An arbitral award can 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. (Renusagar Power Co.
Ltd. v. General Electric Co. [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] ) Patent
illegality was added to the above three grounds in ONGC Ltd. v. Saw
Pipes Ltd., (2003) 5 SCC 705. Illegality must go to the root of the matter
and in case the illegality is of trivial nature it cannot be held that the award
is against the public policy. It was further observed in ONGC Ltd. v. Saw
Pipes Ltd., (2003) 5 SCC 705 that an award could also be set aside if it is
so unfair and unreasonable that it shocks the conscience of the Court.
In DDA v. R.S.
Sharma and Co., (2008) 13 SCC 80 it was held that an award can be
interfered with by the Court under Section 34 of the Act when it is contrary
(a) substantive provisions of law; or
(b) provisions of the 1996 Act; or
(c) against the terms of the
respective contract; or
(d) patently illegal; or
(e) prejudicial to the rights of the
The fundamental policy of India was explained
in ONGC Ltd. v. Western Geco International Ltd.,
(2014) 9 SCC 263 as including all such fundamental principles as providing a
basis for administration of justice and enforcement of law in this country. It
was held inter alia, that a duty is cast on every tribunal or authority
exercising powers that affect the rights or obligations of the parties to show
a “judicial approach”. It was further held that judicial approach
ensures that an authority acts bona fide and deals with the subject in a fair,
reasonable and objective manner and its decision is not actuated by any
extraneous considerations. It was also held that the requirement of application
of mind on the part of the adjudicatory authority is so deeply embedded in our
jurisprudence that it can be described as a fundamental policy of Indian law.
The Court further observed that the award of the Arbitral Tribunal is open to
challenge when the arbitrators fail to draw an inference which ought to be
drawn or if they had drawn an inference which on the face of it is untenable
resulting in miscarriage of justice. The Court has the power to modify the
offending part of the award in case it is severable from the rest, according to
the said judgment ONGC Ltd. v. Western Geco International
Ltd., (2014) 9 SCC 263.
The limit of exercise of power by courts
under Section 34 of the Act has been comprehensively dealt in Associate
Builders v. DDA, (2015) 3 SCC 49. Lack of judicial
approach, violation of principles of natural justice, perversity and patent
illegality have been identified as grounds for interference with an
award of the arbitrator. The restrictions placed on the exercise of power of a
court under Section 34 of the Act have been analysed and enumerated in
Associate Builders v. DDA, (2015) 3 SCC 49 which are as
(a) The court under Section 34(2) of
the Act, does not act as a court of appeal while applying the ground of “public
policy” to an arbitral award and consequently errors of fact cannot be
(b) A possible view by the arbitrator
on facts has necessarily to pass muster as the arbitrator is the sole judge of
the quantity and quality of the evidence.
(c) Insufficiency of evidence cannot
be a ground for interference by the court. Re-examination of the facts to find
out whether a different decision can be arrived at is impermissible under
Section 34(2) of the Act.
(d) An award can be set aside only if
it shocks the conscience of the court.
(e) Illegality must go to the root of
the matter and cannot be of a trivial nature for interference by a court. A
reasonable construction of the terms of the contract by the arbitrator cannot
be interfered with by the court. Error of construction is within the
jurisdiction of the arbitrator. Hence, no interference is warranted.
(f) If there are two possible
interpretations of the terms of the contract, the arbitrator’s interpretation
has to be accepted and the court under Section 34 cannot substitute its opinion
over the arbitrator’s view. M.P.
Power Generation Co. Ltd. v. ANSALDO Energia SPA, (2018) 16 SCC 661.