# Union of India v. Ms. Yauk Engineers

- **Citation:** (2024) 4 ILRA 8
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2024-04-05
- **Bench:** Shekhar B. Saraf
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/union-of-india-v-ms-yauk-engineers-51854
- **Pages:** 24

## Headnote

(A) Arbitration Law - Appeal against
arbitral
award
-
Arbitration
&
Conciliation Act, 1996 - Sections 21,
28(3), 34 & 37 - The Arbitration and
Conciliation (Amendment) Act, 2015 -
Contractual Terms - Arbitral Award -
Patent
Illegality
-
Severability
-
Retrospective Application - Public Policy
-
Rule
or
law
cannot
be
applied
retrospectively unless there is a clear or
manifest intention to the contrary -
Contract between the parties outlines
the boundaries within which an arbitral
tribunal can act - Any act or decision of
the
arbitral
tribunal
beyond
clearly
defined
contractual
provisions
is
patently illegal and unsustainable - Any
award passed against the statutory or
constitutional principles goes against
the public policy of India - Under Section
34 and Section 37 of the Act, courts
have the authority to partially set aside
an arbitral award. (Para - 9,48)

(B) Word or Phrases - lex prospicit non
respicit: law looks forward not backward,
Principle of pacta sunt servanda: Parties
must honour their obligations under the
contract,
Principle
of
severability
-
provides a mechanism for courts to
partially set aside an award when certain
issues within it are found to be flawed or
invalid - severability does not amount to
modification, which is prohibited - Courts
under Section 34 of the Act have the
power to severe and partly set aside the
award.(Para - 9,34, 40 to 47)

M/s Yauk Engineers (Respondent) contracted
with the Union of India (Appellant) to install a
33KV transformer - contract included a 12month performance guarantee - defects arose in
June 1998 which the Respondent repaired -
Respondent claimed ₹6,22,268/- as repair costs
- Union refused reimbursement citing guarantee
terms - Arbitrator awarded the amount with
interest to the Respondent - District Judge
upheld the award - Union appealed under
Section
37,
arguing
it
contradicted
the
contractual terms - preliminary issue regarding
instant appeal under Section 37 of Act - arbitral
award was issued in 2006 and adjudicated in
2024 - temporal disjuncture prompts a crucial
examination of legal principles - specifically
concerning retrospective application of laws and
temporal scope of legal provisions. (Para - 1 to
8 )

HELD: - 2015 Amendment to the Arbitration
and Conciliation Act did not apply retrospectively
to the present case. Award of Rs.6,22,268/- and
interest to the Respondent for repairing
transformer defects was a violation of Section
28(3) of the Act, as it stood before the
Amendment Act, 2015 & it was against the
contract's
clear
provisions.
Arbitral
award
granting reimbursement for repair costs was set
aside as it violated the explicit contractual
terms, but the remainder of the award was
upheld by applying the doctrine of severability.
(Paras 34, 39, 51, 52)

Appeal disposed of. (E-7)

List of Cases cited:

## Text

_Characters 0–39,926 of 82,024. This is a partial read: ask again with offset=39926 for what follows._

8 INDIAN LAW REPORTS ALLAHABAD SERIES
(2024) 4 ILRA 8
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 05.04.2024

BEFORE

THE HON'BLE SHEKHAR B. SARAF, J.

Appeal U/S 37 of Arbitration & Conciliation Act
1996 No. 389 of 2023

Union of India ...Appellant
Versus
Ms. Yauk Engineers ...Respondent

Counsel for the Appellant:
Sri S.K. Misra, Sri Ashok Nigam A.S.G.I., Sri
Gopal Verma

Counsel for the Respondent:
Sudhir Dixit

(A) Arbitration Law - Appeal against
arbitral
award
-
Arbitration
&
Conciliation Act, 1996 - Sections 21,
28(3), 34 & 37 - The Arbitration and
Conciliation (Amendment) Act, 2015 -
Contractual Terms - Arbitral Award -
Patent
Illegality
-
Severability
-
Retrospective Application - Public Policy
-
Rule
or
law
cannot
be
applied
retrospectively unless there is a clear or
manifest intention to the contrary -
Contract between the parties outlines
the boundaries within which an arbitral
tribunal can act - Any act or decision of
the
arbitral
tribunal
beyond
clearly
defined
contractual
provisions
is
patently illegal and unsustainable - Any
award passed against the statutory or
constitutional principles goes against
the public policy of India - Under Section
34 and Section 37 of the Act, courts
have the authority to partially set aside
an arbitral award. (Para - 9,48)

(B) Word or Phrases - lex prospicit non
respicit: law looks forward not backward,
Principle of pacta sunt servanda: Parties
must honour their obligations under the
contract,
Principle
of
severability
-
provides a mechanism for courts to
partially set aside an award when certain
issues within it are found to be flawed or
invalid - severability does not amount to
modification, which is prohibited - Courts
under Section 34 of the Act have the
power to severe and partly set aside the
award.(Para - 9,34, 40 to 47)

