NEW DELHI: Every error of law committed by the Arbitral Tribunal would not fall within the expression ‘patent illegality’, the Supreme Court said on Thursday.
A bench headed by Justice L Nageswara Rao clarified that contravention of law not linked to public policy or public interest is beyond the scope of the expression ‘patent illegality’.
“What is prohibited is for courts to re-appreciate evidence to conclude that the award suffers from patent illegality appearing on the face of the award, as courts do not sit in appeal against the arbitral award.
“The permissible grounds for interference with a domestic award under Section 34(2-A) on the ground of patent illegality is when the arbitrator takes a view which is not even a possible one, or interprets a clause in the contract in such a manner which no fair-minded or reasonable person would, or if the arbitrator commits an error of jurisdiction by wandering outside the contract and dealing with matters not allotted to them,” the bench said.
The observations of the top court came in a judgement in which it upheld the 2017 arbitration award worth around Rs 4,600 crore in favour of Reliance Infrastructure subsidiary, Delhi Airport Metro Express Pvt Ltd (DAMEPL), enforceable against Delhi Metro Rail Corporation.
The bench, also comprising Justice S Ravindra Bhat, said that an arbitral award stating no reasons for its findings would make itself susceptible to challenge on this account.
The conclusions of the arbitrator which are based on no evidence or have been arrived at by ignoring vital evidence are perverse and can be set aside on the ground of patent illegality, the apex court said.
If a dispute which is not capable of settlement by arbitration is the subject matter of the award or if the award is in conflict with the public policy of India, the award is liable to be set aside, the bench said.
“It has been made clear that an award would be in conflict with the public policy of India only when it is induced or affected by fraud or corruption or is in violation of Section 75 or Section 81 of the Arbitration and Conciliation Act, 1996, if it is in contravention with the fundamental policy of Indian law or if it is in conflict with the most basic notions of morality or justice,” the bench said.
It said that contravention of a statute not linked to public policy or public interest cannot be a ground to set at naught an arbitral award as being discordant with the fundamental policy of Indian law and neither can it be brought within the confines of ‘patent illegality.
“In other words, contravention of a statute only if it is linked to public policy or public interest is cause for setting aside the award as being at odds with the fundamental policy of Indian law. If an arbitral award shocks the conscience of the court, it can be set aside as being in conflict with the most basic notions of justice,” the bench said.