Section 34 of the Arbitration and Conciliation Act, 1996, provides for setting
aside the arbitral award by the court. Section 34 has been a long-disputed
section of the Act and has undergone various judicial precedents to evolve as a
comprehensive provision to provide relief from an unjust or illegal arbitral
award, and at the same time, to limit the powers of judicial scrutiny.
of the Arbitration Act lies in minimum interference of the court in an arbitral
proceeding, therefore section 34 provides for certain specified grounds, only
upon which, an arbitral award can be set aside. This case primarily strikes upon
the interpretation and applicability of section 34 and its relationship with
reason in an arbitral award. In the case of Board of Control for Cricket in
India v. Deccan Chronicle Holding Limited
(CARBPL-4466-2020), 2021 the Bombay
High Court bench of Justice G S Patel sets aside the arbitral award of the sole
arbitrator that directed the Board of Control for Cricket in India (BCCI) to pay
over Rs 4800 crore to Deccan Chronicle Holding Ltd regarding a dispute for
termination of the IPL team.
Brief Facts Of The Case
The claimant Deccan Chronicle Holdings Ltd (hereinafter referred to as DCHLŁ),
operated a cricketing franchise, by name and style Deccan Chargers in the Indian
Premier League (IPL). An agreement was signed between Deccan Chargers and the
BCCI for a period of ten years. However, Board of Control for Cricket in India
(hereinafter referred to as BCCIŁ) terminated the franchise in September
2012. The BCCI also alleged that the franchise had breached the BCCI code.
The Matter approached Bombay High Court, wherein the court appointed retired
Supreme Court Justice C K Thakker as the sole Arbitrator to decide the matter.
The sole arbitrator awarded Rs Rs 4814, 17, 00,000 along with an interest on
this amount at 10% per annum from the date of the arbitration proceedings, to
Deccan Chronicle Holding Ltd to be paid by the Board of Control for Cricket in
India (BCCI). Aggrieved by the award BCCI filed a petition before Bombay High
Court under section 34 of the Arbitration and Conciliation Act, 1996, for
setting aside the awards.
Points Of Issue
Contentions Of BCCI
Learned counsel appearing on behalf of BCCI, argued that the award suffered
or śpatent illegality
. It was also argued that, the
arbitral award lacks reason for arriving at the award or gives the award, which
is a clear violation of principles of natural justice. The council for BCCI
contended that the sole arbitrator attempted to rewrite the provision of the
contract, as award travels beyond the contract, and thereby disrespecting the
provisions of contract. The sole arbitrator has acted in contravention of the
To understand the arguments put forward by BCCI, it is important to define perversity
, as a ground to set aside arbitral award under section
34 of the Act. Patent illegality was first taken up, in case of Oil & Natural
Gas Corporation Ltd v Saw Pipes Ltd
(2003) 5 SCC 705), wherein the court
expanded the scope of śPublic Policy
as was defined in Renusagar Power Co
Ltd v General Electric Co
(AIR 1994 SC 860) case, to include patent illegality
along with the three grounds, śFundamental Policy of Indian Law, Interest of
India, Justice or Morality
, under the preview of Section 34.
Supreme Court also defined the ambit of an award to be challenged under patent
illegality, as under:
Contentions Of DCHL
- If it contravenes the substantive provisions of law, the Arbitration and
Conciliation Act or the terms of a contract; or
- If a procedural failure exists that affects the parties' rights.
- The illegality must go to the root of the matter and that if the illegality is
of a trivial nature the award will not be in contravention of public policy.
- Under section 34(2A) of the Arbitration and Conciliation Amendment Act, 2015 was
included provision for Patent Illegality as a ground to challenge domestic
They argued that the BCCI has acted in a high-handed, capricious and arbitrary
manner. The intentions of BCCI were always mala fide, intended to somehow or the
other ousts DCHL's franchise. The learned Sole Arbitrator has permissibly
exercised discretion where necessary.
