Arbitral Tribunal Cannot Apply Public Law Principles Or Article 14 Against Public Body : Bombay High Court

While setting aside the arbitration award against the BCCI over the termination of Deccan Chargers from IPL, the Bombay High Court observed that an arbitral tribunal cannot apply public law principles on fairness and reasonableness.

The arbitrator had held that BCCI, though not a state under Article 12 of the Constitution, was performing 'public functions' and hence had the public law duty of act fairly.

In appeal against the arbitration award under Section 34 of the Arbitration and Conciliation Act, the High Court bench comprising Justice Gautam Patel observed that it was immaterial whether BCCI was a 'State' or whether it was performing 'public functions', as public law duty cannot be enforced in a private contract.

"...the public law duty to act fairly cannot be imported into a contract by a private law arbitral tribunal to effectively alter its terms so as to create an obligation on the so-called public-duty party that the contract does not envisage", observed the High Court.

"A writ court may well hold against a public body on a public law principle or by invoking Article 14; but an arbitrator, constrained as he or she is by the contract, has no such power", Justice Patel said in the judgment.

Justice Patel said he found "absolutely no authority" for the proposition that a private-law-bound tribunal has recourse to power to hold a public body accountable on the principles under Article 14.

The High Court took objection to the arbitrator(retired Supreme Court judge Jusctice CK Thakker) applying public law principles to hold that BCCI indulged in unfair discrimination against Deccan Chargers.

Wednesbury principles of reasonableness immaterial in the context of private arbitration

The High Court observed that Wednesbury principles of reasonableness are immaterial in the context of private arbitration dispute.

"This necessarily means that no arbitral tribunal can return a finding that something contravenes public policy unless the contract permits such a course of action. To venture into that is again to venture impermissibly into the realm of public law. An arbitrator cannot, for instance, return a finding that a particular rule or regulation is 'bad in law'. That is exclusively the domain of a court. An arbitrator has to apply the law as it stands", the judgment observed.

Criticizing the arbitral tribunal's application of proportionality principle under public law, the Court said :

"Proportionality lies squarely within the public policy realm. The task of the arbitrator is to see if the impugned action is or is not valid having regard to terms of the contract, nothing more; i.e. to see if the termination conformed to the contract"

Commercial arbitrators are not entitled to settle a dispute by applying what they conceive is 'fair and reasonable

The Court further observed that commercial arbitrators are not entitled to settle a dispute by applying what they conceive is 'fair and reasonable.

The concepts of ex aequo et bono(according to what is just and equitable) or as amiable compositeur(on what is equitable and good) under Section 28(2) of the Arbitration Act does not entitle the arbitrator to do son.

"Under Section 28(2), Arbitral Tribunal is required to decide ex aequo et bono or as amiable compositeur only if the parties expressly authorize it to do so. The Arbitrator is bound to implement the contractual clauses and cannot go contrary to them. He cannot decide based on his notions of equity and fairness, unless the contract permits it".

The High Court referred to SC precedents in Associate Builders (2015) 3 SCC 49, Ssangyong Engineering,  Assistant Excise Commissioner v Issac Peter etc.

Setting aside the Rs 4814 crore arbitral award in favour of Deccan Chronicle Holding Limited, the High Court said that DCHL was in "unquestionable breach of its contractual obligations".

Click here to read/download the judgment