Summary
The majority award in an India-seated international commercial arbitration was set aside for reliance on undisclosed guidelines and, exceptionally, for imposing a new price-adjustment bargain through a unilateral circular. The Court explained the narrowed post-2015 public-policy grounds, the unavailability of patent illegality for such arbitrations, and the distinction between merits review and excess of submission. Exercising Article 142, it made the minority award executable with specified interest instead of requiring fresh arbitration.
Issues
- Which version of Section 34 applied and what limits governed public-policy and patent-illegality review.
- Whether undisclosed guidelines or the substituted contractual formula justified setting aside.
- Whether the award exceeded the submission to arbitration and what final relief should follow.
Provisions considered
- Section 34(2)(a)(iii), read with Sections 18 and 24(3), Arbitration and Conciliation Act, 1996Reliance on guidelines never disclosed to the parties denied an opportunity to address their applicability, interpretation and alternative methods. (¶¶ 32, 34–38, 45–46)
- Section 34(2)(a)(iv), Arbitration and Conciliation Act, 1996Narrowly concerns matters outside the arbitration agreement or reference; the linking-factor dispute had been expressly raised and argued, so this ground failed. (¶¶ 32, 39–43, 47)
- Section 34(2)(b)(ii), Explanations 1 and 2, Arbitration and Conciliation Act, 1996Public-policy review excludes merits review. Exceptionally, foisting a new contractual bargain on an unwilling party shocked the conscience and breached the most basic notions of justice. (¶¶ 22–25, 44, 48)
- Section 34(2A), Arbitration and Conciliation Act, 1996Patent illegality was unavailable for this international commercial arbitration; the provision also excludes mere erroneous legal application and reappreciation of evidence. (¶¶ 22, 26–31)
- Article 142, Constitution of IndiaUsed to make the minority award executable with interest and avoid delay from fresh arbitration after setting aside the majority award. (¶ 49–50)
Held
- The amended Section 34 applied to applications made on or after 23 October 2015 even if arbitral proceedings began earlier. The amendments substantively changed the earlier law despite clarificatory language. (¶ 10–12)
- The expanded Western Geco public-policy review no longer applied. Fundamental policy retained its narrow meaning, and ordinary legal errors or perceived injustice did not permit merits review; patent illegality remained separately confined to eligible non-international awards. (¶ 23–31)
- The majority relied on website guidelines not in evidence or disclosed to either party. The appellant lost the opportunity to challenge applicability or propose a different conversion method, satisfying Section 34(2)(a)(iii). (¶ 45–46)
- Because the parties submitted and argued the linking-factor dispute, alleged contractual misinterpretation could not be repackaged as a decision beyond submission under Section 34(2)(a)(iv). (¶¶ 42–43, 47)
- The agreed formula remained workable. Substituting a formula from a unilateral circular that itself required contractor consent imposed an unagreed bargain and met the exceptionally high basic-justice threshold; this was not a general licence to review an award’s fairness. (¶ 48)
- Fresh arbitration would ordinarily follow setting aside under Section 34. Article 142 was invoked in these circumstances to give effect to the minority award instead. (¶ 49)
Result
Appeal allowed. High Court judgments and majority award set aside. Under Article 142, minority award made executable: Rs.2,01,42,827 plus 10% interest compounded monthly from payment due dates to 2 May 2016, then 12% simple annual interest until payment. Each party to bear its arbitration costs.