M/s Yauk Engineers (Respondent) contracted
with the Union of India (Appellant) to install a
33KV transformer - contract included a 12month performance guarantee - defects arose in
June 1998 which the Respondent repaired -
Respondent claimed ₹6,22,268/- as repair costs
- Union refused reimbursement citing guarantee
terms - Arbitrator awarded the amount with
interest to the Respondent - District Judge
upheld the award - Union appealed under
Section
37,
arguing
it
contradicted
the
contractual terms - preliminary issue regarding
instant appeal under Section 37 of Act - arbitral
award was issued in 2006 and adjudicated in
2024 - temporal disjuncture prompts a crucial
examination of legal principles - specifically
concerning retrospective application of laws and
temporal scope of legal provisions. (Para - 1 to
8 )

HELD: - 2015 Amendment to the Arbitration
and Conciliation Act did not apply retrospectively
to the present case. Award of Rs.6,22,268/- and
interest to the Respondent for repairing
transformer defects was a violation of Section
28(3) of the Act, as it stood before the
Amendment Act, 2015 & it was against the
contract's
clear
provisions.
Arbitral
award
granting reimbursement for repair costs was set
aside as it violated the explicit contractual
terms, but the remainder of the award was
upheld by applying the doctrine of severability.
(Paras 34, 39, 51, 52)

Appeal disposed of. (E-7)

List of Cases cited:

1. I.O.C. Ltd. Vs M/s Shree Ganesh Petroleum,
(2022) 4 SCC 463

2. MTC Ltd. Vs Vedanta Ltd., (2019) 4 SCC 163
4 All. Union of India Vs. Ms. Yauk Engineers
9
3. PSA Sical Terminals (P) Ltd. Vs Board of
Trustees of V.O. Chidambranar Port Trust
Tuticorin, 2021 SCC OnLine SC 508

4. Delhi Airport Metro Express Pvt. Ltd. Vs Delhi
Metro Rail Corp. Ltd., (2022) 1 SCC 131

5. Commissioner of I.T. Vs Vatika Township,
(2015) 1 SCC 1

6. U.O.I. Vs Parmar Construction, (2019) 15
SCC 682

7. U.O.I. Vs Pradeep Vinod Construction Co.,
(2020) 2 SCC 464

8. Ratnam Sudesh Iyer Vs Jackie Kakubhai
Shroff, (2022) 4 SCC 206

9. West Bengal Housing Board Vs Abhisek
Construction, 2023 SCC OnLine Cal 827

10. Oil & Natural Gas Corp. Ltd. Vs Saw Pipes
Ltd., (2003) 5 SCC 705

11. Associate Builders Vs DDA, (2015) 3 SCC
49

12. R.S. Jiwani Vs Ircon International Ltd.,
2009 SCC OnLine Bom 2021

13. J.G. Engineers (P) Ltd. Vs U.O.I., (2011) 5
SCC 758

14.
Damodar
Valley
Corp.
Vs
Reliance
Infrastructure Ltd., 2023 SCC OnLine Cal 3307

(Delivered by Hon'ble Shekhar B. Saraf,
J.)

1. This is an appeal under Section
37 of the Arbitration & Conciliation Act,
1996 (hereinafter referred to as the 'Act')
filed by the Union of India through
Garrison
Engineer
AF
(hereinafter
referred to as the 'Applicant') against the
order dated January 12, 2012 passed by
District Judge, Agra in Arbitration Case
No. 406 of 2006 under Section 34 of the
Act.

FACTS

2. I have laid down the factual
matrix leading to the instant appeal
below:

a.
M/s
Yauk
Engineers
(hereinafter
referred
to
as
the
'Respondent') entered into a contract with
the
Applicant
for
providing
33KV
transformer (Independent Feeder) vide
letter dated May 16, 1995 for an amount
of Rs.1,00,86,922.26/-. Work was to be
completed within 18 months with effect
from June 06, 1995. The work order was
issued on May 29, 1995. The work was
finally completed on August 09, 1997 and
completion certificate was issued on
August 14, 1997.

b. As per clause 39 and 39.1 of
the Contract between the parties and
condition 46 of IAFW 2249 General
Conditions
of
Contract
(hereinafter
referred
to
as
the
'GCC'),
entire
installation was deemed to be guaranteed
by
the
Respondent
for
efficient
performance for 12 months from the date
of completion of work. The Respondent
had also given specific undertaking in
this regard vide its letter dated October 1,
1997.

