SSANGYONG CONSTRUCTION CO. LTD. versus NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI) on 8 May 2019

[2019] 7 S.C.R.

ASSANGYONG ENGINEERING & CONSTRUCTION CO. LTD.

v.

NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI)(Civil Appeal No. 4779 of 2019)

B

MAY 08, 2019

[R. F. NARIMAN AND VINEET SARAN, JJ.]

Arbitration and Conciliation Act, 1996 – ss.34(2)(b)(ii),34(2)(a)(iii) – Respondent invited bids for construction of a four-lane bypass on National Highway 26 in the State of Madhya Pradesh– Appellant’s bid was accepted – Price adjustment for four of thecomponents used in execution of the contract i.e. cement, steel, plantand machinery, and other local materials was to be calculated asper formula given in sub-clause 70.3 of the contract – Priceadjustment was being paid to the appellant by using the WholesalePrice Index (WPI) published by the Ministry of IndustrialDevelopment, which followed the years 1993-94= 100 (Old Series)– However, w.e.f 14.09.10, the Ministry stopped publishing the WPIfor the Old Series and started publishing indices under the WPIseries 2004-05= 100 (New Series) – As both the indices C1 and Cowere available to the appellant under the New Series for calculatingprice adjustment, the appellant raised bills accordingly – On15.02.13, the respondent issued a Policy Circular in which a newformula for determining indices was used stating that the Circularwould be applied to the contract in question, as a result of which, alinking factor would have to be provided by which the Old Serieswas connected to the New Series – Appellant challenged the Circular– Eventually, the arbitral tribunal consisting of three members bymajority award held that the Circular could be applied as it waswithin contractual stipulations – Petition u/s.34 filed by the appellant– Rejected by the High Court – Appellant inter alia pleaded thats.34(2)(b)(ii) was attracted as the award was in conflict with thepublic policy of India and that s.34(2)(a)(iii) would also be attractedas principles of natural justice were violated – Held: Governmentguidelines that were referred to and relied upon by the majorityaward to arrive at the linking factor were never in evidence beforethe Tribunal – Tribunal relied upon the said guidelines by itself C

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stating that they are to be found on a certain website – This beingthe case, the appellant would be directly affected, not being allowedto comment on the applicability or interpretation of those guidelines– Thus, majority award set aside u/s.34(2)(a)(iii) – Further, in orderto apply a linking factor, a Circular, unilaterally issued by one party,cannot possibly bind the other party to the agreement without thatother party’s consent – Indeed, the Circular expressly stipulatedthat it cannot apply unless the contractors furnish an undertaking/affidavit that the price adjustment under the Circular is acceptableto them – Appellant gave such undertaking only conditionally andwithout prejudice to its argument that the Circular does not andcannot apply – Majority award created a new contract for the partiesby applying the said unilateral Circular and by substituting aworkable formula under the agreement by another formula de horsthe agreement – Thus, a fundamental principle of justice wasbreached – Such a course of conduct would be contrary tofundamental principles of justice as followed in this country andshocks the conscience of the Court – However, this ground isavailable only in very exceptional circumstances, as in the presentcase – Judgments of the Single Judge and the Division Bench ofthe High Court, set aside – Consequently, the majority award isalso set aside – In order to do complete justice between the parties,invoking power u/Art.142 of the Constitution of India, the minorityaward is upheld – This award, together with interest now be executedbetween the parties – Foreign Awards (Recognition andEnforcement) Act, 1961 – s.7 – Constitution of India – Art.142 –UNCITRAL Model Law on International Commercial Arbitration –Art.26.

Arbitration and Conciliation Act, 1996 – s.34 – Setting asidean arbitral award, in conflict with “public policy of India”– Lawpost Amendment Act, 2015 – Held: “Public policy of India”, whethercontained in s.34 or s.48 of the 1996 Act would now mean the“fundamental policy of Indian law” as explained in paragraphs 18and 27 of Associate Builders case i.e. the fundamental policy ofIndian law would be relegated to the “Renusagar” understandingof this expression – Expansion of the phrase “public policy ofIndia”, made in Western Geco case has been done away with –Western Geco as explained in paragraphs 28 and 29 of AssociateBuilders, would no longer obtain, as under the guise of interfering A

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Awith an award on the ground that the arbitrator has not adopted ajudicial approach, the Court’s intervention would be on the meritsof the award, which cannot be permitted post amendment – However,principles of natural justice, as contained in ss.18 and 34(2)(a)(iii)of the 1996 Act continue to be grounds of challenge of an award,as is contained in paragraph 30 of Associate Builders – ArbitrationBand Conciliation (Amendment) Act, 2015.

Arbitration and Conciliation (Amendment) Act, 2015 –Applicability of – Held: Section 34, as amended, will apply only tos.34 applications that have been made to the Court on or after23.10.2015, irrespective of the fact that the arbitration proceedingsCmay have commenced prior to that date – Arbitration andConciliation Act, 1996 – s.34.

Interpretation of Statutes – Amendment by way of clarification– Retrospective or prospective – Held: Amendment made inExplanations 1 and 2 to s.34(2)(b)(ii) have been made for theDavoidance of any doubt – Even on principle, it is the substance ofthe amendment that is to be looked at rather than the form –Therefore, even in cases where, for avoidance of doubt, somethingis clarified by way of an amendment, such clarification cannot beretrospective if the earlier law has been changed substantively –EArbitration and Conciliation Act, 1996 – Explanations 1 and 2 tos.34(2)(b)(ii).

Words & expressions – “Public policy of India” – Meaningof – Held: Public policy of India is now constricted to mean firstly,that a domestic award is contrary to the fundamental policy of IndianFlaw, as understood in paragraphs 18 and 27 of Associate Builderscase, or secondly, that such award is against basic notions of justiceor morality as understood in paragraphs 36 to 39 of AssociateBuilders – Explanation 2 to s.34(2)(b)(ii) and Explanation 2 tos.48(2)(b)(ii) was added by the Amendment Act only so that WesternGeco case, as understood in Associate Builders, and paragraphsG28 and 29 in particular, is now done away with – Arbitration andConciliation Act, 1996 – Explanation 2 to s.34(2)(b)(ii) &Explanation 2 to s.48(2)(b)(ii) – Arbitration and Conciliation(Amendment) Act, 2015.

Arbitration and Conciliation Act, 1996 – s.34(2A) –”PatentHillegality” – Held: Insofar as domestic awards made in India are concerned, an additional ground is now available u/sub-s.(2A),added to s.34 by the Amendment Act, 2015– There must be patentillegality appearing on the face of the award, which refers to suchillegality as goes to the root of the matter but which does not amountto mere erroneous application of the law – If an arbitrator is allegedto have wandered outside the contract and dealt with matters notallotted to him, this would be a jurisdictional error which could becorrected on the ground of “patent illegality”, which would notapply to international commercial arbitrations that are decided underPart II of the 1996 Act – A decision which is perverse, as understoodin paragraphs 31 and 32 of Associate Builders, while no longerbeing a ground for challenge under “public policy of India”, wouldcertainly amount to a patent illegality appearing on the face of theaward – Arbitration and Conciliation (Amendment) Act, 2015.

Arbitration and Conciliation Act, 1996 – ss.28(3), 34(2A) –Held: Change made in s.28(3) by the Amendment Act really followswhat is stated in paragraphs 42.3 to 45 in Associate Builders case,namely, that the construction of the terms of a contract is primarilyfor an arbitrator to decide, unless the arbitrator construes thecontract in a manner that no fair-minded or reasonable personwould; that the arbitrator’s view is not even a possible view to take– Also, if the arbitrator wanders outside the contract and dealswith matters not allotted to him, he commits an error of jurisdiction– This ground of challenge will now fall within the new groundadded u/s.34(2A) – Arbitration and Conciliation (Amendment) Act,2015.

Arbitration and Conciliation Act, 1996 – s.34(2)(a)(iii) andss.18, 24(3), 26 – Held: ss.18, 24(3) and 26 are important pointersto what is contained in the ground of challenge mentioned ins.34(2)(a)(iii) – Under s.34(2)(a)(iii), one of the grounds ofchallenge of an arbitral award is that a party is unable to presentits case – Where materials are taken behind the back of the partiesby the Tribunal, on which the parties have had no opportunity tocomment, the ground u/s.34(2)(a)(iii) would be made out.

Arbitration and Conciliation Act, 1996 – s.34(2)(a)(iv) –”submission to arbitration”– Challenge to an arbitral award – Held:Where an arbitral tribunal has rendered an award which decidesmatters either beyond the scope of the arbitration agreement or AB

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Abeyond the disputes referred to the arbitral tribunal, the arbitralaward could be said to have dealt with decisions on matters beyondthe scope of submission to arbitration – To bring in by the backdoorgrounds relatable to s.28(3) of the 1996 Act to be matters beyondthe scope of submission to arbitration u/s.34(2)(a)(iv) would not bepermissible as this ground must be construed narrowly and soBconstrued, must refer only to matters which are beyond thearbitration agreement or beyond the reference to the arbitraltribunal.

Words & expressions –”most basic notions of … justice”–Meaning of – Held: Expression”most basic notions of … justice”Cfinds mention in Explanation 1 to sub-clause (iii) to s.34(2)(b) –Here, what is referred to is, substantively or procedurally, somefundamental principle of justice which has been breached, andwhich shocks the conscience of the Court – Arbitration andConciliation Act, 1996 – Explanation 1 to sub-clause (iii) toDs.34(2)(b).

Allowing the appeal, the Court

HELD: Applicability of the Arbitration and Conciliation(Amendment) Act, 2015E1.1 Since the Section 34, Arbitration and Conciliation Act, E1.1 Since the Section 34, Arbitration and Conciliation Act,1996 petition in the present case is dated 30.07.2016, animportant question as to the applicability of the parameters ofreview of arbitral awards would arise in this case. Moreparticularly, radical changes have been made by the Arbitrationand Conciliation (Amendment) Act, 2015 with effect fromF23.10.2015– in particular, in the “public policy of India” groundfor challenge of arbitral awards. The question which arises iswhether the amendments made in Section 34 are applicable toapplications filed under Section 34 to set aside arbitral awardsmade after 23.10.2015. The amendments made in ExplanationsG1 and 2 to Section 34(2)(b)(ii) have been made for the avoidanceof any doubt, which language, however, is not found in Section34(2A). Apart from the anomalous position which would arise ifthe Section were to be applied piecemeal, namely, thatExplanations 1 and 2 were to have retrospective effect, beingonly to remove doubts, whereas sub-section (2A) would have toH

apply prospectively as a new ground, with inbuilt exceptions,having been introduced for the first time, it is clear that even onprinciple, it is the substance of the amendment that is to be lookedat rather than the form. Therefore, even in cases where, foravoidance of doubt, something is clarified by way of anamendment, such clarification cannot be retrospective if theearlier law has been changed substantively. In the present case,fundamental changes have been made in the law. The expansionof “public policy of India” in ONGC Ltd. v. Saw Pipes Ltd., (2003)5 SCC 705 [“Saw Pipes”] and ONGC Ltd. v. Western GecoInternational Ltd., (2014) 9 SCC 263 [“Western Geco”] has beendone away with, and a new ground of “patent illegality”, with inbuiltexceptions, has been introduced. Given this, it is declared thatSection 34, as amended, will apply only to Section 34 applicationsthat have been made to the Court on or after 23.10.2015,irrespective of the fact that the arbitration proceedings may havecommenced prior to that date. [Paras 10-12] [542-A-C;544-G-H; 545-A-B; F-H]

Changes made by the Amendment Act, 2015

1.2 Whether the ground of “public policy of India” is usedto set aside an award under Section 34, or to refuse recognitionand enforcement of a foreign award under Section 48, Section34(2)(b) ought to have been construed in the same manner asSection 48(2)(b). This Court, in Saw Pipes, added yet anotherground, namely, that of “patent illegality” to the three groundsmentioned in Renusagar in order to set aside an award underSection 34 of the 1996 Act. Yet another expansion of the phrase“public policy of India” contained in Section 34 of the 1996 Actwas by another judgment of this Court in Western Geco, whichwas explained in Associate Builders. [Paras 13, 15 and 17][548-C-D; 549-D]

1.3 The expression “public policy of India”, whethercontained in Section 34 or in Section 48, would now mean the“fundamental policy of Indian law” as explained in paragraphs 18and 27 of Associate Builders, i.e., the fundamental policy of Indianlaw would be relegated to the “Renusagar” understanding of thisexpression. This would necessarily mean that the Western Gecoexpansion has been done away with. In short, Western Geco, as A

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Aexplained in paragraphs 28 and 29 of Associate Builders, wouldno longer obtain, as under the guise of interfering with an awardon the ground that the arbitrator has not adopted a judicialapproach, the Court’s intervention would be on the merits of theaward, which cannot be permitted post amendment. However,insofar as principles of natural justice are concerned, as containedBin Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue tobe grounds of challenge of an award, as is contained in paragraph30 of Associate Builders. The ground for interference insofar asit concerns “interest of India” has since been deleted, andtherefore, no longer obtains. Equally, the ground for interferenceCon the basis that the award is in conflict with justice or morality isnow to be understood as a conflict with the “most basic notionsof morality or justice”. This again would be in line with paragraphs36 to 39 of Associate Builders, as it is only such arbitral awardsthat shock the conscience of the court that can be set aside onthis ground. Thus, it is clear that public policy of India is nowDconstricted to mean firstly, that a domestic award is contrary tothe fundamental policy of Indian law, as understood in paragraphs18 and 27 of Associate Builders, or secondly, that such award isagainst basic notions of justice or morality as understood inparagraphs 36 to 39 of Associate Builders. Explanation 2 toESection 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) wasadded by the Amendment Act only so that Western Geco, asunderstood in Associate Builders, and paragraphs 28 and 29 inparticular, is now done away with. [Paras 23-25] [567-B-H]

1.3 Insofar as domestic awards made in India are concerned,

1.3 Insofar as domestic awards made in India are concerned, Fan additional ground is now available under sub-section (2A),added by the Amendment Act, 2015, to Section 34. Here, theremust be patent illegality appearing on the face of the award, whichrefers to such illegality as goes to the root of the matter but whichdoes not amount to mere erroneous application of the law. Inshort, what is not subsumed within “the fundamental policy ofGIndian law”, namely, the contravention of a statute not linked topublic policy or public interest, cannot be brought in by thebackdoor when it comes to setting aside an award on the groundof patent illegality. Secondly, it is also made clear that re- appreciation of evidence, which is what an appellate court ispermitted to do, cannot be permitted under the ground of patentillegality appearing on the face of the award. Paragraph 42.1 ofAssociate Builders, namely, a mere contravention of thesubstantive law of India, by itself, is no longer a ground availableto set aside an arbitral award. Paragraph 42.2 of AssociateBuilders, however, would remain, for if an arbitrator gives noreasons for an award and contravenes Section 31(3) of the 1996Act, that would certainly amount to a patent illegality on the faceof the award. The change made in Section 28(3) by the AmendmentAct really follows what is stated in paragraphs 42.3 to 45 inAssociate Builders, namely, that the construction of the terms ofa contract is primarily for an arbitrator to decide, unless thearbitrator construes the contract in a manner that no fair-mindedor reasonable person would; in short, that the arbitrator’s viewis not even a possible view to take. Also, if the arbitrator wandersoutside the contract and deals with matters not allotted to him,he commits an error of jurisdiction. This ground of challenge willnow fall within the new ground added under Section 34(2A).[Paras 26-29] [568-A-F]

1.4 A decision which is perverse, as understood inparagraphs 31 and 32 of Associate Builders, while no longer beinga ground for challenge under “public policy of India”, wouldcertainly amount to a patent illegality appearing on the face ofthe award. Thus, a finding based on no evidence at all or an awardwhich ignores vital evidence in arriving at its decision would beperverse and liable to be set aside on the ground of patentillegality. Additionally, a finding based on documents taken behindthe back of the parties by the arbitrator would also qualify as adecision based on no evidence inasmuch as such decision is notbased on evidence led by the parties, and therefore, would alsohave to be characterised as perverse. [Para 30] [568-G-H;569-A]

The Ground of Challenge under Section 34(2)(a)(iii)

1.5 Under Section 34(2)(a)(iii), one of the grounds ofchallenge of an arbitral award is that a party is unable to presentits case. In order to understand the import of Section 34(2)(a)(iii),Section 18 of the 1996 Act should also be seen. Section 24(3) is a AB

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Averbatim reproduction of Article 24(3) of the UNCITRAL ModelLaw on International Commercial Arbitration. Similarly, Section26(1) and (2) is a verbatim reproduction of Article 26 of theUNCITRAL Model Law. Sub-section (3) of Section 26 has beenadded by the Indian Parliament in enacting the 1996 Act. Sections18, 24(3), and 26 are important pointers to what is contained inBthe ground of challenge mentioned in Section 34(2)(a)(iii). UnderSection 18, each party is to be given a fullopportunity to presentits case. Under Section 24(3), all statements, documents, or otherinformation supplied by one party to the arbitral tribunal shall becommunicated to the other party, and any expert report orCdocument on which the arbitral tribunal relies in making itsdecision shall be communicated to the parties. Section 26 is animportant pointer to the fact that when an expert’s report is reliedupon by an arbitral tribunal, the said report, and all documents,goods, or other property in the possession of the expert, withwhich he was provided in order to prepare his report, must firstDbe made available to any party who requests for these things.Secondly, once the report is arrived at, if requested, parties haveto be given an opportunity to put questions to him and to presenttheir own expert witnesses in order to testify on the points atissue. [Paras 34-36] [575-D-E; 576-E-H; 577-A]E

1.6 Under the rubric of a party being otherwise unable topresent its case, the standard textbooks on the subject havestated that where materials are taken behind the back of theparties by the Tribunal, on which the parties have had noopportunity to comment, the ground under Section 34(2)(a)(iii)Fwould be made out. [Para 37] [577-B]

The Ground of Challenge under Section 34(2)(a)(iv)

1.7 So far as this defence is concerned, standard textbookson the subject have held that the expression “submission toarbitration” either refers to the arbitration agreement itself, orGto disputes submitted to arbitration, and that so long as disputesraised are within the ken of the arbitration agreement or thedisputes submitted to arbitration, they cannot be said to bedisputes which are either not contemplated by or which fall outsidethe arbitration agreement. The expression “submission to H

arbitration” occurs in various provisions of the 1996 Act. Thus,under Section 28(1)(a), an arbitral tribunal “… shall decide thedispute submitted to arbitration …”. Section 43(3) of the 1996Act refers to “… an arbitration agreement to submit futuredisputes to arbitration ….”. Also, it has been stated that wherematters, though not strictly in issue, are connected with mattersin issue, they would not readily be held to be matters that couldbe considered to be outside or beyond the scope of submissionto arbitration. [Para 39] [581-E-H]

1.8 Where an arbitral tribunal has rendered an award whichdecides matters either beyond the scope of the arbitrationagreement or beyond the disputes referred to the arbitral tribunal,as understood in Praveen Enterprises, the arbitral award couldbe said to have dealt with decisions on matters beyond the scopeof submission to arbitration. In the guise of misinterpretation ofthe contract, and consequent “errors of jurisdiction”, it is notpossible to state that the arbitral award would be beyond thescope of submission to arbitration if otherwise the aforesaidmisinterpretation (which would include going beyond the termsof the contract), could be said to have been fairly comprehendedas “disputes” within the arbitration agreement, or which werereferred to the decision of the arbitrators as understood by theauthorities above. If an arbitrator is alleged to have wanderedoutside the contract and dealt with matters not allotted to him,this would be a jurisdictional error which could be corrected onthe ground of “patent illegality”, which would not apply tointernational commercial arbitrations that are decided under PartII of the 1996 Act. To bring in by the backdoor grounds relatableto Section 28(3) of the 1996 Act to be matters beyond the scopeof submission to arbitration under Section 34(2)(a)(iv) would notbe permissible as this ground must be construed narrowly andso construed, must refer only to matters which are beyond thearbitration agreement or beyond the reference to the arbitraltribunal. [Paras 42, 43] [598-H; 599-A-E]

Most Basic Notions of Justice

1.9 The expression “most basic notions of … justice” findsmention in Explanation 1 to sub-clause (iii) to Section 34(2)(b).

