Arbitration and Conciliation Act, 1996 – ss.34(2)(b)(ii), 34(2)(a)(iii) – Respondent invited bids for construction of a fourlane bypass on National Highway 26 in the State of Madhya Pradesh – Appellant’s bid was accepted – Price adjustment for four of the components used in execution of the contract i.e. cement, steel, plant and machinery, and other local materials was to be calculated as per formula given in sub-clause 70.3 of the contract – Price adjustment was being paid to the appellant by using the Wholesale Price Index (WPI) published by the Ministry of Industrial Development, which followed the years 1993-94= 100 (Old Series) – However, w.e.f 14.09.10, the Ministry stopped publishing the WPI for the Old Series and started publishing indices under the WPI series 2004-05= 100 (New Series) – As both the indices C1 and Co were available to the appellant under the New Series for calculating price adjustment, the appellant raised bills accordingly – On 15.02.13, the respondent issued a Policy Circular in which a new formula for determining indices was used stating that the Circular would be applied to the contract in question, as a result of which, a linking factor would have to be provided by which the Old Series was connected to the New Series – Appellant challenged the Circular – Eventually, the arbitral tribunal consisting of three members by majority award held that the Circular could be applied as it was within contractual stipulations – Petition u/s.34 filed by the appellant – Rejected by the High Court – Appellant inter alia pleaded that s.34(2)(b)(ii) was attracted as the award was in conflict with the public policy of India and that s.34(2)(a)(iii) would also be attracted as principles of natural justice were violated – Held: Government guidelines that were referred to and relied upon by the majority award to arrive at the linking factor were never in evidence before the Tribunal – Tribunal relied upon the said guidelines by itself stating that they are to be found on a certain website – This being the case, the appellant would be directly affected, not being allowed to comment on the applicability or interpretation of those guidelines – Thus, majority award set aside u/s.34(2)(a)(iii) – Further, in order to apply a linking factor, a Circular, unilaterally issued by one party, cannot possibly bind the other party to the agreement without that other party’s consent – Indeed, the Circular expressly stipulated that it cannot apply unless the contractors furnish an undertaking/ affidavit that the price adjustment under the Circular is acceptable to them – Appellant gave such undertaking only conditionally and without prejudice to its argument that the Circular does not and cannot apply – Majority award created a new contract for the parties by applying the said unilateral Circular and by substituting a workable formula under the agreement by another formula de hors the agreement – Thus, a fundamental principle of justice was breached – Such a course of conduct would be contrary to fundamental principles of justice as followed in this country and shocks the conscience of the Court – However, this ground is available only in very exceptional circumstances, as in the present case – Judgments of the Single Judge and the Division Bench of the High Court, set aside – Consequently, the majority award is also set aside – In order to do complete justice between the parties, invoking power u/Art.142 of the Constitution of India, the minority award is upheld – This award, together with interest now be executed between the parties – Foreign Awards (Recognition and Enforcement) Act, 1961 – s.7 – Constitution of India – Art.142 – UNCITRAL Model Law on International Commercial Arbitration – Art.26. Arbitration and Conciliation Act, 1996 – s.34 – Setting aside an arbitral award, in conflict with “public policy of India”– Law post Amendment Act, 2015 – Held: “Public policy of India”, whether contained in s.34 or s.48 of the 1996 Act would now mean the “fundamental policy of Indian law” as explained in paragraphs 18 and 27 of Associate Builders case i.e. the fundamental policy of Indian law would be relegated to the “Renusagar” understanding of this expression – Expansion of the phrase “public policy of India”, made in Western Geco case has been done away with – Western Geco as explained in paragraphs 28 and 29 of Associate Builders, would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court’s intervention would be on the merits of the award, which cannot be permitted post amendment – However, principles of natural justice, as contained in ss.18 and 34(2)(a)(iii) of the 1996 Act continue to be grounds of challenge of an award, as is contained in paragraph 30 of Associate Builders – Arbitration and Conciliation (Amendment) Act, 2015. Arbitration and