c. The Transformer provided by
the Respondent became defective in June,
1998 and accordingly, the Respondent
was asked by the Applicant to rectify the
defects. The Respondent rectified the
defects, and claimed reimbursement of
Rs.6,28,268/-
incurred
by
it
in
the
rectification
of
defects.
Since,
the
Applicant contended that based on the
guarantee provided by the Respondent it
was not liable to reimburse any cost
incurred towards rectification of defects,
disputes arose between the parties which
were referred to arbitration.
10 INDIAN LAW REPORTS ALLAHABAD SERIES

d. The Arbitrator vide its award
dated July 31, 2006, among other things,
awarded a sum of Rs.6,22,268/- along with
interest at the rate of 12% p.a. from
February 2, 1998 to July 31, 2006 and at
the rate of 8% p.a. from August 1, 2006 till
the date of actual payment in favour of the
Respondent.

e. The arbitral award dated July
31, 2006 was challenged by the Applicant
under Section 34 of the Act before the
District Judge, Agra (Arbitration Case No.
406 of 2006). Vide its order dated January
12,
2012,
the
District
Judge,
Agra
dismissed the application filed by the
Applicant and upheld the arbitral award
dated July 31, 2006 in its entirety.

f. Aggrieved by the order dated
January 12, 2012 passed by the District
Judge, Agra, the Applicant filed the instant
appeal under Section 37 of the Act before
this Court on May 4, 2012.

CONTENTIONS
OF
THE
APPLICANT

3. Although several claims that were
allowed by the Arbitrator and affirmed by
the District Judge are under challenge in
this appeal, learned ASG of India has
confined
his
arguments
to
the
reimbursement of Rs.6,22,268/- . The other
grounds of appeal have not been pressed by
him and are accordingly dismissed in
limine. With regards to the claim of
reimbursement of Rs.6,22,268/-, Sri Gopal
Verma, counsel has made the following
arguments:

i. As per clause 39 and 39.1 of the
contract between the parties, and condition
46 of IAFW 2249 GCC, entire installation
was deemed to be guaranteed by the
Respondent for efficient performance for
12 months from the date of completion of
work and in case of any default arising
during that period, the Respondent was
required to rectify/replace the same at its
own cost. The Respondent had further
specifically given a guarantee vide its
letter dated October 1, 1997.

ii.
The
Arbitrator
without
considering
the
oral
and
written
submissions as well as documentary
evidence illegally awarded Rs. 6,22,268/-
in favour of the Respondent.

iii. The issue regarding the
undertaking given by the Respondent for
1 year from August 9, 1996, and further
extended vide its letter dated October 1,
1997, in terms of clause 39 of the
contract
between
the
parties
was
specifically raised before the Arbitrator
during the arbitration proceedings as well
as
before
the
District
Judge
in
proceedings under Section 34 of the Act
but no specific finding in this regard has
been given either by the Arbitrator or by
the District Judge.

iv.
The
contention
of
the
Respondent that the guarantee given by
the manufacturer has expired, does not
give it the right to demand the expenses
incurred in repair of the transformer in as
much as under the terms of the contract,
it was the Respondent who had given
guarantee as well as undertaking for
efficient performance of the transformer
from August 8, 1997, and not the
manufacturer. As such, the findings given
by the Arbitrator as well as the District
Judge are beyond jurisdiction in as much as
an arbitrator is a creature of contract and it
cannot travel beyond it. Reliance is placed
in this regard upon the judgments of the
Supreme Court in Indian Oil Corporation
Limited v. M/s Shree Ganesh Petroleum
reported in (2022) 4 SCC 463, and
MMTC Ltd. v. Vedanta Ltd. reported in
(2019) 4 SCC 163.
4 All. Union of India Vs. Ms. Yauk Engineers
11

v. The Arbitrator while allowing
the claim of the Respondent has acted
without jurisdiction against the terms of
contract in as much as the role of the
arbitrator is to arbitrate within the terms of
contract. If the arbitrator travels beyond the
contract, the arbitrator can be said to be
acting without jurisdiction. Reliance is placed
in this regard upon the judgments of the
Supreme Court in PSA Sical Terminals (P)
Ltd. .v. Board of Trustees of V.O.
Chidambranar
Port
Trust
Tuticorin
reported in 2021 SCC OnLine SC 508.

vi. Award given by the arbitrator
is contrary to the contractual provisions
between the parties and therefore it is
patently illegal and liable to be set aside by
this court.

vii. In Delhi Airport Metro Express
Private Limited v. Delhi Metro Rail
Corporation Limited reported in (2022) 1
SCC 131, it was held by the Supreme Court
that a domestic award can be interfered with
under Section 34(2A) of the Act on the
ground of patent illegality when the arbitrator
takes a view which is not even a possible one,
or interprets a clause in the contract in such a
manner which no fair minded or reasonable
person would, or if the arbitrator commits an
error of jurisdiction by wandering outside the
contract and dealing with matters not allotted
to it. Without looking at the aforesaid
position of law, the District Judge upheld the
award under Section 34 of the Act.

viii. This Court should set aside
the order dated January 12, 2012 passed by
District Judge, Agra affirming the Arbitral
Award dated July 31, 2006.

