Sunday, 25 November 2018

Whether illegal arbitration award is against public policy of India?

It was also held by the District Judge that the arbitral award was not even against the public policy of India and merely because some illegality has been pointed out it cannot be held that the award is against the public policy.

13. We are in agreement with the findings of the District Judge and since no ground exists under Section 34 of the Act for setting aside the arbitral award without re-appreciation of evidence, we are of the opinion that the judgment and order passed by the District Judge is not illegal rather perfectly valid. 

IN THE HIGH COURT OF ALLAHABAD

F.A.F.O. No. 2188 of 2018

Decided On: 02.05.2018

 Nathu Ram Sahu Vs. Arbitrator/Collector and Ors.

Hon'ble Judges/Coram:
Pankaj Mithal and Rajiv Joshi, JJ.

Citation: AIR 2018(NOC) 880 ALL


1. Heard learned counsel for the appellant. Some land of the appellant measuring about 1668 sq. feet situate in Mauja Konchhabhanwar, District Jhansi on which allegedly his house and shop existed was acquired for widening of the National Highway 25 under the provisions of National Highways Act, 1956 (hereinafter referred to as "the Act").

2. The Competent Authority/Special Land Acquisition Officer, Jhansi (Joint Organisation) made an award dated 30.5.2006 awarding ` 10 lakh per hectare for the acquired land after dealing with the specific objections of the appellant regarding his constructions allegedly existing over it.

3. The appellant was not satisfied by the aforesaid award. Therefore, he sought reference to the Arbitrator as provided under Section 3G (5) of the Act. The Arbitrator/Collector on 29.1.2009 pronounced the award holding that the compensation awarded by the competent authority is just and fair and that the appellant is not entitle to any additional amount or enhancement of compensation.

4. Aggrieved by the aforesaid award dated 29.1.2009 of the Arbitrator/Collector, the appellant filed application under Section 34 of the Arbitration and Conciliation Act, 1996 before the court i.e., District Judge for setting aside the aforesaid award. The said application has been rejected vide judgment and order dated 20.1.2018 passed by the District Judge:

5. The aforesaid order of District Judge passed under Section 34 of the Arbitration and Conciliation Act has been assailed by the appellant by means of the present appeal.

6. The submission of learned counsel for the appellant is that he has not been awarded proper compensation., especially with regard to his construction existing on the land. The compensation has been awarded by treating the land to be agricultural in nature even though it was in use for residential/commercial purposes.

7. The award of the Arbitrator under Section 34 of the Arbitration and Conciliation Act can be set aside on limited grounds as are assigned therein.

8. Section 34 of the Arbitration and Conciliation Act reads as under:

"34. Application for setting aside arbitral award.--(1) 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).

(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 have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration :

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

(v) The composition of the arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless agreement was in conflict with a provision of this part from 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 under the law for the time being in force, or

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

Explanation 1.--For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,--

(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2.--For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail or review on the merits of the dispute.

(2A) 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 re-appreciation of evidence."

9. A simple reading of the aforesaid provision reveals that the award of the Arbitrator can be set aside only on the following grounds:

1. if the parry was under some incapacity;

2. the arbitration agreement is not valid in law;

3. the party was not given proper notice of the appointment of arbitrator or arbitral proceedings or otherwise he was unable to present his case;

4. the arbitral award deals with a dispute not contemplated by the terms of arbitration, or it decides matters beyond the scope of arbitration;

5. the composition of the arbitral Tribunal or the procedure followed by it was not in accordance with the agreement of the parties;

6. if the court finds that the dispute is not capable of settlement by arbitration under the existing law;

7. the arbitral award is in conflict with the public policy of India; and

8. if there is patent illegality on the face of the award but not on erroneous application of law or by reappreciation of evidence.

10. The challenge to the arbitral award as made under Section 34 of the Act does not appear to be covered by any of the grounds referred to above. It is for this reason that the District Judge rejected the motion under Section 34 of the Act.

11. The District Judge further held that the compensation was awarded to the appellant on the market value of the acquired land and that the land was agricultural in nature since no declaration was made under Section 143 of the U.P. Zamindari Abolition and Land Reforms Act so as to alter its nature to residential or commercial to permit award of compensation accordingly.

12. It was also held by the District Judge that the arbitral award was not even against the public policy of India and merely because some illegality has been pointed out it cannot be held that the award is against the public policy.

13. We are in agreement with the findings of the District Judge and since no ground exists under Section 34 of the Act for setting aside the arbitral award without re-appreciation of evidence, we are of the opinion that the judgment and order passed by the District Judge is not illegal rather perfectly valid. The appeal has no merit and is dismissed.


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