Pre-2015 arbitration challenge standard governs pending Section 34 proceedings; patent illegality unavailable, but irrational awards may fall.

For Section 34 proceedings commenced before 23.10.2015, the pre-amendment Arbitration and Conciliation Act regime continues to govern, and a general contractual reference to future amendments does not attract the post-amendment standard. In an international commercial arbitration, patent illegality is not available as a standalone ground in the manner urged. The text also explains that an award may be set aside under the pre-amendment public policy standard if it irrationally deprives a party of contractual entitlements on inadequate grounds and is inconsistent with the fundamental policy of Indian law.

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Issues: (i) Whether the 2015 amendment to the Arbitration and Conciliation Act, 1996 applied to the Section 34 challenge, and whether patent illegality was available as a ground of challenge. (ii) Whether the arbitral award was liable to be set aside for being contrary to the fundamental policy of Indian law and public policy.

Issue (i): Whether the 2015 amendment to the Arbitration and Conciliation Act, 1996 applied to the Section 34 challenge, and whether patent illegality was available as a ground of challenge.

Analysis: The arbitration was treated as an international commercial arbitration because one party was based outside India, though the award was not a foreign award. The Section 34 proceedings had commenced before 23.10.2015, and the statutory scheme under Section 26 of the 2015 Amendment Act made the amended regime prospective for court proceedings initiated after that date. A general clause stating that the arbitration proceedings would be governed by the Act "or any amendment thereto" did not displace that statutory position or extend the amended Section 34 grounds to pending court proceedings. As a result, the wider pre-amendment standard governed the challenge, while patent illegality as a standalone ground was not available for an award arising from an international commercial arbitration.

Conclusion: The pre-2015 Section 34 regime applied, and patent illegality was not available as a ground in the manner urged by the appellant.

Issue (ii): Whether the arbitral award was liable to be set aside for being contrary to the fundamental policy of Indian law and public policy.

Analysis: The award effectively deprived the respondent of the contractual benefit promised under the settlement on the basis of emails sent by his wife, who was not a party to the settlement or the arbitration agreement. The settlement had already achieved its principal object: withdrawal of complaints and realization of the share-sale proceeds. The impugned emails were treated as indiscreet and insufficient to justify forfeiture of the respondent's contractual entitlements. In these circumstances, the award was found to be irrational and inconsistent with the fundamental policy of Indian law under the pre-amendment public policy standard.

Conclusion: The award was rightly set aside.

Final Conclusion: The challenge to the award failed, and the interference by the High Court was upheld on the ground that the award could not stand under the applicable pre-amendment public policy standard.

Ratio Decidendi: For Section 34 proceedings commenced before 23.10.2015, the pre-amendment public policy standard continues to govern, and a general contractual reference to future amendments does not by itself attract the post-amendment regime; an award that irrationally deprives a party of contractual entitlements on inadequate grounds may be set aside as contrary to the fundamental policy of Indian law.

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