CONTENTIONS
OF
THE
RESPONDENT

4. Sri Sudhir Dixit, counsel appearing
on behalf of the Respondent has advanced
the following submissions:

i. A perusal of the grounds taken
by the Applicant in proceedings under
Section 34 of the Act show that the grounds
raised by the Applicant were not within the
purview of Section 34(2) of the Act.

ii. The judgment dated January
12, 2012 passed by the District Judge is
perfectly legal and valid.

iii. The instant appeal filed under
Section 37 of the Act also does not disclose
any
ground
which
falls
within
the
parameters of Section 34(2) of the Act.

iv.
The
District
Judge
has
considered each and every objection raised
by Applicant. Therefore, the instant appeal
under Section 37 of the Act is devoid of
any merits and deserves to be dismissed
with cost.

ANALYSIS

5. I have heard the Learned Counsel
appearing for the parties and perused the
materials on record.

6. A preliminary issue arises before
this Court before it delves into the merits of
the instant appeal under Section 37 of the
Act.

7. Since the arbitral award in the
instant case was rendered in 2006 but the
instant appeal is being heard and decided in
2024, the question arises as to the law
applicable to the instant proceedings given
that
the
Act
underwent
multiple
amendments between 2006 and 2024.

8. The passage of time often renders
legal proceedings complex, especially in
cases involving arbitration awards. In the
present matter, the temporal gap between
the issuance of the arbitral award in 2006
and the current adjudication in 2024
presents
a
challenge.
This
temporal
12 INDIAN LAW REPORTS ALLAHABAD SERIES
disjuncture prompts a crucial examination
of legal principles, specifically concerning
retrospective application of laws and the
temporal scope of legal provisions.

9. In Commissioner of Income Tax
v. Vatika Township reported in (2015) 1
SCC 1, a Constitution Bench of the
Supreme Court propounded that a rule or
law cannot be applied retrospectively
unless there is a clear or manifest intention
to the contrary. Relevant paragraphs have
been extracted below:

"28. Of the various rules guiding
how a legislation has to be interpreted, one
established rule is that unless a contrary
intention appears, a legislation is presumed
not to be intended to have a retrospective
operation. The idea behind the rule is that
a current law should govern current
activities. Law passed today cannot apply
to the events of the past. If we do something
today, we do it keeping in view the law of
today and in force and not tomorrow's
backward adjustment of it. Our belief in the
nature of the law is founded on the bedrock
that every human being is entitled to
arrange his affairs by relying on the
existing law and should not find that his
plans have been retrospectively upset. This
principle of law is known as lex prospicit
non respicit : law looks forward not
backward. As was observed in Phillips v.
Eyre [(1870) LR 6 QB 1] , a retrospective
legislation is contrary to the general
principle that legislation by which the
conduct of mankind is to be regulated when
introduced for the first time to deal with
future acts ought not to change the
character of past transactions carried on
upon the faith of the then existing law.

29. The obvious basis of the
principle against retrospectivity is the
principle of "fairness", which must be the
basis of every legal rule as was observed in
L'Office Cherifien des Phosphates v.
Yamashita-Shinnihon
Steamship
Co.
Ltd. [(1994) 1 AC 486 : (1994) 2 WLR 39 :
(1994) 1 All ER 20 (HL)] Thus, legislations
which modified accrued rights or which
impose obligations or impose new duties or
attach a new disability have to be treated
as prospective unless the legislative intent
is clearly to give the enactment a
retrospective effect; unless the legislation is
for purpose of supplying an obvious
omission in a former legislation or to
explain a former legislation. We need not
note the cornucopia of case law available
on the subject because aforesaid legal
position clearly emerges from the various
decisions and this legal position was
conceded by the counsel for the parties. In
any case, we shall refer to few judgments
containing this dicta, a little later."

10. The principle against retrospective
application
of
laws
holds
particular
significance in the realm of arbitration.
Arbitration is founded on the parties'
agreement to resolve their disputes outside
the traditional court system, relying on the
laws as they exist at the time of their
arbitration
agreement.
Retrospective
application of laws could disrupt the
parties' expectations and undermine the
finality
and
efficiency
of
arbitration
proceedings.

11. Retrospective application of laws
to arbitral proceedings could affect the
validity of arbitral awards, challenge the
jurisdiction
of
arbitral
tribunals,
or
introduce procedural requirements that
were not in place at the time of arbitration.
Retrospective
application
of
laws
introduces uncertainty and unpredictability
into legal relationships. Parties cannot
foresee the legal consequences of their
4 All. Union of India Vs. Ms. Yauk Engineers
13
actions
if
laws
can
be
altered
retrospectively. This lack of certainty
undermines the confidence in the legal
system and erodes the rule of law. Arbitral
awards, which are intended to provide
parties with a final and binding resolution
of disputes, become vulnerable to challenge
or reversal based on retrospective legal
changes. This prolongs the resolution of
disputes, increases litigation costs, and
undermines the efficacy of arbitration as an
alternative to traditional court proceedings.

