Holding

The Supreme Court held that the pre‑2015 legal position governs the Section 34 challenge, the arbitration clause cannot incorporate future amendments, and the award is vitiated by patent illegality and must be set aside.

Summary

The dispute arose from a settlement deed between Ratnam Sudesh Iyer (appellant) and Jackie Kakubhai Shroff (respondent) concerning the sale of shares in Atlas Equifin Private Limited. The deed required the respondent to withdraw criminal complaints and, in return, receive US$1.5 million in escrow and US$2 million upon sale of the shares. The appellant alleged breach of the deed by emails sent by the respondent's wife and obtained an arbitral award granting liquidated damages of US$1.5 million to the appellant and denying the second escrow payment. The respondent challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the award should be examined under the post‑2015 amendment regime and that the arbitration clause incorporated future amendments. The Supreme Court held that the Section 34 proceedings had commenced before the 2015 amendment, so the pre‑amendment law applied; the clause could not override the legislative intent, and patent illegality could be invoked because the award arose from an international commercial arbitration. Consequently, the award was set aside and the appeal dismissed.

Issues considered

The applicability of the Arbitration and Conciliation (Amendment) Act, 2015 to Section 34 proceedings that commenced before its commencement date.
Whether a general arbitration clause that refers to "any amendment thereof" can incorporate future statutory amendments for the purpose of setting aside an award.
The scope of patent illegality as a ground for setting aside an award arising from an international commercial arbitration.
Whether the respondent's wife's emails constitute a breach sufficient to trigger clause 6 of the settlement deed and justify denial of escrow payments.

Legislation cited

Arbitration and Conciliation Act, 1996s. 21, s. 2(1)(f), s. 26, s. 34, s. 34(2A)
Arbitration and Conciliation (Amendment) Act, 2015s. 26, s. 2A

Subjects

ArbitrationSection 34Amendment Act 2015International commercial arbitrationAward setting asidePatent illegalitySettlement deedEscrowPublic policy

Judgment

[2021] 11 S.C.R. 97 97

RATNAM SUDESH IYER A
v.
JACKIE KAKUBHAI SHROFF
(Civil Appeal No. 6112 of 2021)
NOVEMBER 10, 2021 B
[SANJAY KISHAN KAUL AND M. M. SUNDRESH, JJ.]
Arbitration and Conciliation Act, 1996: s. 34 – Setting aside
of arbitral award –Dispute between the appellant and respondent
as regards sale of share – Complaint by the respondent before the
C
police against the appellant – Parties entered into settlement deed
whereby the respondent had to withdraw all complaints against the
appellant and was forbidden from writing complaints to any person
about the Deed and in return was to be paid US$ 1.5 million held in
escrow till the withdrawal of complaints; and US$ 2 million was to
be paid to the respondent out of the proceeds from the sale of shares D
of the company – Breach of settlement deed through e-mail sent by
respondent’s wife – Initiation of arbitration proceedings –Direction
to escrow agent not to hand over the cheque for US$ 1.5 million till
the direction of the arbitrator–Meanwhile execution of share
purchase agreement and the shares were sold – Final award passed
E
awarding liquidated damages of US$ 1.5 million in favour of the
appellant; and that the respondent would not be entitled to the second
cheque of US$ 2 million held in escrow – Petition u/s. 34 – Both the
Single Judge and the Division Bench set aside the award – On
appeal, held: Appellant is a party based in Singapore thus, the
arbitration though carried out within the country, would be an F
international commercial arbitration – Pre-2015 legal position would
prevail since s.34 proceedings had already commenced when the
2015 Amendment Act came into effect – A generally worded clause,
Clause 9 of the Settlement Deed cannot be said to constitute an
agreement to change the course of law that the s.34 proceedings
G
were subject to – General phraseology of a clause which seeks to
include any amendment to the Act would not be able to be availed
of to expand the scope of scrutiny as it would appear to run contrary
to the legislative intent of s.26 of the Amendment Act – Necessary
conditions of the Deed of Settlement stood satisfied – Effect of the
H
97
98 SUPREME COURT REPORTS [2021] 11 S.C.R.