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AHere again, what is referred to is, substantively or procedurally,some fundamental principle of justice which has been breached,and which shocks the conscience of the Court. The governmentguidelines that were referred to and strongly relied upon by themajority award to arrive at the linking factor were never inevidence before the Tribunal. In fact, the Tribunal relied uponBthe said guidelines by itself and states that they are to be foundon a certain website. These guidelines were never, in fact,disclosed in the arbitration proceedings. The appellant would bedirectly affected as it would otherwise be unable to present itscase, not being allowed to comment on the applicability orCinterpretation of those guidelines. For example, the appellantcould have argued, without prejudice to the argument that linkingis de hors the contract, that of the three methods for linking theNew Series with the Old Series, either the second or the thirdmethod would be preferable to the first method, which the majority award has applied on its own. For this reason, the majority awardDneeds to be set aside under Section 34(2)(a)(iii). [Paras 44-46][599-E-F; 604-B-F]

1.10 Insofar as the argument that a new contract had beenmade by the majority award for the parties, without the consentof the appellant, by applying a formula outside the agreement, asEper the Circular dated 15.02.2013, which itself could not beapplied without the appellant’s consent, this ground under Section34(2)(a)(iv) would not be available. The appellant argued beforethe arbitral tribunal that a new contract was being made by applyingthe formula outside what was prescribed, which was answered byFthe respondent, stating that it would not be possible to apply theold formula without a linking factor which would have to beintroduced. Considering that the parties were at issue on this,the dispute as to whether the linking factor applied, thanks tothe Circular dated 15.02.2013, is clearly something raised andargued by the parties, and is certainly something which would fallGwithin the arbitration clause or the reference to arbitration thatgoverns the parties. This being the case, this argument wouldnot obtain and Section 34(2)(a)(iv), as a result, would not beattracted. However, when it comes to the public policy of Indiaargument based upon “most basic notions of justice”, it is clearH

that this ground can be attracted only in very exceptionalcircumstances when the conscience of the Court is shocked byinfraction of fundamental notions or principles of justice. Theformula that was applied by the agreement continued to be appliedtill February, 2013 – in short, it is not correct to say that theformula under the agreement could not be applied in view of theMinistry’s change in the base indices from 1993-94 to 2004-05.Further, in order to apply a linking factor, a Circular, unilaterallyissued by one party, cannot possibly bind the other party to theagreement without that other party’s consent. Indeed, theCircular itself expressly stipulates that it cannot apply unless thecontractors furnish an undertaking/affidavit that the priceadjustment under the Circular is acceptable to them. Theappellant gave such undertaking only conditionally and withoutprejudice to its argument that the Circular does not and cannotapply. This being the case, it is clear that the majority awardcreated a new contract for the parties by applying the saidunilateral Circular and by substituting a workable formula underthe agreement by another formula de hors the agreement. Thisbeing the case, a fundamental principle of justice has beenbreached, namely, that a unilateral addition or alteration of acontract can never be foisted upon an unwilling party, nor can aparty to the agreement be liable to perform a bargain not enteredinto with the other party. Clearly, such a course of conduct wouldbe contrary to fundamental principles of justice as followed inthis country, and shocks the conscience of this Court. However,this ground is available only in very exceptional circumstances,such as the fact situation in the present case. Under nocircumstance can any Court interfere with an arbitral award onthe ground that justice has not been done in the opinion of theCourt. That would be an entry into the merits of the dispute whichis contrary to the ethos of Section 34 of the 1996 Act. Thejudgments of the Single Judge and of the Division Bench of theDelhi High Court are set aside. Consequently, the majority awardis also set aside. Under the Scheme of Section 34 of the 1996Act, the disputes that were decided by the majority award wouldhave to be referred afresh to another arbitration. This would causeconsiderable delay and be contrary to one of the importantobjectives of the 1996 Act, namely, speedy resolution of disputes AB

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534SUPREME COURT REPORTS

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534SUPREME COURT REPORTS

[2019] 7 S.C.R.

Aby the arbitral process under the Act. Therefore, in order to docomplete justice between the parties, invoking power underArticle 142 of the Constitution of India, and given the fact thatthere is a minority award which awards the appellant its claimbased upon the formula mentioned in the agreement betweenthe parties, the minority award, is upheld and it is this award,Btogether with interest, that will now be executed between theparties. Given the reliefs claimed by the appellant in theirstatement of claim before the learned arbitrators, what is awardedto the appellant is the principal sum of INR 2,01,42,827/- towardsprice adjustment payable under sub-clause 70.3 of the contract,Cfor the work done under the contract from September 2010 toMay 2014, as well as interest at the rate of 10%, compoundedmonthly from the due date of payment to the date of the award,i.e., 02.05.2016, plus future interest at the rate of 12% per annum(simple) till the date of payment. [Paras 47-49] [604-G-H;605-A-H; 606-A-F]D

Associate Builders v. Delhi Development Authority(2015) 3 SCC 49 ; ONGC Ltd. v. Western GecoInternational Ltd. (2014) 9 SCC 263 : [2014] 12 SCR 1– explained.

EBoard of Control for Cricket in India v. Kochi Cricket(P.) Ltd. and Ors., (2018) 6 SCC 287 : [2018] 2SCR 829 ; Sedco Forex International Drill, Inc. andOrs. v. Commissioner of Income Tax, Dehradun and Anr.,(2005) 12 SCC 717 : [2005] 5 Suppl. SCR 302 ; Stateof Goa v. Praveen Enterprises, (2012) 12 SCC 581 :F[2011] 10 SCR 1026 – relied on.

ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705 : [2003]3 SCR 691 ; Renusagar Power Co. Ltd. v. GeneralElectric Co. 1994 Supp (1) SCC 644 : [1993] 3 Suppl.SCR 22 ; DDA v. R.S. Sharma and Co. (2008) 13 SCCG80 : [2008] 12 SCR 785 ; Minmetals Germany GmbHv. Ferco Steel Ltd., [1999] CLC 647 ; CRW JointOperation v. PT Perusahaan Gas Negara (Persero)TBK, [2011] SGCA 33 ;Parsons & WhittemoreOverseas Co., Inc., v. Societe Generale De L’industrie H

Du Papier (RAKTA) 508 F.2d 969 ; Lesotho HighlandsDevelopment Authority v. Impregilo SpA and Ors. [2005]3 All ER 789 [HL] ; Patrick Ryan & Ann Ryan andKevin O’Leary (Clonmel) Ltd. & General Motors, [2018]IEHC 660 ; Dongwoo Mann+hummel Co. Ltd. v.Mann+hummel Gmbh, [2008] SGHC 67 ; BAZ v. BBAand Ors., [2018] SGHC 275 – referred to.

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Redfern and Hunter on International Arbitration byNigel Blackaby, Constantine Partasides, AlanRedfern, and Martin Hunter (Oxford UniversityPress, Fifth Ed., 2009) ; International CommercialArbitration by Gary B. Born (Wolters Kluwer, SecondEd., 2014) ; UNCITRAL Secretariat Guide onthe Convention on the Recognition and Enforcementof Foreign Arbitral Awards (New York, 1958) (2016Ed.) ; UNCITRAL Model Law on InternationalCommercial Arbitration ; New York Convention on theRecognition and Enforcement of Foreign ArbitralAwards – Commentary, edited by Dr. Reinmar Wolff(C.H. Beck, Hart, Nomos Publishing, 2012) ;Fouchard, Gaillard, Goldman on InternationalCommercial Arbitration (Kluwer Law International,1999) – referred to.

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Case Law Reference

[2018] 2 SCR 829[2005] 5 Suppl. SCR 302[2003] 3 SCR 691[2014] 12 SCR 1(2015) 3 SCC 49[1993] 3 Suppl. SCR 22 [2008] 12 SCR 785[2011] 10 SCR 1026

[2019] 7 S.C.R.

ACIVIL APPELLATE JURISDICTION : Civil Appeal No. 4779of 2019.

From the Judgment and Order dated 03.04.2017 of the HighCourt of Delhi at New Delhi in FAO (OS) COMM. No. 82 of 2016.

Mukul Rohatgi, Sr. Adv., Navin Kumar, Ms. Rashmeet Kaur,BMs. Arpana Majumdar, Ashwani Kumar, Advs. for the Appellant.

S. Nandakumar, Ms. Deepika Nandakumar, P. Palanivelu, M. S.Saran Kumar, Naresh Kumar, Advs. for the Respondent.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. Leave granted.C2. The respondent, National Highways Authority of India[“NHAI”], invited bids for construction of a four-lane bypass on NationalHighway 26 in the State of Madhya Pradesh. The appellant’s bid wasaccepted vide its letter of acceptance dated 30.12.2005, for a totalcontract value of INR 219,01,16,805/-. The appellant before us is aDcompany registered under the laws of the Republic of Korea, whereasthe respondent is a Government of India undertaking, responsible forconstruction of National Highways throughout the territory of India. Thecomponents used in execution of work for which price adjustment waspayable to the appellant are labour, plant and machinery, petroleum, oiland lubricant (POL), cement, steel, bitumen, and other local materials.EPrice adjustment for four of these components, i.e., cement, steel, plantand machinery, and other local materials was agreed to be calculated asper a formula given in sub-clause 70.3 of the contract. The relevantportion of sub-clause 70.3 states as under:

“ii. Adjustment for Cement ComponentFPrice adjustment for increase or decrease in the cost of cementprocured by the contractor shall be paid in accordance with thefollowing formula:

Vc = 0.85 x Pc x Ri x (C1 - C0)

100 C0G

Where,

Vc = increase or decrease in the cost of work during themonth under consideration due to change in rates of component.

C0 =the all India average wholesale price index for cementHon the day 28 days prior to the closing date of submission of bids, as published by Ministry of Industrial Development, Governmentof India, New Delhi.

C1 =the all India average wholesale price index for cementon the day 28 days prior to the last day of the period to which aparticular interim payment certificate is related, as published byMinistry of Industrial Development, Government of India, NewDelhi.

Pc =percentage of Cement component.”

Insofar as the component C0 is concerned, the date which is 28days prior to the last submission of bids is 29.09.2005, which is the basedate for calculation of price adjustment, since it is common ground thatthe date of submission of the bid is 27.10.2005.

3. The price adjustment was being paid to the appellant everymonth in terms of the agreed formula under sub-clause 70.3 by using theWholesale Price Index [“WPI”] published by the Ministry of IndustrialDevelopment, which followed the years 1993-94 = 100 [“Old Series”].However, with effect from 14.09.2010, the Ministry of IndustrialDevelopment stopped publishing the WPI for the Old Series and startedpublishing indices under the WPI series 2004-05 = 100 [“New Series”].It is important to note that even under this New Series, the WPIs for theprevious years beginning from April, 2005 were also being published bythe Ministry. This being so, as both the indices C1 and Co were availableto the appellant under the New Series for calculating price adjustment,the appellant raised its bills accordingly. It is undisputed that paymentsof 90% of the monthly bills on this basis were made for the periodSeptember, 2010 to February, 2013. On 15.02.2013, the respondent issueda Policy Circular [“Circular”], in which a new formula for determiningindices was used by applying a “linking factor” based on the year 2009-10. However, this Circular expressly stated:

“Thus, payment on account of price adjustment may be made byadopting the above process subject to the condition that thecontractors furnish undertaking / affidavit that this price adjustmentis acceptable to them and they will not make any claim, whatsoever,on this account in future after this payment.”

4. After this Circular, the respondent stated that the Circular wouldhave to be applied to the contract in question, as a result of which, alinking factor would have to be provided by which the Old Series was AB

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Aconnected to the New Series. The appellant never accepted this andknocked at the doors of the High Court of Madhya Pradesh through awrit petition in which it challenged the validity of the Circular. However,the High Court vide its order dated 03.04.2013 disposed of the writpetition with the observation that there exists a dispute resolutionmechanism through the Dispute Adjudication Board, after whichBarbitration is also provided, and as the appellant had an efficaciousalternative remedy, it was relegated to the same. The respondent thenasked the appellant to give its consent to receive monthly payment underthe Circular. The appellant submitted a conditional undertaking dated17.05.2013, in which it was clearly stated:C“The above undertaking is without prejudice to the Contractor’sright to challenge the said Circular dated 15.02.2013 as perprovisions of contract and other legal remedies available to theContractor before the appropriate forum.”

5. The appellant then approached the Delhi High Court vide anDapplication under Section 9 of the Arbitration and Conciliation Act, 1996[“1996 Act”], for interim protection against deduction and recoveriessought to be made by the respondent by applying the said Circular. TheDelhi High Court, by its order dated 31.05.2013, restrained the respondentfrom implementing the said Circular retrospectively.E

6. Meanwhile, the aforesaid dispute was referred to the DisputeAdjudicating Board as envisaged under sub-clause 67 of the contract.The Dispute Adjudicating Board, by its majority recommendation dated31.10.2013, recommended a certain linking factor and then arrived atthe figures of price adjustment in the aforesaid four materials by applyingFsuch linking factor. However, one of the members of the DisputeAdjudicating Board gave a dissenting note in favour of the appellant,recommending that in view of the express terms of the contract, theprovisions contained in the impugned Circular cannot be applied forcalculation of price adjustment. Aggrieved by the recommendations ofthe Dispute Adjudicating Board, the appellant issued a notice ofGdissatisfaction dated 19.11.2013, and referred the dispute to an arbitraltribunal consisting of three members. The appellant raised a claim ofINR 2,01,42,827/- towards unpaid price adjustment for the periodSeptember 2010 up to May 2014, plus INR 1,00,86,417/- for interest onthe aforesaid unpaid amount. The dispute that was thus referred toHarbitration was a narrow one, namely, as to whether price adjustment

would continue under the terms of the contract, or whether the Circulardated 15.02.2013, applying the linking factor, would have to be applied.Two out of three members of the arbitral tribunal, by their award dated02.05.2016 made at New Delhi, after noting the arguments of both sides,held that the Circular could be applied as it was within contractualstipulations, as has been held by the Dispute Adjudicating Board, andhence, rejected the appellant’s claim. While doing so, the majority awardapplied certain government guidelines of the Ministry of Commerce andIndustry, as per which it was stated that the establishment of a linkingfactor to connect the Old Series with the New Series is imperative, andtherefore, required. The appellant’s argument that the linking factor isde hors the contract and not at all required was, therefore, rejected.The majority award further made it clear that these guidelines areavailable on a certain website, as they were not on record. Paragraph13 of the guidelines was then referred to, and applying the arithmeticconversion method, which is one of the three methods referred to in thesaid paragraph, a linking factor was applied in accordance with theformula prescribed in the said method which is as follows:

“Arithmetic conversion method:

y = cx or c = y/x

Where y is average value of indices of 12 months for the OldSeries and x for the New Series; c being conversion factor.Meaning thereby that relation between y and x is linear. Averageof 12 months for x is taken 100.”

Thus, the final majority award, based on the aforesaid linking factor,was as follows:

“9. Award

9.1. Based on the findings above, we hold that introducing linkagefactor is imperative and required for conversion of indices fromthe base 2004-05 series to the earlier series base 1993-94 as basisfor determination of price adjustment. Linking factors for fouritems of work/materials involved in price adjustment, shall be asunder:

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Plant and Machinery1.840Other Materials1.873

9.2. The final amount of price adjustment shall be worked out onthe basis of above-mentioned linkage factors. After deducting theamount already paid to the Claimant, the amount payable to themagainst their claim shall be determined and the same shall be paidby the Respondent to the Claimant.

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9.3. This amount shall also attract interest @ 10% per annumcompounded monthly from due date of payment to the date ofaward, viz. 02.05.2016.

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9.4. Further interest @ 12% per annum, simple interest, shall bepayable to the Claimant from 02.05.2016 onwards till the date ofpayments. No future interest however shall be payable in casethe amounts are paid within 90 days of the date of the award, thatis by 02.08.2016.”

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A dissenting award was given by Shri Dilip Namdeo Potdukhe, inwhich the learned dissenting arbitrator expressly stated that neither theCircular nor the guidelines could be applied as they were de hors thecontract between the parties. Accordingly, the dissenting award awardedthe claim of the claimant-appellant in full.

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7. A Section 34 petition which was filed by the appellant wasrejected by the learned Single Judge of the Delhi High Court, by a judgmentand order dated 09.08.2016, in which it was held that a possible viewwas taken by the majority arbitrators which, therefore, could not beinterfered with, given the parameters of challenge to arbitral awards.FThe learned Single Judge also went on to hold that the New Seriespublished by the Ministry could be applied in the case of the appellant asthe base indices for 2004-05 under the New Series were available. Havingso held, the learned Single Judge stated that even though the viewexpressed in the dissenting award is more appealing, and that he preferredthat view, yet he found that since the majority award is a possible view,Gthe scope of interference being limited, the Section 34 petition wasdismissed. A Section 37 appeal to the Division Bench of the Delhi HighCourt yielded the same result, by the impugned judgment dated03.04.2017.

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8. Smt. Rashmeet Kaur, learned Advocate appearing on behalf ofthe appellant, first submitted that Section 34(2)(a)(iv) of the 1996 Actwas attracted to the facts of the present case as the majority awardcontained decisions on matters beyond the scope of the submission toarbitration. The learned counsel argued that this was a jurisdictional error,and a new contract was substituted by the majority award amounting toa novation of the old agreement and the old formula contained in theagreement, which would be a decision on a matter beyond the scope ofthe submission to arbitration. She also argued that Section 34(2)(b)(ii) ofthe 1996 Act would also be attracted as the award was in conflict withthe public policy of India, being contrary to the fundamental policy ofIndian law as well as the most basic notions of justice. According to her,the rewriting of the terms of the contract ought to shock the conscienceof the Court, as a new contract was foisted on one of the partiesunilaterally. For this, she cited various judgments. She also argued thatthe principles of natural justice were violated and, therefore, Section34(2)(a)(iii) would also be attracted. She argued that the governmentguidelines were never produced before the arbitrators, and the arbitratorsapplied the said guidelines behind the back of the parties, thus, resultingin breach of Section 34(2)(a)(iii) of the 1996 Act. Finally, though sheargued the ground of patent illegality, this argument was given up whenit was pointed out by the Court that this ground, which obtains underSection 34(2A) of the 1996 Act, would not be available in the case of aninternational commercial arbitration that is decided in India. Shri MukulRohatgi, learned Senior Advocate, supplemented the submissions of Smt.Rashmeet Kaur.

