Recently, the Supreme Court of India, in the case of Patel Engineering Ltd. v. North Eastern Electric Power Cooperation Ltd. (Special Leave Petition (C) No. 3584 of 2020) (Patel Engineering), affirmed the position taken in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India [(2019) 15 SCC 131] (Ssangyong). Even though Ssangyong has been discussed previously here and here, it is necessary that the ‘public policy’ aspect of Ssangyong’s decision be analyzed. This analysis would be specific in nature, dealing only with the aspect of ‘patent illegality’ under the public policy head. For this reason, understanding the arguments and decision in Patel Engineering is important. Primarily, Patel Engineering deals with the issue of an arbitral award being set aside under Section 34 of the Arbitration and Conciliation Act, 1996, (“the Act”) on the grounds of patent illegality or perverseness.
The respondent and original applicant had filed three applications, under Section 34 of the Act, before the Additional Deputy Commissioner (Judicial) Shillong (ADC), to set aside three arbitral awards passed against it in respect of certain packages. Through a common judgment, the ADC rejected the respondent’s applications for setting aside the three arbitral awards under Section 34 of the Act. Aggrieved by the said judgment, the respondent filed three appeals, under Section 37 of the Act, in the High Court of Meghalaya. Pertinently, the High Court allowed the respondent’s appeals and set aside the common judgment passed by the ADC on the ground that the awards were patently illegal. Thereafter, the petitioner filed special leave petitions (SLPs) before the Supreme Court, all of which were dismissed by the Supreme Court. After the dismissal of the SLPs, the petitioners filed multiple review petitions on the ground that the judgment of the High Court, allowing the respondent’s appeals, suffered from error apparent on the face of the record as it had not taken into consideration the amendments made to the Act of 1996 by the Arbitration and Conciliation (Amendment) Act of 2015 (“the Amendment Act, 2015”). The High court dismissed all the review petitions, which resulted in the petitioners filing another SLP in the Supreme Court.
Analysis of the judgment
The main contention of the petitioner was that the High Court relied upon the decisions of ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 605 (Saw Pipes) and ONGC Ltd. v. Western Geco International Ltd. (2014) 9 SCC 263 (Western Geco), which were no longer good law due to the Amendment Act, 2015. Essentially, Saw Pipes laid the foundation for the concept of ‘patent illegality’ under the expansive interpretation of ‘public policy of India’. Simply put, the ground of patent illegality is available under the statute for setting aside a domestic award if the decision of the arbitrator is found to be perverse or irrational (judging on general standards of reasonableness), the construction of the contract is such that no fair or reasonable person would take that view, or the view taken by the arbitrator is not even possible. On the same footing, the decision in Western Geco expanded the concept even further by providing a broad definition of ‘public policy of India’. The Amendment Act, 2015, provided statutory force to the concept of patent illegality as a ground for setting aside of arbitral awards by inserting Section 34 (2A) in the Act. However, this ground was not to be invoked in an international commercial arbitration seated in India nor could it be invoked to resist the enforcement of a foreign award.
Interestingly, the Supreme Court, in Ssangyong, noted that the expansive interpretation given to the term ‘public policy of India’ in the Saw Pipes and Western Geco cases had been done away with and that a new ground of ‘patent illegality’ had been introduced, which would apply to applications under Section 34 filed after October 2015. The petitioner, in the present case, argued that since the Ssangyong decision enumerated that Saw Pipes and Western Geco are no longer good law, the High Court, by relying on the said decisions, had erred. However, rejecting this contention, the Supreme Court relied on its own interpretation of Ssangyong, stating that the ground of patent illegality, under Section 34, would be applicable to domestic awards. This means that the ground of patent illegality, to set aside an award, would be applicable only when the two parties are Indian entities. Therefore, the High Court, while setting aside the award on the ground of patent illegality, has considered the principles of the Ssangyong even though it may have quoted Saw Pipes and Western Geco to reach the said decision. Relying on Ssangyong, the Supreme Court rejected the contention of the Petitioner and concluded that if the award passed by the arbitrator suffers from the vice of irrationality, patent illegality could be applied as a ground for setting it aside.