A award would be to deprive the respondent of the due valuation of
the shares and what was paid to him to bring his complaints to an
end – Respondent cannot be denied his dues because of such
indiscreet e-mail by his wife, who was not even party to the
proceedings nor party to the Settlement Deed – Arbitrator ’s
conclusions not in accordance with the fundamental policy of Indian
B
law, and can thus be set aside under the pre-2015 interpretation of
s.34 – Since the consequencesare so inappropriate, the both the
High Courts opined that whatever be the position that is applicable-
pre or post amendment, in these facts the award would not standand
the same is upheld – Arbitration and Conciliation (Amendment) Act,
C 2015.
Dismissing the appeal, the Court
HELD: 1.1 The admitted position is that the appellant is a
party based in Singapore and thus, in terms of the said definition
of “international commercial arbitration” u/s. 2(1)(f) of the
D Arbitration and Conciliation Act, 1996, the arbitration although
carried out a within the country, would be an “international
commercial arbitration”. It is nobody’s case that the award in
question is a foreign award within the meaning of Part II Section
44 of the said Act. For domestic awards, Chapter 7 of the said
E Act provides recourse against the arbitral award. Section 34 of
the said Chapter provides for application for setting aside an
arbitral award and specifies the ground available for the same.
The Arbitration and Conciliation (Amendment) Act, 2015
amended the said Act w.e.f. 23.10.2015; inter alia by inserting
Explanations to Section 34(2) of the said Act as well as by inserting
F Sub-Section 2A to Section 34. There is no doubt that the scope of
interference by the Court became more restrictive with the
amendments coming into force. [Para 12][108-G-H; 109-A-C]
1.2 A distinction is sought to be carved out between a
domestic award arising from an international commercial
G arbitration and a purely domestic award. The test for interference
was sought to be made more stringent by the amendment in
respect of a domestic award arising from an international
commercial arbitration. A distinction is sought to be made between
purely domestic awards and awards arising out of arbitrations
H
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 99

other than international commercial arbitrations, as set out in A
sub-section 2A to Section 34 of the said Act.The crux of the said
is that while the plea of the award being vitiated by patent illegality
is available for an arbitral award, such an award has to be a purely
domestic award, i.e. the plea of patent illegality is not available
for an award which arises from international commercial arbitration
B
post the amendment.The judgments of the Single Judge and the
Division Bench decided the challenge to the award on the plea of
patent illegality without noticing this distinction. No doubt both
judgments proceeded on the basis that in either situation, i.e.,
within the test available for a purely domestic award or a domestic
award arising from an international commercial arbitration; the C
award cannot be sustained. Thus far as to the nature of the award.
[Para 13, 16-18][109-D; 110-A, C-E]
2.1 It is the say of the appellant that the award has to be
scrutinised in the post amendment scenario and, thus, both the
forums below fell into error by applying the test applicable in the D
pre-amendment scenario. It is, thus, the appellant’s say that patent
illegality has no application as a test to the award in question.It is
not in dispute that the Section 34 proceedings commenced prior
to 23.10.2015, which is the crucial date. As to when the
amendment would apply is an aspect that is no longer res integra.
[Para 19, 20][110-F-G] E

2.2 The matter concerns Section 34 proceedings for setting
aside the award. In this case, the Section 34 proceedings had
already commenced when the 2015 Amendment Act came into
effect. The court proceedings were already subject to the pre-
2015 legal position. In a conspectus of the aforesaid, a generally F
worded clause such as Clause 9 of the Deed of Settlement cannot
be said to constitute an agreement to change the course of law
that the Section 34 proceedings were subject to. [Para 30][113-
E-G]
2.3 The line of reasoning in Ssangyong Engineering and G
Construction Company Ltd’ case itself shows that to prevent any
uncertainty in law, while seeking to fine tune the law to restrict
the scope of interference in awards the legislature took a
conscious decision to make applicable the amendments only from
the date it came into force. Thus, the general phraseology of a H
100 SUPREME COURT REPORTS [2021] 11 S.C.R.

