An arbitral award may be set aside if the court finds that the award is in conflict with the public policy of India. Without prejudice to the generality of clause 34(ii)(b), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.[1] An award against public policy cannot be enforced.
The term ‘Public Policy of India’ is not defined in the Act, though it is used in sections 34(2)(b)(ii) and 48(2)(b) of the Act. The expression refers to the principles and standards constituting the general or fundamental policy of the State established by the Constitution and the existing laws of the country, and the principles of justice and morality.[2] Public policy can be confined to those heads which a writ court can entertain while exercising extraordinary jurisdiction under Article 227 of the Constitution. An award which is in violation of the principles of natural justice is violating the public policy of India. A plea of limitation would be a ground based on the public policy.[3]
Illegality in an award must go to the root of the matter and if the illegality is of a trivial nature, it cannot be held that the award is against the public policy. An award can also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court. Such an award is opposed to public policy and is required to be adjudged void. An award which is patently in violation of the statutory provision cannot be said to be in public interest. An award can be set aside on the ground of being against public policy if it is contrary to:
- Fundamental policy of Indian law; or
- The interest of India; or
- Justice or morality; or
- In addition, if it patently illegal.[4]
Where the arbitrator is directly interested in the subject matter of the litigation, the award would be said to be improperly procured.[5] Corruption on the part of the arbitrator is a good ground for setting aside the award, but where corruption, fraud, partiality or wrong doing is charged against the arbitrators, it has got to be established beyond doubt. Where the arbitrators stayed at the house of one of the parties, the court can refuse to accept the award.
An award may be set aside if it has been improperly procured or is otherwise invalid. Where an award has been obtained by fraud or by corrupt inducements, it is improper. The expression “otherwise improper” would include cases where the award is suffering from an apparent mark of invalidity such as an error of law apparent on the face of it. An award is liable to be set aside if it is opposed to public policy of India. Though it is a general ground, Section 34 says in particular that an award shall be deemed to be opposed to public policy if it was induced or affected by fraud or corruption.
Misconduct on the part of the arbitrator or misconduct of proceeding is not a direct ground for setting aside the award under the 1996 Act. The scheme of provisions is somewhat different. Misconduct is a ground for disqualifying an arbitrator. Misconduct creates a doubt about his independence or impartiality and is a ground for challenging the arbitrator under Section 12(3). Thereafter, Section 13 says that if the challenge is not successful and the award is made, the party challenging the arbitrator under Section 12(3). Thereafter, Section 13 says that if the challenge is not successful and the award is made, the party challenging the arbitrator may apply to the court under Section 34 for setting aside the award. Misconduct of proceedings would fall under Section 34(2) (a) (v), because this provision says that it would be a ground for setting aside where either the agreed or prescribed procedure was not observed. Thus, not following such procedure is a misconduct of the proceedings. It would also fall under Section 34(1) (b) (ii) explanation to the extent to which misconduct lies in fraud or corruption.
[1] Olympus Superstructures Pvt Ltd. v Meena Vijay Khaitan , (AIR 1999 SC 2012)
[2] Rail India Technical and Economic Services Ltd v. Ravi Constructions, ( AIR 2002 NOC)
[3] Jagmohan Singh Gujral v. Satish Ashok Sabnis, (2004 (2) RAJ 67)
[4] Markanda P.C. 2001. Arbitration Step by Step. Nagpur: Lexis Nexis.
[5] Yusuf Khan v. Riyasat Ali, (AIR 1926 Oudh 307 (DB)
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