Oil & Natural Gas Corporation Ltd. v Saw Pipes Ltd.
Rule established
Expanded 'public policy' under S.34 to include 'patent illegality appearing on the face of the award' as a ground for setting aside
Facts
- ONGC entered into a contract with Saw Pipes for supply of casing pipes
- Saw Pipes delivered pipes with delay; ONGC deducted liquidated damages under the contract
- Saw Pipes invoked arbitration; the tribunal held the liquidated damages clause was by way of penalty and awarded damages to Saw Pipes
- ONGC challenged the award under S.34 arguing the tribunal misapplied the law on liquidated damages (S.73-74 of the Indian Contract Act)
Issue
- Whether an arbitral award that is contrary to the substantive law of India can be set aside under S.34(2)(b)(ii) as being "in conflict with the public policy of India."
Held
- Public policy includes: (a) Fundamental policy of Indian law; (b) Interest of India; (c) Justice or morality; AND additionally (d) Patent illegality appearing on the face of the award.
- An award contrary to statutory provisions (here, S.73-74 of the Indian Contract Act on liquidated damages) is "patently illegal" and conflicts with the fundamental policy of Indian law.
- The tribunal's interpretation that liquidated damages amounted to penalty was a patent error of law on the face of the award.
- Set aside the award as being in conflict with the public policy of India.
Ratio Decidendi
"Public policy of India" under S.34(2)(b)(ii) encompasses not only the three Renusagar grounds but also "patent illegality appearing on the face of the award." An award that violates the substantive law applicable to the dispute is patently illegal and can be set aside.
How to use it in an exam
- Part A: State that ONGC v Saw Pipes added "patent illegality" to the public policy test under S.34. Note: this was later NARROWED by the 2015 Amendment (Explanation 2 to S.34 now restricts patent illegality).
- Part B: Use for comprehensive S.34 answers. Show the evolution: Renusagar (3 grounds) then ONGC v Saw Pipes (added patent illegality, expanded) then 2015 Amendment (narrowed patent illegality, excludes mere errors of law) then Ssangyong (confirmed narrow interpretation).
- Key line: "If the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal."
Source
Source: Supreme Court judgment
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.