9. On the other hand, Shri S. Nandakumar, learned counselappearing on behalf of the respondent, argued that applying the newformula with the base index of 2004-05 would make the contractunworkable, as a result of which, it was imperative to have a linkingfactor. According to the learned counsel, the appellant itself applied alinking factor when the Tribunal asked it to do so, may be without prejudiceto its other contentions. In any case, this was a matter of interpretationof the agreement in which the arbitrators’ view is final, as has beencorrectly held by the learned Single Judge and the Division Bench. Healso cited some judgments in support of this proposition. According tohim, therefore, this appeal should be dismissed.

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AApplicability of the Arbitration and Conciliation(Amendment) Act, 2015

10. Since the Section 34 petition in the present case is dated30.07.2016, an important question as to the applicability of the parametersof review of arbitral awards would arise in this case. More particularly,Bradical changes have been made by the Arbitration and Conciliation(Amendment) Act, 2015 [“Amendment Act, 2015”] with effect from23.10.2015 – in particular, in the “public policy of India” ground forchallenge of arbitral awards. The question which arises is whether theamendments made in Section 34 are applicable to applications filed underSection 34 to set aside arbitral awards made after 23.10.2015. This Court,Cin Board of Control for Cricket in India v. Kochi Cricket (P.) Ltd.and Ors., (2018) 6 SCC 287 [“BCCI”], has held that the AmendmentAct, 2015 would apply to Section 34 petitions that are made after thisdate. Thus, this Court held:

“75. Shri Viswanathan then argued, relying upon R. RajagopalReddy v. Padmini Chandrasekharan [R. Rajagopal Reddy v.Padmini Chandrasekharan, (1995) 2 SCC 630], Fuerst DayLawson Ltd. v. Jindal Exports Ltd. [Fuerst Day Lawson Ltd.v. Jindal Exports Ltd., (2001) 6 SCC 356], SEDCO ForexInternational Drill Inc. v. CIT [SEDCO Forex International DrillInc. v. CIT, (2005) 12 SCC 717] and Bank of Baroda v. AnitaNandrajog [Bank of Baroda v. Anita Nandrajog, (2009) 9 SCC462 : (2009) 2 SCC (L&S) 689] , that a clarificatory amendmentcan only be retrospective, if it does not substantively change thelaw, but merely clarifies some doubt which has crept into the law.For this purpose, he referred us to the amendments made in Section34 by the Amendment Act and stated that despite the fact thatExplanations 1 and 2 to Section 34(2) stated that “for the avoidanceof any doubt, it is clarified”, this is not language that is conclusivein nature, but it is open to the court to go into whether there is, infact, a substantive change that has been made from the earlierposition or whether a doubt has merely been clarified. Accordingto the learned Senior Counsel, since fundamental changes havebeen made, doing away with at least two judgments of this Court,being Saw Pipes Ltd. [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5SCC 705] and Western Geco [ONGC Ltd. v. Western GecoInternational Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], D

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as has been held in para 18 in HRD Corpn. v. GAIL (India)Ltd. [HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471], itis clear that such amendments would only be prospective in nature.We do not express any opinion on the aforesaid contention sincethe amendments made to Section 34 are not directly before us. Itis enough to state that Section 26 of the Amendment Act makes itclear that the Amendment Act, as a whole, is prospective in nature.Thereafter, whether certain provisions are clarificatory, declaratoryor procedural and, therefore, retrospective, is a separate andindependent enquiry, which we are not required to undertake inthe facts of the present cases, except to the extent indicated above,namely, the effect of the substituted Section 36 of the AmendmentAct.”

xxx xxx xxx

“78. The Government will be well-advised in keeping the aforesaidStatement of Objects and Reasons in the forefront, if it proposesto enact Section 87 on the lines indicated in the Government’sPress Release dated 7-3-2018. The immediate effect of theproposed Section 87 would be to put all the important amendmentsmade by the Amendment Act on a back-burner, such as theimportant amendments made to Sections 28 and 34 in particular,which, as has been stated by the Statement of Objects andReasons, “… have resulted in delay of disposal of arbitration proceedingsand increase in interference of courts in arbitration matters,which tend to defeat the object of the Act”, and will now not be applicable to Section 34 petitions filed after23-10-2015, but will be applicable to Section 34 petitions filed incases where arbitration proceedings have themselves commencedonly after 23-10-2015. This would mean that in all matters whichare in the pipeline, despite the fact that Section 34 proceedingshave been initiated only after 23-10-2015, yet, the old law wouldcontinue to apply resulting in delay of disposal of arbitrationproceedings by increased interference of courts, which ultimatelydefeats the object of the 1996 Act. [These amendments have theeffect, as stated in HRD Corpn. v. GAIL (India) Ltd., (2018) 12SCC 471 of limiting the grounds of challenge to awards as follows:(SCC p. 493, para 18)

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“18. In fact, the same Law Commission Report has amendedSections 28 and 34 so as to narrow grounds of challengeavailable under the Act. The judgment in ONGC Ltd. v. SawPipes Ltd., (2003) 5 SCC 705 has been expressly done awaywith. So has the judgment in ONGC Ltd. v. Western GecoInternational Ltd., (2014) 9 SCC 263. Both Sections 34 and48 have been brought back to the position of law containedin Renusagar Power Plant Co. Ltd. v. General ElectricCompany, 1994 Supp (1) SCC 644, where “public policy” willnow include only two of the three things set out therein viz.“fundamental policy of Indian law” and “justice or morality”.The ground relating to “the interest of India” no longer obtains.“Fundamental policy of Indian law” is now to be understoodas laid down in Renusagar, 1994 Supp (1) SCC 644. “Justiceor morality” has been tightened and is now to be understoodas meaning only basic notions of justice and morality i.e. suchnotions as would shock the conscience of the Court asunderstood in Associate Builders v. DDA, (2015) 3 SCC 49 :(2015) 2 SCC (Civ) 204. Section 28(3) has also been amendedto bring it in line with the judgment of this Court in AssociateBuilders, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204, makingit clear that the construction of the terms of the contract isprimarily for the arbitrator to decide unless it is found that sucha construction is not a possible one.”]

It would be important to remember that the 246th Law CommissionReport has itself bifurcated proceedings into two parts, so thatthe Amendment Act can apply to court proceedings commencedon or after 23-10-2015. It is this basic scheme which is adheredto by Section 26 of the Amendment Act, which ought not to bedisplaced as the very object of the enactment of the AmendmentAct would otherwise be defeated.”

11. There is no doubt that the amendments made in Explanations1 and 2 to Section 34(2)(b)(ii) have been made for the avoidance of anydoubt, which language, however, is not found in Section 34(2A). Apartfrom the anomalous position which would arise if the Section were to beapplied piecemeal, namely, that Explanations 1 and 2 were to haveretrospective effect, being only to remove doubts, whereas sub-section (2A) would have to apply prospectively as a new ground, with inbuiltexceptions, having been introduced for the first time, it is clear that evenon principle, it is the substance of the amendment that is to be looked atrather than the form. Therefore, even in cases where, for avoidance ofdoubt, something is clarified by way of an amendment, such clarificationcannot be retrospective if the earlier law has been changed substantively.Thus, in Sedco Forex International Drill, Inc. and Ors. v.Commissioner of Income Tax, Dehradun and Anr., (2005) 12 SCC717 [“Sedco”], this Court held:

“17. As was affirmed by this Court in Goslino Mario [(2000) 10SCC 165 : (2000) 241 ITR 312] a cardinal principle of the tax lawis that the law to be applied is that which is in force in the relevantassessment year unless otherwise provided expressly or bynecessary implication. (See also Reliance Jute and IndustriesLtd. v. CIT [(1980) 1 SCC 139 : 1980 SCC (Tax) 67].) AnExplanation to a statutory provision may fulfil the purpose ofclearing up an ambiguity in the main provision or an Explanationcan add to and widen the scope of the main section [See SoniaBhatia v. State of U.P., (1981) 2 SCC 585, 598 : AIR 1981 SC1274, 1282 para 24]. If it is in its nature clarificatory then theExplanation must be read into the main provision with effect fromthe time that the main provision came into force [See ShyamSunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij MohanDas Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. PodarCement (P) Ltd., (1997) 5 SCC 482, 506]. But if it changes thelaw it is not presumed to be retrospective, irrespective of the factthat the phrases used are “it is declared” or “for the removal ofdoubts”.”

12. There is no doubt that in the present case, fundamental changeshave been made in the law. The expansion of “public policy of India” inONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 [“Saw Pipes”] andONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263[“Western Geco”] has been done away with, and a new ground of“patent illegality”, with inbuilt exceptions, has been introduced. Giventhis, we declare that Section 34, as amended, will apply only to Section34 applications that have been made to the Court on or after 23.10.2015,irrespective of the fact that the arbitration proceedings may havecommenced prior to that date.

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AChanges made by the Amendment Act, 2015

13. It is first necessary to survey the law insofar as it relates tothe ground of setting aside an award if it is in conflict with the publicpolicy of India, as it existed before the Amendment Act, 2015. InAssociate Builders v. Delhi Development Authority, (2015) 3 SCC49 [“Associate Builders”], this Court referred to the judgment inRenusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1)SCC 644 [“Renusagar”], as follows:

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“18. In Renusagar Power Co. Ltd. v. General ElectricCo. [Renusagar Power Co. Ltd. v. General Electric Co., 1994Supp (1) SCC 644], the Supreme Court construed Section7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement)Act, 1961:

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“7. Conditions for enforcement of foreign awards.—(1) Aforeign award may not be enforced under this Act—

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(b) if the Court dealing with the case is satisfied that—

xxx xxx xxx

(ii) the enforcement of the award will be contrary to thepublic policy.”

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In construing the expression “public policy” in the context of aforeign award, the Court held that an award contrary to

(i) The fundamental policy of Indian law,

(ii) The interest of India,

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(iii) Justice or morality,

would be set aside on the ground that it would be contrary tothe public policy of India. It went on further to hold that acontravention of the provisions of the Foreign ExchangeRegulation Act would be contrary to the public policy of Indiain that the statute is enacted for the national economic interestto ensure that the nation does not lose foreign exchange whichis essential for the economic survival of the nation (see SCCp. 685, para 75). Equally, disregarding orders passed by thesuperior courts in India could also be a contravention of the G

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fundamental policy of Indian law, but the recovery of compoundinterest on interest, being contrary to statute only, would notcontravene any fundamental policy of Indian law (see SCCpp. 689 & 693, paras 85 & 95).”

To this statement of the law, this Court added that the bindingeffect of the judgment of a superior court being disregardedwould be equally violative of the fundamental policy of Indian Law [seeparagraph 27].

14. It is important to note that Sections 34(2)(b) and 48(2)(b) ofthe 1996 Act, before their amendment in 2015, stated as follows:

“34. Application for setting aside arbitral award.—

xxx xxx xxx

–(2) An arbitral award may be set aside by the court only if xxx xxx xxx (b) The court finds that–

(i) The subject-matter of the dispute is not capable ofsettlement by arbitration under the law for the time being inforce, or

(ii) The arbitral award is in conflict with the public policy ofIndia.

Explanation.–Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of anydoubt, that an award is in conflict with the public policy ofIndia if the making of the award was induced or affectedby fraud or corruption or was in violation of section 75 orsection 81.

“48. Conditions for enforcement of foreign awards.—

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(2) Enforcement of an arbitral award may also be refused if theCourt finds that–

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[2019] 7 S.C.R.

A(b) The enforcement of the award would be contrary to thepublic policy of India.

Explanation.–Without prejudice to the generality of clause (b)of this section, it is hereby declared, for the avoidance of anydoubt, that an award is in conflict with the public policy ofBIndia if the making of the award was induced or affected byfraud or corruption.

It will thus be seen that whether the ground of “public policy ofIndia” is used to set aside an award under Section 34, or to refuseCrecognition and enforcement of a foreign award under Section 48, Section34(2)(b) ought to have been construed in the same manner as Section48(2)(b).

15. However, this Court, in Saw Pipes (supra), added yet anotherground, namely, that of “patent illegality” to the three grounds mentionedDin Renusagar (supra) in order to set aside an award under Section 34of the 1996 Act. This ground was added in the following terms:

“31. …… [Patent] Illegality must go to the root of the matter andif the illegality is of trivial nature it cannot be held that award isagainst the public policy. Award could also be set aside if it is soEunfair and unreasonable that it shocks the conscience of the court.Such award is opposed to public policy and is required to beadjudged void.”

16. Given this interpretation of the law, insofar as Section 34 wasconcerned, this Court, in DDA v. R.S. Sharma and Co., (2008) 13FSCC 80, summarised the law as it stood at that point of time, as follows:

“21. From the above decisions, the following principles emerge:(a) An award, which is

(i) contrary to substantive provisions of law; or G

(ii) the provisions of the Arbitration and Conciliation Act,1996; or

(iii) against the terms of the respective contract; or

(iv) patently illegal; or

(v) prejudicial to the rights of the parties; H

is open to interference by the court under Section 34(2) of theAct.

(b) The award could be set aside if it is contrary to:

(a) fundamental policy of Indian law; or (b) the interest of India; or

(c) justice or morality.

(c) The award could also be set aside if it is so unfair andunreasonable that it shocks the conscience of the court.

(d) It is open to the court to consider whether the award isagainst the specific terms of contract and if so, interfere withit on the ground that it is patently illegal and opposed to thepublic policy of India. ……”

17. Yet another expansion of the phrase “public policy of India”contained in Section 34 of the 1996 Act was by another judgment of thisCourt in Western Geco (supra), which was explained in AssociateBuilders (supra) as follows:

“28. In a recent judgment, ONGC Ltd. v. Western GecoInternational Ltd. [(2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12],this Court added three other distinct and fundamental juristicprinciples which must be understood as a part and parcel of thefundamental policy of Indian law. The Court held: (SCC pp. 278-80, paras 35 & 38-40)

“35. What then would constitute the ‘fundamental policyof Indian law’ is the question. The decision in ONGC [(2003) 5SCC 705 : AIR 2003 SC 2629] does not elaborate that aspect.Even so, the expression must, in our opinion, include all suchfundamental principles as providing a basis for administrationof justice and enforcement of law in this country. Withoutmeaning to exhaustively enumerate the purport of theexpression ‘fundamental policy of Indian law’, we may referto three distinct and fundamental juristic principles that mustnecessarily be understood as a part and parcel of thefundamental policy of Indian law. The first and foremost isthe principle that in every determination whether by a court orother authority that affects the rights of a citizen or leads to A

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any civil consequences, the court or authority concerned isbound to adopt what is in legal parlance called a ‘judicialapproach’ in the matter. The duty to adopt a judicial approacharises from the very nature of the power exercised by thecourt or the authority does not have to be separately oradditionally enjoined upon the fora concerned. What must beremembered is that the importance of a judicial approach injudicial and quasi-judicial determination lies in the fact that solong as the court, tribunal or the authority exercising powersthat affect the rights or obligations of the parties before themshows fidelity to judicial approach, they cannot act in anarbitrary, capricious or whimsical manner. Judicial approachensures that the authority acts bona fide and deals with thesubject in a fair, reasonable and objective manner and that itsdecision is not actuated by any extraneous consideration.Judicial approach in that sense acts as a check against flawsand faults that can render the decision of a court, tribunal orauthority vulnerable to challenge.

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38. Equally important and indeed fundamental to the policyof Indian law is the principle that a court and so also a quasi-judicial authority must, while determining the rights andobligations of parties before it, do so in accordance with theprinciples of natural justice. Besides the celebrated audi alterampartem rule one of the facets of the principles of natural justiceis that the court/authority deciding the matter must apply itsmind to the attendant facts and circumstances while taking aview one way or the other. Non-application of mind is a defectthat is fatal to any adjudication. Application of mind is bestdemonstrated by disclosure of the mind and disclosure of mindis best done by recording reasons in support of the decisionwhich the court or authority is taking. The requirement that anadjudicatory authority must apply its mind is, in that view, sodeeply embedded in our jurisprudence that it can be describedas a fundamental policy of Indian law.

39. No less important is the principle now recognised as asalutary juristic fundamental in administrative law that a decisionwhich is perverse or so irrational that no reasonable person would have arrived at the same will not be sustained in a courtof law. Perversity or irrationality of decisions is tested on thetouchstone of Wednesbury [Associated Provincial PictureHouses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 : (1947)2 All ER 680 (CA)] principle of reasonableness. Decisionsthat fall short of the standards of reasonableness are open tochallenge in a court of law often in writ jurisdiction of thesuperior courts but no less in statutory processes whereverthe same are available.

40. It is neither necessary nor proper for us to attempt anexhaustive enumeration of what would constitute thefundamental policy of Indian law nor is it possible to place theexpression in the straitjacket of a definition. What is importantin the context of the case at hand is that if on facts provedbefore them the arbitrators fail to draw an inference whichought to have been drawn or if they have drawn an inferencewhich is on the face of it, untenable resulting in miscarriage ofjustice, the adjudication even when made by an Arbitral Tribunalthat enjoys considerable latitude and play at the joints in makingawards will be open to challenge and may be cast away ormodified depending upon whether the offending part is or isnot severable from the rest.”

(emphasis in original)

29. It is clear that the juristic principle of a “judicial approach”demands that a decision be fair, reasonable and objective. On theobverse side, anything arbitrary and whimsical would obviouslynot be a determination which would either be fair, reasonable orobjective.

30. The audi alteram partem principle which undoubtedly is afundamental juristic principle in Indian law is also contained inSections 18 and 34(2)(a)(iii) of the Arbitration and ConciliationAct. These sections read as follows:

“18. Equal treatment of parties.—The parties shall be treatedwith equality and each party shall be given a full opportunity topresent his case.

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34. Application for setting aside arbitral award.—

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(2) An arbitral award may be set aside by the court onlyif—

(a) the party making the application furnishes proofthat—

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(iii) the party making the application was not given propernotice of the appointment of an arbitrator or of the arbitralproceedings or was otherwise unable to present hiscase;”

31. The third juristic principle is that a decision which isperverse or so irrational that no reasonable person would havearrived at the same is important and requires some degree ofexplanation. It is settled law that where:

(i) a finding is based on no evidence, or

(ii) an Arbitral Tribunal takes into account somethingirrelevant to the decision which it arrives at; or

(iii) ignores vital evidence in arriving at its decision, such decision would necessarily be perverse.

32. A good working test of perversity is contained in twojudgments. In Excise and Taxation Officer-cum-AssessingAuthority v. Gopi Nath & Sons [1992 Supp (2) SCC 312], itwas held: (SCC p. 317, para 7)

“7. … It is, no doubt, true that if a finding of fact is arrivedat by ignoring or excluding relevant material or by takinginto consideration irrelevant material or if the finding sooutrageously defies logic as to suffer from the vice ofirrationality incurring the blame of being perverse, then, thefinding is rendered infirm in law.”

In Kuldeep Singh v. Commr. of Police [(1999) 2 SCC 10 :1999 SCC (L&S) 429], it was held: (SCC p. 14, para 10)

“10. A broad distinction has, therefore, to be maintainedbetween the decisions which are perverse and those whichare not. If a decision is arrived at on no evidence or evidencewhich is thoroughly unreliable and no reasonable personwould act upon it, the order would be perverse. But if thereis some evidence on record which is acceptable and whichcould be relied upon, howsoever compendious it may be,the conclusions would not be treated as perverse and thefindings would not be interfered with.”