12. The grounds for challenge to an
arbitral award under Section 34 of the Act
underwent a significant change in 2015
with the enactment of the Arbitration and
Conciliation
(Amendment)
Act,
2015
(hereinafter referred to as the 'Amendment
Act, 2015'). However, since the arbitral
proceedings in the instant case commenced
in 2006, that is, prior to the enactment of
the Amendment Act of 2015, the said
amendment in relation to the substantive
provisions in the Amendment Act will not
apply to the instant case, given the
principle against retrospective applicability
of laws, and various pronouncements of the
Supreme Court in this regard.

13. Reference can be made to Section
26 of the Amendment Act, 2015 which
states that the Amendment Act, 2015 will
not
apply
to
arbitral
proceedings
commenced,
in
accordance
with
the
provisions of Section 21 of the Act, before
the enactment of the Amendment Act,
2015:

"26. Act not to apply to pending
arbitral proceedings.-Nothing contained
in this Act shall apply to the arbitral
proceedings commenced, in accordance
with the provisions of Section 21 of the
principal Act, before the commencement of
this Act, unless the parties, otherwise agree
but this Act shall apply in relation to
arbitral proceedings commenced on or
after the date of commencement of this
Act."

14. In Union of India v. Parmar
Construction reported in (2019) 15 SCC
682, the Supreme Court held that by virtue
of Section 26 of the Amendment Act, 2015,
the said amendments will only apply to
those
arbitral
proceedings
which
commenced in accordance with Section 21
of the Act on are after October 26, 2015,
that is the day on which the Amendment
Act, 2015 came into force (hereinafter
referred to as 'the effective date'). Relevant
paragraphs have been extracted below:

"26. The conjoint reading of
Section 21 read with Section 26 leaves no
manner of doubt that the provisions of the
2015 Amendment Act shall not apply to
such of the arbitral proceedings which
have commenced in terms of the provisions
of Section 21 of the principal Act unless the
parties otherwise agree. The effect of
Section 21 read with Section 26 of the 2015
Amendment Act has been examined by this
Court in Aravali Power Co. (P) Ltd. v. Era
Infra Engg. Ltd. and taking note of Section
26 of the 2015 Amendment Act laid down
the broad principles as under :

27. We are also of the view that
the 2015 Amendment Act which came into
force i.e. on 23-10-2015, shall not apply to
the arbitral proceedings which have
commenced
in
accordance
with
the
provisions of Section 21 of the principal
Act, 1996 before the coming into force of
the 2015 Amendment Act, unless the parties
otherwise agree."

15. Again in Union of India v.
Pradeep Vinod Construction Co. reported
14 INDIAN LAW REPORTS ALLAHABAD SERIES
in (2020) 2 SCC 464, the Supreme Court
reiterated that the provisions of the
Amendment Act, 2015 will not apply if the
arbitral proceedings commenced before the
effective date:

"11.
The
respondent(s)
are
registered contractors with the Railways
and they are claiming certain payments on
account of the work entrusted to them. The
request
of
the
respondent(s)
for
appointment of arbitrator invoking Clause
64 of the contract was declined by the
Railways stating that their claims have
been settled and the respondent(s) have
issued "no claim" certificate and executed
supplementary
agreement
recording
"accord and satisfaction" and hence, the
matter is not referable to arbitration.
Admittedly, the request for referring the
dispute was made much prior to the
Amendment Act, 2015 which came into
force w.e.f. 23-10-2015. Since the request
for appointment of arbitrator was made
much prior to the Amendment Act, 2015
(w.e.f. 23-10-2015), the provision of the
Amendment Act, 2015 shall not apply to the
arbitral proceedings in terms of Section 21
of the Act unless the parties otherwise
agree. As rightly pointed out by the learned
counsel for the appellant, the request by the
respondent(s) contractors is to be examined
in accordance with the principal Act, 1996
without taking resort to the Amendment
Act, 2015."

