Perversity Cannot Be Recast as Public Policy in International Commercial Arbitration Challenges

The Hon’ble Bombay High Court, in Oil and Natural Gas Corporation Ltd. v. Sapura Fabrication SDN BHD (now known as VTEB Fabrication SDN BHD) (Commercial Arbitration Petition No. 720 of 2024), dismissed ONGC’s petition under Section 34 of the Arbitration and Conciliation Act, 1996 (Act), holding that in a challenge to an award arising from an international commercial arbitration seated in India, allegations of perversity cannot be repackaged as a public policy challenge when they are, in substance, grounds of patent illegality under Section 34(2A), which is unavailable in such cases.

The dispute arose from a contract awarded by ONGC to VTEB Fabrication SDN BHD for the redevelopment of the Mumbai High South Field located off the western coast of Mumbai. The contract included the work of installation of offshore platforms, laying of submarine pipelines and cables, and other allied works. The work was completed on time and ONGC released the contractor’s performance bank guarantee after making payment under the contract. Subsequently, the respondent claimed that it had carried out additional works constituting Change Orders under the contract and raised six claims against ONGC.

The Arbitral Tribunal in its award dated May 4, 2024 rejected one claim, partly allowed two claims and fully allowed three claims. Aggrieved by the decision of the Arbitral Tribunal, ONGC filed a petition before the Bombay High Court under Section 34 of the Act.

Examining the maintainability and scope of the challenge, the Court observed that the arbitration qualified as an international commercial arbitration under section 2(1)(f) of the Act, as the respondent company was incorporated in Malaysia. Since the seat of arbitration was in India, Part I of the Act applied by virtue of Section 2(2). However, the Court clarified that while the award could be tested on the limited grounds under Section 34(2), the additional ground of patent illegality under Section 34(2A) was not available because the award arose from an international commercial arbitration.

The Court noted that ONGC had repeatedly pleaded perversity in the findings recorded by the Arbitral Tribunal. It held that such a plea is relatable to patent illegality under Section 34(2A) of the Act, and cannot be re-characterised as a challenge based on the public policy of India under Section 34(2)(b)(ii). The Court therefore confined its review to the narrow statutory grounds available under Section 34(2).

The Court relied on the Supreme Court’s decision in Ssangyong Engineering & Construction Ltd. v. NHAI [(2019) 15 SCC 131], which held that perversity is no longer a ground for setting aside an arbitral award under the public policy of India. After Ssangyong, perversity is relevant only within the limited framework of patent illegality, a ground expressly excluded for international commercial arbitration awards.

Further relying on PSA Sical Terminals (P) Ltd. v. V.O. Chidambranar Port Trust and others [(2023) 15 SCC 781], the Court reiterated that where an arbitral tribunal adopts a plausible interpretation of the contract, courts exercising jurisdiction under Section 34 cannot substitute their own interpretation merely because another view is possible. Such an exercise would amount to reassessing the merits, which is impermissible under the restricted review applicable to international commercial arbitration awards.

In relation to the respondent’s additional claims, the Court found that the Arbitral Tribunal had adopted a reasonable and proper interpretation of the payment provisions and contractual clauses. As the findings did not violate any ground available under Section 34(2), the Court declined to interfere with the award.

The Court also observed that the petition was framed like an appeal in disguise, with ONGC seeking a reassessment of evidence and factual findings. It reiterated that in an international commercial arbitration, a Section 34 court cannot revisit the merits of the dispute or review the award for perversity under the guise of public policy unless the challenge falls within the narrowly defined grounds under Section 34(2).

Accordingly, the Bombay High Court dismissed ONGC’s Section 34 petition. The decision reinforces that parties cannot expand the scope of judicial review in international commercial arbitration by presenting allegations of perversity as public policy objections.