Interpreting Contractual Fairness and Arbitral Review in Public Contracts: A Critical Analysis of &a

Abstract

The decision in Oil and Natural Gas Corporation Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263, remains a pivotal moment in Indian arbitration jurisprudence. It marked a doctrinal expansion in the scope of judicial review under Section 34 of the Arbitration and Conciliation Act, 1996. The case elevated the role of courts in ensuring that arbitral awards, especially in matters involving state entities, adhere to fundamental principles of fairness, rationality, and legality. This article offers a detailed analysis of the ruling, explores its statutory foundations, evaluates its compatibility with global arbitration standards, and examines its legacy and eventual recalibration through legislative amendments and subsequent judgments.

1. Introduction

The Arbitration and Conciliation Act, 1996, was introduced to promote party autonomy and minimize judicial intrusion. However, certain judgments have complicated this minimalist vision, especially where public sector entities are involved. ONGC v. Western Geco is a critical example of this tension. It illustrates how courts, in the name of public policy and constitutional morality, have at times expanded their oversight over arbitral decisions.

This case became a focal point in discussions surrounding the boundaries of “public policy”, the sanctity of arbitral autonomy, and the obligations of arbitrators to act in accordance with fundamental legal standards even in quasi-judicial fora.

2. Factual Background and Procedural History

The contract involved a specialized technical service. ONGC contended that the quantity of data delivered was inadequate and that pricing computations were flawed. WGIL refuted these claims and asserted that all contractual obligations were duly met. The arbitral tribunal accepted WGIL's position. The Delhi High Court refused to set aside the award, prompting ONGC to approach the Supreme Court.

3. Legal Issues Involved

The Supreme Court was asked to determine:

Whether failure to consider material evidence by an arbitral tribunal violates the standard of a fair judicial process.
Whether such failure constitutes a breach of the "public policy of India" under Section 34(2)(b)(ii).
Whether the tribunal’s approach, lacking in analytical rigor, could be equated with a

denial of justice or natural fairness.

The Supreme Court's Ruling: Key Observations Justice T.S. Thakur, delivering the judgment, held:

A. Expanded Scope of "Public Policy"

The Court interpreted “public policy of India” to include fundamental policy of Indian law, interests of India, justice or morality, and added a fourth dimension—judicial approach.
Quoting from ONGC v. Saw Pipes Ltd. [(2003) 5 SCC 705], the Court reasserted that an award violating statutory provisions or contractual obligations is hit by “public policy”.

B. Fundamental Policy of Indian Law

This includes:
- Duty to adopt a judicial approach.
- Compliance with principles of natural justice.
- Application of mind to relevant facts.

The Court found that the tribunal had failed to consider critical contractual obligations, and had ignored material evidence, thereby violating the duty to adopt a judicial approach.

C. Inference of Judicial Mind

Arbitrators, while not bound by technical rules of evidence, are nonetheless obliged to act reasonably, follow natural justice, and offer a logically reasoned award.
The absence of reasoning, per the Court, is equivalent to irrationality.

5. Statutory Context: Arbitration and Conciliation Act, 1996

Section 34(2)(b)(ii): Allows courts to annul arbitral awards conflicting with public
Section 28(1)(a): Mandates that domestic arbitrations conform to Indian substantive
Section 18: Ensures equal treatment and procedural
Section 24: Guarantees both parties an opportunity to present their

6. Scholarly Commentary and Criticism

Legal academia has offered divergent views on the Western Geco judgment.

Proponents (like Prof. Abhinav Chandrachud) argue that when the State is a party, higher standards of fairness are expected, and constitutional principles can’t be excluded from private adjudications.
Critics argue that this judgment violates the principle of arbitral autonomy and dilutes India’s commitment to minimal court interference, thereby scaring off foreign investors. resolution.
The 2015 Amendment Act partially addressed this by limiting the expansive interpretation of “public policy”, thereby nullifying some of Western Geco’s implications for international awards (though its legacy continues for domestic awards).

