Unconscionable arbitration clauses can render an award vulnerable to challenge when they conflict with public policy and contract law.
Limitation objection failed because the award copy had been returned unserved at the petitioner's addresses, the later discovery of the award was accepted as bona fide, and the petition was filed soon thereafter. The arbitral award was then found unsustainable because it enforced one-sided contractual terms requiring restrictive notice, exaggerated pre-estimated damages, heavy arbitration and litigation costs, and blank cheques. Those stipulations were treated as unconscionable, opposed to public policy, and contrary to Sections 23 and 28 of the Contract Act, 1872, making the award liable to interference under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996.
Issues: (i) Whether the petition was barred by limitation. (ii) Whether the arbitral award, founded on onerous and one-sided contractual clauses, was liable to be set aside as opposed to public policy and unenforceable in law.
Issue (i): Whether the petition was barred by limitation.
Analysis: The copy of the award was returned unserved at the petitioner's addresses and the explanation that he learnt of the award only later was accepted as bona fide. The petition was filed shortly thereafter.
Conclusion: The limitation objection was rejected.
Issue (ii): Whether the arbitral award, founded on onerous and one-sided contractual clauses, was liable to be set aside as opposed to public policy and unenforceable in law.
Analysis: The award was based on clauses requiring the employee to give restrictive notice, pay exaggerated pre-estimated damages, bear heavy litigation and arbitration costs, and furnish blank cheques. These stipulations were found to be unconscionable, opposed to public policy, and hit by Sections 23 and 28 of the Contract Act, 1872. An award enforcing such clauses was held liable to interference under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996.
Conclusion: The award was unsustainable and was set aside.
Final Conclusion: The challenge succeeded, the arbitral award could not be sustained, and the proceeding ended in favour of the petitioner.
Ratio Decidendi: An arbitral award based on unconscionable contractual terms that impose an unlawful restraint on rights and are opposed to public policy is liable to be set aside under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996.
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