A clause which seeks to include any amendment to the Act would
not be able to be availed of to expand the scope of scrutiny as it
would appear to run contrary to the legislative intent of Section
26 of the Amendment Act. [Para 31][114-G; 115-A-B]
3.1 It would be the pre-2015 legal position which would
B prevail. It is no doubt true that the arbitrator has the first hand
benefit of recording evidence and examining the factual scenario.
The instant case is one which is solely based on an interpretation
of a clause against the background of a dispute which gave rise
to the Deed of Settlement. The relevant clauses emphasise that
the respondent was required to take a couple of steps back from
C the position they had reached in the dispute, in order to avail the
financial benefit under the Deed of Settlement. [Para 32, 33][116-
G-H; 117-A-B]
3.2 The first such step was to withdraw all complaints and
proceedings against appellant and all other named and unnamed
D persons before the EOW. The respondent complied with the same
and all such proceedings were brought to an end. US $ 1.5 million
was kept in escrow to ensure that those proceedings came to an
end, and on achieving the said objective the escrow amount had
to be released to the respondent. [Para 34][117-B-C]
E 3.3 The second stage was of the sale of shares and the
escrow amount of US$ 2 million was to be paid to the respondent
when the shares were sold. It appears that there was some delay
in the sale of shares which is what was objected to by the wife of
the respondent and the appellant claimed that he could not be
F pushed into an early sale. Be that as it may, the sale did take
place. Thus, the necessary conditions of the Deed of Settlement
stood satisfied. Clause 6 provided for the return of the amount of
US$ 1.5 million in case the representations/assurances of the
respondent turn out to be false or incorrect. That was not the
case. The only aspect emphasised by the appellant as a cause for
G denying the respondent his dues are the two e-mails sent by his
wife. Though the wife was initially impleaded in the proceedings
under Section 9 of the said Act, she was later dropped from the
arbitration proceedings as she was not a party to the agreement

H
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 101

vide consent order dated 06.08.2012. In a sense the agreement A
accepted that the wife of the respondent had no role to play and
the respondent could not be penalised for her conduct. [Para
35][117-C-G]
3.4 What weighed with the Courts below is the fact that the
respondent did nothing to ratify the e-mails of his wife. The effect B
of the award would be to deprive the respondent of the due
valuation of the shares and what was paid to him to bring his
complaints to an end.The complaints of the wife, at best would
fall in the category of some indiscreet language. The e-mail dated
09.06.2011 makes a grievance to the appellant about not being
informed about the deal term sheet having been signed and uses C
the expression that the appellant was not being “straight with
us.” This can hardly be objected to. Of course, this was circulated
to their associates but the e- mail itself can hardly be called
damaging. In the e-mail dated 15.06.2011, once again, a grievance
about updates not being given is made. Certainly, the sentence D
“I have no wish to fraternise with a forger.” must be called wholly
inappropriate. But then, that by itself cannot deny the respondent
of his dues merely because of such an indiscreet e-mail by his
wife, who was not even party to the proceedings nor party to the
Deed of Settlement which contained the arbitration clause. It is
in the said context that the impugned orders were delivered and E
the para 23 of the Single Judge’s order succinctly set forth what
would be the consequences of the result of the award. [Para 36,
37][117-G-H; 118-A-D]
3.5 The said scenario cannot be accepted and this is what
has been responsible for interference with the award of the F
arbitrator in the context of the legal position applicable to the
award pre the amendment. The arbitrator’s conclusions are not
in accordance with the fundamental policy of Indian law, and can
thus be set aside under the pre-2015 interpretation of S. 34 of
the said Act. Clause 6 of the Deed of Settlement could not have G
been relied on to award liquidated damages in favour of the
appellant, the observations of the Single Judge and the Division
Bench in this regard are accepted. In fact, the consequences are
so inappropriate that the same appears to be the reason that both
the Single Judge and the Division Bench have opined that
H
102 SUPREME COURT REPORTS [2021] 11 S.C.R.