Ssangyong and beyond
In my opinion, Ssangyong has cleared the air regarding the scope of public policy as a ground for setting aside of arbitral awards. It has brought the essential elements of Associate Builders v. DDA [(2015) 3 SCC 49] and BCCI v. Kochi Cricket Pvt. Ltd. & Ors.[(2018) 6 SCC 287] under its aegis. The former deals with interpretation of basic morality and justice arguments for setting aside an arbitral award and the latter deals with applicability of the 2015 Act, specifically, section 34. It seems that post Ssangyong, the Supreme Court has adopted a positive approach towards ‘minimal judicial interference’ policy. This can be witnessed through the Supreme Court’s reliance on Ssangyong in the decision of Vijay Karia & Ors. v. Prysmian Cavi E Sistemi SRL &Ors. (Civil Appeal No. 1544 of 2020), wherein the Court stated, “the foreign award must be read as a whole, fairly, and without nit-picking. If the said award has addressed the basic issues raised by the parties and has, in substance, decided the claims and counter-claims of the parties, then the enforcement must follow.” The Supreme Court, further, stated that the appeal ought to be rejected if the appellants indulge in a speculative litigation with the fond hope that by flinging mud on a foreign arbitral award, some of the mud so flung would stick.
There is no doubt that there are several issues with Ssangyong, specifically, the problem with the minority decisions (which has been dealt with here). Another issue is that the judgment has been pronounced by a division bench (two judges), which always casts a shadow over the precedential value of the decision. Nonetheless, the decision has played an important role in streamlining the ‘minimal judicial interference’ principle. Moreover, by consolidating all the previous definitions of public policy and the applicability of same in varied instances, the judgment has already made a mark in the arbitral jurisprudence of India. The reliance of Patel Engineering on Ssangyong is just another feather in its cap.
NAFED an anomaly
If consistency is the cornerstone of the administration of justice, the Supreme Court, occasionally, tends to fiddle with its alignment. The case of National Agricultural Cooperative Marketing Federation of India v. Alimenta S.A.(Civil Appeal No. 667 of 2012) (NAFED) is an example of deviating from the charted path of Ssangyong. NAFED had an award passed against it by an arbitral tribunal, which was later upheld by the High Court of Delhi. Further, the High Court allowed for its enforcement and converted it into a decree, resulting in the appeal to the Supreme Court by NAFED. NAFED’s main submission before the Court was that it was unable to fulfil its contractual obligations in view of government’s refusal to permit it to export its commodity, and, therefore, the contract was void, resulting in no damages being awarded to the respondent. Accepting this contention, the Supreme Court, even after considering Ssangyong and Vijay Karia, held that the award was ex facie illegal, and in contravention of fundamental law of the country. The Supreme Court also ignored the decision of the Delhi High Court in Cruz City 1 Mauritius Holdings v. Unitech (2017) 239 DLT 649, which was referred to with approval in Vijay Karia, and which held that violation of “any particular provision or a statute” would not satisfy the “narrow width” of the public policy defence, particularly when the allegation was made with a view to set aside a foreign award.
In recent years, the Supreme Court has taken a pro-arbitration stance and, therefore, laid down decisions in the hopes of achieving the rule of finality. One such decision is Ssangyong, which is on the path to becoming the panacea for all public policy cases. There may be situations where judicial pronouncements tend to take a different path as seen in NAFED. However, such instances should be the exceptions rather than the norm. As Harish Salve, QC, in his latest conversation with Mr. John Beechey, mentioned, “Consistency must be there in all forms”. If a precedent has been set, there is no need to chop and change it; it must be given some time to stabilize and achieve finality. Ssangyong is one such judgment that creates confidence in the system and this confidence cannot be achieved without respect to the rule of finality.
 Malcolm Katrak is an Assistant Lecturer at Jindal Global Law School. He has a joint LL.M. from Erasmus University, Rotterdam, and University of Hamburg as well as an M.Sc. in Law and Economics from the Indira Gandhi Institute of Development Research, Mumbai. Previously, he worked as a Law Clerk to Justice (Retd.) S.N.Variava, Former Judge, Supreme Court of India. The author can be contacted on this ID- firstname.lastname@example.org