Challenge to arbitral award on policy ground only in exceptional circumstances, says SC

Challenge to an arbitral award on the ground of public policy of India can be made only in very exceptional circumstances when the "conscience of the court is shocked" by violation of principles of justice, the Supreme Court has said.

A bench comprising Justices R F Nariman and Vineet Saran said this in a judgement in which the court dealt with issue related to section 34 of the Arbitration and Conciliation Act, 1996.

The section deals with application for setting aside arbitral award and the grounds on which a court may do that.

The Act says that an award is in conflict with "public policy of India" if the making of the award was induced or affected by fraud or corruption or was in violation of two other provisions of the law.

"However, when it comes to the public policy of India argument based upon 'most basic notions of justice', it is clear that this ground can be attracted only in very exceptional circumstances when the conscience of the court is shocked by infraction of fundamental notions or principles of justice," the bench said in its 90-page judgement.

The court was dealing with a petition filed by a Korean company, whose bid for construction of a four-lane bypass on national highway-26 in Madhya Pradesh was accepted in 2005 by the National Highways Authority of India (NHAI).

The bench also dealt with a question as to whether the amendments made in section 34 of the Act are applicable to applications filed under the provision to set aside arbitral awards made after October 23, 2015.

The court held that section 34 of the Act, as amended, will apply only to applications filed under the provision that have been made to the court on or after October 23, 2015 "irrespective of the fact that the arbitration proceedings may have commenced prior to that date".

"Therefore, even in cases where, for avoidance of doubt, something is clarified by way of an amendment, such clarification cannot be retrospective if the earlier law has been changed substantively," the bench noted in its verdict.