33. It must clearly be understood that when a court is applyingthe “public policy” test to an arbitration award, it does not actas a court of appeal and consequently errors of fact cannot becorrected. A possible view by the arbitrator on facts hasnecessarily to pass muster as the arbitrator is the ultimatemaster of the quantity and quality of evidence to be relied uponwhen he delivers his arbitral award. Thus, an award based onlittle evidence or on evidence which does not measure up inquality to a trained legal mind would not be held to be invalidon this score. Once it is found that the arbitrator’s approach isnot arbitrary or capricious, then he is the last word on facts. InP.R. Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H.Securities (P) Ltd. [(2012) 1 SCC 594 : (2012) 1 SCC (Civ)342], this Court held: (SCC pp. 601-02, para 21)

“21. A court does not sit in appeal over the award of anArbitral Tribunal by reassessing or reappreciating theevidence. An award can be challenged only under thegrounds mentioned in Section 34(2) of the Act. The ArbitralTribunal has examined the facts and held that both thesecond respondent and the appellant are liable. The caseas put forward by the first respondent has been accepted.Even the minority view was that the second respondentwas liable as claimed by the first respondent, but the appellantwas not liable only on the ground that the arbitratorsappointed by the Stock Exchange under Bye-law 248, in aclaim against a non-member, had no jurisdiction to decide aclaim against another member. The finding of the majorityis that the appellant did the transaction in the name of the A

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second respondent and is therefore, liable along with thesecond respondent. Therefore, in the absence of any groundunder Section 34(2) of the Act, it is not possible to re-examine the facts to find out whether a different decisioncan be arrived at.”

34. It is with this very important caveat that the two fundamentalprinciples which form part of the fundamental policy of Indianlaw (that the arbitrator must have a judicial approach and thathe must not act perversely) are to be understood.”

B

18. It is at this stage that certain fundamental changes were madeCin the law pursuant to the 246[th] Report of the Law Commission of India[“Law Commission Report”] of August 2014. The Law CommissionReport first suggested an amendment to the Preamble of the 1996 Actas follows:

“Amendment to the Preamble

D

After the words aforesaid “Model Law and Rules” the followingbe inserted:

“And WHEREAS it is further required to improve thelaw relating to domestic arbitration, international commercialarbitration and enforcement of foreign arbitral awards as also toEdefine the law relating to conciliation, in order to provide a fair,expeditious and cost-effective means of dispute resolution;”

[NOTE: This amendment is proposed in order to furtherdemonstrate and reaffirm the Act’s focus on achieving theobjectives of fairness, speed and economy in resolution of disputesFthrough arbitration.]”

The Law Commission Report, when it came to setting aside ofdomestic awards and recognition or enforcement of foreign awards,prescribed certain changes to the 1996 Act as follows:

“SETTING ASIDE OF DOMESTIC AWARDS ANDGRECOGNITION / ENFORCEMENT OF FOREIGNAWARDS

34. Once an arbitral award is made, an aggrieved party may applyfor the setting aside of such award. Section 34 of the Act dealswith setting aside a domestic award and a domestic award resulting H

from an international commercial arbitration whereas section 48deals with conditions for enforcement of foreign awards. As theAct is currently drafted, the grounds for setting aside (under section34) and conditions for refusal of enforcement (section 48) are inpari materia. The Act, as it is presently drafted, therefore, treatsall three types of awards – purely domestic award (i.e. domesticaward not resulting from an international commercial arbitration),domestic award in an international commercial arbitration and aforeign award – as the same. The Commission believes that thishas caused some problems. The legitimacy of judicial interventionin the case of a purely domestic award is far more than in caseswhere a court is examining the correctness of a foreign award ora domestic award in an international commercial arbitration.

35. It is for this reason that the Commission has recommendedthe addition of section 34 (2A) to deal with purely domestic awards,which may also be set aside by the Court if the Court finds thatsuch award is vitiated by “patent illegality appearing on the faceof the award.” In order to provide a balance and to avoid excessiveintervention, it is clarified in the proposed proviso to the proposedsection 34 (2A) that such “an award shall not be set aside merelyon the ground of an erroneous application of the law or by re-appreciating evidence.” The Commission believes that this willgo a long way to assuage the fears of the judiciary as well as theother users of arbitration law who expect, and given thecircumstances prevalent in our country, legitimately so, greaterredress against purely domestic awards. This would also do awaywith the unintended consequences of the decision of the SupremeCourt in ONGC vs. Saw Pipes Ltd, (2003) 5 SCC 705, which,although in the context of a purely domestic award, had theunfortunate effect of being extended to apply equally to bothawards arising out of international commercial arbitrations as wellas foreign awards, given the statutory language of the Act. Theamendment to section 28(3) has similarly been proposed solely inorder to remove the basis for the decision of the Supreme Courtin ONGC vs. Saw Pipes Ltd, (2003) 5 SCC 705 – and in orderthat any contravention of a term of the contract by the tribunalshould not ipso jure result in rendering the award becomingcapable of being set aside. The Commission believes no similar ABC

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amendment is necessary to section 28 (1) given the expressrestriction of the public policy ground.

36. Although the Supreme Court has held in Shri Lal Mahal vProgetto Grano Spa, (2014) 2 SCC 433, that the expansiveconstruction accorded to the term “public policy” in Saw Pipescannot apply to the use of the same term “public policy of India”in section 48(2)(b), the recommendations of the Commission goeven further and are intended to ensure that the legitimacy ofcourt intervention to address patent illegalities in purely domesticawards is directly recognised by the addition of section 34 (2A)and not indirectly by according an expansive definition to the phrase“public policy”.

37. In this context, the Commission has further recommendedthe restriction of the scope of “public policy” in both sections 34and 48. This is to bring the definition in line with the definitionpropounded by the Supreme Court in Renusagar Power PlantCo Ltd v General Electric Co, AIR 1994 SC 860 where theSupreme Court while construing the term “public policy” in section7(1)(b)(ii) of Foreign Awards (Recognition and Enforcement) Act,1961 held that an award would be contrary to public policy if suchenforcement would be contrary to “(i) fundamental policy of Indianlaw; or (ii) the interests of India; or (iii) justice or morality”. Theformulation proposed by the Commission is even tighter and doesnot include the reference to “interests of India”, which is vagueand is capable of interpretational misuse, especially in the contextof challenge to awards arising out of international commercialarbitrations (under S 34) or foreign awards (under S 48). Underthe formulation of the Commission, an award can be set aside onpublic policy grounds only if it is opposed to the “fundamentalpolicy of Indian law” or it is in conflict with “most basic notions ofmorality or justice”.”

19. Consequently, changes were suggested in Sections 28, 34,and 48 of the 1996 Act. The amendment to Section 28 was prescribed inthe following terms:

“Amendment of Section 28

16. In section 28,

xxx xxx xxx

(ii) In sub-section (3), after the words “tribunal shall decide”delete the words “in accordance with” and add the words“having regard to”

[Note: This amendment is intended to overrule the effectof ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705,where the Hon’ble Supreme Court held that anycontravention of the terms of the contract would resuin the award falling foul of Section 28 and consequentlybeing against public policy.]”

Similarly, amendment of Section 34 was prescribed as follows:

“Amendment of Section 34

18. In section 34,

(i) In sub-section (1), after the words “sub-section (2)” addthe words “, subsection (2A)”.

(ii) In sub-section (2), after the word “Explanation.—” deletethe words “Without prejudice to the generality of sub-clause(ii), it is hereby declared, for” and add the word “For” andafter the words “the avoidance of any doubt,” add the words“it is clarified” and after the words “public policy of India”add the word “only” and after the word “if” delete theword “-” and add the word “:” and add the sub-clause “(a)”before the words “the making of the award was induced oraffected by fraud or corruption or was in violation ofsection 75 or section 81” and add the word “; or” after thewords “violation of section 75 or section 81” and add subclause “(b) it is in contravention with the fundamental policyof Indian law; or” and add sub-clause “(c) it is in conflictwith the most basic notions of morality or justice.”

[NOTE: The proposed Explanation II is required to bringthe standard for setting aside an award in conformity withthe decision of the Supreme Court in Renusagar PowerCo. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644and Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2SCC 433, for awards in both domestic as well asinternational commercial arbitrations. Ground (c) reflects A

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an internationally recognized formulation. Such a formulationfurther tightens the Renusagar test and ensures that“morality or justice” – terms used in Renusagar – cannotbe used to widen the test.]

(iii) After the Explanation in sub-section (2), insert sub-section“(2A) An arbitral award arising out of arbitrations otherthan international commercial arbitrations, may also be setaside by the Court if the Court finds that the award is vitiatedby patent illegality appearing on the face of the award.

B

Provided that an award shall not be set aside merelyon the ground of an erroneous application of the law or byre-appreciating evidence.”

C

[NOTE: The proposed S 34(2A) provides an additional,albeit carefully limited, ground for setting aside an awardarising out of a domestic arbitration (and not an internationalcommercial arbitration). The scope of review is based onthe patent illegality standard set out by the Supreme Courtin ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705. Theproviso creates exceptions for erroneous application of thelaw and re-appreciation of evidence, which cannot be thebasis for setting aside awards.]

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So far as Section 48 is concerned, an amendment was proposed asfollows:

“Amendment of Section 48F 22. In section 48,

(i) In sub-section (2), in the “Explanation.—”, delete the words“Without prejudice to the generality of clause (b), it is herebydeclared, for” and add the word “For” and after the words“avoidance of any doubt,” add the words “it is clarified” andafter the words “the public policy of India” add the word“only” and after the word “if” delete “-” and “;” and insertsub-clause “(a)” before the words “the making of the award”and delete “.” And add “;” after the words “by fraud orcorruption” and add sub-clauses “(b) it is in contravention G

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with the fundamental policy of Indian law; (c) it is in conflictwith India’s most basic notions of morality or justice.”

20. After Western Geco (supra) was delivered by this Court, aSupplementary Report of February 2015 [“Supplementary Report”]was made by the Law Commission of India, in which the Law Commissionstated:

“10. The 246th Report of the Law Commission and thedecision in Western Geco.

10.1. The Law Commission, in the 246[th] Report, provided for thesame narrow standard, namely that a mere violation of law ofIndia would not be a violation of ‘public policy’ in cases ofinternational commercial arbitrations held in India. Itsuggested substantial amendments to Section 34 of the Act, withan endeavour to ensure that the Renusagar position applies to allforeign awards and all awards passed in international commercialarbitrations. With respect to domestic arbitrations, the Commissionrecommended that the “patent illegality” test be retained, althoughit be construed more narrowly than under the Saw Pipes regime.In this regard, the following provisions were added to Section34(2)(b)(ii) and a new provision, Section 34(2A) was introduced.These provisions are stated as follows:

S. 34(2)(b)(ii) the arbitral award is in conflict with the publicpolicy of India.

Explanation.—For the avoidance of any doubt, it is clarifiedthat an award is in conflict with the public policy of India onlyif:

(a) the making of the award was induced or affected by fraudor corruption or was in violation of section 75 or section 81; (b) it is in contravention with the fundamental policy of Indianlaw; or

(c) it is in conflict with the most basic notions of morality orjustice.

(2A) An arbitral award arising out of arbitrations other thaninternational commercial arbitrations, may also be set aside by A

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the Court if the Court finds that the award is vitiated by patentillegality appearing on the face of the award.

Provided that an award shall not be set aside merely on theground of an erroneous application of the law or by re-appreciating evidence.

10.2. The above amendments were suggested on the assumptionthat other terms such as “fundamental policy of Indian law” orconflict with “most basic notions of morality or justice” would notbe widely construed.

10.3. However, a month after the submission of the 246[th] Reportin August 2014, the term “fundamental policy of India” wasconstrued widely by a three-judge bench of Supreme Court inONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC263 in September to include an award that “no reasonable personwould have arrived at”. This permitted the review of an arbitralaward on merits on the basis of it violating public policy. TheSupreme Court’s decision was followed by a subsequent two-judge bench in Associate Builders v. Delhi DevelopmentAuthority, (2015) 3 SCC 49 dated 25.11.2014. In the words ofSupreme Court in Western Geco:

35. What then would constitute the “fundamental policy ofIndian law” is the question. The decision in ONGC [ONGCLtd. v. Saw Pipes Ltd., (2003) 5 SCC 705] does not elaboratethat aspect. Even so, the expression must, in our opinion, includeall such fundamental principles as providing a basis foradministration of justice and enforcement of law in this country.Without meaning to exhaustively enumerate the purport of theexpression “fundamental policy of Indian law”, we may referto three distinct and fundamental juristic principles that mustnecessarily be understood as a part and parcel of thefundamental policy of Indian law. The first and foremost is theprinciple that in every determination whether by a court orother authority that affects the rights of a citizen or leads toany civil consequences, the court or authority concerned isbound to adopt what is in legal parlance called a “judicialapproach” in the matter. The duty to adopt a judicial approacharises from the very nature of the power exercised by the

court or the authority does not have to be separately oradditionally enjoined upon the fora concerned. What must beremembered is that the importance of a judicial approach injudicial and quasi-judicial determination lies in the fact that solong as the court, tribunal or the authority exercising powersthat affect the rights or obligations of the parties before themshows fidelity to judicial approach, they cannot act in anarbitrary, capricious or whimsical manner. Judicial approachensures that the authority acts bona fide and deals with thesubject in a fair, reasonable and objective manner and that itsdecision is not actuated by any extraneous consideration.Judicial approach in that sense acts as a check against flawsand faults that can render the decision of a court, tribunal orauthority vulnerable to challenge.

38. Equally important and indeed fundamental to the policy ofIndian law is the principle that a court and so also a quasi-judicial authority must, while determining the rights andobligations of parties before it, do so in accordance with theprinciples of natural justice. Besides the celebrated audi alterampartem rule one of the facets of the principles of natural justiceis that the court/authority deciding the matter must apply itsmind to the attendant facts and circumstances while taking a view one way or the other. Non-application of mind is a defectthat is fatal to any adjudication. Application of mind is bestdemonstrated by disclosure of the mind and disclosure of mindis best done by recording reasons in support of the decisionwhich the court or authority is taking. The requirement that anadjudicatory authority must apply its mind is, in that view, sodeeply embedded in our jurisprudence that it can be describedas a fundamental policy of Indian law.

39. No less important is the principle now recognised as asalutary juristic fundamental in administrative law that adecision which is perverse or so irrational that noreasonable person would have arrived at the same willnot be sustained in a court of law. Perversity or irrationalityof decisions is tested on the touchstone of Wednesbury principle[Associated Provincial Picture Houses Ltd. v. WednesburyCorporation (1948) 1 KB 223, (1947) 2 All ER 680 (CA)] of ABC

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reasonableness. Decisions that fall short of the standards ofreasonableness are open to challenge in a court of law often inwrit jurisdiction of the superior courts but no less in statutoryprocesses wherever the same are available.

40. It is neither necessary nor proper for us to attempt anexhaustive enumeration of what would constitute thefundamental policy of Indian law nor is it possible to place theexpression in the straitjacket of a definition. What is importantin the context of the case at hand is that if on facts provedbefore them the arbitrators fail to draw an inference whichought to have been drawn or if they have drawn an inferencewhich is on the face of it, untenable resulting in miscarriage ofjustice, the adjudication even when made by an Arbitral Tribunalthat enjoys considerable latitude and play at the joints in makingawards will be open to challenge and may be cast away ormodified depending upon whether the offending part is or isnot severable from the rest.

(emphasis in original)

Therefore, among others, the Wednesbury principle ofreasonableness has now been incorporated into the public policytest under Section 34, as it is deemed to be part of “fundamentalpolicy of Indian law.”

10.4. Such a power to review an award on merits is contrary tothe object of the Act and international practice. As stated in theStatement of Objects and Reasons of the 1996 Act itself, one ofthe principal objects of that law was “minimization of judicialintervention” [The 1996 Act, Statement of Objects and Reasons,paragraph 4(v)].

10.5. As the Supreme Court’s judgment in Western Geco (supra)would expand the Court’s power rather than minimise it, and giventhat it is also contrary to international practice, a clarification needsto be incorporated to ensure that the term “fundamental policy ofIndian law” is narrowly construed. If not, all the amendmentssuggested by the Law Commission in relation to construction ofthe term “public policy” will be rendered nugatory, as the applicability of Wednesbury principles to public policy will certainlyopen the floodgates.

10.6. This will have four major deleterious effect, being (a) afurther erosion of faith in arbitration proceedings amongstindividuals and businesses in India and abroad; (b) a reduction inpopularity of India as a destination for international and domesticcommercial arbitration; (c) increased investor concern, amongstdomestic and foreign investors, about the efficacy and speed ofdispute resolution and potential for judicial interference; and, (d)an incidental increase in judicial backlog. In this regard, thefollowing amendment to the draft is suggested, by insertingExplanation 2 to Section 34(2)(b)(ii) of the Act:

“For the avoidance of doubt the test as to whether there is acontravention with the fundamental policy of Indian law shallnot entail a review on the merits of the dispute.”

21. Pursuant to the Law Commission Report, the 1996 Act wasamended by the Amendment Act, 2015 with effect from 23.10.2015.The Statement of Objects and Reasons of the Arbitration and Conciliation(Amendment) Bill, 2015 is set out as follows:

“xxx xxx xxx

2. The Act was enacted to provide for speedy disposal of casesrelating to arbitration with least court intervention. With the passageof time, some difficulties in the applicability of the Act have beennoticed. Interpretation of the provisions of the Act by courts insome cases have resulted in delay of disposal of arbitrationproceedings and increase in interference of courts in arbitrationmatters, which tend to defeat the object of the Act.With a viewto overcome the difficulties, the matter was referred to the LawCommission of India, which examined the issue in detail andsubmitted its 176th Report. On the basis of the said Report, theArbitration and Conciliation (Amendment) Bill, 2003 wasintroduced in the Rajya Sabha on 22-12-2003. The said Bill wasreferred to the Department-related Parliamentary StandingCommittee on Personnel, Public Grievances, Law and Justice forexamination and report. The said Committee, submitted its Reportto Parliament on 4-8-2005, wherein the Committee recommendedthat since many provisions of the said Bill were contentious, the ABC

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[2019] 7 S.C.R.

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Bill may be withdrawn and a fresh legislation may be broughtafter considering its recommendations. Accordingly, the said Billwas withdrawn from the Rajya Sabha.

3. On a reference made again in pursuance of the above, theLaw Commission examined and submitted its 246th Report on“Amendments to the Arbitration and Conciliation Act, 1996” inAugust, 2014 and recommended various amendments in the Act.The proposed amendments to the Act would facilitate andencourage Alternative Dispute Mechanism, especially arbitration,for settlement of disputes in a more user-friendly, cost effectiveand expeditious disposal of cases since India is committed toimprove its legal framework to obviate in disposal of cases.

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4. As India has been ranked at 178 out of 189 nations in the worldin contract enforcement, it is high time that urgent steps are takento facilitate quick enforcement of contracts, easy recovery ofmonetary claims and award of just compensation for damagessuffered and reduce the pendency of cases in courts and hastenthe process of dispute resolution through arbitration, so as toencourage investment and economic activity.

D

5. As Parliament was not in session and immediate steps wererequired to be taken to make necessary amendments to theArbitration and Conciliation Act, 1996 to attract foreign investmentby projecting India as an investor friendly country having a soundlegal framework, the President was pleased to promulgate theArbitration and Conciliation (Amendment) Ordinance, 2015.

