ONGC Ltd. v. Saw Pipes Ltd.
For challenges to domestic Part I awards, 'public policy' is to be read widely and includes 'patent illegality' going to the root of the matter.
Facts
An arbitral tribunal disallowed ONGC's claim for liquidated damages for delay in supply of pipes, holding ONGC had to prove actual loss despite a pre-estimated LD clause. ONGC challenged the domestic award under S. 34 contending it misapplied the law on liquidated damages under ss. 73-74 of the Contract Act.
Issues
- Whether the narrow Renusagar concept of public policy applies to a challenge of a domestic award under S. 34?
- Whether an award can be set aside under S. 34 on the ground of patent illegality?
Arguments
ONGC argued the award was patently illegal as it misapplied the settled law on liquidated damages and was contrary to the contract. Saw Pipes argued the narrow Renusagar public policy test applied, precluding interference with the tribunal's view.
Held
The Court distinguished challenges to domestic awards from enforcement of foreign awards and held the narrow Renusagar concept applied only to foreign awards. For domestic awards under S. 34 it gave 'public policy' a wider meaning, adding that an award could be set aside if 'patently illegal' where the illegality went to the root of the matter or was so unfair and unreasonable as to shock the conscience. Patent illegality included an award based on an erroneous proposition or application of law or one against the terms of the contract. Applying this, it held the LD law had been misapplied and set the award aside.
Ratio decidendi
A domestic award is open to challenge under S. 34(2)(b)(ii) not only on the three Renusagar heads but also on the ground of patent illegality going to the root of the matter, including contravention of substantive law, the Act, or the terms of the contract.
Significance
The most consequential (and heavily criticised) expansion of S. 34 review, introducing the 'broad view' and 'patent illegality' for domestic awards and opening the door to merits review. Its excesses prompted the 2015 Amendment, which codified patent illegality in S. 34(2A) but with safeguards (no merits review/re-appreciation of evidence) and restored the narrow public policy standard.
Related
Test yourself on Arbitration & Conciliation. Application-level MCQs with instant scoring.
