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Oil & Natural Gas Corporation Ltd.

Vs.

SAW Pipes Ltd.

AIR2003SC2629


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CASE FACTS

Appellant - ONGC which is a Public Sector

Undertaking, has challenged the arbitral

award dated 2nd May, 1999 by filing

Arbitration Petition No. 917/1999 before the

High Court of Bombay.

Respondent-Company which is engaged in the

business of supplying equipment for Offshore

Oil exploration and maintenance.


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Cause of the matter:- TENDER

Respondent offered to supply to the appellants 26"diameter and 30" diameter casing pipes.

Respondent placed an order for supply of steel plates,that is, the raw material required for manufacturingthe pipes with Live Laminati, Piani S.P.A., Italiansuppliers stipulating that material must be shippedlatest by the end of September 1996 as timely deliverywas of the essence of the order. It is also their case thatall over Europe including Italy there was a generalstrike of the steel mill workers.


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COURT'S JURISDICTION UNDER SECTION 34 OF THE ARBITRATION ANDCONCILIATION ACT, 1996

"34. Application for setting aside arbitral award-- (1) Recourse to a court againstan arbitral award may be made only by an application for setting aside such awardin accordance with Sub-section (2) and Sub-section (3).

(2)An arbitral award may be set aside by the court only if--

(a) the party making the application furnishes proof that-

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties havesubjected it or, failing any indication thereon, under the law for the time being inforce; or

(iii) the party making the application was not given proper notice of the

appointment of an arbitrator or of the arbitral or was otherwise unable to presenthis case; or

(iv) the arbitral award deals with a dispute not contemplated by or not fallingwithin the terms of the submission to arbitration, or it contains decisions onmatters beyond the scope of the submission to arbitration;


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Provided that, if the decisions on matters submitted to arbitration can be separatedfrom those not so submitted, only that part of the arbitral award which containsdecisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not inaccordance with the agreement of the parties, unless such agreement was inconflict with a provision of this Part from which the parties cannot derogate or,

failing such agreement, was not in accordance with this Part; or(b) the court finds that--

(i) the subject-matter of the dispute is not capable of settlement by arbitration underthe law for the time being in force of

(ii) the arbitral award is in conflict with the public policy of India.

Explanation--Without prejudice to the generality of Sub-clause (ii), it is herebydeclared, for the avoidance of any doubt, that an award is in conflict with the

public policy of India if the making of the award was induced or affected by fraudof corruption or was in violation of Section 75 or Section 81."


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28. Rules applicable to substance of dispute-

(1)Where the place of arbitration is situate inIndia--

(a) in an arbitration other than an internationalcommercial arbitration, the arbitral tribunalshall decide the dispute submitted to

arbitration in accordance with thesubstantive law for the time being in force inIndia;


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WHAT MEANING COULD BE ASSIGNED TO THE PHRASE 'PUBLICPOLICY OF INDIA'?

The clause which requires interpretation is Clause (ii) of Sub-section2(b) of Section 34 which inter alia provides that the Court may setaside arbitral award if it is in conflict with the 'Public Policy of India'.

The phrase 'Public Policy of India' is not defined under the Act.

It is required to be given meaning in context and also consideringthe purpose of the section and scheme of the Act.

It has been repeatedly stated by various authorities that theexpression 'public policy' does not admit of precise definition and

may vary from generation to generation and from time to time.


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SirWilliam Holdsworth in his "History of EnglishLaw", Volume III, page 55, has said:

In fact, a body of law like the common law, which

has grown up gradually with the growth of thenation. necessarily acquires some fixed principles,and if it is to maintain these principles it must beable, on the ground of public policy or some

other like ground, to suppress practices which,under ever new disguises seek to weaken ornegative them.


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The principles governing public policy must be and arecapable, on proper occasion, ofexpansion or modification.

Practices which were considered perfectly normal at onetime have today become obnoxious and oppressive to

public conscience. Above all, in deciding any case which may not be covered

by authority our courts have before them the beacon lightof the Preamble to the Constitution.

Lacking precedent, the court can always be guided by that

light and the principles underlying the Fundamental Rightsand the Directive Principles enshrined in our Constitution.


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Renusagar Power Co. Ltd. v. General Electric Co:AIR1994SC860 , this Court considered Section 7(1) ofthe Arbitration (Protocol and Convention) Act, 1937which inter alia provided that a foreign award may not

be enforced under the said Act, if the Court dealingwith the case is satisfied that the enforcement of theaward will be contrary to the Public Policy.