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xxx xxx xxx”F

22. Section 28(3), before the Amendment Act, read as follows:

“28. Rules applicable to substance of dispute.—

xxx xxx xxx

G

(3) In all cases, the arbitral tribunal shall decide in accordancewith the terms of the contract and shall take into account theusages of the trade applicable to the transaction.”

Section 28(3), after amendment, reads as follows:

“28. Rules applicable to substance of dispute.—

xxx xxx xxx

(3) While deciding and making an award, the arbitral tribunal shall,in all cases, take into account the terms of the contract and tradeusages applicable to the transaction.”

Section 34(2)(b)(ii), after amendment, reads as follows:

“34. Application for setting aside arbitral award.—

xxx xxx xxx

(2) An arbitral award may be set aside by the Court only if—

xxx xxx xxx

(b) the Court finds that—

xxx xxx xxx

(ii) the arbitral award is in conflict with the public policy ofIndia.

Explanation 1.—For the avoidance of any doubt, it isclarified that an award is in conflict with the public policyof India, only if,—

(i) the making of the award was induced or affected byfraud or corruption or was in violation of Section 75 orSection 81; or

(ii) it is in contravention with the fundamental policy ofIndian law; or

(iii) it is in conflict with the most basic notions of moralityor justice.

Explanation 2.—For the avoidance of doubt, the test as towhether there is a contravention with the fundamental policyof Indian law shall not entail a review on the merits of thedispute.

Sub-section (2A) of Section 34 was also added, which reads asfollows:

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A“34. Application for setting aside arbitral award.—

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(2A) An arbitral award arising out of arbitrations other thaninternational commercial arbitrations, may also be set aside bythe Court, if the Court finds that the award is vitiated by patentillegality appearing on the face of the award:

B

Provided that an award shall not be set aside merely on theground of an erroneous application of the law or by reappreciationof evidence.

xxx xxx xxx”C

Correspondingly, Section 48 was also amended to bring theunamended Section 48 in line with the amendments made in Section 34,except that sub-section (2A) of Section 34 is missing in Section 48 asthe said Section deals with recognition and enforcement of foreign awards.DSection 48, post amendment, reads as follows:

“48. Conditions for enforcement of foreign awards.—

xxx xxx xxx

(2) Enforcement of an arbitral award may also be refused if theCourt finds that—

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(b) the enforcement of the award would be contrary to thepublic policy of India.

Explanation 1.—For the avoidance of any doubt, it is clarifiedFthat an award is in conflict with the public policy of India, onlyif,—

(i) the making of the award was induced or affected byfraud or corruption or was in violation of Section 75 orSection 81; or G

(ii) it is in contravention with the fundamental policy ofIndian law; or

(iii) it is in conflict with the most basic notions of moralityor justice.

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Explanation 2.—For the avoidance of doubt, the test as towhether there is a contravention with the fundamental policyof Indian law shall not entail a review on the merits of thedispute.

23. What is clear, therefore, is that the expression “public policyof India”, whether contained in Section 34 or in Section 48, would nowmean the “fundamental policy of Indian law” as explained in paragraphs18 and 27 of Associate Builders (supra), i.e., the fundamental policyof Indian law would be relegated to the “Renusagar” understanding ofthis expression. This would necessarily mean that the Western Geco(supra) expansion has been done away with. In short, Western Geco(supra), as explained in paragraphs 28 and 29 of Associate Builders(supra), would no longer obtain, as under the guise of interfering with anaward on the ground that the arbitrator has not adopted a judicial approach,the Court’s intervention would be on the merits of the award, whichcannot be permitted post amendment. However, insofar as principles ofnatural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii)of the 1996 Act, these continue to be grounds of challenge of an award,as is contained in paragraph 30 of Associate Builders (supra).

24. It is important to notice that the ground for interference insofaras it concerns “interest of India” has since been deleted, and therefore,no longer obtains. Equally, the ground for interference on the basis thatthe award is in conflict with justice or morality is now to be understoodas a conflict with the “most basic notions of morality or justice”. Thisagain would be in line with paragraphs 36 to 39 of Associate Builders(supra), as it is only such arbitral awards that shock the conscience ofthe court that can be set aside on this ground.

25. Thus, it is clear that public policy of India is now constricted tomean firstly, that a domestic award is contrary to the fundamental policyof Indian law, as understood in paragraphs 18 and 27 of AssociateBuilders (supra), or secondly, that such award is against basic notionsof justice or morality as understood in paragraphs 36 to 39 of AssociateBuilders (supra). Explanation 2 to Section 34(2)(b)(ii) and Explanation2 to Section 48(2)(b)(ii) was added by the Amendment Act only so thatWestern Geco (supra), as understood in Associate Builders (supra),and paragraphs 28 and 29 in particular, is now done away with.

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A26. Insofar as domestic awards made in India are concerned, anadditional ground is now available under sub-section (2A), added by theAmendment Act, 2015, to Section 34. Here, there must be patent illegalityappearing on the face of the award, which refers to such illegality asgoes to the root of the matter but which does not amount to mereerroneous application of the law. In short, what is not subsumed withinB“the fundamental policy of Indian law”, namely, the contravention of astatute not linked to public policy or public interest, cannot be brought inby the backdoor when it comes to setting aside an award on the groundof patent illegality.

27. Secondly, it is also made clear that re-appreciation of evidence,Cwhich is what an appellate court is permitted to do, cannot be permittedunder the ground of patent illegality appearing on the face of the award.

28. To elucidate, paragraph 42.1 of Associate Builders (supra),namely, a mere contravention of the substantive law of India, by itself, isno longer a ground available to set aside an arbitral award. ParagraphD42.2 of Associate Builders (supra), however, would remain, for if anarbitrator gives no reasons for an award and contravenes Section 31(3)of the 1996 Act, that would certainly amount to a patent illegality on theface of the award.

29. The change made in Section 28(3) by the Amendment ActEreally follows what is stated in paragraphs 42.3 to 45 in AssociateBuilders (supra), namely, that the construction of the terms of a contractis primarily for an arbitrator to decide, unless the arbitrator construes thecontract in a manner that no fair-minded or reasonable person would; inshort, that the arbitrator’s view is not even a possible view to take. Also,if the arbitrator wanders outside the contract and deals with matters notFallotted to him, he commits an error of jurisdiction. This ground of challengewill now fall within the new ground added under Section 34(2A).

30. What is important to note is that a decision which is perverse,as understood in paragraphs 31 and 32 of Associate Builders (supra),Gwhile no longer being a ground for challenge under “public policy ofIndia”, would certainly amount to a patent illegality appearing on theface of the award. Thus, a finding based on no evidence at all or anaward which ignores vital evidence in arriving at its decision would beperverse and liable to be set aside on the ground of patent illegality.Additionally, a finding based on documents taken behind the back of theH

SSANGYONG ENG. & CONST. CO. LTD. v. NATIONALHIGHWAYS AUTH. OF INDIA (NHAI)[R. F. NARIMAN, J.]

parties by the arbitrator would also qualify as a decision based on noevidence inasmuch as such decision is not based on evidence led by theparties, and therefore, would also have to be characterised as perverse.

31. Given the fact that the amended Act will now apply, and thatthe “patent illegality” ground for setting aside arbitral awards ininternational commercial arbitrations will not apply, it is necessary toadvert to the grounds contained in Section 34(2)(a)(iii) and (iv) asapplicable to the facts of the present case.

Section 34(2)(a) Does Not Entail a Challenge to an Arbitral Award on Merits

32. Section 34(2)(a)(iii) and (iv) state as under:

“34. Application for setting aside arbitral award.—

xxx xxx xxx

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application furnishes proof that—

xxx xxx xxx

(iii) the party making the application was not given propernotice of the appointment of an arbitrator or of the arbitralproceedings or was otherwise unable to present his case;or

(iv) the arbitral award deals with a dispute not contemplatedby or not falling within the terms of the submission toarbitration, or it contains decisions on matters beyond thescope of the submission to arbitration:

Provided that, if the decisions on matters submitted toarbitration can be separated from those not so submitted,only that part of the arbitral award which containsdecisions on matters not submitted to arbitration may beset aside; or

33. In Renusagar (supra), this Court dealt with a challenge to aforeign award under Section 7 of the Foreign Awards (Recognition andEnforcement) Act, 1961 [“Foreign Awards Act”]. The Foreign Awards A

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AAct has since been repealed by the 1996 Act. However, consideringthat Section 7 of the Foreign Awards Act contained grounds which wereborrowed from Article V of the Convention on the Recognition andEnforcement of Foreign Arbitral Awards, 1958 [“New YorkConvention”], which is almost in the same terms as Sections 34 and 48of the 1996 Act, the said judgment is of great importance in understandingBthe parameters of judicial review when it comes to either foreign awardsor international commercial arbitrations being held in India, the groundsfor challenge/refusal of enforcement under Sections 34 and 48,respectively, being the same. After referring to the New York Convention,this Court delineated the scope of enquiry of grounds under Sections 34/C48 (equivalent to the grounds under Section 7 of the Foreign AwardsAct, which was considered by the Court), and held:

“34. Under the Geneva Convention of 1927, in order to obtainrecognition or enforcement of a foreign arbitral award, therequirements of clauses (a) to (e) of Article I had to be fulfilledand in Article II, it was prescribed that even if the conditions laiddown in Article I were fulfilled recognition and enforcement ofthe award would be refused if the Court was satisfied in respectof matters mentioned in clauses (a), (b) and (c). The principleswhich apply to recognition and enforcement of foreign awardsare in substance, similar to those adopted by the English courts atcommon law. (See: Dicey & Morris, The Conflict of Laws, 11thEdn., Vol. I, p. 578). It was, however, felt that the GenevaConvention suffered from certain defects which hampered thespeedy settlement of disputes through arbitration. The New YorkConvention seeks to remedy the said defects by providing for amuch more simple and effective method of obtaining recognitionand enforcement of foreign awards. Under the New YorkConvention the party against whom the award is sought to beenforced can object to recognition and enforcement of the foreignaward on grounds set out in sub-clauses (a) to (e) of clause (1) ofArticle V and the court can, on its own motion, refuse recognitionand enforcement of a foreign award for two additional reasonsset out in sub-clauses (a) and (b) of clause (2) of Article V. Noneof the grounds set out in sub-clauses (a) to (e) of clause (1) andsub-clauses (a) and (b) of clause (2) of Article V postulates achallenge to the award on merits.

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35. Albert Jan van den Berg in his treatise The New YorkArbitration Convention of 1958 : Towards a Uniform JudicialInterpretation, has expressed the view:

“It is a generally accepted interpretation of the Conventionthat the court before which the enforcement of the foreignaward is sought may not review the merits of the award. Themain reason is that the exhaustive list of grounds for refusal ofenforcement enumerated in Article V does not include amistake in fact or law by the arbitrator.Furthermore, underthe Convention the task of the enforcement judge is a limitedone. The control exercised by him is limited to verifying whetheran objection of a respondent on the basis of the grounds forrefusal of Article V(1) is justified and whether the enforcementof the award would violate the public policy of the law of hiscountry. This limitation must be seen in the light of the principleof international commercial arbitration that a national courtshould not interfere with the substance of the arbitration.” (p.269)

36. Similarly Alan Redfern and Martin Hunter have said:

36. Similarly Alan Redfern and Martin Hunter have said:

“The New York Convention does not permit any review on themerits of an award to which the Convention applies and, in thisrespect, therefore, differs from the provisions of some systemsof national law governing the challenge of an award, where anappeal to the courts on points of law may be permitted.”(Redfern & Hunter, Law and Practice of InternationalCommercial Arbitration, 2nd Edn., p. 461.)

37. In our opinion, therefore, in proceedings for enforcement of aforeign award under the Foreign Awards Act, 1961, the scope ofenquiry before the court in which award is sought to be enforcedis limited to grounds mentioned in Section 7 of the Act and doesnot enable a party to the said proceedings to impeach the awardon merits.

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65. This would imply that the defence of public policy which ispermissible under Section 7(1)(b)(ii) should be construed narrowly.In this context, it would also be of relevance to mention that under AB

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Article I(e) of the Geneva Convention Act of 1927, it is permissibleto raise objection to the enforcement of arbitral award on theground that the recognition or enforcement of the award is contraryto the public policy or to the principles of the law of the country inwhich it is sought to be relied upon. To the same effect is theprovision in Section 7(1) of the Protocol & Convention Act of1837 which requires that the enforcement of the foreign awardmust not be contrary to the public policy or the law of India. Sincethe expression “public policy” covers the field not covered by thewords “and the law of India” which follow the said expression,contravention of law alone will not attract the bar of public policyand something more than contravention of law is required.

66. Article V(2)(b) of the New York Convention of 1958 andSection 7(1)(b)(ii) of the Foreign Awards Act do not postulaterefusal of recognition and enforcement of a foreign award on theground that it is contrary to the law of the country of enforcementand the ground of challenge is confined to the recognition andenforcement being contrary to the public policy of the country inwhich the award is set to be enforced. There is nothing to indicatethat the expression “public policy” in Article V(2)(b) of the NewYork Convention and Section 7(1)(b)(ii) of the Foreign AwardsAct is not used in the same sense in which it was used in ArticleI(c) of the Geneva Convention of 1927 and Section 7(1) of theProtocol and Convention Act of 1937. This would mean that“public policy” in Section 7(1)(b)(ii) has been used in a narrowersense and in order to attract the bar of public policy theenforcement of the award must invoke something more than theviolation of the law of India. Since the Foreign Awards Act isconcerned with recognition and enforcement of foreign awardswhich are governed by the principles of private international law,the expression “public policy” in Section 7(1)(b)(ii) of the ForeignAwards Act must necessarily be construed in the sense thedoctrine of public policy is applied in the field of private internationallaw. Applying the said criteria, it must be held that the enforcementof a foreign award would be refused on the ground that it iscontrary to public policy if such enforcement would be contraryto (i) fundamental policy of Indian law; or (ii) the interests ofIndia; or (iii) justice or morality.”

This judgment was cited with approval in Redfern and Hunteron International Arbitration by Nigel Blackaby, Constantine Partasides,Alan Redfern, and Martin Hunter (Oxford University Press, Fifth Ed.,2009) [“Redfern and Hunter”] as follows:

“11.56. First, the New York Convention does not permit anyreview on the merits of an award to which the Convention applies.[This statement, which was made in an earlier edition of this book,has since been cited with approval by the Supreme Court of Indiain Renusagar Power Co. Ltd. v. General Electric Co. The courtadded that in its opinion ‘the scope of enquiry before the court inwhich the award is sought to be enforced is limited [to the groundsmentioned in the Act] and does not enable a party to the saidproceedings to impeach the Award on merits’]. Nor does the ModelLaw.”

The same theme is echoed in standard textbooks on internationalarbitration. Thus, in International Commercial Arbitration by Gary B.Born (Wolters Kluwer, Second Ed., 2014) [“Gary Born”], the learnedauthor deals with this aspect of the matter as follows:

“[12] No Judicial Review of Merits of Foreign or Non-Domestic Awards in Recognition Actions It is an almost sacrosanct principle of international arbitrationthat courts will not review the substance of arbitrators’ decisionscontained in foreign or nondomestic arbitral awards in recognitionproceedings. Virtually every authority acknowledges this rule andvirtually nobody suggests that this principle should be abandoned.When national courts do review the merits of awards, they labourto categorize their action as an application of public policy, excessof authority, or some other Article V exception, rather thanpurporting to justify a review of the merits.

[a] No Judicial Review of Awards Under New York and Inter-American Conventions Neither the New York Convention nor the Inter-AmericanConvention contains any exception permitting non-enforcementof an award simply because the arbitrators got their decision onthe substance of the parties’ dispute wrong, or even badly wrong.This is reasonably clear from the language of the Convention, A

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which makes no reference to the possibility of a review of themerits in Article V’s exhaustive list of the exclusive grounds fordenying recognition of foreign and nondomestic awards. There isalso no hint in the New York Convention’s drafting history of anyauthority to reconsider the merits of an arbitral award in recognitionproceedings.

Likewise, the prohibition against review of the merits of thearbitrator’s decision is one of the most fundamental pillars ofnational court authority interpreting the Convention. This prohibitionhas repeatedly and uniformly been affirmed by national courts, inboth common law and civil law jurisdictions. Simply put: “the courtmay not refuse to enforce an arbitral award solely on the groundthat the arbitrator may have made a mistake of law or fact”[Karaha Bodas Co. LLC v. Perusahaan PertambanganMinyak Dan Gas Bumi Negara, 364 F.3d 274, 287-88 (5th Cir.2004)]. Thus, in the words of the Luxembourg Supreme Court[Judgment of 24 November 1993, XXI Y.B. Comm. Arb. 617,623 (Luxembourg Cour Supérieure de Justice) (1996)]:

“The New York Convention does not provide for any controlon the manner in which the arbitrators decide on the merits,with as the only reservation, the respect of international publicpolicy. Even if blatant, a mistake of fact or law, if made by thearbitral tribunal, is not a ground for refusal of enforcement ofthe tribunal’s award.”

Or, as a Brazilian recognition decision under the Conventionheld [Judgment of 19 August 2009, Atecs Mannesmann GmbHv. Rodrimar S/A Transportes Equipamentos Industriais eArmazes Gerais, XXXV Y.B. Comm. Arb. 330, 331 (BrazilianTribunal de Justiça) (2010)]:

“these questions pertain to the merits of the arbitral awardthat, according to precedents from the Federal Supreme Courtand of this Superior Court of Justice, cannot be reviewed bythis Court since recognition and enforcement of a foreign awardis limited to an analysis of the formal requirements of theaward.”

Commentators have uniformly adopted the same view of theConvention [See, for e.g., K.-H. Böckstiegel, S. Kröll & P.Nacimiento, Arbitration in Germany 452 (2007)].”

Likewise, the UNCITRAL Secretariat Guide on the Conventionon the Recognition and Enforcement of Foreign Arbitral Awards (NewYork, 1958) (2016 Ed.) [“UNCITRAL Guide on the New YorkConvention”] also states:

“9. The grounds for refusal under article V do not include anerroneous decision in law or in fact by the arbitral tribunal. Acourt seized with an application for recognition and enforcementunder the Convention may not review the merits of the arbitraltribunal’s decision. This principle is unanimously confirmed in thecase law and commentary on the New York Convention.”

The Ground of Challenge under Section 34(2)(a)(iii)

34. Under Section 34(2)(a)(iii), one of the grounds of challenge ofan arbitral award is that a party is unable to present its case. In order tounderstand the import of Section 34(2)(a)(iii), Section 18 of the 1996Act should also be seen. Section 18 reads as follows:

“18. Equal treatment of parties.—The parties shall be treatedwith equality and each party shall be given a fullopportunity topresent his case.”

Section 24(3) also states as follows:

“24. Hearings and written proceedings.—

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(3) All statements, documents or other information supplied to, orapplications made to the arbitral tribunal by one party shall becommunicated to the other party, and any expert report orevidentiary document on which the arbitral tribunal may rely inmaking its decision shall be communicated to the parties.”

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ASection 26 of the 1996 Act is also important and states as follows:

“26. Expert appointed by arbitral tribunal.—(1) Unlessotherwise agreed by the parties, the arbitral tribunal may—

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(b) require a party to give the expert any relevant informationor to produce, or to provide access to, any relevant documents,goods or other property for his inspection.

(2) Unless otherwise agreed by the parties, if a party so requestsCor if the arbitral tribunal considers it necessary, the expert shall,after delivery of his written or oral report, participate in an oralhearing where the parties have the opportunity to put questions tohim and to present expert witnesses in order to testify on thepoints at issue.

