Case Title: Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd
Following a 2015 amendment, the Supreme Court stated that the perversity of an award is no longer a reason to refuse enforcement of a foreign award under Section 48 of the Arbitration and Conciliation Act.
The Court ruled that the ground of "patent illegality" can only be used to oust domestic arbitration awards made under Part 1 of the Arbitration and Conciliation Act and cannot be used to overturn international commercial awards.
The bench made up of Justices RF Nariman and BR Gavai stated, "The ground of "patent illegality appearing on the face of the award" is an independent ground of challenge that applies only to awards made under Part I which do not involve international commercial arbitrations."
Taking into account the 2015th amendment and the judgement in Ssangyong Engg. & Construction Co. Ltd. v. NHAI, the court concluded that perversity as a ground for setting aside an award in an international commercial arbitration held in India no longer exists following the 2015 amendment to the Arbitration Act, 1996.
Section 34 of the Act provides that an arbitral award can be set aside if it is contrary to Indian public policy. Explanation 1 states that an award conflicts with Indian public policy only if the following conditions are met:
i) the award was induced or influenced by fraud or corruption or was made in violation of section 75 or section 81; or
(ii) it is contrary to the fundamental policy of Indian law; or
(iii) it is contrary to the most fundamental notions of morality or justice. The test for whether there is a violation of Indian law's fundamental policy shall not include a review of the dispute's merits.
Subclause 2A was added in the 2015 amendment and reads as follows:
"An arbitral award arising out of arbitrations other than international commercial arbitrations may also be set aside by the Court if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence".
Section 48 states that the Court may refuse to enforce a foreign arbitral award if it determines that doing so would be contrary to Indian public policy. The same explanation is given to public policy under Section 48 as it is under Section 34.
Another argument against award enforcement was based on reliance on Section 48(2). The bench observed the following about Ssangyong Engg. & Construction Co. Ltd.:
To attract Section 48(2) read with Explanation 1(iii), this Court in Ssangyong has held that such a plea can be entertained only in exceptional cases involving some basic infraction of justice that shocks the court's conscience. In any case, the damages awarded in this case cannot be said to shock the conscience of this Court to the point of clutching at the "basic notion of justice" ground contained in Section 48(2) Explanation (1)(iii).