7. Related Authorities and Doctrinal Continuity

ONGC v. Saw Pipes Ltd. (2003): Pioneered the "patent illegality" ground for setting aside domestic awards.
Associate Builders v. DDA (2015): Synthesized Western Geco by delineating three violations of public policy: judicial approach, principles of natural justice, and irrational
Ssangyong Engineering v. NHAI (2019): Limited the application of Western Geco post the 2015 amendment, holding that for international commercial arbitrations, public policy must be construed narrowly.

8. Related Case Law

ONGC Saw Pipes Ltd., (2003) 5 SCC 705
- Introduced ‘patent illegality’ as a ground for setting aside domestic
Associate Builders DDA, (2015) 3 SCC 49
- Reaffirmed Western Geco and gave structure to the expanded public policy
Ssangyong Engineering NHAI, (2019) 15 SCC 131
- Clarified that post-2015 amendments, Western Geco’s test would not apply to international commercial arbitrations or foreign-seated arbitrations.

9. Impact on Indian Jurisprudence

This case marks a jurisprudential tension between constitutional morality and contractual sanctity. While it elevated judicial standards applicable to arbitral awards involving the State, it also blurred the boundary between arbitral autonomy and court oversight.

For public contracts, the judgment suggests that government bodies cannot escape constitutional obligations, even in arbitration. However, in a pro-arbitration regime, this verdict sits uneasily with the global best practices of finality of arbitral awards.

10. Long-Term Precedential Impact

The Western Geco ruling opened the door for courts to examine not only what arbitrators decided, but how they arrived at those conclusions. It set the tone for courts to invalidate awards that lacked analytical depth, especially in contracts involving public funds or government entities.

However, this expansion was partially reversed by the 2015 and 2019 amendments, which sought to restore party autonomy and reduce judicial interference, particularly for international arbitrations.

11. Conclusion and Way Forward

The Supreme Court in ONGC v. Western Geco rightly highlighted the duty of fairness and judicial approach in arbitral proceedings, particularly when involving State parties. However, by overextending the “public policy” doctrine, it potentially endangered finality and speed, the very reasons arbitration was chosen in the first place.

The 2015 and 2019 amendments now aim to restore this balance. Courts must henceforth exercise restraint, except in cases of egregious violation of natural justice or patent illegality that shock the judicial conscience.

As India seeks to become an international arbitration hub, cases like Western Geco serve as a cautionary tale—where the desire to uphold constitutional values must not undermine the core tenets of private dispute resolution.

References

ONGC Western Geco International Ltd., (2014) 9 SCC 263. (https://indiankanoon.org/doc/136518863/)
ONGC Saw Pipes Ltd., (2003) 5 SCC 705.( https://indiankanoon.org/doc/919241//0

Associate Builders DDA, (2015) 3 SCC 49.( https://indiankanoon.org/doc/31621011/)

Ssangyong Engineering & Construction Ltd. v. NHAI, (2019) 15 SCC 131. (https://arbitrationblog.kluwerarbitration.com/2019/07/06/ssangyong-v-nhai-supreme- court-of-india-fixing-some-troubles-and-creating-some/)
The Arbitration and Conciliation Act, 1996 (as amended in 2015, 2019, and 2021). (https://www.indiacode.nic.in/bitstream/123456789/1978/3/a1996-26.pdf )
Abhinav Chandrachud, “Constitutional Morality and Arbitration”, NUJS Law Review, Vol. 10. ( https://nujslawreview.org/wp-content/uploads/2021/06/14.1-Dalmia-Panigrahi.pdf )

Kautilya’s Arthashastra, Book IV: The Conduct of Courtiers and Judges (https://www.wisdomlib.org/hinduism/book/kautilya-arthashastra/d/doc366122.html )

Author: Manish Kumar, Final Year Law Student Faculty of Law, University of Delhi