Author – Iasha, a student Janhit college of law
Abstract
The ‘public policy of India’ ground under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996 has proved to be the single most litigated, and most misunderstood, avenue for challenging an arbitral award in India. Conceived as a narrow safety-valve to preserve the sanctity of the legal system, the phrase was progressively widened by the judiciary until it threatened to convert Section 34 into a disguised appeal on merits. This article traces the doctrinal evolution of ‘public policy’ from Renusagar Power Co. v. General Electric Co. through ONGC v. Saw Pipes and ONGC v. Western Geco, to the corrective legislative intervention of the 2015 Amendment and its judicial consolidation in Associate Builders v. DDA and Ssangyong Engineering v. NHAI. It examines the statutory scheme of Section 34 post-amendment, the introduction of ‘patent illegality’ as a distinct domestic ground under Section 34(2A), and the continuing tension between minimal curial interference and the demand for substantive justice. The article concludes that while the pendulum has swung firmly towards a pro-enforcement, restrictive interpretation, residual ambiguity persists, and offers the author’s assessment of where the law stands and where it ought to go.
To the Point
Arbitration is founded on the promise of finality — parties choose a private forum precisely to avoid the delays of multi-tier litigation. Section 34 of the Arbitration and Conciliation Act, 1996 (‘the Act’) is the sole remedy available to a party dissatisfied with a domestic arbitral award, and it deliberately confines judicial review to a closed list of grounds rather than permitting a full merits appeal. Among these grounds, none has generated as much litigation, or as much doctrinal confusion, as the ground that an award is ‘in conflict with the public policy of India.’ This article focuses squarely on that ground: how it has been interpreted, why it expanded beyond its intended scope, how Parliament and the Supreme Court reined it back in, and what the ground means for arbitration practice in India today.
The Statutory Framework: Section 34 Dissected
Section 34(1) provides that recourse to a court against an arbitral award may be made only by an application for setting aside such award ‘in accordance with sub-section (2) and sub-section (3).’ Section 34(2)(a) lists grounds that a party must prove — incapacity, invalidity of the arbitration agreement, lack of proper notice or inability to present one’s case (a facet of audi alteram partem), the award travelling beyond the scope of submission to arbitration (ultra petita), and improper composition of the tribunal or procedure. Section 34(2)(b) contains grounds the court may examine suo motu: non-arbitrability of the subject-matter, and conflict with the ‘public policy of India.’
Crucially, three Explanations and a new sub-section were inserted by the Arbitration and Conciliation (Amendment) Act, 2015, with effect from 23 October 2015:
- Explanation 1 confines ‘public policy of India’ to awards induced by fraud or corruption (or in violation of Section 75 or Section 81), awards in contravention of the fundamental policy of Indian law, and awards conflicting with the most basic notions of morality or justice.
- Explanation 2 clarifies that a test of the fundamental policy of Indian law ‘shall not entail a review on the merits of the dispute.’
- Section 34(2A) introduces ‘patent illegality appearing on the face of the award’ as a distinct and additional ground available only in purely domestic arbitrations (not international commercial arbitrations seated in India), with the proviso that an award cannot be set aside merely for an erroneous application of law or by re-appreciation of evidence.
This tightly worded scheme was not the original text of 1996. It was the product of a long and, at times, turbulent judicial history that this article now traces.
The Proof:
The Arbitration and Conciliation (Amendment) Act, 2015
Acting on the 246th Report of the Law Commission of India (August 2014) and its February 2015 Supplementary Report — both issued in direct response to the perceived overreach in Saw Pipes and Western Geco — Parliament inserted Explanations 1 and 2 and Section 34(2A) discussed above. The stated legislative objective, per the Statement of Objects and Reasons, was to curb ‘delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act.’
Patent Illegality After the Amendment
Section 34(2A), read with the proviso, confines patent illegality to (a) contravention of the substantive law governing the parties in a manner going to the root of the matter, (b) a contravention of the Arbitration Act itself, or (c) an award so or re-appreciation of evidence. This was affirmed in Ssangyong itself and has since been applied consistently to prevent Section 34 courts from second-guessing an arbitrator’s plausible interpretation of a contract.
For foreign awards, the parallel provision is section 48, which governs enforcement of awards under New York Convention, and which similarly incorporates a public policy exception – historically interpreted far more narrowly than its domestic counterpart.
The 2019 Amendment further tightened Section 34 by requiring that an application to set aside an award be decided expeditiously, and introduced provisions (not yet fully notified) intended to streamline the process, reflecting Parliament’s continued intent to curb delay and judicial overreach.
Case Laws:
- Renusagar Power co. Ltd. V. General Electric Co. (1994)
Dealing with a foreign award under the (then) foreign award act, the supreme court held that “public policy” for the purpose of refusing enforcement of a foreign award must be constructed narrowly, confined to: (1) the fundamental policy of India law, (2) the interests of India, or (3) justice or morality. This remains the touchstone for interpreting public policy in the context of foreign awards under section 48.
