC’s approach in Ssangyong raises questions about the overall efficacy of
the remedy available to the parties under Section 34 of the 1996 Act.
It is the prevailing position that the Act does not allow Indian courts to modify
an award while dealing with a Section 34 application [Delhi Metro Rail
Corporation Ltd. v. Delhi Airport Metro Express].1) The SC appeared to have
endorsed this scheme of the Act when it observed that if the majority award
was set aside, the parties would have to re-agitate their claims afresh before a
new arbitral tribunal [para 49]. The Court further stated that the delay in
resolution of disputes between the parties caused due to the foregoing would
be contrary to the objective of 1996 Act, i.e. to promote speedy resolution of
disputes. However, the Court overcame the limits prescribed under Section 34
by exercising its plenary power under Article 142 and declared the minority
decision as the enforceable award between the parties.
The precedential value of this judgment is limited in light of the previous SC
decision of State of Punjab v. Rafiq Masih where it observed that orders under
Article 142 do not constitute a binding legal precedent. Nevertheless, it raises
an important issue of the power of the Indian courts to effectively deal with an
application for setting aside an award. There have been instances in the past
where courts have set aside majority awards and upheld the minority decision
as the award between the parties. [Modi Entertainment v. Prasar
Bharati; ONGC v. Interocean Shipping]. The SC’s approach of invoking its
plenary power under Article 142 to declare the minority decision as the award
between the parties suggests that the approach adopted by the courts in the
past to uphold minority decisions was not proper. It further appears to be
against the principles enunciated by it in previous cases that Article 142 cannot
lose sight of the provisions of a statute.
As such, the Ssangyong judgment appears to indicate that if a majority award is
set aside by a court under Section 34 of the 1996 Act, the minority decision
cannot be upheld and the parties shall have to commence arbitral proceedings
afresh. On the other hand, the approach of the SC in Ssangyong may lead the
parties to agitate the dispute up to the SC in the hope to revive minority
decisions through Article 142 of the Constitution of India. It is therefore
necessary to bring in suitable clarifications / amendments to the Act to address
this uncertainty.

8. Olympus v. Meena Vijay

In the case of Olympus Superstructures vs. Meena Vijay Khaitan, the Apex
Court stated that it shall be noticed that the arbitral tribunal is now
empowered under sub-section (1) of Section 16 of the Act to look and
reconsider on its own jurisdiction which also includes deciding on any
objection related to the validity or even existence of the arbitration
agreement and for such purpose, the arbitration clause which is a part of the
contract and any decision by the arbitral tribunal related to the invalidity of
the contract shall not require ipso jure affect the validity of the arbitration
clause. It is clear from clause (b) of Section 16(1) which provides that a
decision by the arbitral tribunal related to invalidation of the main contract
shall not require ipso jure invalidation of the arbitration clause.

The apex court considered a question where there existed different arbitral clauses in the connecting agreements.
Speaking for the Bench, Jagannadha Rao, J held: “It will be noticed that under the Act of 1996 the arbitral
tribunal is now invested with power under Sub-section (1) of Section 16 to rule on its own jurisdiction including
ruling on any objection with respect to the existence or validity of the arbitration agreement and for that
purpose, the arbitration clause which forms part of the contract shall be treated as an agreement independent of
the other terms of the contract and any decision by the arbitral tribunal that the contract is null and void shall not
entail ipso jure affect the validity of the arbitration clause. This is clear from Clause (b) of Section 16(1) which
states that a decision by the arbitral tribunal that the main contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause.

In the present context Sub-sections (2) and (3) of Section 16 are relevant. They refer to two types of pleas and
the stages at which they can be raised. Under Sub-section (2) a plea that the arbitral tribunal does not have
jurisdiction shall be raised not later than the submissions of the statement of defence; however, a party shall not
be precluded from raising such a plea merely because he has appointed or participated in the appointment of an
arbitrator. Under subsection (3) a plea that the arbitral tribunal is exceeding the scope of its authority shall be
raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral
proceedings. These limitations in Sub-sections (2) and (3) are subject to the power given to the arbitrator under
Sub-section (4) of Section 16 that the tribunal may, in either of the cases referred to in Sub-section (2) or Sub-
section (3), admit a later plea if it considered the delay justified. Sub-section (5) requires the arbitral tribunal to
decide on the pleas referred to in Sub-section (2) or Sub-section (3) at that stage itself. It is further provided that
if either of the pleas is rejected and the arbitral tribunal holds in favour of its own jurisdiction, the tribunal will
continue with the arbitral proceedings and proceed to make the arbitral award. Then comes sub-section (6)
which states that the party aggrieved by such an arbitral award may make an application for setting aside such
an arbitral award in accordance with Section 34.”