16. Finally, in Ratnam Sudesh Iyer
v. Jackie Kakubhai Shroff reported in
(2022) 4 SCC 206, the Supreme Court
espoused that on a conjoint reading of
Section 21 of the Act and Section 26 of the
Amendment Act, 2015 it becomes apparent
that unless the parties otherwise agree,
provisions of 2015 Amendment Act will
not apply to arbitral proceedings which
commenced in accordance with Section 21
of the Act before the effective date.
Relevant paragraphs have been extracted
below:

"21. In BCCI v. Kochi Cricket
(P) Ltd. [BCCI v. Kochi Cricket (P) Ltd.,
(2018) 6 SCC 287 : (2018) 3 SCC (Civ)
534] a reference was made to Section 26 of
the 2015 Amendment Act which had
bifurcated
proceedings
into
arbitral
proceedings and court proceedings. The
said provision reads as under:

"26. Act not to apply to pending
arbitral proceedings.-Nothing contained
in this Act shall apply to the arbitral
proceedings commenced, in accordance
with the provisions of Section 21 of the
principal Act, before the commencement of
this Act, unless the parties, otherwise agree
but this Act shall apply in relation to
arbitral proceedings commenced on or
after the date of commencement of this
Act."

22. It was clearly elucidated in
para 39 of the judgment that the reason
behind the first part of Section 26 of the
2015 Amendment Act being couched in the
negative was only to state that the
Amendment Act will apply even to arbitral
proceedings
commenced
before
the
amendment if the parties otherwise agree.
This is not so in the second part. The
judgment derived that the intention of the
legislature was to mean that the 2015
Amendment Act is prospective in nature
and
will
apply
to
those
arbitral
proceedings that are commenced, as
understood by Section 21 of the said Act,
on or after the 2015 Amendment Act, and to
court proceedings which had commenced
on or after the 2015 Amendment Act came
into force.

23. The applicability of Section
34(2-A)
was
further
elucidated
4 All. Union of India Vs. Ms. Yauk Engineers
15
in Ssangyong Engg. & Construction Co.
Ltd. V. NHAI [Ssangyong
Engg.
&
Construction Co. Ltd. V. NHAI, (2019) 15
SCC 131 : (2020) 2 SCC (Civ) 213] ,
where the SC categorically opined that
Section 34 as amended will apply only to
Section 34 applications that have been
made to the Court on or after 23-10-2015,
irrespective of the fact that the arbitration
proceedings may have commenced prior to
that date.

24. In the subsequent judgment
of Hindustan
Construction
Co.
Ltd. V. Union
of
India [Hindustan
Construction Co. Ltd. V. Union of India,
(2020) 17 SCC 324 : (2021) 4 SCC (Civ)
373] , it was observed in para 60 that the
result of the BCCI [BCCI v. Kochi Cricket
(P) Ltd., (2018) 6 SCC 287 : (2018) 3 SCC
(Civ) 534] judgment was that salutary
amendments made by the 2015 Amendment
Act would apply to all court proceedings
initiated after 23-10-2015."
(Emphasis Added)

17. In West Bengal Housing Board
v. Abhisek Construction reported in
2023 SCC OnLine Cal 827, while dealing
with a similar issue, I had concluded that
the Amendment Act, 2015, will not apply
to
arbitral
proceedings
that
have
commenced prior to the effective date.
Relevant paragraph thereof reads thus:

"
23. Therefore,
it
becomes
manifestly clear that Section 26 of the 2015
Amendment Act is the position of law on
this subject whereas Section 87 in the
principal Act is no longer in existence.
While interpreting a particular statutory
provision, the Court has to accord
significance to every word, space, and
character
in
that
provision.
Post BCCI v. Kochi (supra) interpretation
of Section 26 of the 2015 Amendment Act, it
is crystal clear that the applicability of
2015 Amendment Act is prospective in
nature, and will apply to those arbitral
proceedings that have commenced, in
accordance with Section 21 of the Act, on
or after the effective date, and also to court
proceedings which have commenced on or
after the effective date."

18. It is clear from the aforesaid
principals and judicial pronouncements that
Section 34 of Act, as it existed prior to the
Amendment Act, 2015, will apply in the
instant case and the award in the instant
case will have to stand the test of principles
governing the setting aside of arbitral
awards as they existed in 2006.

19. Section 34 of the Act as it stood
before the Amendment Act, 2015 came into
force is reproduced below:

"1. 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
subsection (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
16 INDIAN LAW REPORTS ALLAHABAD SERIES

(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 such
agreement
was
in
conflict
with
a
provision of this Part from which 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. -Without prejudice
to the generality of sub-clause (ii), it is
hereby declared, for the avoidance of any
doubt, that an award is in conflict with
the public policy of India if the making of
the award was induced or affected by
fraud or corruption or was in violation of
section 75 or section 81.

(3) An application for setting
aside may not be made after three months
have elapsed from the date on which the
party making that application had received
the arbitral award or, if a request had been
made under section 33, from the date on
which that request had been disposed of by
the arbitral tribunal:

Provided that if the court is
satisfied that the applicant was prevented
by sufficient cause from making the
application within the said period of three
months it may entertain the application
within a further period of thirty days, but
not thereafter.

(4) On receipt of an application
under sub-section (1), the court may, where
it is appropriate and it is so requested by a
party, adjourn the proceedings for a period
of time determined by it in order to give the
arbitral tribunal an opportunity to resume
the arbitral proceedings or to take such
other action as in the opinion of arbitral
tribunal will eliminate the grounds for
setting aside the arbitral award."

