Arbitration and Conciliation Act, 1996 – Section 34 – Award of the Arbitrator – The Court cannot reappraise or reappreciate the evidence as if acting as an appellate authority in scrutinizing the award.
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
BEFORE: The Hon’ble JUSTICE SOUMEN SEN
Date : 3rd November, 2016
MRINAL KANTI SINHA & ORS.
Appearance: Mr. Arif Ali, Adv. Mr. Tapas Majumder, Adv. Mr. Asoke Basu, Adv.
The Court : This is an application for setting aside of an award passed under the 1996 Act. The arbitration has allowed a claim for specific performance of an agreement for sale. It was not in dispute that the petitioner and the respondent no.4 as the joint owners of the property have entered into a development agreement with the respondent nos.2 and 3. The said respondent nos.2 and 3 appear to have entered into an agreement for sale with the respondent no.1 on behalf of the owners and on the basis of the power of attorney with the respondent no.1 for a valid consideration.
The respondent no.1 appears to have paid a sum little over Rs.20 lakhs as a consideration amount for purchasing the said flat. It was not in dispute that at the time when the said agreement was entered into with the respondent no.1, the authority of the respondent nos.2 and 3 to act on behalf of the owners was not terminated. The respondent nos.2 and 3 in any event were duly authorised by the owners of the property to sell their shares and to enter into such agreement on their behalf as well.
The award is challenged only by the petitioner as one of the co-owners of the property. The arbitrator on consideration of the materials on record and on appreciation of both oral and documentary evidence has returned a finding in favour of the respondent no.1. The respondent nos.2 and 3 were also directed to make certain payments to the petitioner. The award has taken care of all aspects that are required to be taken into consideration. It is well-settled that under the 1996 Act, the interference of the Court is very limited. The width and ambit of power under
Section 34 of the Arbitration and Conciliation Act, 1996
has been recently considered by the Hon’ble Supreme Court in
Associate Builders v. Dehli Development Authority’ reported at (2015) 3 SCC 49
Section 5 of the 1996 Act provides that notwithstanding anything contained in any other law for the time being enforce, in matters governed by Part 1, no judicial authority is to intervene, except where so provided in the said part.
Section 34, read in conjunction with Section 5 makes it clear that an arbitral award that is governed by Part 1 of the 1996 Act, can only be set aside on grounds mentioned in Section 34(2)and (3) and not otherwise.
None of the grounds contained in Sub-section 2(a) of Section 34 permit the Court to adjudicate the merits of the decision rendered by an arbitral award.
The grounds given under S.34(2)(a) are crisp and precise and lay the law as it is without the inclusion of any open-ended expression which otherwise would have given the courts an opportunity to widen their scope of interference with the arbitral awards. The only open-ended expression which can be and has been of concern is the ground of public policy of India. It has been under many cases defined as an unruly horse thus giving the interpretation that it can never be defined or be a certain thing. However, for the purpose of achieving the aim of the new Act, the Act of 1996 – the legislature while drafting the Act limited the scope of public policy in its explanation restricted it to:-
c) S.75 or S.81 (confidentiality breach or admissibility of evidence)
The scope of public policy was, however, widened after Supreme Court in its decision of
Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705
(also referred to as : “Saw Pipes Case”) interpreted it to include “patent illegality” in its definition. The case mentioned that the term public policy can be construed and understood in a narrow or with a wider meaning and then went ahead to say that it should not have a limited meaning – thus, included the term “patent illegality” within the scope of public policy. “Patent Illegality” as explained by the Saw Pipes Case meant any error of law on the face of award, however, it did mention that the error which would be taken into consideration should not be trivial in nature. Lord Mansfield in Holman v. Johnson stated that the principle of public policy is ex dolo malo non oritur actio. No Court of law will lend its aid to a man who founds his cause of action upon an immoral or illegal act. The rule has been further illustrated by Russel by stating that grounds of public policy on which an award may be set aside include:
(1) that its effect is to enforce an illegal contract;
(2) that the arbitrator, for instance manifested obvious bias too late for an application for his removal to be effective before he made his award.
In its decision in Oil and Natural Gas Corpn. Ltd. (supra), the Supreme Court has elaborated the concept of public policy at great length. The concept was extended to permit challenge to an arbitral award which is based on an irregularity of a kind which has caused substantial injustice. It is stated:-
“Therefore, in our view, the phrase ‘public policy of India’ used in S.34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term ‘public policy in Renusagar’s case, it is required to be held that the award could be set aside if it is patently illegal. Result would be award could 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, or
(d) In addition, if it is patently illegal.
Illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.
The expression “public policy” or “opposed to public policy” is not defined either in the Arbitration and Conciliation Act, 1996 or in the Contract Act, 1872. The reason is that these expressions are incapable of precise definition. The concept has to be taken to connote larger public interest on public good. Broadly speaking it would mean policy of law and, therefore, whatever tends to obstruct justice or violate a statute, whatever is against good morals is against public policy.
Public policy means the principles and standards regarded by the legislature or by the Court as being of fundamental concern to the state and the whole of the society. The notion of public policy is not static. Ideas on what is good for the public or what is in public interest, keeps changing with time. The enforcement of an award is to be refused as being contrary to public policy if it is contrary to the fundamental policy of Indian law, country’s interests, and its sense of justice and morality. The case in which this point was raised did not involve any such violation, nor any other ground for setting aside could be proved.
The words “public policy” are not to be confined to the Explanation appended to the provision. That would be a very narrow construction of the provision.”