Answer By law4u team
If an arbitral award contradicts Indian law, there are legal provisions under the Indian Arbitration and Conciliation Act, 1996 (the Act) that allow a party to challenge the award. The primary concern in such cases is whether the award violates public policy, as this is one of the recognized grounds for setting aside or refusing the enforcement of an award. While arbitral tribunals have the authority to make decisions, they must respect the mandatory provisions of the law of the country in which the award is being enforced.
What Happens If an Arbitral Award Contradicts Indian Law?
Public Policy Exception:
Under Section 34 of the Indian Arbitration and Conciliation Act, 1996, an arbitral award can be set aside by an Indian court if it is found to be in conflict with Indian public policy.
Public policy is a broad and flexible concept that can cover various issues, including:
- Violation of Indian laws or statutory provisions.
- The award being against the sovereignty, integrity, or security of India.
- The award being prejudicial to the good morals or public welfare of India.
A court may refuse enforcement if it finds that the award is manifestly or flagrantly in breach of Indian law.
Grounds for Setting Aside or Refusing Enforcement:
The Indian Arbitration Act, 1996 provides specific grounds for challenging an award:
- Violation of Indian Law: If the award violates the Indian Contract Act, 1872, or any other statutory provisions that are mandatory and essential to the legal framework of India, such an award may be set aside.
- Violation of Public Policy: An award can be set aside or refused enforcement if it violates Indian public policy.
- Non-compliance with due process: If the due process of arbitration has been compromised or if one party was not given the opportunity to present its case, the award may be set aside.
Section 34 of the Indian Arbitration Act, 1996:
Section 34 of the Indian Arbitration and Conciliation Act, 1996 provides for the setting aside of an arbitral award. If an award contradicts Indian law, or violates public policy, a party can file an application with an Indian court to set aside the award.
Example: If an arbitral tribunal issues an award that is based on a contract that is illegal under Indian law, such as a contract that violates Indian competition law or tax law, the court can set aside the award on the grounds of violation of public policy.
Judicial Review of Arbitral Awards:
Courts in India do not have the authority to review the merits of the arbitral award. This means that the court cannot revisit the facts or re-evaluate the evidence that led to the award.
However, if the award violates Indian law or public policy, courts have the power to intervene. The intervention is limited to ensuring that the award does not transgress fundamental principles of Indian law, including constitutionally protected rights.
Example: If an arbitral award is based on a fraudulent contract or an agreement that is void under Indian law, the court will likely refuse to enforce it.
Enforcement of Foreign Arbitral Awards:
If a foreign arbitral award is in conflict with Indian law, Section 48 of the Indian Arbitration and Conciliation Act, 1996 governs the refusal of enforcement of foreign awards. The grounds for refusal of enforcement are similar to those under Section 34.
Public Policy Exception:
Under Section 48(2), a foreign award may be refused recognition and enforcement if it is found to be inconsistent with Indian public policy.
Example: If an arbitral award rendered in a foreign jurisdiction mandates the payment of an amount for illegal activities or violates Indian tax law, it could be refused enforcement in India under the public policy exception.
Interpretation of Public Policy:
The Supreme Court of India has interpreted public policy in arbitration as being confined to fundamental principles of Indian law and constitutional morality.
For instance, if an arbitral award goes against the principles of natural justice, such as denying a party the right to be heard or being based on illegal agreements, it can be refused under the public policy exception.
International vs Domestic Arbitration:
Domestic Arbitration:
In domestic arbitration, the court can set aside the award under Section 34 of the Indian Arbitration Act if it contradicts Indian law or public policy.
International Arbitration:
In international arbitration, if a foreign award is to be enforced in India, it can be challenged under Section 48 of the Act on the grounds of violation of public policy. International awards are not subject to review on their merits but can be rejected if they violate Indian laws.
Example:
Scenario:
ABC Ltd., an Indian company, enters into a contract with XYZ Corp., a foreign company, for the supply of goods. The contract is based on terms that violate Indian tax laws, specifically provisions under the Goods and Services Tax (GST) law.
The dispute is referred to international arbitration, and the arbitral tribunal issues an award ordering ABC Ltd. to pay damages to XYZ Corp. based on the illegal contract.
ABC Ltd. challenges the enforcement of the award in an Indian court, arguing that the award contradicts Indian law because it enforces an illegal contract.
The Indian court, applying the public policy exception under Section 48(2) of the Indian Arbitration Act, refuses to enforce the award on the grounds that the award is inconsistent with Indian tax law, which is a part of public policy.
Conclusion:
If an arbitral award contradicts Indian law, the award can be challenged and set aside under Section 34 of the Indian Arbitration and Conciliation Act, 1996 on the grounds of public policy violations. Indian courts can also refuse to enforce foreign arbitral awards under Section 48 if they violate Indian public policy. The key issue in such challenges is whether the award goes against fundamental principles of Indian law, such as statutory provisions or constitutional rights. However, courts do not review the merits of the award, limiting their intervention to public policy and procedural fairness.
