1. Introduction to Section 34 of the Arbitration Act
Section 34 of the Arbitration and Conciliation Act, 1996 provides the framework for challenging arbitral awards in India. It ensures that while arbitration remains final and binding, awards can be reviewed by courts only on limited, well-defined grounds.
One of the most important — and often debated — grounds for challenge is contained in Section 34(2)(b)(ii), which allows an arbitral award to be set aside if it is found to be in conflict with the public policy of India.
2. Text of Section 34(2)(b)(ii)
The relevant portion of Section 34(2)(b)(ii) states:
“An arbitral award may be set aside by the court if the court finds that the arbitral award is in conflict with the public policy of India.”
This provision gives courts the power to intervene in exceptional cases where enforcing an award would be contrary to the fundamental principles of Indian law, justice, or morality.
3. Purpose of Section 34(2)(b)(ii)
The purpose of this provision is to balance two competing objectives:
- Respecting the finality and autonomy of arbitral awards.
- Preventing the enforcement of awards that violate India’s legal or moral framework.
In essence, Section 34(2)(b)(ii) acts as a safeguard against awards that undermine the integrity of the Indian legal system.
4. Evolution of the Public Policy Doctrine
The interpretation of “public policy” has evolved significantly over time:
- Before 2015 Amendment: Courts interpreted public policy broadly, leading to frequent interference with arbitral awards.
- 2015 Amendment: The definition was narrowed to restrict judicial interference, following international best practices.
- Post-2019 Amendment: The scope became even more limited, promoting a pro-arbitration approach.
This evolution aligns India’s arbitration law with international standards such as the UNCITRAL Model Law.
5. Meaning of ‘Public Policy of India’
After the 2015 Amendment Act, the term “public policy of India” was specifically explained in the Explanation to Section 34(2)(b)(ii).
An award is considered to be in conflict with the public policy of India only if:
- The award was induced or affected by fraud or corruption; or
- It is in contravention with the fundamental policy of Indian law; or
- It is in conflict with the most basic notions of morality or justice.
This narrow definition ensures that the court does not act as an appellate authority but only as a guardian of legality and morality.
6. Components of Public Policy under Section 34(2)(b)(ii)
Let’s break down the three major grounds for challenge under this provision:
a) Fraud or Corruption
If the award was obtained through fraud, bribery, or corruption, it undermines the integrity of the arbitration process and must be set aside.
b) Fundamental Policy of Indian Law
This includes violations of the Constitution, statutory provisions, or legal principles that form the foundation of Indian law — such as natural justice and fairness.
c) Basic Notions of Morality or Justice
If the award is shockingly unfair, unconscionable, or offends the court’s sense of justice, it can be invalidated under this ground.
7. Key Judicial Interpretations
Indian courts have played a crucial role in shaping the understanding of Section 34(2)(b)(ii).
- ONGC v. Saw Pipes Ltd. (2003): The Supreme Court initially gave a broad interpretation to “public policy,” including patent illegality.
- ONGC v. Western Geco International Ltd. (2014): Expanded “fundamental policy of Indian law” to include judicial review and natural justice.
- Associate Builders v. DDA (2015): Clarified that the term “public policy” should be narrowly construed.
- Ssangyong Engineering & Construction Co. Ltd. v. NHAI (2019): Marked a shift toward minimal court intervention, holding that “public policy” must not include re-appreciation of evidence.
These rulings have progressively limited the misuse of Section 34(2)(b)(ii) as a tool for re-litigating arbitral awards.
8. Difference Between Domestic and International Arbitration
The interpretation of public policy differs slightly between domestic and international commercial arbitration:
- In domestic arbitration, courts can examine if the award violates Indian law or contains patent illegality (under Section 34(2A)).
- In international commercial arbitration, “public policy” is interpreted more narrowly, focusing only on fundamental principles, morality, and justice.
This distinction ensures India’s alignment with international arbitration norms while maintaining domestic judicial oversight.
9. What Is Not Considered Public Policy
Under current law, the following are not sufficient to invoke Section 34(2)(b)(ii):
- Mere errors in law or fact by the arbitral tribunal.
- Disagreement with the tribunal’s interpretation of a contract.
- Procedural irregularities that do not cause injustice.
- Re-assessment of evidence by the court.
Courts have repeatedly held that arbitral awards cannot be challenged simply because one party is dissatisfied with the outcome.
10. Burden of Proof
The burden of proving that an award violates public policy lies on the party challenging the award.
The court presumes the award to be valid and will interfere only if there is clear evidence that one of the statutory grounds under Section 34(2)(b)(ii) is met. This ensures the finality and credibility of arbitration.
11. Procedural Aspects of Challenging an Award
- Time Limit: An application to set aside an award must be filed within three months from the date of receiving the award, extendable by 30 days for sufficient cause.
- Filing: The application is made before the competent court under Section 34.
- Scope: The court’s review is limited to examining the record; it cannot re-hear the matter.
This streamlined process ensures challenges are handled efficiently and within clear boundaries.
12. Role of Section 34(2)(b)(ii) in Ensuring Justice
While arbitration promotes finality and efficiency, Section 34(2)(b)(ii) acts as a safety valve to prevent enforcement of unjust or illegal awards.
It ensures that arbitral autonomy does not override the fundamental values of Indian law — maintaining the delicate balance between judicial restraint and justice.
13. Importance of Judicial Restraint
The modern trend under Indian arbitration law emphasizes minimal judicial interference. Courts are now careful to interfere only in extreme cases, preserving the spirit of arbitration as an independent dispute resolution mechanism.
14. Impact on India’s Arbitration Landscape
By narrowing the definition of “public policy,” Section 34(2)(b)(ii) has transformed India into a more arbitration-friendly jurisdiction. It reassures foreign investors and domestic entities that arbitral awards will be respected and set aside only on genuine and limited grounds.
15. Conclusion
Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996 ensures that arbitration in India remains fair, legitimate, and consistent with the nation’s core legal and moral principles.
While courts retain the power to set aside awards conflicting with the public policy of India, they exercise this power sparingly, respecting the autonomy and finality of arbitration. This balance promotes both justice and efficiency, essential for maintaining confidence in India’s arbitration framework.
Frequently Asked Questions
1. What does Section 34(2)(b)(ii) of the Arbitration Act deal with?
It allows a court to set aside an arbitral award if it conflicts with the public policy of India.
2. What constitutes a violation of public policy?
Fraud, corruption, contravention of fundamental legal principles, or conflict with basic morality or justice.
3. Can an award be set aside for an error of law?
No, unless the error results in a violation of the fundamental policy of Indian law or patent illegality in domestic arbitration.
4. Is public policy interpreted broadly or narrowly?
Narrowly, especially after the 2015 and 2019 amendments, to prevent excessive judicial interference.
5. What is the time limit for challenging an award under Section 34?
Three months from the date of receipt of the award, extendable by 30 days with sufficient cause.
6. Can international awards be challenged on public policy grounds?
Yes, but the scope is extremely limited to cases involving fraud, corruption, or basic notions of morality and justice.