9. Vijay Karia
-while discretion of courts may be employed in some of the grounds for refusing the
enforcement of a foreign award, courts do not have any discretion regarding the grounds
of fraud, corruption, fundamental policy of Indian law, basic notions of justice and
morality – sec 48(2) uses the term ‘may refuse’ allowing discretion to courts.
-that any rectifiable breach under the FEMA cannot be said to be a violation of the
fundamental policy of Indian law. It held that the Reserve Bank of India could step in and
direct the parties to comply with the provisions of the FEMA or even condone the breach.
However, the arbitral award would not be non-enforceable as the award would not
become void on this count
-no review on merits - Article V does not include a mistake in fact or law by the
arbitrator. Furthermore, under the New York Convention, the task of the enforcement
judge is a limited one

Section 34 of the Arbitration and Conciliation Act, 1996 (Act) sets out the
grounds on which arbitral awards passed in domestic arbitrations and
international commercial arbitrations seated in India can be set aside.  As
regards foreign awards (i.e. arbitral awards passed in foreign seated
arbitrations), whilst the same cannot be challenged in India, the enforcement of
the same in India can be validly objected to by the award debtor on grounds
that are set out in Section 48 of the Act. The grounds for setting aside arbitral
awards passed in domestic arbitrations and international commercial
arbitrations seated in India under Section 34 of the Act and the grounds for
refusing enforcement of foreign awards in India under Section 48 of the Act are
substantially identical. One such ground is if the arbitral award is found to be
contrary to the “public policy of India”.

What constitutes “public policy of India” is a question that has been discussed
by the Supreme Court in a number of judgments. Recently, in the matter of Vijay
Karia. v. Prysmian Cavi E Sistemi SRL (Vijay Karia)[1], the Supreme Court
considered and shed light on this question in the context of a foreign award,
which was alleged to be contravening the “public policy of India” on the ground
that it violated the Indian exchange control laws (i.e. Foreign Exchange
Management Act, 1999 (FEMA) and regulations thereunder) as it directed the
transfer of shares from parties resident in India to parties resident outside India
at a discounted price.

Vijay Karia is a case brought under Section 48 of the Act where an award debtor
sought to avoid the enforcement in India of foreign awards passed in arbitration
proceedings conducted in London by the London Court of International
Arbitration. Among other things, the said foreign awards directed the transfer of
securities by the Appellant (an Indian entity) to the Respondent No. 1 (a foreign
entity) at a discount of 10%. As foreign exchange regulations under FEMA
require that  such transfer be made at the prevailing fair market value, and no
lesser, the Appellant resisting enforcement of the awards contended that the
awards were in contravention of FEMA and as such, against the public policy of
India thus being unenforceable in India.

While examining this question, the Court explained the distinction between the
current legal regime under FEMA when compared with the legal regime that
existed under its predecessor the Foreign Exchange Regulation Act, 1973
(FERA). The Court emphasised that FEMA is based on a policy
of managing foreign exchange, unlike FERA which focused on policing it and
pointed out that FEMA contained no provision which voided any transaction
violating its provisions unlike FERA which had an express provision (Section 47)
which did so. It was also pointed out that unlike FERA, FEMA did not contain any
provision for prosecution and punishment. The Court held that in case of a
FEMA violation, it would be possible to subsequently obtain permission from
the Reserve Bank of India (RBI) to condone the violation. Accordingly, such a
breach was a rectifiable one. In the circumstances, it was held that neither the
arbitral awards nor the agreement being enforced by the arbitral award, can,
therefore, be held to be of no effect in law. The Court placed heavy reliance on
the judgment of the Delhi High Court in Cruz City 1 Mauritius Holdings v. Unitech
Limited  (Cruz City)[2], which had in turn relied on the Supreme Court’s
judgment in Life Insurance Corporation of India  v. Escorts Limited[3].

The Court highlighted that a violation of the fundamental policy of Indian law
must amount to a breach of some legal principle or legislation which is so basic
to Indian law that it is not susceptible of being compromised. These would be
the core values of India’s public policy as a nation, reflected not only in statutes
but also time-honoured, hallowed principles which are followed by the
Courts. As such, the Supreme Court held that a breach under FEMA can
never be held to be a violation of the fundamental policy of Indian law.

This is a departure from the landmark judgment in Renusagar Power Company

Limited v. General Electric Company[4] where the Supreme Court delved into the
meaning of “public policy” in the context of an award that was alleged to be
violative of FERA and held that the provisions contained in FERA were enacted
to safeguard national economic interest and any violation of the said provisions
would be contrary to the public policy of India.