A whatever be the position that is applicable - pre or post
amendment, in these facts the award would not stand, is accepted.
[Para 38][119-B-D]
ABB India Ltd. v. Bharat Heavy Electricals Ltd. OMP
(T) (Comm) No.48/2020 – approved.
B Ssangyong Engineering and Construction Company Ltd.
v. National Highways Authority of India (NHAI) (2019)
15 SCC 131 : [2019] 7 SCR 522 – relied on.
Associated Builders v. Delhi Development Authority
(2015) 3 SCC 49 : [2014] 13 SCR 895; Board of
C Control for Cricket in India v. Kochi Cricket Pvt. Ltd.
& Ors. (2018) 6 SCC 287 : [2018] 2 SCR 829;
Hindustan Construction Company Ltd. and Anr. v.
Union of India & Ors. (2019) SCC OnLine 1520;
Thyssen Stahlunion Gmbh v. Steel Authority of India
D Limited (1999) 9 SCC 334 : [1999] 3 Suppl. SCR 461;
Padmini Chandran Menon v. Vijay Chandran Menon 7
(2018) 2 AIR Bom R 108; Board of Trustees of the Pot
of Mumbai v. Afcons Infrastructure Limited (2016) SCC
Online Bom 10037; S.P. Singla Constructions Pvt. Ltd.
v. State of Himachal Pradesh & Anr. (2019) 2 SCC 488
E : [2018] 14 SCR 1005; Union of India v. Parmar
Construction Company (2019) 15 SCC 682 : [2019] 5
SCR 1009 – referred to.
Case Law Reference

F [2014] 13 SCR 895 referred to Para 12
[2018] 2 SCR 829 referred to Para 21
[1999] 3 Suppl. SCR 461 referred to Para 27
[2018] 14 SCR 1005 referred to Para 29
G [2019] 5 SCR 1009 referred to Para 30
[2019] 7 SCR 522 relied on. Para 31

H
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 103

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6112 of A
2021.
From the Judgment and Order dated 20.04.2021 of the High Court
of Judicature at Bombay in Arbitration Appeal (L) No. 4901 of 2020 in
Arbitration Petition No.167 of 2015.
Vishal Gandhi, Dr. Lalit Bhasin, P. V. Yogeswaran, Advs. for the B
Appellant.
C. A. Sundram, Sr. Adv., Rahul Chitnis, Aaditya A. Pande, Shyam
Dewani, Chander Shekhar Ashri, Advs. for the Respondent.
The Judgment of the Court was delivered by C
SANJAY KISHAN KAUL, J.
1. Business associations can sour and that is what has happened
in the present case. That the association was across the seas is another
aspect. The two parties before us were shareholders in the investment
holding company called Atlas Equifin Private Limited, India (for short D
‘Atlas’) which held 11,05,829 equity shares of Rs.10 each in Multi Screen
Media Pvt. Ltd. (for short ‘MSM’). It appears that the appellant had
been attempting to sell the shares in MSM since 2002. In furtherance of
the said objective, a placement instruction dated 15.11.2005 was signed
by the parties authorising Standard Chartered Bank (for short ‘SCB’)
E
as their agent to identify the purchaser for the appellant’s shares in Atlas.
The dispute apparently commenced on account of the stand of the
respondent that his signatures on the placement instructions had been
forged. Accordingly, he lodged a complaint with the Economic Offences
Wing, Mumbai Police (for short ‘EOW’) on 19.04.2010 against both the
appellant and the SCB. F
2. Better sense appears to have prevailed at that stage amongst
the parties, or if one would say commercial sense; and they endeavoured
to resolve their disputes by entering into a Deed of Settlement dated
03.01.2011. Since the present proceedings need to be adjudicated on
aspects which emerge from the Deed of Settlement, it would be G
appropriate at this stage to set out the gist of its relevant clauses.
a. Clause 2 provided that the respondent would withdraw all
complaints and proceedings filed against the appellant.

