OPG POWER GENERATION PRIVATE LIMITED [APPELLANT(S)] Vs. ENEXIO POWER COOLING SOLUTIONS INDIA PRIVATE LIMITED & ANR. [ RESPONDENT(S)]
CIVIL APPEAL NOS. 3981-3982 OF 2024 (Arising out of SLP (Civil) Nos.21017-21018 of 2021)
(3JB, DY Chandrachud, J B Pardiwala and Manoj Misra JJ., delivered by Manoj Misra J.)
The Supreme Court of India has recently shed light on the limited scope for judicial interference in arbitral awards, particularly under Section 34 of the Arbitration and Conciliation Act, 1996, which deals with setting aside arbitral awards on the ground of “violation of public policy.” The court, led by a bench comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Misra, emphasized the restricted nature of judicial intervention, especially after the significant amendments made in 2015.
Section 34 of the Arbitration and Conciliation Act, 1996, allows a party to challenge an arbitral award in court on specific grounds, one of which includes the award being in conflict with the “public policy of India.” The concept of “public policy” has been historically broad, sometimes resulting in courts setting aside arbitral awards based on violations of law or public interest. However, this broad interpretation was criticized for defeating the very purpose of arbitration—ensuring finality and reducing judicial intervention. In response to this, the 2015 amendment to the Arbitration Act significantly narrowed the scope for judicial interference. The amendment clarified that an award can only be set aside for public policy reasons if it involves fraud or corruption, violates fundamental policy, or is in conflict with the most basic notions of justice and morality. It further specified that mere erroneous application of the law or the possibility of a different interpretation does not amount to a violation of public policy.
The bench reaffirmed the principle that courts must adopt a hands-off approach when reviewing arbitral awards. The judges observed that mere violation of law is not sufficient to challenge an arbitral award under the public policy ground. They stressed that the purpose of arbitration is to offer a speedy and final resolution to disputes, free from prolonged judicial interference, which the courts must respect. The bench emphasized that the scope of judicial review under Section 34 is limited to exceptional circumstances, such as fraud, corruption, or a fundamental breach of justice. This was in line with the legislative intent behind the 2015 amendment, which sought to bring Indian arbitration law in conformity with global practices by ensuring minimal interference from courts.
The court also underscored the need to respect the autonomy of arbitral tribunals. Arbitration is a consensual process, and the parties choose their arbitrator, trusting their expertise in resolving the dispute. By intervening unnecessarily, courts would undermine the entire process, diminishing the efficacy of arbitration as a mechanism for dispute resolution. A key takeaway from the court’s ruling is its clarification that mere errors in the application of law or fact-finding by an arbitrator do not warrant interference under Section 34. The bench reiterated that a court cannot reappreciate evidence or substitute its views for that of the arbitral tribunal. An arbitral award should be treated with finality unless there is a blatant and egregious violation of fundamental principles of justice.
The Supreme Court’s observations reflect its continued commitment to upholding arbitration as a viable and independent dispute resolution mechanism. The court’s interpretation of Section 34 after the 2015 amendment reinforces the notion that arbitral awards are not to be lightly interfered with and that the “public policy” ground for setting aside awards is narrow and specific.