D(3) Unless otherwise agreed by the parties, the expert shall, onthe request of a party, make available to that party for examinationall documents, goods or other property in the possession of theexpert with which he was provided in order to prepare his report.”

35. Section 24(3) is a verbatim reproduction of Article 24(3) ofthe UNCITRAL Model Law on International Commercial ArbitrationE[“UNCITRAL Model Law”]. Similarly, Section 26(1) and (2) is averbatim reproduction of Article 26 of the UNCITRAL Model Law.Sub-section (3) of Section 26 has been added by the Indian Parliamentin enacting the 1996 Act.

36. Sections 18, 24(3), and 26 are important pointers to what isFcontained in the ground of challenge mentioned in Section 34(2)(a)(iii).Under Section 18, each party is to be given a fullopportunity to presentits case. Under Section 24(3), all statements, documents, or otherinformation supplied by one party to the arbitral tribunal shall becommunicated to the other party, and any expert report or document onGwhich the arbitral tribunal relies in making its decision shall be communicated to the parties. Section 26 is an important pointer to thefact that when an expert’s report is relied upon by an arbitral tribunal,the said report, and all documents, goods, or other property in thepossession of the expert, with which he was provided in order to preparehis report, must first be made available to any party who requests forHthese things. Secondly, once the report is arrived at, if requested, parties have to be given an opportunity to put questions to him and to presenttheir own expert witnesses in order to testify on the points at issue.

37. Under the rubric of a party being otherwise unable to presentits case, the standard textbooks on the subject have stated that wherematerials are taken behind the back of the parties by the Tribunal, onwhich the parties have had no opportunity to comment, the ground underSection 34(2)(a)(iii) would be made out. In New York Convention onthe Recognition and Enforcement of Foreign Arbitral Awards –Commentary, edited by Dr. Reinmar Wolff (C.H. Beck, Hart, NomosPublishing, 2012), it is stated:

“4. Right to Comment

According to the principle of due process, the tribunal must grantthe parties an opportunity to comment on all factual and legalcircumstances that may be relevant to the arbitrators’ decision-making.

a) Right to Comment on Evidence and ArgumentsSubmitted by the Other Party As part of their right to comment, the parties must begiven an opportunity to opine on the evidence and argumentsintroduced in the proceedings by the other party. The right tocomment on the counterparty’s submissions is regarded as afundamental tenet of adversarial proceedings. However, inaccordance with the general requirement of causality, the denialof an opportunity to comment on a particular piece of evidence orargument is not prejudicial, unless the tribunal relied on this pieceof evidence or argument in making its decision.

In order to ensure that the parties can exercise their right tocomment effectively, the arbitral tribunal must grant them accessto the evidence and arguments submitted by the other side.Affording a party the opportunity to make submissions or to giveits view without also informing it of the opposing side’s claims andarguments typically constitutes a violation of due process, unlessspecific non-disclosure rules apply (e.g., such disclosure wouldconstitute a violation of trade secrets or applicable legal privileges).

In practice, national courts have afforded arbitral tribunalsconsiderable leeway in setting and adjusting the proceduresby which parties respond to one another’s submissions and A

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evidence, reasoning that there were “several ways of conductingarbitral proceedings.” Accordingly, absent any specific agreementby the parties, the arbitral tribunal has wide discretion in arrangingthe parties’ right to comment, permitting or excluding theintroduction of new claims, and determining which party may havethe final word.

b) Right to Comment on Evidence Known to or Determinedby the Tribunal

The parties’ right to comment also extends to facts thathave not been introduced in the proceedings by the parties, butthat the tribunal has raised sua sponte, provided it was entitled todo so. For instance, if the tribunal gained “out of courtknowledge” of circumstances (e.g., through its owninvestigations), it may only rest its decision on those circumstancesif it informed both parties in advance and afforded them theopportunity to comment thereon. The same rule applies to caseswhere an arbitrator intends to base the award on his or her ownexpert knowledge, unless the arbitrator was appointed for hisor her special expertise or knowledge (e.g., in quality arbitration).Similarly, a tribunal must give the parties an opportunity to commenton facts of common knowledge if it intends to base its decisionon those facts, unless the parties should have known that thosefacts could be decisive for the final award.”

(emphasis in original)

In Fouchard, Gaillard, Goldman on International CommercialArbitration (Kluwer Law International, 1999) [“Fouchard”] it is stated:

“In some rare cases, recognition or enforcement of an awardhas been refused on the grounds of a breach of due process. Oneexample is the award made in a quality arbitration where thedefendant was never informed of the identity of the arbitratorshearing the dispute [Danish buyer v German (F.R.) seller, IVY.B. Comm. Arb. 258 (1979) (Oberlandesgericht Cologne)]. Italso occurred in a case where various documents were submittedby one party to the arbitral tribunal but not to the other party[G.W.I. Kersten & Co. B.V. v. Société Commerciale Raoul Duvalet Co., XIX Y.B. Comm. Arb. 708 (Amsterdam Court of Appeals)(1992)], in another case where the defendant was not given the opportunity to comment on the report produced by the expertappointed by the tribunal [Paklito Inv. Ltd. v. Klockner EastAsia Ltd., XIX Y.B. Comm. Arb. 664, 671 (Supreme Court ofHong Kong) (1994)], and again where the arbitral tribunal criticizeda party for having employed a method of presenting evidencewhich the tribunal itself had suggested [Iran Aircraft Indus. vAvco Corp., 980 F.2d 141 (2nd Cir. 1992)].”

Gary Born (supra) states:

“German courts have adopted similar reasoning, holding that theright to be heard entails two related sets of rights: (a) a party isentitled to present its position on disputed issues of fact and law,to be informed about the position of the other parties and to adecision based on evidence or materials known to the parties [See,e.g., Judgment of 5 July 2011, 34 SCH 09/11, II(5)(c)(bb)(Oberlandesgericht Munchen)]; and (b) a party is entitled to adecision by the arbitral tribunal that takes its position into accountinsofar as relevant [See, e.g., Judgment of 5 October 2009, 34Sch 12/09 (Oberlandesgericht Munchen)]. Other authoritiesprovide comparable formulations of the content of the right to beheard [See, e.g., Slaney v. Int’l Amateur Athletic Foundation,244 F.3d 580, 592 (7th Cir. 2001)].”

Similarly, in Redfern and Hunter (supra):

Similarly, in Redfern and Hunter (supra):

“11.73. The national court at the place of enforcement thus has alimited role. Its function is not to decide whether or not the awardis correct, as a matter of fact and law. Its function is simply todecide whether there has been a fair hearing. One mistake in thecourse of the proceedings may be sufficient to lead the court toconclude that there was a denial of justice. For example, in a caseto which reference has already been made, a US corporation,which had been told that there was no need to submit detailedinvoices, had its claim rejected by the Iran-US Claims Tribunal,for failure to submit detailed invoices! The US court, rightly it issuggested, refused to enforce the award against the US company[Iran Aircraft Ind v Avco Corp. 980 F.2d. 141 (2nd Cir. 1992)].In different circumstances, a German court held that an award AB

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that was motivated by arguments that had not been raised by theparties or the tribunal during the arbitral proceedings, and thus onwhich the parties had not had an opportunity to comment, violateddue process and the right to be heard [See the decision of theStuttgart Court of Appeal dated 6 October 2001 referred to inLiebscher, The Healthy Award, Challenge in InternationalCommercial Arbitration (Kluwer law International, 2003), 406].Similarly, in Kanoria v Guinness, [2006] EWCA Civ. 222, theEnglish Court of Appeal decided that the respondent had not beenafforded the chance to present its case when critical legalarguments were made by the claimant at the hearing, which therespondent could not attend due to a serious illness. In thecircumstances, the court decided that ‘this is an extreme case ofpotential injustice’ and resolved not to enforce the arbitral award.

11.74. Examples of unsuccessful ‘due process’ defences toenforcement are, however, more numerous. In MinmetalsGermany v Ferco Steel, [1999] CLC 647, the losing respondentin an arbitration in China opposed enforcement in England on thegrounds that the award was founded on evidence that the arbitraltribunal had obtained through its own investigation. An Englishcourt rejected this defence on the basis that the respondent waseventually given an opportunity to ask for the disclosure of evidenceat issue and comment on it, but declined to do so. The court heldthat the due process defence to enforcement was not intended toaccommodate circumstances in which a party had failed to takeadvantage of an opportunity duly accorded to it.”

38. In Minmetals Germany GmbH v. Ferco Steel Ltd., [1999]CLC 647, the Queen’s Bench Division referred to this ground under theNew York Convention, and held as follows:

“The inability to present a case issue

Although many of those states who are parties to the New YorkConvention are civil law jurisdictions or are those which like Chinaderive the whole or part of their procedural rules from the civillaw and therefore have essentially an inquisitorial system, art. Vof the Convention protects the requirements of natural justicereflected in the audi alteram partem rule. Therefore, where thetribunal is procedurally entitled to conduct its own investigations into the facts, the effect of this provision will be to avoidenforcement of an award based on findings of fact derived fromsuch investigations if the enforcee has not been given anyreasonable opportunity to present its case in relation to the resultsof such investigations. Article 26 of the CIETAC rules byreference to which the parties had agreed to arbitrate provided:

‘Article 26 – The parties shall give evidence for the facts onwhich their claim or defence is based. The arbitration tribunalmay, if it deems it necessary, make investigations and collectevidence on its own initiative.’

That, however, was not treated by the Beijing court as permittingthe tribunal to reach its conclusions and make an award withoutfirst disclosing to both parties the materials which it had derivedfrom its own investigations. That quite distinctly appears from thegrounds of the court’s decision – that Ferco was, for reasons forwhich it was not responsible, unable ‘to state its view’. Thosereasons could only have been its lack of prior access to the sub-sale award and the evidence which underlay it. I conclude that itwas to give Ferco’s lawyer an opportunity to refute this materialthat the Beijing court ordered a ‘resumed’ arbitration.”

(at pp. 656-657)

The Ground of Challenge under Section 34(2)(a)(iv)

39. So far as this defence is concerned, standard textbooks on thesubject have held that the expression “submission to arbitration” eitherrefers to the arbitration agreement itself, or to disputes submitted toarbitration, and that so long as disputes raised are within the ken of thearbitration agreement or the disputes submitted to arbitration, they cannotbe said to be disputes which are either not contemplated by or which falloutside the arbitration agreement. The expression “submission toarbitration” occurs in various provisions of the 1996 Act. Thus, underSection 28(1)(a), an arbitral tribunal “… shall decide the dispute submittedto arbitration …”. Section 43(3) of the 1996 Act refers to “… an arbitrationagreement to submit future disputes to arbitration ….”. Also, it has beenstated that where matters, though not strictly in issue, are connectedwith matters in issue, they would not readily be held to be matters thatcould be considered to be outside or beyond the scope of submission toarbitration. Thus, in Fouchard (supra), it is stated:

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“This provision applies where the arbitrators have gone beyondthe terms of the arbitration agreement. It complements Article V,paragraph 1(a), which concerns invalid arbitration agreements.The two grounds are similar in nature: in both cases, the arbitratorwill have ruled in the absence of an arbitration agreement, eitherbecause the agreement is void (as in subsection (a)) or because itdoes not cover the subject-matter on which the arbitrator reacheda decision (as in subsection (c)). For that reason, more recentarbitration statutes often either treat the two grounds as one, as inArticle 1502 1[o] of the French New Code of Civil Procedure, orrefer generally to the “absence of a valid arbitration agreement,”as in Article 1065 of the Netherlands Code of Civil Procedure.

However, Article V, paragraph 1(c) does not cover all the caseslisted in Article 1502 3[o] of the French New Code of CivilProcedure, which provides that recognition or enforcement canbe refused where “the arbitrator ruled without complying with themission conferred upon him or her.” That extends to decisionsthat are either infra petita and ultra petita, as well as to situationswhere the arbitrators have exceeded their powers in theexamination of the merits of the case (for example, by acting asamiable compositeurs when that was not agreed by the parties,or by failing to apply the rules of law chosen by the parties).Generally speaking, such situations cannot be said to be outsidethe terms of the arbitration agreement within the meaning of theNew York Convention. In practice, it is only where the terms ofreference – which, provided that they have been accepted by theparties, can constitute a form of arbitration agreement – set outthe parties’ claims in detail that arbitrators who have decided issuesother than those raised in such claims can be said both to haveruled ultra petita and to have exceeded the terms of the arbitrationagreement. If, on the other hand, the arbitration agreement isdrafted in general terms and the claims are not presented in away that contractually determines the issues to be resolved bythe arbitrators, a decision that is rendered ultra petita would notcontravene Article V, paragraph 1(c).

It is important to note that the Convention provides that therefusal of recognition or enforcement can be confined to aspectsof the award which fail to comply with the terms of the arbitration agreement, provided that those aspects can be separated fromthe rest of the award (Art. V(1)(c)).

Once again, the courts have taken a very restrictive view ofthe application of this ground.”

Similarly, Gary Born (supra) states:

“There are a number of recurrent grounds for claiming thatan arbitral tribunal has exceeded its authority. These generallyinvolve claims of either extra petita (the tribunal went beyondthe limits of its authority) or infra petita (the tribunal failed tofulfil its mandate by not exercising authority it was granted).

[a] Awards Ruling on Matters Outside Scope of Parties’Submissions Article 34(2)(a)(iii) permits annulment of awards wherethe arbitrators “rule (d) on issues not presented to [them] by theparties” – so-called “extra petita” or “ultra petita” [Allen v.Hounga [2012] EWCA Civ 609 (English Ct. App.)] As with othergrounds for annulment, most courts are reluctant to accept claimsthat the arbitrators exceeded the scope of the parties’ submissions[See, e.g., Stark v. Sandberg, Phoenix & von Gontard, PC,381 F.3d 793, 800 (8th Cir. 2004)].

One of the clearest examples of an excess of authorityunder Article 34(2)(a)(iii) and parallel provisions of other nationalarbitration legislation is a tribunal’s award of relief that neitherparty requested. A French appellate decision explained the rationalefor these limits on the arbitrators’ authority (which, in this respect,are more rigorous under French law than some other nationalarbitration regimes) as follows [Judgment of 30 June 2005, Pilliodv. Econosto, 2006 Rev. arb. 687, 688 (Paris Cour d’appel)]:

“The fact that the contract was governed by French law doesnot allow the arbitrators to award interest pursuant to Art.1153(1) of the Civil Code on the sole ground that this is permittedunder that provision, even in the absence of a request of theparties. There is a difference between the role of a state courtand that of an arbitrator, whose jurisdiction is based on theparties’ consent and who must therefore preserve the A

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consensual character of the proceedings by consulting theparties on their intention as to the mission of the tribunal.”

Similarly, another court annulled an award on the groundsthat the relief ordered by the tribunal “exceeded the arbitrators’powers because it was not sought by either party, and wascompletely irrational because it wrote material terms of the contractout of existence” [PMA Capital Inc. Co. v. PlatinumUnderwriters Bermuda, Ltd., 400 F. Appx. 654 (3d Cir. 2010)].

Nonetheless, an award will not be subject to annulmentwhere the arbitrators grant relief that, while different from whata party requested, is subsumed within relief that the party requested(most obviously, a lower quantum of damages than that requestedby the claimant). More generally, courts also accord arbitratorssubstantial discretion in fashioning remedies, including grantingrelief that neither party has expressly requested [See, e.g., HarperIns. Ltd. v. Century Indem. Co., 819 F. Supp. 2d 270, 277(S.D.N.Y 2011)]. Although categorical rules are impossible toformulate, the decisive issue appears to be whether the reliefgranted by the arbitrators was subsumed within or reasonablyrelated to that requested by the parties.

Another example of an excess of authority under Article34(2)(a)(iii) and parallel provisions of other arbitration statuesinvolves awards deciding issues or disputes that the parties havenot submitted to the arbitral tribunal [See, e.g., Emilio v. SprintSpectrum LP, 2013 WL 203361 (2d Cir.)]. A tribunal exceeds itsauthority by ruling on an issue not presented by the parties in thearbitration even if the issue or dispute that it addresses is withinthe scope of the parties’ arbitration agreement. As one courtexplained: “Arbitrators have the authority to decide only thoseissues actually submitted by the parties” [AGCO Corp. v. Anglin,216 F.3d 589, 593 (7th Cir. 2000)].

Doubts about the scope of the parties’ submissions areresolved in most legal systems in favour of encompassing mattersdecided by the arbitrators. Put differently, a considerable measureof judicial deference is accorded to the arbitrators’ interpretationof the scope of their mandate under the parties’ submissions[See,e.g., Downer v. Siegel, 489 F.3d 623, 627 (5th Cir. 2007)]. In thewords of one court, “[w]e will not over-scrutinize the panel’s language and leap to the conclusion that it exceeded its power informulating the award” [Certain Underwriters at Lloyd’s v. BCSIns. Co., 239 F. Supp. 2d 812,817 (N.D. III. 2003)].

Some annulment courts have adopted unduly formalisticapproaches to the question whether a particular issue or argumentwas submitted to the tribunal. For example, one recent Singaporeandecision held that issues not raised in the parties’ “pleadings” hadnot been submitted to the tribunal, notwithstanding the fact thatthese issues had been raised in argument during the arbitration[See PT Prima Int’l Dev. v. Kempinski Hotels SA, [2012] SGCA35]. The better view is not to look to local rules of civil procedureor litigation practices in determining whether an issue was presentedto the arbitrators; the proper inquiry is instead a pragmatic oneinto whether the parties and tribunal had an opportunity to considerand submit evidence and argument on a particular issue.”

(at pp. 3289-3293)

Redfern and Hunter (supra) states as follows:

“11.77. The first part of this ground for refusal of enforcementunder the Convention (and under the Model Law) envisages asituation in which the arbitral tribunal is alleged to have acted inexcess of its authority, ie ultra petita, and to have dealt with adispute that was not submitted to it. According to a leadingauthority on the Convention, the courts almost invariably rejectthis defence [See Albert Jan van den Berg, ‘Court Decisions onthe New York Convention’, Swiss Arbitration AssociationConference, February 1996, Collected Reports, 86]. By way ofexample, the German courts have rejected ultra petita defencesraised in complaint of an arbitral tribunal’s application of lexmercatoria, [see the decision of the regional court of Hamburgof 18 September 1997, (2000) XXV Y.B. Comm. Arb. 710] andan arbitral tribunal’s award of more interest than was claimed[see the decision of the Court of Appeal of Hamburg of 30 July1998, (2000) XXV Y.B. Comm. Arb. 714]. A further robustrejection of such a defence comes from the US Court of Appealsfor the District of Columbia, in a case in which it was pleaded thatthe arbitral tribunal had awarded a considerable sum of damages A

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SUPREME COURT REPORTS

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Afor consequential loss, when the contract between the partiesclearly excluded this head of damage [Libyan American OilCompany (Liamco) v Socialist Peoples Libyan Arab Yamahirya,(1982) VII Y.B. Comm. Arb. 382]. The court stated that, withoutan in-depth review of the law of contract, the court could notstate whether a breach of contract would abrogate a clause whichBexcluded consequential damages. However, ‘the standard ofreview of an arbitration award by an American Court is extremelynarrow’, and (adopting the words of the US Court of Appeals inthe well-known case of Parsons Whittemore Overseas Co Incv Societe Generale de l’Industrie du Papier (RAKTA), 508 F.2dC969 (2nd Cir. 1974)) the Convention did not sanction ‘second-guessing the arbitrators’ construction of the parties’ agreement’.Nor would it be proper for the court to ‘usurp the arbitrators’ role’[Libyan American Oil Company (Liamco) v Socialist PeoplesLibyan Arab Yamahirya, (1982) VII Y.B. Comm. Arb., 382 at388]. Accordingly, enforcement was ordered.”