H
104 SUPREME COURT REPORTS [2021] 11 S.C.R.

A b. Clause 3 forbade the respondent from writing letters,
communications, or complaints to any person about the subject
matter of the Deed of Settlement. The latter part of the said
clause reads as under:
“3..........It is farther agreed that in future Jackie shall not write
B any letter or communication or complaint to any police authority/
ies and/or any other judicial, quasi-judicial authority or statutory
authority or any person or entity complaining about the subject
matter of the present Deed.” (sic)
c. As a monetary incentive to the respondent to bring the
C complaints to an end, an amount of US$ 1.5 million was to be
paid to the respondent as per clause 4.1. This amount vide
banker’s cheque was to be held in an Escrow by M/s. D. M.
Harish & Co., to be handed over to the respondent on
confirmation by the EOW of the appellant having withdrawn
his complaint dated 19.04.2010. The respondent was also
D required to give further assurance to ensure that if any quashing
proceedings are initiated, he would cooperate in the same.
d. As per Clause 4.2, US$ 2 million was to be paid to the
respondent within seven (7) days of the receipt of the proceeds
from the sale of MSM’s shares.
E
e. The respondent was put to terms for committing any breach
of the Deed of Settlement in clause 6, the consequence of
which would be the termination of the Deed of Settlement and
the release of US$ 1.5 million kept in escrow back to the
appellant.
F
f. The Deed of Settlement contained an arbitration clause for
resolution of disputes in clause 9. The said clause reads as
under:
“9. If any dispute arises between the parties hereto in relation
to any provision of this Deed, the dispute shall be referred
G
to Arbitration by a single Arbitrator to be appointed by mutual
consent. The Arbitration proceedings shall be governed by
the Arbitration and Conciliation Act, 1996 of India or any
amendment thereto. Courts in Mumbai shall have jurisdiction
in relation to any legal action or proceeding arising out of or
H in connection with this Deed.”
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 105
[SANJAY KISHAN KAUL, J.]

Trigger for arbitration: A
3. The appellant claimed breach of the aforesaid Deed of
Settlement by an e-mail dated 09.06.2011 from the wife of the respondent
informing the appellant that “....once again you are not being straight
with us, and I’m concerned about this.” Copy of this e-mail was
marked to some of their associates. This was alleged to be the first B
breach. The second breach was another e-mail dated 15.06.2011, once
again, by the wife of the respondent. The email stated that “I have no
wish to continue to fraternise with a forger.” Thereafter the e-mail
sought to refer to the Deed of Settlement and the alleged failure of the
appellant not to give updates to the respondent. This e-mail was also
circulated to their associates. On the respondent asking the appellant on C
30.06.2011 to complete the sale of shares for release of the second
escrow cheque of US$ 2 million, the appellant replied the same day
stating that the respondent could not push him to sell. The appellant also
alleged the breach of the Deed of Settlement by the false and defamatory
e-mail on 15.06.2011. This triggered recourse to the arbitration clause. D
Arbitral proceedings and Court proceedings in relation to
arbitral proceedings:
4. In July 2012, a share purchase agreement was executed for
MSM’s shares and the transfer was pending approval by the Foreign
Investment Promotion Board. The appellant filed a petition under Section E
9 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as
the ‘said Act’) seeking interim relief against the respondent, his wife,
and the escrow agent. The appellant claimed that the amount should not
be released to the respondent on account of the breach of the Deed of
Settlement through the e-mail sent by the respondent’s wife on F
15.06.2011. In the said proceedings, being Petition No.853/2012, a consent
order was passed on 06.08.2012 in terms whereof the respondent’s wife
was dropped from the array of parties as she was not a party to the
Deed of Settlement. The disputes were referred by consent to the sole
arbitration of a former Judge of the Supreme Court of India. It was
further directed that the escrow agent would hand over the cheque for G
US$ 1.5 million only after the direction of the arbitrator.
5. The appellant lodged a claim before the arbitrator seeking a
refund of US$ 1.5 million (Rs.8.49 crore) with 18 per cent interest per
annum w.e.f. 07.07.2011 till the date of payment. A statement of claim
was filed before the arbitrator dated 2.11.2012 in the following terms: H
106 SUPREME COURT REPORTS [2021] 11 S.C.R.

