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Justice C Hari Shankar: 's Interpretation of '' Lacks Clarity
A judge has launched a stinging critique of one of the most potent yet ill‑defined grounds for under Indian law. Justice C Hari Shankar, while delivering a judgment, underscored the urgent need for clarity on the expression “” – a phrase that has long bewildered practitioners and judges alike. Describing as “badly worded,” the judge noted that despite numerous pronouncements, no satisfactory explanation of what the term actually means had emerged, leaving the arbitration ecosystem in a state of damaging uncertainty.
The observations come at a time when India is actively striving to position itself as an arbitration‑friendly jurisdiction. The lack of precision in a provision that allows courts to undo a final award threatens to undermine the very and certainty that commercial parties seek when they choose arbitration over litigation.
The Statutory Puzzle at the Heart of the Controversy
Section 34 of the Arbitration and Conciliation Act enumerates the limited grounds upon which a court may set aside an arbitral award. Among these grounds, two have proved particularly controversial: that the award is in conflict with the “,” and – for purely domestic arbitrations – that the award suffers from “.” While the latter term has gradually acquired a more defined contour through judicial interpretation, the former remains a source of profound confusion.
Justice Hari Shankar’s remarks bring this confusion into sharp focus. He stated that he had personally examined several judgments that sought to interpret the expression “,” yet he found no clear, consistent, or satisfactory explanation of its meaning. The judge voiced his exasperation in unusually blunt terms:
“I don’t know if Indian law even has anything called a policy, and then to say what is Indian law, what is a policy, and then what do you call a policy fundamental?”
This candid questioning from the bench shines a spotlight on a lacuna that has been allowed to persist for decades. The phrase was introduced into the statute through an amendment, but the legislature provided no definition, leaving it entirely to the courts to flesh out. Unfortunately, as Justice Hari Shankar pointed out, judicial efforts have produced a tangled web of reasoning rather than a coherent doctrine.
A Jurisprudential Kaleidoscope Without a Unifying Lens
The judge highlighted the disparate strands of jurisprudence on the point. Some judgments have equated the “” with compliance with the . Under this view, an award that flouts the basic requirements of a fair hearing – such as the or the – can be struck down as violating India’s fundamental policy. Others have adopted a broader “reasonableness” test, examining whether the tribunal’s decision was one that a reasonable person could have reached on the basis of the material before it.
But as Justice Hari Shankar astutely noted, even the concept of “reasonableness” is far from stable. Its content can vary dramatically depending on the eyes that behold it. One judge’s reasonable decision may be another’s perverse one. This subjectivity injects an element of unpredictability that is anathema to the arbitration process. Parties enter into arbitration agreements precisely to avoid the vagaries of court litigation; yet, through the backdoor of Section 34, often creeps in disguised as a check.
The judge’s conclusion was unequivocal:
“I think there is need for either judicial or legislative, precise clarification of what this expression ‘’ means.”
This dual call – for either a definitive ruling or a legislative amendment – reflects a growing sentiment among commercial law practitioners that the current state of affairs is untenable.
The Cost of Ambiguity to India’s Arbitration Ambitions
For in‑house counsel, transactional lawyers, and arbitration practitioners, the lack of clarity surrounding the “fundamental policy” ground is not a mere academic debate; it has real‑world consequences. Every time an award is challenged on this ground, the challenging party has an incentive to argue that the tribunal’s interpretation of the contract, or its appreciation of evidence, violates India’s fundamental policy. This opens the door to a full‑blown , exactly the kind of second‑guessing that the pro‑arbitration policy of the Act was supposed to eliminate.
International commercial parties, who often prefer institutional arbitration and neutral seats outside India, watch such judicial developments closely. If the Indian courts are seen to be rewriting awards under the guise of protecting a nebulous “fundamental policy,” confidence in Indian‑seated arbitrations will wane. The entire legislative effort to make India a hub for international arbitration – from the 2015 and 2019 amendments to the Act to the establishment of the – could be undermined by a single phrase that remains stubbornly resistant to definition.
Moreover, the distinction between the “fundamental policy” ground and the “” ground – the latter applying only to domestic awards – adds another layer of complexity. If “fundamental policy” is interpreted too broadly, it blurs the line between these two grounds and risks judicially repealing the legislative intent that restricts challenges to purely domestic awards. International commercial awards, which are supposed to be even more insulated from court interference, could then be set aside on grounds that are essentially identical to those applicable to domestic awards, but merely under a different label.
The Path Forward: Judicial Discipline or Legislative Intervention
Justice Hari Shankar’s observations implicitly invite a two‑pronged solution. The immediate hope is that the seizes an appropriate opportunity to constitute a larger bench that could authoritatively define the contours of “.” A judgment could lay down clear, objective criteria, thereby restoring predictability. For instance, it could confine the phrase to awards that contravene the constitutional morés enshrined in the and the – such as those that promote corruption, violate , or are fraudulently obtained. This would align with the original intention of the 2015 amendment, which was to narrow, not widen, the scope of court intervention.
If the judiciary is unable to coalesce around a clear standard, however, the legislature may need to step in. A simple amendment to Section 34, substituting “” with more precise language – perhaps limited to “” or “award that violates the ” – could remove the ambiguity overnight. Such an amendment would not be unprecedented; the legislature has already demonstrated its willingness to fine‑tune the arbitration framework in response to judicial feedback and stakeholder concerns.
A Clarion Call for Certainty
Justice C Hari Shankar’s critique is not an attack on the but a plea for coherence. By articulating what many in the legal community have felt for years, the judge has performed a valuable service. The should be a shield against truly egregious awards, not a weapon that parties can use to derail the of arbitration. Until the highest court or the Parliament brings precision to this pivotal phrase, every arbitration award will remain perched on a precarious cliff, vulnerable to the shifting winds of judicial interpretation. For a jurisdiction that aspires to be a global arbitration powerhouse, that is a risk it can ill afford.