Both facts and lawfully supported the
views he took. The counsel contended that in the case there is no applicability
of section 34 and that the Court's remit is exceedingly narrow. Unless it is
shown that there is a facial vulnerability, no court should interfere. Arbitral
awards are not to be set aside lightly or for the asking. The council stated
that the Award is fair, balanced and fully considers the rival submissions and
all the material on record.
Judgment Of The Court
The court stated that, it is important to first define the ambit of section 34
and its applicability in the case at hand. Court cited the case of, Ssangyong
Engineering & Construction Co Ltd v. National Highway Authority of India
SCC 131) to understand the scope of section 34, wherein it was observed that:
It is not permissible to set aside an award merely because on the merits another
view was possible, or even preferable; or, as we saw, a correctly invoked and
stated law was erroneously applied. A reasonable and fair interpretation of the
contract will invite no interference.
Court further referred to section 28(3) of the Act, with a reference to case
of Associate Builders v Delhi Development Authority (2015) 3 SCC 49), which
observed that a contravention of Section 28(3) constitutes a patent illegality.
An arbitral tribunal must decide in accordance with the terms of the contract,
taking into account trade usages applicable to the transaction. Court
interpreted section 28(3) in light of Ssangyong
Engineering case that contractual interpretation is primarily for an arbitrator
to decide, unless the arbitrator construes the contract in a manner that no-fair
minded or reasonable person would. Also, the in case of Ssangyong Engineering
court went on, if the arbitrator wanders outside the contract and deals with
matters not allotted to him, he commits a jurisdictional error. This falls
within the new ground added under Section 34(2-A), i.e. patent illegality.
Therefore court held that, the applicability of section 34 in present case, is
not wrong as there is a patent illegality in the award given by sole arbitrator,
because of lack of reason.
Court observed that, the sole arbitrator gave award without can reasoning. The
method of valuation of award cannot be inferred from the prima facie award. The
council representing DCHL submitted four approaches that could have been taken
by the sole arbitrator in deciding the valuation of award.
Court held that, DCHL's arguments and submissions fall. As, there is an attempt
to have the court gleans some reasons from the Award, which should not be the
case; an Award should speak for itself. Court further stated that:
It is entirely impermissible is for a party to supply reasons that the
award in question does not contain
Court while finally deciding the case held that, it is settled that a Section
34 court cannot and will not examine the reasonableness of reasons in the Award,
but under section 34 courts can will and must examine whether reasons exist. The
petition is finally disposed off by the court, by setting aside of the arbitral
In the evolving legal era, where justice is administered by not only court but
also administrative authorities, quasi-judicial authorities, tribunals,
arbitrators, etc, it has become at most important to establish a standard
through which the reasonableness and fairness of the decision can be
measured. This has led to the emergence of śreasoned decisions' or śspeaking
order' as one of the core principles of natural justice. The major objective
behind this principle is, a party has a right to know not only the result of the
proceedings but also the reason in support of the decision.
The Supreme Court in Kranti Associates Pvt. Ltd. and another v. Sh. Masood
Ahmed Khan and others
(2010) 9 SCC 496) observed that:
Reasons should not be a mere 'rubber stamp reasons' and they must disclose
how the mind was applied to the subject-matter for a decision and a nexus
between materials which are considered and the conclusions which are reached.Ł
Reason for any decision is also an intrinsic part of arbitration proceedings.
The earlier Arbitration Act of 1940 did not contain any provision requiring the
arbitral tribunal to give a reasoned award. Even the Supreme Court, before
coming of the 1996 Act, has in number of decisions subscribed to the view that
arbitrator is not bound to give reasons for his decision.
In N. Chellappan v. Secretary, Kerala State Electricity Board
SC 230), Supreme Court observed that, a sole arbitrator was not bound to give
reasoned award and it cannot be a ground for challenging the validity of the
award. However, the Arbitration and Conciliation Act of 1996, exclusively
provides for giving reasons to an award. Section 31 of the Arbitration and
Conciliation Act, provides for the pre-requisites of an arbitral award, among
which is also present mandate for provision reasons for the award.
Any award which is decided without reason can be set aside by the court on the
premise of śpatent illegality' as provided under section 34 of the Act.