A “52. The Claimant therefore prays:
(a) that this Hon’ble Tribunal be pleased to hold and declare that
the Respondent has breached the Deed of Settlement dated
January 3, 2011 and severely harmed and damaged the hard-
earned reputation of the Claimant.
B (b) that this Hon’ble Tribunal be pleased to hold and declare that
as a result of the breach of said Deed by the Respondent the
Respondent has caused damage to the Claimant as stated in the
Particulars of Claim or such amount as this Hon’ble Tribunal may
deem just and reasonable;
C (c) that this Hon’ble Tribunal be pleased to order and direct
Respondent to compensate the Claimant and pay the damages as
stated in the Particulars of Claim (Annexure “S”) or such amount
as this Hon’ble Tribunal may deem just and reasonable with interest
thereupon as stated in the Particulars of Claim;
D (d) that this Hon’ble Tribunal be pleased to order and direct that
the Respondent forthwith refund the sum of US$ 1.5 Million or
Indian Rupees 8 crores 49 lakhs to the Claimant with interest
thereupon @ 18% per annum from July 7, 2011 till the date of
payment by the Respondent to the Claimant.
E (e) that this Hon’ble Tribunal be pleased to order and direct that
the Respondent by himself his officers, servants, and agents be
restrained by an order and permanent injunction of this Hon’ble
Tribunal from seeking the release of, and/or encashing the Second
Cheque from the Escrow Agent and that the Claimant be permitted
F to take custody of the Second Cheque from the Escrow Agent or
the Escrow Agent be directed and ordered to hand-over the Second
Cheque to the Claimant.
(f) that this Hon’ble Tribunal be pleased to order and direct that
the Respondent by himself his officers, servants, and agents be
restrained by an order and permanent injunction of this Hon’ble
G
Tribunal from making any false, baseless and defamatory
statements against the Claimant in breach of the express terms of
the Deed of Settlement.
(g) For the costs of this Claim; and
H
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 107
[SANJAY KISHAN KAUL, J.]

(h) For such further and other reliefs as the nature and A
circumstances of the case may require and the Hon’ble Tribunal
deems fit.”
6. The respondent sought recourse to Section 16 of the said Act
seeking to raise a jurisdictional challenge against the reference, however
the arbitrator opined on 17.01.2013 that there could not be a threshold B
rejection of the appellant’s claim. Thereafter the proceedings were
contested by the respondent.
7. It may be noticed that MSM’s shares were sold in March,
2013, and on 06.04.2013, Atlas declared and paid dividend to its
shareholders from the proceeds. The appellant immediately thereafter C
filed an application under Section 17 of the said Act seeking to attach an
amount of US$ 1.5 million which the respondent was to receive as his
share of the said proceeds. That application was rejected and further
proceedings in respect of the same also met the same fate in the High
Court. That being the position, the respondent filed a petition under Section
9 of the said Act seeking directions to the escrow agent to hand over D
US$ 2 million on account of sale of MSM’s shares. However, the same
was dismissed on 02.04.2014 inter alia on the ground that the appellant
was resisting the payment and seeking a refund, and the appeal against
the same was dismissed as withdrawn.
8. The learned arbitrator made the final award on 10.11.2014, E
awarding a claim for liquidated damages of US$ 1.5 million in favour of
the appellant, as set out in clause 6 of the Deed of Settlement. The
award also held that the respondent would not be entitled to the second
cheque of US$ 2 million held in escrow, on account of the respondent’s
breach of the Deed of Settlement. F
9. The respondent moved a petition under Section 34 of the said
Act on 24.01.2015 before the Bombay High Court as Arbitration Petition
No.167/2015, while the appellant filed for execution of the award.
Consequently, the respondent also filed for stay of the enforcement of
the award. Interim stay was granted on 06.04.2018 and the SLP against G
the same was dismissed, being SLP No. 27085 of 2018. The learned
Single Judge of the High Court set aside the award in terms of the
judgment dated 19.05.2020. The appeal filed by the respondent under
Section 37 of the said Act was dismissed by the Division Bench in terms
of the impugned judgment dated 20.04.2021. The High Court also granted
H
108 SUPREME COURT REPORTS [2021] 11 S.C.R.