20. Section 34 of the Act, as it stood
in its original form, provided that an award
could be set aside, among other things, on
the ground that it is against the public
policy of India.

21. Public policy, encompasses a
broad spectrum of principles, including
principles of justice, equity, and morality.
In the context of arbitration, the invocation
of public policy aims to safeguard against
arbitral awards that contravene these core
principles, thereby preserving the integrity
of the legal system. However, it is
important
to
recognize
the
inherent
complexity and subjectivity associated with
the
application
of
public
policy
in
arbitration proceedings. The determination
of what constitutes public policy is
inherently
contextual
and
may
vary
depending on the specific circumstances of
each case. Consequently, courts must
exercise caution and discretion in applying
this ground for setting aside arbitral
awards, balancing the need to uphold
public policy with the principles of party
autonomy and finality of arbitration.
4 All. Union of India Vs. Ms. Yauk Engineers
17

22. Public policy as a ground for
challenging
arbitral
awards
poses
significant challenges due to its inherent
complexity and subjectivity. Unlike other
grounds for setting aside arbitral awards,
public
policy
is
a
nebulous
and
multifaceted concept that defies precise
definition. One of the primary difficulties
in applying the ground of public policy is
the lack of clear and objective criteria for
its assessment. Unlike legal principles that
are
codified
in
statutes
or
judicial
precedents,
public
policy
is
often
amorphous and open to interpretation.
What may be considered contrary to public
policy in one jurisdiction or at one point in
time may be deemed acceptable in another.
Furthermore, the subjective nature of
public policy leaves ample room for
judicial discretion, which can result in
divergent interpretations and outcomes.

23. Moreover, the broad and elastic
nature of public policy allows courts
considerable latitude in exercising judicial
review over arbitral awards. While this
flexibility can be beneficial in addressing
egregious cases where awards contravene
fundamental
principles
of
justice
or
morality, it also opens the door to judicial
intervention based on vague or ill-defined
notions of public policy. Another challenge
associated with the ground of public policy
is its potential for abuse or misuse by
parties seeking to challenge unfavorable
awards. Parties may attempt to invoke the
ground of public policy as a pretext for relitigating the merits of their case or for
circumventing
the
binding nature
of
arbitration.

24. Despite these challenges, the
ground of public policy plays a crucial role
in safeguarding the integrity and legitimacy
of the arbitration process. It serves as a
bulwark against arbitral awards that shock
the conscience of the courts or undermine
fundamental principles of justice. However,
to mitigate the risks associated with its
application, courts must adopt a cautious
and a principled approach to determining
whether an arbitral award conflicts with
public policy.

25. Before the Amendment Act, 2015
came into force, the Supreme Court had
propounded on the scope of public policy
under Section 34 of the Act in its judgment
in Oil & Natural Gas Corporation Ltd. v.
Saw Pipes Ltd. reported in (2003) 5 SCC
705. The Supreme Court espoused that the
phrase "public policy of India" must be
accorded a wider and not a narrower
meaning. Furthermore, the Supreme Court
also outlined the grounds on which a court
can set aside an arbitral award under
Section 34 of the Act. Relevant paragraphs
have been extracted below:

"28. From
this
discussion
it
would be clear that the phrase "public
policy of India" is not required to be given
a narrower meaning. As stated earlier, the
said term is susceptible of narrower or
wider meaning depending upon the object
and purpose of the legislation. Hence, the
award which is passed in contravention of
Sections 24, 28 or 31 could be set aside. In
addition to Section 34, Section 13(5) of the
Act also provides that constitution of the
Arbitral Tribunal could also be challenged
by a party. Similarly, Section 16 provides
that a party aggrieved by the decision of
the Arbitral Tribunal with regard to its
jurisdiction could challenge such arbitral
award under Section 34. In any case, it is
for Parliament to provide for limited or
wider jurisdiction to the court in case
where award is challenged. But in such
cases, there is no reason to give narrower
18 INDIAN LAW REPORTS ALLAHABAD SERIES
meaning to the term "public policy of
India" as contended by learned Senior
Counsel Mr Dave. In our view, wider
meaning is required to be given so as to
prevent frustration of legislation and
justice. This Court in Rattan Chand Hira
Chand v. Askar Nawaz Jung [(1991) 3 SCC
67] observed thus: (SCC pp. 76-77, para
17)