The Court arrived at the conclusion that Public Policycomprehended in Section 7(1)(b)(ii) of the Foreign

Awards (Recognition and Enforcement) Act, 1961 isthe 'Public Policy of India' and does not cover thepublic policy of any other country. For giving meaningto the term 'Public Policy.


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There is nothing to indicate that the expression"public policy" in Article V(2)(b) of the New YorkConvention and Section 7(1)(b)(ii) of the ForeignAwards Act is not used in the same sense inwhich it was used in Article I(c) of the GenevaConvention of 1927 and Section 7(1) of theProtocol and Convention Act of 1937. This wouldmean that "public policy" in Section 7(1)(b)(ii)

has been used in a narrower sense and in orderto attract to bar of public policy the enforcementof the award must invoke something more thanthe violation of the law of India.


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"66. Article V(2)(b) of the New York Conventionof 1958 and Section 7(1)(b)(ii) of the ForeignAwards Act do not postulate refusal of

recognition and enforcement of a foreign awardon the ground that it is contrary to the law of thecountry of enforcement and the ground ofchallenge is confined to the recognition and

enforcement being contrary to the public policyof the country in which the award is set to beenforced.


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the Foreign Awards Act is concerned with

recognition and enforcement of foreign

awards which are governed by the principles

of private international law, the expression

"public policy" in Section 7(1)(b)(ii) of the

Foreign Awards Act must necessarily be

construed in the sense the doctrine of publicpolicy is applied in the field ofprivate

international law.


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Applying the said criteria it must be held that

the enforcement of a foreign award would be

refused on the ground that it is contrary to

public policy if such enforcement would be

contrary to

(i) fundamental policy of Indian law; or

(ii) the interests of India; or

(iii) justice or morality."


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Keeping in view the aforesaid objects

underlying FERA and the principles governing

enforcement of exchange control laws

followed in other countries.

To safeguard the economic interests of India

and any violation of the said provisions would

be contrary to the public policy of India asenvisaged in Section 7(1)(b)(ii) of the Act."


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Duties of Judges

The Judges are to base their decision on the opinionsof men of the world, as distinguished from opinionsbased on legal learning.

The Judges will have to look beyond the jurisprudenceand that in so doing, they must consult not their ownpersonal standards or predilections but those of thedominant opinion at a given moment, or what hasbeen termed customary morality. T

The Judges must consider the social consequences ofthe rule propounded, especially in the light of thefactual evidence available as to its probable results.


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Usual Method

in foreign arbitration, the award would be

subject to being set aside or suspended by the

competent authority under the relevant law of

that country whereas in the domestic

arbitration the only recourse is to Section 34.


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Comparision of Arbitration Act in

England & India

The Parliament has not made change while

adopting Article 34 of UNCITRAL Model Law

by not providing error of law as a ground of

appellant submitted that in case where there

is clear violation of challenge to the arbitral

award under Section 34 of the Act.


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The phrase 'public policy of India' is not

required to be given a narrower meaning.

The award which is passed in contravention ofSections 24, 28 or 31 could be set aside.

Wider meaning is required to be given so as to

prevent frustration of legislation and justice.


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In the Act of 1940, it was mentioned that the

award must be passed within the reasonable

time fixed by the court.

But on the contrary, in Act of 1996, as such

there in no time limit to pass the award.

For achieving the object of speedier disposal

of dispute, justice in accordance with law

cannot be sacrificed.


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Therefore, the phrase 'Public Policy of India' used in Section34 in context is required to be given a wider meaning.

It can be stated that the concept of public policy connotessome matter which concerns public good and the public

interest.What is for public good or in public interest orwhat would be injurious or harmful to the public good orpublic interest has varied from time to time.

Illegality must go to the root of the matter and if theillegality is of trivial nature it cannot be held that award is

against the public policy. Award could also be set aside if itis so unfair and unreasonable that it shocks the conscienceof the Court. Such award is opposed to public policy and isrequired to be adjudged void.


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Decision

The impugned award requires to be set aside mainly on thegrounds:--

(i) there is specific stipulation in the agreement that the timeand date of delivery of the goods was the essence of the

contract; (ii) in case of failure to deliver the goods within the period

fixed for such delivery in the schedule, ONGC was entitled torecover from the contractor liquidated damages as agreed;

(iii) it was also explicitly understood that the agreedliquidated damages were genuine pre-estimate of damages;

Hence, the case was decided in favour of appellant.


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