2. ONGC Ltd. v. Saw Pipes Ltd. (2003)
This judgment dramatically expanded the scope of public policy for domestic awards by adding a fourth category — “patent illegality.” The Court held that an award contrary to the substantive provisions of law, contrary to the Arbitration Act itself, or contrary to the terms of the contract, could be regarded as patently illegal and hence against public policy. This effectively opened the door to merit-based review of domestic awards and was widely criticised for undermining the finality Parliament intended.
3. ONGC Ltd. v. Western Geco International Ltd. (2014)
The Court further broadened public policy by reading into it three “juristic principles” — that a decision-making authority must adopt a judicial approach, must comply with principles of natural justice, and must not be perverse or irrational (i.e., Wednesbury unreasonableness). This decision was seen as importing administrative law standards of judicial review into arbitration, again diluting party autonomy.
4. Associate Builders v. DDA (2014)
While reiterating Western Geco’s formulation, the Court also cautioned that interference should be minimal and that courts must not act as appellate bodies scrutinising the merits of an award, laying some groundwork for the corrective amendments that followed.
5. National Highways Authority of India v. M. Hakeem (2021)
The Court held that Section 34 does not confer upon courts the power to modify an arbitral award; the court’s jurisdiction is limited to setting aside the award, wholly or partly. This reaffirmed that Section 34 proceedings are supervisory, not appellate, in character — courts cannot “correct” an award even where a partial modification might seem more efficient.
6. Delhi Airport Metro Express Pvt. Ltd. v. DMRC (2021)
The Supreme Court set aside an award on grounds of patent illegality and perversity, but simultaneously used the occasion to caution lower courts against expansive interference, reiterating that Section 34 courts must exercise restraint and that perversity must be evident on the face of the record without a need for extensive re-appreciation of evidence. The judgment is often cited both for its outcome (award set aside) and its cautionary observations on the limited scope of interference — illustrating the continuing tension in this area of law.
7. Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2024–2025, Constitution Bench)
More recently, a five-judge Constitution Bench of the Supreme Court considered whether courts possess an implied power to modify arbitral awards under Section 34/37, given the apparent rigidity of the M. Hakeem ruling. The reference reflects the ongoing judicial recalibration of how much latitude courts should retain even under a regime designed to minimise interference, and readers preparing for exams should track the final disposition of this reference as it may materially alter the Section 34 landscape.
Conclusion
The trajectory from Renusagar to Ssangyong reveals arbitration law’s central tension: the need for judicial oversight to prevent injustice, weighed against the promise of finality that makes arbitration attractive in the first place. The 2015 Amendment and the Supreme Court’s endorsement of it in Ssangyong represent a deliberate and, in the author’s view, correct recalibration. By codifying Renusagar’s narrow formulation, excluding merits review through Explanation 2, and confining patent illegality to purely domestic awards under a tightly worded Section 34(2A), the law now offers considerably greater predictability to parties and reduces the incentive to use Section 34 as a delaying tactic.
That said, the conundrum is not fully resolved. Phrases such as ‘most basic notions of morality or justice’ and ‘shocks the conscience of the court’ remain inherently elastic, and their application will always depend on the individual disposition of the bench hearing the challenge. The Ssangyong Court’s own recourse to Article 142 to rewrite the outcome — arguably in tension with the settled position that courts cannot modify awards under Section 34, later hardened in M. Hakeem — illustrates that even the architects of restraint occasionally succumb to the temptation of substantive intervention when they perceive an award to be manifestly unjust. Going forward, Indian courts would do well to treat the ‘public policy’ ground as genuinely exceptional, reserved for the rarest cases of fraud, corruption, or fundamental breach of natural justice, while leaving contractual and factual disputes — however debatable the arbitrator’s view — to rest undisturbed. Only then can India realise its ambition of becoming a mature seat for both domestic and international commercial arbitration.
Frequently Asked Questions
Q1. What is the limitation period for filing a Section 34 application? Under Section 34(3), an application must be made within three months from the date of receipt of the award, extendable by a further 30 days if the court is satisfied of sufficient cause — but not thereafter, as this proviso has been held to exclude the general condonation power under Section 5 of the Limitation Act, 1963.
Q2. Can a court modify an arbitral award while deciding a Section 34 petition? No. As settled in NHAI v. M. Hakeem (2021) 9 SCC 1, a Section 34 court can only set aside the award (wholly or in part), remit it to the tribunal under Section 34(4), or dismiss the application — it cannot vary or substitute the award’s terms.
Q3. Does ‘patent illegality’ apply to international commercial arbitrations seated in India? No. Section 34(2A) expressly restricts the patent illegality ground to arbitrations ‘other than international commercial arbitrations,’ meaning purely domestic awards. International commercial arbitrations seated in India may only be challenged on the Explanation 1 public policy grounds.
Q4. Is an erroneous interpretation of a contract by the arbitrator a ground to set aside the award? Generally, no. The proviso to Section 34(2A) expressly bars setting aside an award merely for an erroneous application of law or re-appreciation of evidence, and courts must give primacy to the arbitrator’s plausible view, per Associate Builders and Ssangyong.
Q5. Does filing a Section 34 application automatically stay enforcement of the award? No. Since the 2015 Amendment inserted Section 36(2), mere filing of a Section 34 application does not operate as an automatic stay; the applicant must make a separate application for stay, and the court may impose conditions, including security, before granting one.