"17. ... It cannot be disputed that
a contract which has a tendency to injure
public interests or public welfare is one
against public policy. What constitutes an
injury to public interests or welfare
would depend upon the times and climes.
... The legislature often fails to keep pace
with the changing needs and values nor is
it realistic to expect that it will have
provided
for
all
contingencies
and
eventualities. It is, therefore, not only
necessary but obligatory on the courts to
step in to fill the lacuna. When courts
perform this function undoubtedly they
legislate judicially. But that is a kind of
legislation
which
stands
implicitly
delegated to them to further the object of
the legislation and to promote the goals
of the society. Or to put it negatively, to
prevent the frustration of the legislation
or perversion of the goals and values of
the society."
(emphasis supplied)

29. Learned Senior Counsel Mr
Dave submitted that the purpose of giving
limited jurisdiction to the court is obvious
and is to see that the disputes are
resolved at the earliest by giving finality
to the award passed by the forum chosen
by the parties. As against this, learned
Senior Counsel Mr Desai submitted that
in the present system even the arbitral
proceedings are delayed on one or the
other ground including the ground that the
arbitrator is not free and the matters are
not disposed of for months together. He
submitted that the legislature has not
provided any time-limit for passing of the
award
and
this
indicates
that
the
contention raised by the learned counsel
for the respondent has no bearing in
interpreting Section 34.
***

31. Therefore, in our view, the
phrase "public policy of India" used in
Section 34 in context is required to be
given a wider meaning. It can be stated that
the concept of public policy connotes some
matter which concerns public good and the
public interest. What is for public good or
in public interest or what would be
injurious or harmful to the public good or
public interest has varied from time to time.
However, the award which is, on the face
of it, patently in violation of statutory
provisions cannot be said to be in public
interest. Such award/judgment/decision is
likely to adversely affect the administration
of justice. Hence, in our view in addition to
narrower meaning given to the term
"public policy" in Renusagar case [1994
Supp (1) SCC 644] it is required to be held
that the award could be set aside if it is
patently illegal. The result would be -
award could be set aside if it is contrary to:

(a) fundamental policy of Indian
law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently
illegal.

Illegality must go to the root of
the matter and if the illegality is of trivial
nature it cannot be held that award is
against the public policy. Award could also
be set aside if it is so unfair and
unreasonable that it shocks the conscience
of the court. Such award is opposed to
public policy and is required to be
adjudged void."
(Emphasis Added)
4 All. Union of India Vs. Ms. Yauk Engineers
19

26. The Supreme Court in ONGC v.
Saw
Pipes
(supra)
also
held
that
contravention of provisions of the Act
including Section 28(3) of the Act which
before the Amendment Act, 2015 provided
that the arbitrator at all times shall decide
in accordance with the terms of the
contract, would make an award liable to be
set aside on the ground of public policy.
Relevant paragraphs have been extracted:

"22. The aforesaid submission of
the learned Senior Counsel requires to be
accepted. From the judgments discussed
above, it can be held that the term "public
policy of India" is required to be
interpreted in the context of the jurisdiction
of the court where the validity of award is
challenged before it becomes final and
executable. The concept of enforcement of
the award after it becomes final is different
and the jurisdiction of the court at that
stage could be limited. Similar is the
position with regard to the execution of a
decree. It is settled law as well as it is
provided
under
the
Code
of
Civil
Procedure that once the decree has
attained
finality,
in
an
execution
proceeding, it may be challenged only on
limited grounds such as the decree being
without jurisdiction or a nullity. But in a
case where the judgment and decree is
challenged before the appellate court or
the court exercising revisional jurisdiction,
the jurisdiction of such court would be
wider. Therefore, in a case where the
validity of award is challenged, there is no
necessity of giving a narrower meaning to
the term "public policy of India". On the
contrary, wider meaning is required to be
given so that the "patently illegal award"
passed by the Arbitral Tribunal could be
set aside. If narrow meaning as contended
by the learned Senior Counsel Mr Dave is
given, some of the provisions of the
Arbitration Act would become nugatory.
Take for illustration a case wherein there is
a specific provision in the contract that for
delayed payment of the amount due and
payable, no interest would be payable, still
however, if the arbitrator has passed an
award granting interest, it would be
against the terms of the contract and
thereby against the provision of Section
28(3) of the Act which specifically provides
that "Arbitral Tribunal shall decide in
accordance with the terms of the contract".
Further, where there is a specific usage of
the trade that if the payment is made
beyond a period of one month, then the
party would be required to pay the said
amount with interest at the rate of 15 per
cent. Despite the evidence being produced
on record for such usage, if the arbitrator
refuses to grant such interest on the ground
of equity, such award would also be in
violation of sub-sections (2) and (3) of
Section 28. Section 28(2) specifically
provides that the arbitrator shall decide ex
aequo et bono (according to what is just
and good) only if the parties have
expressly authorised him to do so.
Similarly, if the award is patently against
the statutory provisions of substantive law
which is in force in India or is passed
without giving an opportunity of hearing to
the parties as provided under Section 24 or
without giving any reason in a case where
parties have not agreed that no reasons are
to be recorded, it would be against the
statutory provisions.