SECTION 34 v. SECTION 48: THE SCOPE OF COURT INTERVENTION

Markanda Advocates | August 30, 2020

INTRODUCTION
The Arbitration and Conciliation Act, 1996 (“the Act”) empowers the Indian Courts to intervene in cases relating to domestic arbitral awards and foreign arbitral awards under Section 34 and Section 48 of the Act respectively. The grounds for intervention are very similar in both section 34 and Section 48 of the Act. However, the scope of Court intervention under Section 34 is much wider in comparison to Section 48 of the Act. In the light of two recent judgments of the Supreme Court, this blog analyses the difference between the scope of Court intervention in matters relating to Section 34 and Section 48 of the Act.

INTERVENTION UNDER SECTION 34
Section 34 of the Act provides for the grounds for setting aside a domestic arbitral award in India. The contours of Court’s intervention in setting aside arbitral awards under Section 34 were properly defined by the Apex Court in the recent judgment of Ssangyong Engineering Construction Ltd. v. NHAI (2019) 15 SCC 131 (“Ssangyong”). In Ssanyong, the Supreme Court gave two notable findings to facilitate the interpretation of certain grounds for setting aside arbitral awards under Section 34 of the Act. They are:

  1. A. Scope of ‘patent illegality’ as a ground for setting aside arbitral awards under Section 34.

    Section 34(2A) of the Act, introduced through the 2015 Amendment, provides that an arbitral award can be set aside when the Court finds that such award is vitiated by ‘patent illegality’ appearing on the face of the award. While interpreting this term, the Apex Court held that ‘patent illegality’ means illegality that goes to the root of the matter, but excluding erroneous application of law by an arbitral tribunal or re-appreciation of evidence by an appellate Court. However, an arbitral award can only be set aside under this ground when:

    1. a. No reasons are given for an award.
    2. b. The view taken by an arbitrator is an impossible view of construing the contract.
    3. c. An arbitrator decides questions beyond a contract or his terms of reference.
    4. d. If a perverse finding is arrived at based on no evidence, or overlooking vital evidence, or based on documents, taken as evidence, without notice of the parties.
  2. B. Scope of ‘public policy’ as a ground for setting aside arbitral awards under Section 34.

    Section 34(2)(b)(ii) of the Act states that an arbitral award can be set aside if such award is in conflict with the ‘public policy’ of India. Section 34 also provides that an arbitral award will be considered to be in conflict with the ‘public policy’ of India when it fulfils any one of the following conditions:

    • • The arbitral award is affected by fraud or corruption or is in violation of Section 75 and 81 of the Act;
    • • The arbitral award is in contravention to the fundamental policy of Indian law; and
    • • The arbitral award is in conflict with the most basic notions of morality and justice.

    In order to bring clarity to the ‘public policy’ ground for setting aside arbitral awards, the Supreme Court provided a well-defined ambit for the interpretation of the following phrases:

    • • Fundamental policy of Indian law; and
    • • Most basic notions of morality and justice.

    While dealing with the question regarding the interpretation of the phrase ‘fundamental policy of Indian law’, the Apex Court placed heavy reliance on the judgment given in the case of Renusagar Power Co. v. General Electric Co. (1994) 1 SCC 644 and observed that an arbitral award can be set aside under the ‘public policy’ ground as being in contravention to ‘fundamental policy of Indian law’ when such award is in contravention to:

    1. a. A law protecting national interest;
    2. b. Orders of superior Courts in India; and
    3. c. The principles of natural justice.

    On the other hand, the Apex Court also held that an award would be termed to be in contravention to the “most basic notions of morality or justice” when such award shocks the conscience of the Court. Furthermore, it was held that the term ‘morality’ has to be determined on the basis of the ‘prevailing mores of the day’. By clearly defining the ambit of interpretation regarding these terms, the Apex Court provided the much-needed clarification in the ‘public policy’ ground for setting aside arbitral awards under Section 34 of the Act.

INTERVENTION UNDER SECTION 48
Section 48 of the Act provides several grounds that allow the Indian Courts to refuse the enforcement of a foreign arbitral award in India. The scope of Court intervention in cases regarding the enforcement of a foreign arbitral award in India has been comprehensively provided by the Apex Court in the recent judgment reported as Vijay Karia v. Prysmian Cavi E. Sistemi Srl and Ors (2020) SCC OnLine SC 177. (“Vijay Karia”). In this case, the Apex Court provided two important findings that clarify the power of the Courts to interfere with enforcement of an award under Section 48 of the Act. They are:

  1. A. Scope of the Apex Court’s jurisdiction with respect to petitions challenging the enforcement of foreign awards in India.
    In this case, Vijay Kariafiled a special leave petition before the Supreme Court to challenge the Order of Bombay High Court that upheld the enforcement of a foreign Award in India. At the very outset,the Apex Court observed that the power of the Court to refuse the enforcement of a foreign award in India is very restricted and the Court must ensure that there is ‘minimal intervention’ in the enforcement of such awards in India. In this context, Justice R.F Nariman speaking for the two-judge bench stated that,
    “The Policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award in the extremely narrow grounds of Section 48.”
  2. B. Discretionary Powers of the Court in cases relating to the enforcement of foreign arbitral award.
    Section 48 provides the grounds under which the Courts ‘may’ refuse to enforce a foreign arbitral award in India. Vijay Karia, these grounds were divided into three categories in order to facilitate the interpretation of the term ‘may’ enshrined in Section 48. The three categories are:

    • • Conditions that affect jurisdiction, such as invalidity or illegality of the arbitral agreement. (“Category I”)
    • • Grounds that affect party interest alone such as inability of a party to present its case. (“Category II”)
    • • Grounds that deal with public policy of India. (“Category III”)

    In the context of the grounds enshrined in Category I and Category III, the Apex Court held that the term ‘may’ enshrined in Section 48 is to be read as ‘shall’, i.e., the Court must refuse the enforcement of the foreign arbitral award when such grounds are established before the Court. For instance, in cases where it is established before the Court that the foreign arbitral award is in contravention to the public policy of India, the Court must refuse to enforce such foreign arbitral awards in India. On the other hand, in cases relating to Category II, the term ‘may’ enshrined in Section 48, allows the Courts to enforce a foreign award even when the party requesting the refusal of the enforcement of the foreign award successfully establishes the conditions enshrined in Category II, provided that the Court is satisfied that no prejudice has been caused to such party. For instance, if a party establishes before the Court, that it has been unable to present its case before the arbitral tribunal, which is a ground for waiver or abandonment of the foreign award in Category II, the Court may still allow the enforcement of the foreign award in cases where such inability does not cause any prejudice against such party.

ANALYSIS AND CONCLUDING REMARKS
There are several factors to illustrate the wider scope of Court invention under Section 34 as compared to Section 48 of the Act. The 246th Law Commission Reportelucidated that the scope of Court intervention in domestic awards ought to be wider as the same was recognized by introducing ‘patent illegality’ in Section 34(2A) by the 2015 Act without making the same amendment to Section 48. Furthermore, the judgment of the Apex Court in Vijay Karia also provided that the Courts should follow a ‘minimal intervention’ approach while dealing with cases relating to Section 48. Moreover, in another recent judgment of the Apex Court in M/s Controtrade Minerals & Metal Inc. v. Hindustan Copper Ltd.(2020) SCC OnLine SC 479 it was observed that the legislative intent behind Section 48 inclines towards a ‘pro-enforcement’ bias. By taking the abovementioned factors into account, it is clear that the position with regard to the scope of Court intervention under Section 48 is considerably restricted in nature in comparison to Section 34 of the Act.

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