Interestingly, although passed in the context of enforcement of foreign awards,

the findings and conclusions of the Supreme Court in Vijay Karia have a direct
bearing on challenges to arbitral awards passed in India-seated international
commercial arbitrations raised under Section 34 of the Act. Given that India-
seated international commercial arbitrations involve non-resident / foreign
parties, the arbitral awards passed in such arbitrations generally contain
directions to one party to pay monies to the other thus consequentially
entailing the influx and/or outflow of foreign exchange depending on whether
the successful party is the resident or non-resident/foreign party. Challenges to
such awards on the grounds that the payment directions violate FEMA
regulations are routinely made particularly when the award directs payments to
be made to a non-resident / foreign party. In fact, in order to avoid a future
possible challenge on this ground, parties (more particularly non-resident /
foreign parties) consciously style their arbitral claim as a claim for damages
rather than a direct claim for the contractual sale price.[5]

The Supreme Court has, in the Vijay Karia judgment, held that in an

international commercial arbitration conducted in India, the ground of
challenge to an award relating to “public policy of India” would be the same as
the ground of resisting enforcement of a foreign award in India. This means that
the meaning of the phrase “public policy of India” as found in both Sections 48
and 34 of the Act is the same. In the circumstances, as the Supreme Court has
not treated a breach under FEMA as a violation of the “public policy of India”
from the perspective of a challenge to the enforcement of a foreign award, it
would naturally mean that the same breach (under FEMA) cannot be treated as
a violation of the “public policy of India” whilst testing an award passed in an
India-seated international commercial arbitration. Thus, going forward, courts
are likely to be disinclined to entertain a challenge to an award passed in an
India-seated international commercial arbitration premised on the award being
in contravention of the “public policy of India” for being violative of FEMA
regulations.

In view of the amendments introduced in the Act by way of the Arbitration &
Conciliation (Amendment) Act, 2015 (Amendment Act), a party challenging an
award passed in an India-seated international commercial arbitration is no
longer permitted to mount its challenge on the ground of a patent illegality
appearing on the face of the award. A challenge to an award passed in an India-
seated international commercial arbitration which is violative of FEMA
regulations was generally based on two grounds – (i) patent illegality appearing
on the face of the award; and (ii) the award contravening the “public policy of
India”. The Amendment Act took away ground (i) and a meaningful reading and
application of the Vijay Karia judgment would result in the extinguishment of
ground (ii).

In effect, this means that a challenge to an award passed in an India-seated

international commercial arbitration which is founded on the ground that the
same violates FEMA regulations would no longer be sustainable.  Whilst this
position had already been espoused by the Delhi High Court in Cruz City, it has
now received the Supreme Court’s conclusive stamp of approval in Vijay Karia.

The decision of the Supreme Court in Vijay Karia brings welcome clarity and
finality. It is a firm step forward in preserving the integrity of arbitral awards and
protecting awards from trifling technical challenges. It protects foreign parties
from being stranded despite holding a favorable award. It is likely to act as a
much needed booster shot to the confidence of foreign parties in India as a
viable location for arbitration.

10. NDA – Demystifying public policy conundrum

- New York convention – recognition of award may be refused on the basis of public
policy. Burden of proof on party attempting to resist enforcement. Section 48(2) provides
statutory expression to Article V (2). Public policy – core values of a legal system
deviated from. Brojo Nath case – public policy concerns public good and public interest.
 Public policy minimal use for foreign award. India – u/s 34 public policy is a ground to
set aside awards made by Indian seated arbitral tribunals and u/s it is a ground to resist
enforcement of foreign awards.
- Saw Pipes (overruled) – introduced concept of patent illegality- root of the matter, award
is unfair, unreasonable and shocks the conscience of the court.
- Western Geco - ‘Wednesbury principle’ i.e., an award may be set aside if it is perverse
and so irrational that no reasonable person would have arrived at the same. Allowed
review on merits as reasonableness of award seen. (setting a wrong trend)
- Associate Builders- ignoring vital evidence, disregarding orders of superior courts, taking
into account irrelevant things, patent illegality.
- 2015 amendment- patent illegality only limited to domestic awards u/s 34. Section 48- no
review on merits.
- Public policy to be construed as per the doctrine of public policy as applied by courts in
India- fraud, corruption, justice, morality, fundamental policy of Indian law.
- Cruz city case - while the width of discretion to refuse the enforcement of an arbitral
award is narrow and limited, if sufficient grounds are established, courts can accept the
contentions to refuse the enforcement of an arbitral award.
- Something more than contravention of law is required. There are certain other grounds
that courts have held to be contrary to public policy such as acting in bad faith, duress,
impartial hearing, surprise decisions, etc.
- in an international commercial arbitration conducted in India, the ground of challenge
relating to public policy of India would be the same as the ground of resisting
enforcement of a foreign award in India. This is because Section 34 of the A&C Act,
which deals with challenge to awards made by India-seated arbitral tribunals,
differentiates between international commercial arbitrations held in India and other
arbitrations held in India. Thus, after the Arbitration and Conciliation (Amendment) Act,
2015, grounds relating to patent illegality appearing on the face of the award do not apply
to (i) international commercial arbitration awards made in India; and (ii) foreign awards
being resisted in India.
11. Setting aside foreign award
12. National concept
13. Jurisdiction of Court
14. Can arbitral award be modified
15. Types of Interim Award
16. Public Policy
17. Section 16
18. Section 34
19. Section 14
20. Section 37
21. Section 48
-scope of enquiry under Section 48 does not permit review of a foreign arbitral award on
its merits. Courts do not have the ability to take a ‘second look’ at the foreign arbitral
award at the enforcement stage
- natural justice a ground- not able to present case- also a ground to resist enforcement.