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40. The Court of Appeal of Singapore, in CRW Joint Operationv. PT Perusahaan Gas Negara (Persero) TBK, [2011] SGCA 33,held as follows:

“25. The court’s power to set aside an arbitral award is limited tosetting aside based on the grounds provided under Art 34 of theModel Law and s 24 of the IAA. As declared by this court in SohBeng Tee & Co Pte Ltd v Fairmount Development Pte Ltd[2007] 3 SLR(R) 86 (“Soh Beng Tee”) at [59], the current legalframework prescribes that the courts should not without goodreason interfere in the arbitral process. This policy of minimalcurial intervention by respecting finality in the arbitral processacknowledges the primacy which ought to be given to the disputeresolution mechanism that the parties have expressly chosen.

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26. However, it has also been said (correctly) that no State willpermit a binding arbitral award to be given or enforced within itsterritory without being able to review the award, or, at least, withoutallowing the parties an opportunity to address the court if therehas been a violation of due process or other irregularities in thearbitral proceedings (see Peter Binder, International CommercialArbitration and Conciliation in UNCITRAL Model LawJurisdictions (Sweet & Maxwell, 3rd Ed, 2010) at para 7-001).

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27. While the Singapore courts infrequently exercise their powerto set aside arbitral awards, they will unhesitatingly do so if astatutorily prescribed ground for setting aside an arbitral award isclearly established. The relevant grounds in this regard can beclassified into three broad categories (see generally Nigel Blackabyet al, Redfern and Hunter on International Arbitration (OxfordUniversity Press, 5th Ed, 2009) (“Redfern and Hunter”) at paras10.30–10.86). First, an award may be challenged on jurisdictionalgrounds (ie, the non-existence of a valid and binding arbitrationclause, or other grounds that go to the adjudicability of the claimdetermined by the arbitral tribunal). Second, an award may bechallenged on procedural grounds (eg, failure to give proper noticeof the appointment of an arbitrator), and, third, the award may bechallenged on substantive grounds (eg, breach of the public policyof the place of arbitration).”

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31. It is useful, at this juncture, to set out some of the legal principlesunderlying the application of Art 34(2)(a)(iii) of the Model Law.First, Art 34(2)(a)(iii) is not concerned with the situation wherean arbitral tribunal did not have jurisdiction to deal with the disputewhich it purported to determine. Rather, it applies where the arbitraltribunal improperly decided matters that had not been submittedto it or failed to decide matters that had been submitted to it.Inother words, Art 34(2)(a)(iii) addresses the situation where thearbitral tribunal exceeded (or failed to exercise) the authority thatthe parties granted to it (see Gary B Born, InternationalCommercial Arbitration (Wolters Kluwer, 2009) at vol 2, pp 2606–2607 and 2798–2799). This ground for setting aside an arbitralaward covers only an arbitral tribunal’s substantive jurisdictionand does not extend to procedural matters (see Robert Merkin &Johanna Hjalmarsson, Singapore Arbitration LegislationAnnotated (Informa, 2009) (“Singapore ArbitrationLegislation”) at p 117).

32. Second, it must be noted that a failure by an arbitral tribunalto deal with every issue referred to it will not ordinarily render itsarbitral award liable to be set aside. The crucial question in everycase is whether there has been real or actual prejudice to either(or both) of the parties to the dispute. In this regard, the following AB

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passage in Redfern and Hunter ([27] supra at para 10.40)correctly summarises the position:

The significance of the issues that were not dealt with has tobe considered in relation to the award as a whole. For example,it is not difficult to envisage a situation in which the issues thatwere overlooked were of such importance that, if they hadbeen dealt with, the whole balance of the award would havebeen altered and its effect would have been different. [emphasisadded]

33. Third, it is trite that mere errors of law or even fact are notsufficient to warrant setting aside an arbitral award under Art34(2)(a)(iii) of the Model Law (see Sui Southern Gas Co Ltd vHabibullah Coastal Power Co (Pte) Ltd [2010] 3 SLR 1 at[19]–[22]). In the House of Lords decision of Lesotho HighlandsDevelopment Authority v Impregilo SpA [2006] 1 AC 221, whichconcerned an application to set aside an arbitral award on theground of the arbitral tribunal’s “exceeding its powers” (see s68(2)(b) of the Arbitration Act 1996 (c 23) (UK) (“the UKArbitration Act”)), Lord Steyn made clear (at [24]–[25]) the vitaldistinction between the erroneous exercise by an arbitral tribunalof an available power vested in it (which would amount to nomore than a mere error of law) and the purported exercise by thearbitral tribunal of a power which it did not possess. Only in thelatter situation, his Lordship stated, would an arbitral award beliable to be set aside under s 68(2)(b) of the UK Arbitration Acton the ground that the arbitral tribunal had exceeded its powers.In a similar vein, Art 34(2)(a)(iii) of the Model Law applies wherean arbitral tribunal exceeds its authority by deciding matters beyondits ambit of reference or fails to exercise the authority conferredon it by failing to decide the matters submitted to it, which in turnprejudices either or both of the parties to the dispute (see aboveat [31]).”

The UNCITRAL Guide on the New York Convention (supra) states:

“2. Article V (1)(c) finds its roots in article 2(c) of the 1927 GenevaConvention. The language at the outset of article V (1)(c), providing a ground for refusal of recognition or enforcement ofawards exceeding the scope of the arbitration agreement, is largelyunchanged from its counterpart in the 1927 Geneva Convention.The New York Convention, however, limits the scope of article V(1)(c) by omitting language found in article 2 of the 1927 GenevaConvention which permitted enforcing authorities to delay, or createconditions in relation to, the enforcement of awards, where theaward did not cover all the questions submitted to the arbitraltribunal.

3. The drafters of the New York Convention further built on the1927 Geneva Convention by explicitly allowing for severability ofthe part of the award dealing with a difference not contemplatedby or not falling within the terms of the submission to arbitration,or containing decisions on matters beyond the scope of thesubmission to arbitration, in order to permit recognition andenforcement of the part of the award containing decisions onmatters submitted to arbitration. Although there is generally littlediscussion of article V (1)(c) in the travaux préparatoires, theinclusion of the provision allowing for partial recognition andenforcement was the subject of some debate. The travauxpréparatoires show that various concerns were raised over theform and substance of this principle, including concerns thatseverability of arbitral awards would in practice “open the door toa review as to substance”, which the drafters of the New YorkConvention sought to prevent. Courts have sinceuncompromisingly asserted that article V (1)(c) does not permitan enforcing authority to reconsider the merits of a dispute.

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6. Courts and commentators agree that an arbitration agreementconstitutes a “submission to arbitration” within the meaning ofarticle V (1)(c). Consequently, where an arbitral tribunal hasrendered an award which decides matters beyond the scope ofthe arbitration agreement, there is a ground for refusing to enforcean award under article V (1)(c).

7. Courts have also held that the term “submission to arbitration”can include an arbitration agreement modified, amended or A

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supplemented by an arbitral institution’s terms of reference agreedto by the arbitrators and disputing parties. Terms of referencemay indeed supplement or modify the arbitration agreement. Forexample, a German court of appeal held that the parties hadconcluded a new arbitration agreement by signing ICC Terms ofReference. Similarly, a decision by the English House of Lordsstated that “[i]n the present case one is dealing with an ICCarbitration agreement. In such a case the terms of reference whichunder article 18 of the ICC rules are invariably settled may, ofcourse, amend or supplement the terms of the arbitrationagreement.”

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8. Authors and courts have also considered whether article V(1)(c) provides grounds for refusing to recognize or enforce wherethe arbitrator’s decision goes beyond the parties’ pleadings orprayers for relief to render an award ultra petita. Though someauthors have argued that article V (1)(c) provides a second,separate ground for refusal to enforce an award rendered ultrapetita, courts have rejected challenges to recognition orenforcement under article V (1)(c) based on the fact that thearbitrators had exceeded their authority by deciding on issues orgranting forms of relief beyond those pleaded by the parties. Asone United States court observed, “[u]nder the New YorkConvention, we examine whether the award exceeds the scopeof the [arbitration agreement], not whether the award exceedsthe scope of the parties’ pleadings”. This interpretation of articleV (1)(c) which distinguishes the parties’ pleadings or prayers forrelief from the “submission to arbitration” referred to in article V(1)(c), is consistent with a narrow interpretation of the groundsfor refusal to recognize or enforce an award.”

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41. In an early U.S. judgment, viz., Parsons & WhittemoreOverseas Co., Inc., v. Societe Generale De L’industrie Du PapierG(RAKTA), 508 F.2d 969 (United States Court of Appeals, Second Circuit,1974) [“Parsons”], it was held:

“19. Under Article V(1)(c), one defending against enforcementof an arbitral award may prevail by proving that:

20. The award deals with a difference not contemplated by ornot falling within the terms of the submission to arbitration, or itcontains decisions on matters beyond the scope of the submissionto arbitration.

21. This provision tracks in more detailed form 10(d) of the FederalArbitration Act, 9 U.S.C. 10(d), which authorizes vacating anaward ‘where the arbitrators exceeded their powers.’ Bothprovisions basically allow a party to attack an award predicatedupon arbitration of a subject matter not within the agreement tosubmit to arbitration. This defense to enforcement of a foreignaward, like the others already discussed, should be construednarrowly.Once again, a narrow construction would comport withthe enforcement-facilitating thrust of the Convention. In addition,the case law under the similar provision of the Federal ArbitrationAct strongly supports a strict reading. See, e.g., UnitedSteelworkers of America v. Enterprise Wheel & Car Corp., 363U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960); Coenen v. R. W.Pressprich & Co., 453 F.2d 1209 (2d Cir.), cert. denied, 406 U.S.949, 92 S.Ct. 2045, 32 L.Ed.2d 337 (1972).

22. In making this defense as to three components of the award,Overseas must therefore overcome a powerful presumption thatthe arbitral body acted within its powers. Overseas principallydirects its challenge at the $185,000 awarded for loss of production.Its jurisdictional claim focuses on the provision of the contractreciting that ‘neither party shall have any liability for loss ofproduction.’ The tribunal cannot properly be charged, however,with simply ignoring this alleged limitation on the subject matterover which its decision-making powers extended. Rather, thearbitration court interpreted the provision not to preclude jurisdictionon this matter. As in United Steelworkers of America v. EnterpriseWheel & Car Corp., supra, the court may be satisfied that thearbitrator premised the award on a construction of the contractand that it is ‘not apparent,’ 363 U.S. 593 at 598, 80 S.Ct. 1358,that the scope of the submission to arbitration has been exceeded.”

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“24. Although the Convention recognizes that an award may notbe enforced where predicated on a subject matter outside the A

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arbitrator’s jurisdiction, it does not sanction second-guessing thearbitrator’s construction of the parties’ agreement. The appellant’sattempt to invoke this defense, however, calls upon the court toignore this limitation on its decision-making powers and usurp thearbitrator’s role. The district court took a proper view of its ownjurisdiction in refusing to grant relief on this ground.”

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In Lesotho Highlands Development Authority v. ImpregiloSpA and Ors., [2005] 3 All ER 789 [HL], after setting out the Englishstatutory provision, the precise question which faced the Court was statedCthus:

“[3] …… Section 68, so far as material, reads as follows:

“(1) A party to arbitral proceedings may (upon notice to theother parties and to the tribunal) apply to the court challengingan award in the proceedings on the ground of serious irregularityaffecting the tribunal, the proceedings or the award …

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(2) Serious irregularity means an irregularity of one or moreof the following kinds which the court considers has caused orwill cause substantial injustice to the applicant –

… (b) the tribunal exceeding its powers (otherwise than byexceeding its substantive jurisdiction: see section 67)”

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The question arises how section 68(2)(b) and section 69, sofar as the latter excludes a right of appeal on a question of law,are to operate. Specifically, can an alleged error of arbitratorsin interpreting the underlying or principal contract be an excessof power under section 68(2)(b), so as to give the court thepower to intervene, rather than an error of law, which can onlybe challenged under section 69 if the right of appeal has notbeen excluded?”

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“[23] Contrary to the view I have expressed, I will now assumethat the tribunal committed an error of law. That error of lawcould have taken more than one form. The judge (para 25) andthe Court of Appeal (para 35) approached the matter on the basisthat the tribunal erred in the interpretation of the underlying contract.

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Another possibility is that the tribunal misinterpreted its powers,under section 48(4) to express the award in any currency. Let meapproach the matter on the basis that there was a mistake by thetribunal in one of these forms. Whichever is the case, the highestthe case can be put is that the tribunal committed an error oflaw.”

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“[30] The New York Convention on the recognition andenforcement of Foreign arbitral awards 1958 and article 34 of theUNCITRAL Model Law on International Commercial Arbitrationwere in part a provenance of section 68: see General Note tosection 68 of the Arbitration Act 1996 as published in CurrentLaw Statutes 1996, p 23-46. Specifically, it is likely that theinspiration of the words “the tribunal exceeding its powers(otherwise than by exceeding its substantive jurisdiction)” in section68 are the terms of article V(1)(c) of the New York Conventionand the jurisprudence on it. The context is that article V(1)(a)stipulates that the invalidity of the arbitration agreement is a groundfor non-enforcement of an award: it involves the competence ofthe arbitrator. Article V(1)(c) relates to matters beyond the scopeof the submission to arbitration. It deals with cases of excess ofpower or authority of the arbitrator. It is well established thatarticle V(1)(c) must be construed narrowly and should never leadto a re-examination of the merits of the award:Parsons &Whittemore Overseas Co Inc v Sociéte Générale de l’Industriedu Papier (RAKTA) 508 F 2d 969 (2nd Cir 1974); Albert Jan vanden Berg, The New York Arbitration Convention of 1958 (1981),pp 311-318; Domenico Di Pietro and Martin Platte, Enforcementof International Arbitration Awards: The New York Conventionof 1958 (2001), pp 158-162. By citing the Parsons decisioncounsel for the contractors alerted the House to this analogy. Itpoints to a narrow interpretation of section 68(2)(b). The policyunderlying section 68(2)(b) as set out in the DAC report similarlypoints to a restrictive interpretation.

[31] By its very terms section 68(2)(b) assumes that the tribunalacted within its substantive jurisdiction. It is aimed at thetribunal exceeding its powers under the arbitration agreement,terms of reference or the 1996 Act. Section 68(2)(b) does not A

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permit a challenge on the ground that the tribunal arrived at awrong conclusion as a matter of law or fact. It is not apt to covera mere error of law. This view is reinforced if one takes intoaccount that a mistake in interpreting the contract is the paradigmof a “question of law” which may in the circumstances specifiedin section 69 be appealed unless the parties have excluded thatright by agreement. In cases where the right of appeal has byagreement, sanctioned by the Act, been excluded, it would becurious to allow a challenge under section 68(2)(b) to be based ona mistaken interpretation of the underlying contract. Moreover, itwould be strange where there is no exclusion agreement, to allowparallel challenges under section 68(2)(b) and section 69.

[32] In order to decide whether section 68(2)(b) is engaged it willbe necessary to focus intensely on the particular power under anarbitration agreement, the terms of reference, or the 1996 Actwhich is involved, judged in all the circumstances of the case. Inmaking this general observation it must always be borne in mindthat the erroneous exercise of an available power cannot by itselfamount to an excess of power. A mere error of law will not amountto an excess of power under section 68(2)(b).

[33] For these reasons the Court of Appeal erred in concludingthat the tribunal exceeded its powers on the currency point. If thetribunal erred in any way, it was an error within its power.

[34] I am glad to have arrived at this conclusion. It is consistentwith the legislative purpose of the 1996 Act, which is intended topromote one-stop adjudication. If the contrary view of the Courtof Appeal had prevailed, it would have opened up manyopportunities for challenging awards on the basis that the tribunalexceeded its powers in ruling on the currency of the award. Suchdecisions are an everyday occurrence in the arbitral world. If theview of the Court of Appeal had been upheld, a very serious defectin the machinery of the 1996 Act would have been revealed. Thefact that this case has been before courts at three levels and thatenforcement of the award has been delayed for more than threeyears reinforces the importance of the point.”

The High Court of Ireland, in Patrick Ryan & Ann Ryan andKevin O’Leary (Clonmel) Ltd. & General Motors, [2018] IEHC660 (High Court of Ireland, 2018), put it thus:

“24. As regards the second principle which emerges from thecase law, namely, that an application to set aside is not an appealfrom the decision of the arbitrator and does not confer upon thecourt the opportunity of second-guessing the arbitrator’s decisionon the merits, it is sufficient to refer to a small number of the Irishcases and the observations made in those cases. In Snoddy(Snoddy v. Mavroudis [2013] IEHC 285), Laffoy J. made it veryclear that it was not open to the court to second-guess theconstruction of the relevant contractual issue in that case by thearbitrator by way of a set aside application. Laffoy J. stated thatif the court were to do so, it would be usurping the arbitrator’srole (para. 34, p. 16). In Delargy (Delargy v. Hickey [2015]IEHC 436), Gilligan J. stated:

“It is no function of this Court to attempt in any way tosecond guess the decision as arrived at by the arbitratorand this Court does not propose to do so.” (para. 74, p.37).

Later in his judgment, Gilligan J. stated that:

“This Court does not consider that it is appropriate torevisit the merits of the arbitrator’s award.” (para. 78, p.39).

25. In O’Leary Lissarda (O’Leary Lissarda v. Ryan [2015]IEHC 820), McGovern J. noted the acknowledgment of theapplicant that an application to set aside an award “…is not aproceeding in the nature of an appeal against the arbitralaward on the merits.” (para. 5, p. 2). He rejected one of thegrounds on which it was sought to set aside the award in thatcase on the basis that it “… effectively amounts to an attemptto appeal the arbitrator’s decision which is not permissible.”(para. 11, p. 4).

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“39. The Irish courts have had the opportunity of considering theproper approach to be taken in considering a challenge to an award A

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based on Article 34(2)(a)(iii) where it is suggested that an arbitratorhas exceeded his or her authority or acted outside his or hermandate. The leading Irish case on this point is Snoddy (Snoddyv. Mavroudis [2013] IEHC 285). In Snoddy, (Snoddy v.Mavroudis [2013] IEHC 285) Laffoy J. quoted with approval thecommentary contained in Mansfield in relation to Article34(2)(a)(iii). She stated as follows:

“Mansfield’s commentary on that provision is that it is aground –

‘[t]hat the award deals with a dispute not contemplated byor not falling within the terms of the submission to arbitration,or contains decisions on matters beyond the scope of thesubmission to arbitration. Commentators have noted that‘this ground is infrequently invoked and it is even lessfrequently accepted by national courts to set an award aside’and international case-law decided under the Model Lawhas held that this ground is to be narrowly construed.’

The commentators cited in that passage are Brekoulakis andShore in Mistelis on Concise International Arbitration (1st Ed.,Kluwer, 2010). In that text, the commentators also state (at p.647) that ‘a strong presumption should exist that a tribunalacts within its mandate’.” (per Laffoy J. at para. 32, pp. 14 -14).

