Justice C Hari Shankar of the Delhi High Court recently criticized Section 34 of the Arbitration and Conciliation Act of 1996, describing its wording as inadequate and calling for a clearer definition of the ‘fundamental policy of Indian law.’ Section 34 permits courts to annul arbitral awards on specific grounds, such as conflict with the fundamental policy of Indian law or, in domestic cases, patent illegality.
Justice Hari Shankar expressed dissatisfaction after reviewing several Supreme Court rulings on the term ‘fundamental policy of Indian law.’ He noted, “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?” He pointed out that some judgments link the term to natural justice, while others assess whether the tribunal’s decision would be considered reasonable by an ordinary person. However, he cautioned that ‘reasonable’ itself could be subject to interpretation.
Justice Hari Shankar emphasized the need for either judicial or legislative clarification on what constitutes the ‘fundamental policy of Indian law.’ His remarks were made during a panel discussion on ‘Arbitration in India: Reform, Relevance & the Road Ahead,’ organized by The Law Forum at the Delhi High Court on July 18. Justice Ujjal Bhuyan of the Supreme Court delivered the keynote address, with Justice Hari Shankar and former Himachal Pradesh High Court Chief Justice Rajiv Shakdher participating in the discussion. Senior Advocate Amit Gupta moderated the session.
Justice Hari Shankar also highlighted potential overlaps between ‘fundamental policy of Indian law’ and patent illegality, noting that some decisions suggest the fundamental policy should influence courts when examining patent illegality, thereby blurring the lines between these grounds. He stressed that Section 5 of the Act, which limits judicial intervention, should guide courts when adjudicating award challenges. He remarked, “Section 5 is a guiding principle that you should not interfere, if possible, with arbitral awards.” Furthermore, he added that courts should not re-evaluate evidence or intervene simply due to an arbitrator’s incorrect application of the law.
Justice Bhuyan addressed the appointment of arbitrators under Section 11, advocating for courts to maintain panels listing arbitrators’ expertise. He argued for prioritizing institutional arbitration and encouraged retired judges to join arbitral institutions. He also noted the concentration of arbitration work among a few retired judges, who often manage multiple proceedings simultaneously.
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Justice Shakdher discussed scenarios where a party engages in arbitration and later disputes the award, citing unilateral arbitrator appointments. He argued that while such awards might need to be annulled, the party responsible for the flawed appointment process should cover the incurred costs. “If you’re going to set aside awards, then someone must pay for the time and cost that was incurred, both by the administration of the court as well as by the parties,” he stated.
Justice Shakdher also advocated for more autonomy for arbitral institutions, suggesting that India could sustain multiple regional arbitration centers, provided they are professionally managed and independent. He noted that the success of arbitration centers in locations such as Singapore, Hong Kong, and London is partly due to their autonomy, warning that overregulation could hinder the credibility of Indian institutions.
The discussion concluded with a consensus among the speakers that delays, escalating costs, uncertainty, and excessive judicial interference remain significant challenges for arbitration in India.
