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KEY TAKEAWAYS

  • According to the Supreme Court, the 2015 change to Section 34 of the Arbitration and Conciliation Act 1996 will only apply to Section 34 applications filed after the amendment's effective date.
  • In a case where the applicability of S.34 to foreign business disputes was questioned, a Bench of Justices Sanjay Kishan Kaul and M.M.Sundaresh made the aforesaid observations.

BACKGROUND

  • To resolve some ongoing disputes, the appellant and respondent agreed to a Deed of Settlement.
  • For the resolution of disputes, the Deed of Settlement included an arbitration clause. The arbitral proceedings were sparked by certain events, and on November 10, 2014, the arbitrator issued the final judgement, granting liquidated damages to the appellant.
  • The respondent filed a petition in the Bombay High Court under Section 34 of the Act. In accordance with the judgement dated 19.05.2020, the award was set aside by the learned Single Judge of the High Court.
  • In the impugned judgement dated 20.04.2021, the Division Bench dismissed the respondent's appeal filed under Section 37 of the aforementioned Act.
  • The appellant stated that the Award could not be challenged under S.34 of the Act since patent illegality could not be used as a reason to dispute an award in international commercial arbitration cases after the 2015 Amendment.

COURT’S OBSERVATION

  • The Court noted that because the appellant was a Singapore-based party, the arbitration would be an international commercial arbitration and the award would be a domestic award arising out of an international business agreement under S.2(f) of the Act.
  • This is a significant conclusion, given the changes in the law under S.34 since the 2015 Amendment.
  • "The scope of interference by the Court grew more restrictive with the modifications coming into force," the court said, referring to the 2015 Amendment, which included Explanations to S.34(2) of the Act as well as Sub-section 2A of S.34.
  • The Court observed that the 2015 Amendment sought to distinguish between a domestic award emanating from an international commercial arbitration and a purely domestic verdict.
  • The change in respect of a solely domestic award was intended to make the interference test more strict.
  • The Court observed that the Single Judge's and Division Bench's judgments determined the plea of patent illegality's award without taking into account the 2015 Amendment's change in the law.
  • This distinction was important because the appellant asserted that the award should be scrutinised in a post-amendment scenario, and that both forums erred in applying the patent illegality test, which is only relevant in a pre-amendment scenario.
  • The patent illegality test, according to the appellant, would not apply to the award in dispute.
  • The Court noted that it is undisputed that S.34 proceedings began prior to October 23, 2015, when the Amendment took effect.
  • The Court then looked at the Arbitration Award and decided that the arbitrator's conclusions are contrary to Indian law's essential policy and should be overturned, according to the pre-2015 interpretation of S.34 of the Act.
  • To the extent that the Single Judge and Division Bench's judgement interfered with the award, the court affirms it and sets it aside.


QUESTIONS

  • What do you think about the court’s observation and order in the following case?
  • Do you agree with the court’s decision?
  • Do you think the amendment should apply to section 34 applications filed prior to it?

Share your views in the comments section below.

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