01 November 2021, Monday

2 years ago

How should the courts apply the set-aside grounds: Supreme Court of India

09 September 2021 | Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation Ltd. | Civil Appeal No. 5627 of 20219 | L Nageswara Rao and S Ravindra Bhat JJ | Supreme Court of India | 2021 SCC OnLine SC 695

A 2-judge bench of the Supreme Court has attempted to explain how the set-aside grounds under Section 34 ACA should be applied. It has termed it “a disturbing tendency” that the set-aside courts dissect and reassess facts to conclude that an award needs intervention and then dub it as either perverse, patently illegal, or apply other grounds.

It further said that 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” and several decisions of the Supreme Court becoming a dead letter.

Then attempting to describe patent illegality, the court said it is “illegality which goes to the root of the matter.” In other words, the following is not an example of patent illegality:

  1. Every error of law committed by the arbitral tribunal.
  2. Erroneous application of the law.
  3. Contravention of law not linked to public policy or public interest.

The court also explains what patent illegality is:

  1. When the arbitrator takes an impossible view or interprets a clause in the contract in such a manner that no fair-minded or reasonable person would.
  2. If the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted.
  3. An arbitral award stating no reasons for its findings would make itself susceptible to challenge on this ground.
  4. 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.
  5. Consideration of documents not supplied to the other party is a facet of perversity falling within the expression ‘patent illegality’.

In deciding patent illegality what is not permitted:

  1. Re-appreciation of evidence to conclude that the award suffers from patent illegality appearing on the award's face (because the court does not sit in appeal over the award).

The court also considered the public policy ground and its ingredients, that is, “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.”

Considering these expressions, the court said that

  1. Violation of the Foreign Exchange Regulation Act, 1973, a statute enacted for the ‘national economic interest’, disregarding the superior courts in India, would violate fundamental policy of Indian law.
  2. Contravention of a statute only if it is linked to public policy or public interest.
  3. Further, if an arbitral award shocks the court's conscience, it can be set aside as conflicting with the most basic notions of justice. The ground of morality in this context encompasses awards involving elements of sexual morality, such as prostitution, or awards seeking to validate agreements that are not illegal but would not be enforced given the prevailing mores of the day.

Read the decision here.


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