A interim protection against withdrawal of the amount specified under the
Deed of Settlement for a limited period of time.
10. In the Special Leave Petition while issuing notice on 02.08.2021,
the interim arrangement by the High Court was extended and after grant
of leave, arguments were concluded on 28.09.2021.
B 11. In the conspectus of these facts, we feel the need for setting
forth certain legal principles within the contours of which the present
dispute needs to be adjudicated.
The nature of arbitral proceedings:

C 12. One of the issues raised before us is the nature of the award.
The appellant claims that it is an award arising out of an international
commercial arbitration. To appreciate this contention we turn to Section
2(1)(f) of the said Act, which reads as under:
“2. Definitions. —
D (1) In this Part, unless the context otherwise requires,—
xxxx xxxx xxxx xxxx
(f) “international commercial arbitration” means an arbitration
relating to disputes arising out of legal relationships, whether
contractual or not, considered as commercial under the law in
E force in India and where at least one of the parties is—
(i) an individual who is a national of, or habitually resident in, any
country other than India; or
(ii) a body corporate which is incorporated in any country other
F than India; or
(iii) an association or a body of individuals whose central
management and control is exercised in any country other than
India; or
(iv) the Government of a foreign country;”
G
The admitted position is that the appellant is a party based in
Singapore and thus, in terms of the aforesaid definition the arbitration
although carried out a within the country, would be an “international
commercial arbitration”. We may notice at this stage that it is nobody’s
case that the award in question is a foreign award within the meaning of
H
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 109
[SANJAY KISHAN KAUL, J.]

Part II Section 44 of the said Act. For domestic awards, Chapter 7 of A
the said Act provides recourse against the arbitral award. Section 34 of
the said Chapter provides for application for setting aside an arbitral
award and specifies the ground available for the same. The Arbitration
and Conciliation (Amendment) Act, 2015 (for short ‘2015 Amendment
Act’) amended the said Act w.e.f. 23.10.2015; inter alia by inserting
B
Explanations to Section 34(2) of the said Act as well as by inserting Sub-
Section 2A to Section 34. There is no doubt that the scope of interference
by the Court became more restrictive with the amendments coming into
force. The pre-amendment position with respect to expression “in conflict
with public policy of India” was enunciated by this Court in Ssangyong
Engineering and Construction Company Ltd. v. National Highways C
Authority of India (NHAI)1, which referred to the judgment of this
Court in Associated Builders v. Delhi Development Authority2.
13. A distinction is sought to be carved out between a domestic
award arising from an international commercial arbitration and a purely
domestic award. The test for interference was sought to be made more D
stringent by the amendment in respect of a domestic award arising from
an international commercial arbitration.
14. We may note that Explanation 1 sought to elucidate what is
meant by “in conflict with the public policy of India” by narrowing it to
the three aspects therein as under: E
“Explanation 1.-For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or
corruption or was in violation of section 75 or section 81; or
F
(ii) it is in contravention with the fundamental policy of Indian
law; or
(iii) it is in conflict with the most basic notions of morality or justice.”
15. The further elucidation is by Explanation 2, which reads as
under: G
“Explanation 2.-For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.”
1
(2019) 15 SCC 131.
2
(2015) 3 SCC 49. H
110 SUPREME COURT REPORTS [2021] 11 S.C.R.

