SC: Court can’t interfere w/ arbitral award on ground of injustice being done

The Hon’ble Supreme Court, today, i.e. on 8th May 2019, in the matter of Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) pronounced that under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court.

The Hon’ble Supreme Court, inter alia, observed that:

It is the substance of the amendment that is to be looked at rather than the form.(Para 11)

Even in cases where, for avoidance of doubt, something is clarified by way of an amendment, such clarification cannot be retrospective if the earlier law has been changed substantively. (Para 11)

Section 34, as amended, will apply only to Section 34 applications that have been made to the Court on or after 23.10.2015, irrespective of the fact that the arbitration proceedings may have commenced prior to that date. (Para 12)

What is not subsumed within “the fundamental policy of Indian law”, namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality. (Para 26)

Re-appreciation of evidence, which is what an appellate court is permitted to do, cannot be permitted under the ground of patent illegality appearing on the face of the award. (Para 27)

A decision which is perverse while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse. (Para 30)

Where an arbitral tribunal has rendered an award which decides matters either beyond the scope of the arbitration agreement or beyond the disputes referred to the arbitral tribunal, the arbitral award could be said to have dealt with decisions on matters beyond the scope of submission to arbitration. (Para 42)

In the guise of misinterpretation of the contract, and consequent “errors of jurisdiction”, it is not possible to state that the arbitral award would be beyond the scope of submission to arbitration if otherwise the aforesaid misinterpretation (which would include going beyond the terms of the contract), could be said to have been fairly comprehended as “disputes” within the arbitration agreement, or which were referred to the decision of the arbitrators as understood by the authorities above. (Para 43)

If an arbitrator is alleged to have wandered outside the contract and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected on the ground of “patent illegality”, which would not apply to international commercial arbitrations that are decided under Part II of the Arbitration and Conciliation Act, 1996. (Para 43)

To bring in by the backdoor grounds relatable to Section 28(3) of the Arbitration and Conciliation Act, 1996to be matters beyond the scope of submission to arbitration under Section 34(2)(a)(iv) would not be permissible as this ground must be construed narrowly and so construed, must refer only to matters which are beyond the arbitration agreement or beyond the reference to the arbitral tribunal. (Para 43)

The expression “most basic notions of … justice” refers to substantively or procedurally, some fundamental principle of justice which has been breached, and which shocks the conscience of the Court. (This inference has been drawn on the basis of Para 44)

However, when it comes to the public policy of India argument based upon “most basic notions of justice”, it is clear that this ground can be attracted only in very exceptional circumstances when the conscience of the Court is shocked by infraction of fundamental notions or principles of justice. (Para 48)

A Circular, unilaterally issued by one party, cannot possibly bind the other party to the agreement without that other party’s consent. (Para 48)

A unilateral addition or alteration of a contract can never be foisted upon an unwilling party, nor can a party to the agreement be liable to perform a bargain not entered into with the other party. Clearly, such a course of conduct would be contrary to fundamental principles of justice as followed in this country, and shocks the conscience of this Court. (Para 48)

Under no circumstance can any Court interfere with an arbitral award on the ground that justice has not been done in the opinion of the Court. That would be an entry into the merits of the dispute which, as we have seen, is contrary to the ethos of Section 34 of the Arbitration and Conciliation Act, 1996.(Para 48)

Copy of judgement: Judgement_08-May-2019

-Tushar Kaushik

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