Interpretation of Sec. 34 of Arbitration & Conciliation Act, 1996.

Arbitrator in the institutional Arbitration passes any ex-parte Award after service of summons to the Respondents and the Respondent can prefer an appeal under Sec. 34 of Arbitration Act, 1996. If the court is convinced such award is against of Public Policy and/or Patent illegality.

It was held in the case of Venture Global Engineering LLC and Ors v. Tech Mahindra Ltd. and Ors[1] "The Award of an arbitral Tribunal can be set aside only on the grounds specified in Section 34 of the Arbitration & Conciliation Act, 1996 and on no other ground. The Court cannot act as an Appellate Court to examine the legality of Award, nor can it examine the merits of the claim by entering in a factual arena like an Appellate Court." Same was reiterated in the case of Sutlej Construction v. The Union Territory of Chandigarh[2]

 Grounds for Appeal under sec 34 (2) (a) are Incapacity, Invalid Arbitration Agreement, Improper Notice, Impossibility of presenting the case, Dispute not in the terms of arbitration, Decisions beyond the scope of the arbitrator, Composition of the tribunal or incompliance of Arbitral Procedure with the arbitration agreement.

The section also provides for a limitation period for application of such appeal which is within 3 months from the date of award and which shall be disposed within 1 year from the date of the notice served to the other party. Notice to the other party shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement as clarified in Explanation 5 of Sec 34.

The award can be set aside only if the party making application establishes the grounds on the basis of the record of the Arbitral tribunal[3] and if the court finds that the award is:

1. in conflict with the public policy of India which comprises of 3 things as clarified in explanation 1 of Section 34 i.e.

• award induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
• against the fundamental policy of Indian Law: or
• in contrast with the most basic notions of morality and justice.                                                                                                                                                                                                                                                                                                                                                         It was held in the case of Renusagar Power Co. Ltd. v. General Electric Co[4] that if award passed is in contravention of "(i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality", it shall be set aside. However, the Supreme Court described “Interest of India” as something which deals with India in the world community and its relations with foreign nations. Notably, the Supreme Court did not illustrate this ground in detail as the same is a dynamic concept which needs to evolve on a case by case basis. In the case of ONGC Ltd v. Western GECO Ltd[5], Supreme Court speaking through a three-judge bench interpreted and enhanced the scope of "fundamental policy of Indian Law" in order to constitute three separate heads –
• duty (of the tribunal) to adopt a judicial approach
• adhering to the principles of natural justice (by the tribunal) that the decision of the tribunal must not be "perverse or so irrational that no reasonable person would have arrived at the same".

In Associate Builders v Delhi Development Authority[6] the Supreme Court clarified that Award could be set aside if it shocks the conscience of the court in interpreting the morality and justice. Supreme Court held that the term “award is against justice and morality” would include the following:

• with regard to justice, the award should not be such that it shocks the conscience of the court;
• with regard to morality, there can be no universal standard, however, Supreme Court observed that both the English and the Indian courts have restricted the scope of morality to “sexual immorality” only;
• With respect to arbitration, it would be a valid ground when the contract is not illegal but against the mores of the day, however, held that this would only apply when it shocks the conscience of the court.                                                                                                                                                                                                                                                                                                                                                 2. Vitiated by patent illegality appearing on the face of the award.                                                                                                                    In the case of ONGC Ltd v Saw Pipes Ltd[7] The court held that its role was similar to an appellate/revision court in cases where application u/s 34 is filed to set aside an award. Therefore it widened the scope of interpretation of public policy significantly as the case could be decided on its merits. But an amendment in 2015 introduced Section 2A which curtailed the scope of interpretation by using the expression "patent illegality" as propounded in this case.                                                                                                                                    “Patent Illegality” would include:

1. fraud or corruption;
2. contravention of substantive law, which goes to the root of the matter;
3. the error of law by the arbitrator;
4. contravention of the Act itself;
5. where the arbitrator fails to consider the terms of the contract and usages of the trade as required under Section 28(3) of the Act; and
6. If the arbitrator does not give reasons for his decision.

It was held Venture Global Engg v. Satyam Computer Service Ltd[8] that an award could be set aside if it is contrary to public policy, or it is patently illegal. If the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which invokes Section 34. The award could also be set aside if it is as unfair and unreasonable as to shock the conscience of the court as it is against public policy.

The arbitrator is empowered by Sec 25 of the Act to continue with the proceedings if any of the parties fail to appear or produce its evidence. In continuation of this power, the arbitrator can pass an ex parte award, after following the PNJ i.e. providing notice and a reasonable opportunity to the respondent.

Delhi High Court in the case of Balkishan v. Mohni Finance Co.[9] said that where appellant failed to serve the notice personally though the postman had visited many times, the arbitrator should have given notice informing of its intention to initiate the proceedings ex parte, HC set aside the ex parte order in the interest of Justice.

[1] Venture Global Engineering LLC and Ors v. Tech Mahindra Ltd. and Ors (2017) 13 SCALE 91 (SC)

[2] Sutlej Construction v. The Union Territory of Chandigarh. (2017) 14 SCALE 240 (SC)

[3] Amendment Act, 2019

[4] Renusagar Power Co. Ltd. v. General Electric Co (1994) AIR 860 (SC)

[5] ONGC Ltd v. Western GECO Ltd (2015) AIR 363 (SC)

[6] Associate Builders v. Delhi Development Authority (2015) AIR 620 (SC)

[7] ONGC Ltd v. Saw Pipes Ltd (2003) 5 SCC 705

[8] Venture Global Engg v. Satyam Computer Service Ltd 2008 (4) SCC 190

[9] Balkishan v. Mohni Finance Co (2007)