40. Laffoy J. in Snoddy (Snoddy v. Mavroudis [2013] IEHC285) went on to observe that Article 34(2)(a)(iii) of the ModelLaw was based on a corresponding provision contained in theNew York Convention (the Convention on the Recognition andEnforcement of Foreign Arbitral Awards, done at New York on10th June, 1958), which was Article V(1)(c). Laffoy J. continued:

“As was pointed out by Lord Steyn in Lesotho HighlandsDevelopment v. Impregilo SpA [2006] 1 AC 221, s. 68 of theUK Arbitration Act 1996 was modelled on the New YorkConvention and on the Model Law. In considering theapplication of that statutory provision, Lord Steyn consideredArticle V(1)(c) of the New York Convention stating (at p. 236):

‘It deals with cases of excess of power or authority of thearbitrator. It is well established that article V(1)(c) must be construed narrowly and should never lead to a re-examination of the merits of the award.’

Lord Steyn cited a decision of the US Federal Courts asauthority for that last proposition: Parsons & WhittemoreOverseas Co Inc v Sociéte Générale de l’Industrie duPapier, (1974) 508 F. 2d 969 (2nd Circuit). The limits on theexcess of jurisdiction ground for setting aside an arbitrationare, in my view, clearly brought home by the following passagefrom the opinion of Judge Smith in the Parsons case where hestated:

‘Although the Convention recognises that an award maynot be enforced where predicated on a subject matteroutside the arbitrator’s jurisdiction, it does not sanctionsecond-guessing the arbitrator’s construction of the parties’agreement. The appellant’s attempt to invoke this defense,however, calls upon the Court to ignore this limitation on itsdecision-making powers and usurp the arbitrator’s role.’”(per Laffoy J. at para. 33, pp. 15 - 16).”

41. These dicta of Laffoy J. in Snoddy (Snoddy v. Mavroudis[2013] IEHC 285) were cited with approval and followed byGalligan J. in Delargy (Delargy v. Hickey [2015] IEHC 436)(at para. 31, pp. 13 - 14 and para. 65, pp. 33 - 34). The casesmake clear that there is a presumption that the arbitral tribunalhas acted within its mandate and the onus of establishingotherwise rests with the party seeking to set aside the awardon this ground.”

(emphasis in original)

In State of Goa v. Praveen Enterprises, (2012) 12 SCC 581[“Praveen Enterprises”], this Court set out what is meant by “referenceto arbitration” as follows:

“10. ”Reference to arbitration” describes various acts. Referenceto arbitration can be by parties themselves or by an appointingauthority named in the arbitration agreement or by a court on anapplication by a party to the arbitration agreement. We mayelaborate:

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(a) If an arbitration agreement provides that all disputesbetween the parties relating to the contract (some agreementsmay refer to some exceptions) shall be referred to arbitrationand that the decision of the arbitrator shall be final and binding,the “reference” contemplated is the act of parties to thearbitration agreement, referring their disputes to an agreedarbitrator to settle the disputes.

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(b) If an arbitration agreement provides that in the event ofany dispute between the parties, an authority named thereinshall nominate the arbitrator and refer the disputes whichrequired to be settled by arbitration, the “reference”contemplated is an act of the appointing authority referring thedisputes to the arbitrator appointed by him.

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(c) Where the parties fail to concur in the appointment ofthe arbitrator(s) as required by the arbitration agreement, orthe authority named in the arbitration agreement failing tonominate the arbitrator and refer the disputes raised toarbitration as required by the arbitration agreement, on anapplication by an aggrieved party, the court can appoint thearbitrator and on such appointment, the disputes between theparties stand referred to such arbitrator in terms of thearbitration agreement.

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11. Reference to arbitration can be in respect of all disputesbetween the parties or all disputes regarding a contract or inrespect of specific enumerated disputes. Where “all disputes”are referred, the arbitrator has the jurisdiction to decide all disputesraised in the pleadings (both claims and counterclaims) subject toany limitations placed by the arbitration agreement. Where thearbitration agreement provides that all disputes shall be settled byarbitration but excludes certain matters from arbitration, then, thearbitrator will exclude the excepted matter and decide only thosedisputes which are arbitrable. But where the reference to thearbitrator is to decide specific disputes enumerated by the parties/court/appointing authority, the arbitrator’s jurisdiction iscircumscribed by the specific reference and the arbitrator candecide only those specific disputes.”

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42. A conspectus of the above authorities would show that whereHan arbitral tribunal has rendered an award which decides matters either beyond the scope of the arbitration agreement or beyond the disputesreferred to the arbitral tribunal, as understood in Praveen Enterprises(supra), the arbitral award could be said to have dealt with decisions onmatters beyond the scope of submission to arbitration.

43. We therefore hold, following the aforesaid authorities, that inthe guise of misinterpretation of the contract, and consequent “errors ofjurisdiction”, it is not possible to state that the arbitral award would bebeyond the scope of submission to arbitration if otherwise the aforesaidmisinterpretation (which would include going beyond the terms of thecontract), could be said to have been fairly comprehended as “disputes”within the arbitration agreement, or which were referred to the decisionof the arbitrators as understood by the authorities above. If an arbitratoris alleged to have wandered outside the contract and dealt with mattersnot allotted to him, this would be a jurisdictional error which could becorrected on the ground of “patent illegality”, which, as we have seen,would not apply to international commercial arbitrations that are decidedunder Part II of the 1996 Act. To bring in by the backdoor groundsrelatable to Section 28(3) of the 1996 Act to be matters beyond thescope of submission to arbitration under Section 34(2)(a)(iv) would notbe permissible as this ground must be construed narrowly and soconstrued, must refer only to matters which are beyond the arbitrationagreement or beyond the reference to the arbitral tribunal.

Most Basic Notions of Justice

Most Basic Notions of Justice

44. The expression “most basic notions of … justice” finds mentionin Explanation 1 to sub-clause (iii) to Section 34(2)(b). Here again, whatis referred to is, substantively or procedurally, some fundamental principleof justice which has been breached, and which shocks the conscienceof the Court. Thus, in Parsons (supra), it was held:

“7. Article V(2)(b) of the Convention allows the court in whichenforcement of a foreign arbitral award is sought to refuseenforcement, on the defendant’s motion or sua sponte, if‘enforcement of the award would be contrary to the public policyof (the forum) country.’ The legislative history of the provisionoffers no certain guidelines to its construction. Its precursors inthe Geneva Convention and the 1958 Convention’s ad hoccommittee draft extended the public policy exception to,respectively, awards contrary to ‘principles of the law’ and awardsviolative of ‘fundamental principles of the law.’ In one A

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commentator’s view, the Convention’s failure to include similarlanguage signifies a narrowing of the defense [Contini, InternationalCommercial Arbitration, 8 Am.J.Comp.L. 283, 304]. On the otherhand, another noted authority in the field has seized upon thisomission as indicative of an intention to broaden the defense[Quigley, Accession by the United States to the United NationsConvention on the Recognition and Enforcement of Foreign ArbitralAwards, 70 Yale L.J. 1049, 1070-71 (1961)].

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8. Perhaps more probative, however, are the inferences to bedrawn from the history of the Convention as a whole. The generalpro-enforcement bias informing the Convention and explaining itssupersession of the Geneva Convention points toward a narrowreading of the public policy defense. An expansive constructionof this defense would vitiate the Convention’s basic effort toremove preexisting obstacles to enforcement. [See Straus,Arbitration of Disputes between Multinational Corporations, inNew Strategies for Peaceful Resolution of International BusinessDisputes 114-15 (1971); Digest of Proceedings of InternationalBusiness Disputes Conference, April 14, 1971, at 191 (remarksof Professor W. Reese)]. Additionally, considerations of reciprocity– considerations given express recognition in the Convention itself– counsel courts to invoke the public policy defense with cautionlest foreign courts frequently accept it as a defense to enforcementof arbitral awards rendered in the United States.

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9. We conclude, therefore, that the Convention’s public policydefense should be construed narrowly. Enforcement of foreignarbitral awards may be denied on this basis only whereenforcement would violate the forum state’s most basic notionsof morality and justice. [Restatement Second of the Conflict ofLaws 117, comment c, at 340 (1971); Loucks v. Standard Oil Co.,224 N.Y. 99, 111, 120 N.E. 198 (1918)].”

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In Dongwoo Mann+hummel Co. Ltd. v. Mann+hummelGGmbh, [2008] SGHC 67, the High Court of Singapore held:

“131. In PT Asuransi Jasa Indonesia (Persero) v Dexia BankSA [2007] 1 SLR 597 (“PT Asuransi Jasa Indonesia (Persero)”),the Court of Appeal explained what would constitute a conflictwith public policy (at [57] and [59]):

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57. … The legislative policy under the Act is to minimise curialintervention in international arbitrations. Errors of law or factmade in an arbitral decision, per se, are final and binding onthe parties and may not be appealed against or set aside by acourt except in the situations prescribed under s 24 of the Actand Art 34 of the Model Law. … In the present context, errorsof law or fact, per se, do not engage the public policy ofSingapore under Art 34(2)(b) (ii) of the Model Law when theycannot be set aside under Art 34(2)(a) (iii) of the Model Law.

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59. Although the concept of public policy of the State is notdefined in the Act or the Model Law, the general consensus ofjudicial and expert opinion is that public policy under the Actencompasses a narrow scope. In our view, it should onlyoperate in instances where the upholding of an arbitral awardwould “shock the conscience” (see Downer Connect ([58]supra) at [136]), or is “clearly injurious to the public goodor … wholly offensive to the ordinary reasonable and fullyinformed member of the public” (see Deutsche Schachbauv Shell International Petroleum Co Ltd [1987] 2 Lloyds’ Rep246 at 254, per Sir John Donaldson MR), or where it violatesthe forum’s most basic notion of morality and justice: seeParsons & Whittemore Overseas Co Inc v Societe Generalede L’Industrie du Papier (RAKTA) 508 F 2d, 969 (2nd Cir,1974) at 974. This would be consistent with the concept ofpublic policy that can be ascertained from the preparatorymaterials to the Model Law. As was highlighted in theCommission Report (A/40/17), at para 297 (referred to in AGuide to the UNCITRAL Model Law on InternationalCommercial Arbitration: Legislative History andCommentary by Howard M Holtzmann and Joseph E Neuhaus(Kluwer, 1989) at 914):

In discussing the term ‘public policy’, it was understoodthat it was not equivalent to the political stance orinternational policies of a State but comprised thefundamental notions and principles of justice… It wasunderstood that the term ‘public policy’, which was used inthe 1958 New York Convention and many other treaties, AB

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covered fundamental principles of law and justice insubstantive as well as procedural respects. Thus, instancessuch as corruption, bribery or fraud and similar seriouscases would constitute a ground for setting aside.”

(emphasis in original)

132. In Profilati Italia SRL v Paine Webber Inc [2001] 1Lloyd’s Rep 715 (“Profilati”), Moore-Bick J made the followingobservations in relation to the argument that non-disclosure ofmaterial documents constituted a breach of public policy in thecontext of s 68 of the English Arbitration Act 1996 (at [17],[19] and [26]):

17. … Where the successful party is said to have procuredthe award in a way which is contrary to public policy it willnormally be necessary to satisfy the Court that some formof reprehensible or unconscionable conduct on his part hascontributed in a substantial way to obtaining an award inhis favour. Moreover, I do not think that the Court shouldbe quick to interfere under this section [ie, s 68(2)(g) of theArbitration Act 1996]. In those cases in which s. 68 has sofar been considered the Court has emphasized that it isintended to operate only in extreme cases...

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19. Where an important document which ought to havebeen disclosed is deliberately withheld and as a result theparty withholding it has obtained an award in his favour theCourt may well consider that he procured that award in amanner contrary to public policy. After all, such conduct isnot far removed from fraud…

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26. Even if there had been a deliberate failure to givedisclosure of the two documents in question it would still benecessary for Profilati to satisfy the Court that it had sufferedsubstantial injustice as a result.”

And finally, in BAZ v. BBA and Ors., [2018] SGHC 275, theHigh Court of Singapore stated:

“156. From the outset, it is important to reiterate that the publicpolicy ground for setting aside or refusal of recognition/enforcement is very narrow in scope. The Court of Appeal hasheld that the ground should only succeed in cases where upholdingor enforcing the arbitral award would “shock the conscience”, orbe “clearly injurious to the public good or … wholly offensive tothe ordinary reasonable and fully informed member of the public”,or violate “the forum’s most basic notion of morality and justice”(PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007]1 SLR(R) 597 (“PT Asuransi”) at [59]). In Sui Southern GasCo Ltd v Habibullah Coastal Power Co (Pte) Ltd [2010] 3SLR 1 (“Sui Southern Gas”), the High Court stated that tosucceed on a public policy argument, the party “had to cross avery high threshold and demonstrate egregious circumstances suchas corruption, bribery or fraud, which would violate the most basicnotions of morality and justice” (at [48]). The 1985 UNCommission Report states at para 297 that the term public policy“comprised the fundamental notions and principles of justice”, andit was understood that the term “covered fundamental principles”of law and justice in substantive as well as procedural respects.The 1985 UN Commission Report further explains that Art34(2)(b)(ii) of the Model Law “was not to be interpreted asexcluding instances or events relating to the manner in which anaward was arrived at”.

157. It is clear that errors of law or fact, per se, do not engagethe public policy of Singapore under Art 34(2)(b)(ii) of the ModelLaw when they cannot be set aside under Art 34(2)(a)(iii) of theModel Law (PT Asuransi at [57]), with the exception that thecourt’s judicial power to decide what the public policy of Singaporeis cannot be abrogated (AJU v AJT [2011] 4 SLR 739 (“AJU vAJT”) at [62]). ……

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159. …… This balance is generally in favour of the policy ofenforcing arbitral awards, and only tilts in favour of thecountervailing public policy where the violation of that policy would“shock the conscience” or would be contrary to “the forum’s mostbasic notion of morality and justice”. In determining whether thebalance tilts towards the countervailing public policy, it is important ABCDE

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Ato consider both the subject nature of the public policy, the degreeof violation of that public policy and the consequences of theviolation.”

45. Given these parameters of challenge, let us now examine theBarguments of learned counsel on behalf of the appellant. There can beno doubt that the government guidelines that were referred to and stronglyrelied upon by the majority award to arrive at the linking factor werenever in evidence before the Tribunal. In fact, the Tribunal relies uponthe said guidelines by itself and states that they are to be found on aCcertain website. The ground that is expressly taken in the Section 34petition by the appellant is as follows:

“It is pertinent to mention here that no such guidelines of theMinistry of Industrial Development had been filed on record byeither of the parties and therefore, the Tribunal had no jurisdictionDto rely upon the same while deciding the issue before it.Accordingly, the impugned Award is liable to be set aside.”

46. Learned counsel for the respondent also agreed that theseguidelines were never, in fact, disclosed in the arbitration proceedings.This being the case, and given the authorities cited hereinabove, it isEclear that the appellant would be directly affected as it would otherwisebe unable to present its case, not being allowed to comment on theapplicability or interpretation of those guidelines. For example, theappellant could have argued, without prejudice to the argument that linkingis de hors the contract, that of the three methods for linking the NewSeries with the Old Series, either the second or the third method wouldFbe preferable to the first method, which the majority award has appliedon its own. For this reason, the majority award needs to be set asideunder Section 34(2)(a)(iii).

47. Insofar as the argument that a new contract had been madeby the majority award for the parties, without the consent of the appellant,Gby applying a formula outside the agreement, as per the Circular dated15.02.2013, which itself could not be applied without the appellant’sconsent, we are of the view that this ground under Section 34(2)(a)(iv)would not be available, given the authorities discussed in detail by us. Itis enough to state that the appellant argued before the arbitral tribunalthat a new contract was being made by applying the formula outsideH

what was prescribed, which was answered by the respondent, statingthat it would not be possible to apply the old formula without a linkingfactor which would have to be introduced. Considering that the partieswere at issue on this, the dispute as to whether the linking factor applied,thanks to the Circular dated 15.02.2013, is clearly something raised andargued by the parties, and is certainly something which would fall withinthe arbitration clause or the reference to arbitration that governs theparties. This being the case, this argument would not obtain and Section34(2)(a)(iv), as a result, would not be attracted.

48. However, when it comes to the public policy of India argumentbased upon “most basic notions of justice”, it is clear that this groundcan be attracted only in very exceptional circumstances when theconscience of the Court is shocked by infraction of fundamental notionsor principles of justice. It can be seen that the formula that was appliedby the agreement continued to be applied till February, 2013 – in short, itis not correct to say that the formula under the agreement could not beapplied in view of the Ministry’s change in the base indices from 1993-94 to 2004-05. Further, in order to apply a linking factor, a Circular,unilaterally issued by one party, cannot possibly bind the other party tothe agreement without that other party’s consent. Indeed, the Circularitself expressly stipulates that it cannot apply unless the contractorsfurnish an undertaking/affidavit that the price adjustment under theCircular is acceptable to them. We have seen how the appellant gavesuch undertaking only conditionally and without prejudice to its argumentthat the Circular does not and cannot apply. This being the case, it isclear that the majority award has created a new contract for the partiesby applying the said unilateral Circular and by substituting a workableformula under the agreement by another formula de hors the agreement.This being the case, a fundamental principle of justice has been breached,namely, that a unilateral addition or alteration of a contract can never befoisted upon an unwilling party, nor can a party to the agreement beliable to perform a bargain not entered into with the other party. Clearly,such a course of conduct would be contrary to fundamental principles ofjustice as followed in this country, and shocks the conscience of thisCourt. However, we repeat that this ground is available only in veryexceptional circumstances, such as the fact situation in the present case.Under no circumstance can any Court interfere with an arbitral awardon the ground that justice has not been done in the opinion of the Court.

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AThat would be an entry into the merits of the dispute which, as we haveseen, is contrary to the ethos of Section 34 of the 1996 Act, as has beennoted earlier in this judgment.

49. The judgments of the Single Judge and of the Division Benchof the Delhi High Court are set aside. Consequently, the majority awardBis also set aside. Under the Scheme of Section 34 of the 1996 Act, thedisputes that were decided by the majority award would have to bereferred afresh to another arbitration. This would cause considerabledelay and be contrary to one of the important objectives of the 1996 Act,namely, speedy resolution of disputes by the arbitral process under theAct. Therefore, in order to do complete justice between the parties,Cinvoking our power under Article 142 of the Constitution of India, andgiven the fact that there is a minority award which awards the appellantits claim based upon the formula mentioned in the agreement betweenthe parties, we uphold the minority award, and state that it is this award,together with interest, that will now be executed between the parties.DThe minority award, in paragraphs 11 and 12, states as follows:

“11. I therefore award the claim of the Claimant in full.

12. Costs – no amount is awarded to the parties. Each party shallbear its own cost.”EGiven the reliefs claimed by the appellant in their statement ofclaim before the learned arbitrators, what is awarded to the appellant isthe principal sum of INR 2,01,42,827/- towards price adjustment payableunder sub-clause 70.3 of the contract, for the work done under thecontract from September 2010 to May 2014, as well as interest at therate of 10%, compounded monthly from the due date of payment to theFdate of the award, i.e., 02.05.2016, plus future interest at the rate of12% per annum (simple) till the date of payment.

50. The appeal is allowed in the aforesaid terms.

Divya PandeyG

Appeal allowed.

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