Domestic arbitral awards face limited review where contract interpretation is perverse, irrational, or contrary to fundamental legal policy.
For domestic arbitral awards, judicial interference under Section 34 of the Arbitration and Conciliation Act, 1996 is confined to cases of perversity, irrationality, patent illegality, or an interpretation of the contract that is not even a possible view. The Court reaffirmed that construction of contractual terms is primarily for the arbitrator, but an award may still be vulnerable if vital clauses are ignored, irrelevant factors are relied on, or the result conflicts with the fundamental policy of Indian law. Applying that standard, the Court found no basis to disturb the High Court's refusal to review its judgment, and the arbitral awards were not restored.
Issues: Whether the High Court's refusal to review its judgment setting aside the arbitral awards warranted interference, and whether the awards suffered from patent illegality, perversity, or a construction of the contract that no fair-minded or reasonable person could accept.
Analysis: The Court held that for a domestic arbitral award, interference is justified only where the award is perverse, irrational, contrary to the terms of the contract, or otherwise vitiated by patent illegality within the scope of Section 34 of the Arbitration and Conciliation Act, 1996 as amended. It reaffirmed that construction of contractual terms is primarily for the arbitrator, but an award may be interfered with if the interpretation is not even a possible view or is one that no reasonable person would take. On the facts, the Court found that the High Court had applied the correct test, concluded that the arbitrator ignored vital contractual clauses and relied on irrelevant factors, and also noted that the award would result in unjust enrichment contrary to the fundamental policy of Indian law.
Conclusion: The High Court's refusal to entertain the review petitions called for no interference, and the arbitral awards were not restored.
Final Conclusion: The challenge failed because the awards and the High Court's order were upheld on the basis that the arbitral interpretation was impermissible and the resulting liability was legally unsustainable.
Ratio Decidendi: In a domestic arbitration, an award may be set aside under Section 34 when its interpretation of the contract is not a possible view, is perverse or irrational, or produces a result contrary to the fundamental policy of Indian law.
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