Arbitration is an efficacious Alternative Disputes Resolution (ADR) mechanism adopted by the parties in order to resolve their disputes. Arbitration has two main limbs, first, autonomy of the parties and two, the finality of Award. The Arbitration and Conciliation Act 1996 (hereafter, “Arbitration Act”) was enacted with a view to allow the parties to resolve their disputes through Arbitration with minimal involvement of the Courts. In order to ensure the autonomy of the parties, Arbitration Act contains limited grounds for setting aside the Arbitral Award.
Section 34 of the Arbitration Act includes Patent Illegality as a ground to set aside Domestic Award. However, Patent Illegality is not an explicit ground for setting aside the Foreign Arbitral Award under Section 48. The Foreign Arbitral Award as per Section 48 can be set aside if they are opposed to the Public Policy of India. In this article ‘Patent Illegality’ as a ground to Set Aside the Arbitral Award has been discussed.
PUBLIC POLICY AND PATENT ILLEGALITY
As per Section 34(2)(b)(ii) of the Arbitration Act, an Arbitral Award can be set aside if it is in contravention with the ‘Public Policy of India’. The same is reiterated in Section 48(2)(b)(ii) wherein it is stated that the enforcement of a Foreign Award can be set aside by a competent judicial authority on the ground that such Arbitral Award is in conflict with the Public Policy of India.
The scope and parameter of Public Policy was clarified by the Supreme Court of India (Supreme Court) in the case of Renusagar Power Co. Ltd. vs. General Electric Co., (1994 Supp (1) SCC 644).The Supreme Court provided three grounds to determine the ambit of ‘Public Policy’ which are as follows: (I) Fundamental Policy of the Indian Law, (II) Interests of the Nation and (III) Morality or Justice.
This interpretation was further elaborated by the Supreme Court in the case of ONGC vs. Saw Pipes, (JT 2003 (4) SC 171), wherein the Supreme Court added a fourth parameter which is i.e., the ground of ‘Patent Illegality’.
Patent Illegality can be explained as the error of law that goes to the root of the case or a violation of statutory provision or constitution or an error that is inconsistent with the common law. In the same case, the Supreme Court provided three grounds for determining the ambit of Patent Illegality: (I) if the Arbitral Award is patently against the statutory provisions of the substantive laws in force in India (II) if the award is in conflict with the Arbitration Act (III) if the arbitral award is against the terms of Agreement of the parties. Further, the Supreme Court has also emphasized that the ground of Patent Illegality will only be applicable to Domestic Awards.
In another landmark judgment of Bharat Aluminum Co. vs. Kaiser Aluminum Technical Service Inc., ((2012) 9 SCC 552), the Constitutional Bench of the Supreme Court refused to support the dictum of Bhatia International vs. Bulk Trading SA, ((2002) 4 SCC 105)that the ground of Patent Illegality will be applicable to International cases of Arbitration.
In Patel Engineering Limited vs. North Eastern Electric Power Corporation Ltd., SLP (C) D No. 577 of 2020, the Supreme Court of India clarified the scope of using ‘Patent Illegality’ as a ground to set aside an Arbitral Award with regards to Domestic Arbitrations which are governed under Part-I of the Arbitration Act. The Supreme Court thus, reiterated the established position pertaining to setting aside a Domestic Arbitral Award on the ground of Patent Illegality.
Recently, in the case of Board of Control for Cricket in India v Deccan Chronicle Holding Limited (2021 (4) Bom CR 481) the Bombay High Court has taken the view that “Patent Illegality” falls under the concept of Public Policy under Section 34 of the Act. Thus, if an Arbitrator renders an Award outside the scope of the agreement or the decision is given in absence of vital evidence, it would be a sufficient ground for setting aside an Arbitral Award on the grounds of Patent Illegality.
The ground of Patent Illegalitywas introduced with the best intention to promote justice and refrain enforcement of the Arbitral Awards that are in violation of laws in India. The cases discussed in this article are representative of the wider view adopted by the Supreme Court pertaining to “Patent Illegality” as a ground for setting aside a domestic Arbitral Award.
The wider interpretation in relation to setting aside the Arbitral Award goes against the principle of minimal judicial interreference by increasing the purview of the Courts. The increase in the interference of the Courts is not in consonance with the pro-arbitration stance taken by the still, the Indian Courts are seen to exercise caution pertaining to the enforcement of the Arbitral Award when the ground for Patent Illegality is raised.
– Team AMLEGALS, assisted by Mr. Shivansh Dwivedi and Ms.Mansi Jain (Interns).
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