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Court can quash arbitration award if it is against law

Legal Correspondent

New Delhi: A court can set aside an arbitration award if it is contrary to law or the Arbitration and Conciliation (AC) Act or against the terms of a contract, the Supreme Court has held.

A Bench, consisting of Justices P. Sathasivam and Aftab Alam, said: “An award could be set aside if it is contrary to the fundamental policy of Indian law; or [to] the interest of India; or [to] justice or morality or prejudicial to the rights of the parties or if it is so unfair and unreasonable that it shocks the conscience of the court.”

Writing the judgment, Justice Sathasivam said, “It is open to the court to consider whether the award is against the specific terms of contract and if so, interfere with it on the ground that it is patently illegal and opposed to public policy.”

Quoting an earlier judgment, the Bench said: “If the Arbitral Tribunal has not followed the mandatory procedure it would mean that it has acted beyond its jurisdiction and thereby the award would be patently illegal which could be set aside under Section 34 of the AC Act.” If the arbitrator had no jurisdiction to go into the dispute, the award would become null and void and could be interfered with.

In the instant case, an arbitrator passed an award against the Delhi Development Authority, levying 12 per cent interest from the date of decree until the payment was made to R.S. Sharma and Co. A single judge of the Delhi High Court set aside the award and on appeal a Division Bench confirmed it.

“Erroneous premise”

Setting aside this judgment on appeal by the DDA, the Supreme Court said the single judge was fully justified in partially setting aside the award of the claims but the Division Bench, while reversing this order, proceeded on an erroneous premise. The arbitrator had accepted the claim without giving any justification.

“We are satisfied that this is an error apparent on the face of the record as well as contrary to the terms of the agreement,” the Supreme Court said and restored the single judge’s order.

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