Conciliation (Amendment) Act, 2015 – Applicability of – Held: Section 34, as amended, will apply only to s.34 applications that have been made to the Court on or after 23.10.2015, irrespective of the fact that the arbitration proceedings may have commenced prior to that date – Arbitration and Conciliation Act, 1996 – s.34. Interpretation of Statutes – Amendment by way of clarification – Retrospective or prospective – Held: Amendment made in Explanations 1 and 2 to s.34(2)(b)(ii) have been made for the avoidance of any doubt – Even on principle, it is the substance of the amendment that is to be looked at rather than the form – Therefore, even in cases where, for avoidance of doubt, something is clarified by way of an amendment, such clarification cannot be retrospective if the earlier law has been changed substantively – Arbitration and Conciliation Act, 1996 – Explanations 1 and 2 to s.34(2)(b)(ii). Words & expressions – “Public policy of India” – Meaning of – Held: Public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental policy of Indian law, as understood in paragraphs 18 and 27 of Associate Builders case, or secondly, that such award is against basic notions of justice or morality as understood in paragraphs 36 to 39 of Associate Builders – Explanation 2 to s.34(2)(b)(ii) and Explanation 2 to s.48(2)(b)(ii) was added by the Amendment Act only so that Western Geco case, as understood in Associate Builders, and paragraphs 28 and 29 in particular, is now done away with – Arbitration and Conciliation Act, 1996 – Explanation 2 to s.34(2)(b)(ii) & Explanation 2 to s.48(2)(b)(ii) – Arbitration and Conciliation (Amendment) Act, 2015. Arbitration and Conciliation Act, 1996 – s.34(2A) –”Patent illegality” – Held: Insofar as domestic awards made in India are concerned, an additional ground is now available u/sub-s.(2A), added to s.34 by the Amendment Act, 2015– There must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law – If an arbitrator is alleged to have wandered outside the contract and dealt with matters not allotted to him, this would be a jurisdictional error which could be corrected on the ground of “patent illegality”, which would not apply to international commercial arbitrations that are decided under Part II of the 1996 Act – A decision which is perverse, as understood in paragraphs 31 and 32 of Associate Builders, while no longer being a ground for challenge under “public policy of India”, would certainly amount to a patent illegality appearing on the face of the award – Arbitration and Conciliation (Amendment) Act, 2015. Arbitration and Conciliation Act, 1996 – ss.28(3), 34(2A) – Held: Change made in s.28(3) by the Amendment Act really follows what is stated in paragraphs 42.3 to 45 in Associate Builders case, namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; that the arbitrator’s view is not even a possible view to take – Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction – This ground of challenge will now fall within the new ground added u/s.34(2A) – Arbitration and Conciliation (Amendment) Act, 2015. Arbitration and Conciliation Act, 1996 – s.34(2)(a)(iii) and ss.18, 24(3), 26 – Held: ss.18, 24(3) and 26 are important pointers to what is contained in the ground of challenge mentioned in s.34(2)(a)(iii) – Under s.34(2)(a)(iii), one of the grounds of challenge of an arbitral award is that a party is unable to present its case – Where materials are taken behind the back of the parties by the Tribunal, on which the parties have had no opportunity to comment, the ground u/s.34(2)(a)(iii) would be made out. Arbitration and Conciliation Act, 1996 – s.34(2)(a)(iv) – ”submission to arbitration”– Challenge to an arbitral award – Held: Where an arbitral tribunal has rendered an award which decides matters either beyond the scope of the arbitration agreement or beyond the disputes referred to the arbitral tribunal, the arbitral award could be said to have dealt with decisions on matters beyond the scope of submission to arbitration – To bring in by the backdoor grounds relatable to s.28(3) of the 1996 Act to be matters beyond the scope of submission to arbitration u/s.34(2)(a)(iv) would not be permissible as this ground must be construed narrowly and so construed, must refer only to matters which are beyond the arbitration agreement or beyond the reference to the arbitral tribunal. Words & expressions –”most basic notions of … justice”– Meaning of – Held: Expression”most basic notions of … justice” finds mention in Explanation 1 to sub-clause (iii) to s.34(2)(b) – Here, what is referred to is, substantively or procedurally, some fundamental principle of justice which has been breached, and which shocks the conscience of the Court – Arbitration and Conciliation Act, 1996 – Explanation 1 to sub-clause (iii) to s.34(2)(b).