A 16. A distinction is sought to be made between purely domestic
awards and awards arising out of arbitrations other than international
commercial arbitrations, as set out in sub-section 2A to Section 34 of the
said Act, which reads as under:
“(2A) An arbitral award arising out of arbitrations other than
B international commercial arbitrations, may also be set aside by
the Court, if the Court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the ground
of an erroneous application of the law or by reappreciation of
C evidence.”
17. The crux of the aforesaid is that while the plea of the award
being vitiated by patent illegality is available for an arbitral award, such
an award has to be a purely domestic award, i.e. the plea of patent
illegality is not available for an award which arises from international
D commercial arbitration post the amendment.
18. We are noticing the aforesaid distinction as it appears that the
judgments of the learned Single Judge and the Division Bench decide
the challenge to the award on the plea of patent illegality without noticing
this distinction. No doubt both judgments proceed on the basis that in
E either situation, i.e., within the test available for a purely domestic award
or a domestic award arising from an international commercial arbitration;
the award cannot be sustained. Thus far as to the nature of the award.
Whether the amendment would apply in the facts of the present
case:
F 19. It is the say of the appellant that the award has to be scrutinised
in the post amendment scenario and, thus, both the forums below fell
into error by applying the test applicable in the pre-amendment scenario.
It is, thus, the appellant’s say that patent illegality has no application as a
test to the award in question.
G 20. It is not in dispute that the Section 34 proceedings commenced
prior to 23.10.2015, which is the crucial date. As to when the amendment
would apply is an aspect that is no longer res integra. We may refer to
relevant judicial pronouncements in this regard.

H
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 111
[SANJAY KISHAN KAUL, J.]

21. In Board of Control for Cricket in India v. Kochi Cricket A
Pvt. Ltd. & Ors.3 a reference was made to Section 26 of the 2015
Amendment Act which had bifurcated proceedings into arbitral
proceedings and court proceedings. The said provision reads as under:
“26. Nothing contained in this Act shall apply to the arbitral
proceedings commenced, in accordance with the provisions of B
Section 21 of the principal Act, before the commencement of this
Act, unless the parties, otherwise agree but this Act shall apply in
relation to arbitral proceedings commenced on or after the date
of commencement of this Act.”
22. It was clearly elucidated in para 39 of the judgment that the C
reason behind the first part of Section 26 of the 2015 Amendment Act
being couched in the negative was only to state that the Amendment Act
will apply even to arbitral proceedings commenced before the amendment
if the parties otherwise agree. This is not so in the second part. The
judgment derived that the intention of the legislature was to mean that
the 2015 Amendment Act is prospective in nature and will apply to those D
arbitral proceedings that are commenced, as understood by Section 21
of the said Act, on or after the 2015 Amendment Act, and to court
proceedings which had commenced on or after the 2015 Amendment
Act came into force.
23. The applicability of Section 34(2A) was further elucidated in E
Ssangyong Engineering and Construction Company Ltd. v. National
Highways Authority of India4, where the SC categorically opined that
Section 34 as amended will apply only to Section 34 applications that
have been made to the Court on or after 23.10.2015, irrespective of the
fact that the arbitration proceedings may have commenced prior to that F
date.
24. In the subsequent judgment of Hindustan Construction
Company Ltd. and Anr. v. Union of India & Ors.5, it was observed in
para 60 that the result of the BCCI judgment was that salutary
amendments made by the 2015 Amendment Act would apply to all court G
proceedings initiated after 23.10.2015.

3
(2018) 6 SCC 287.
4
(2019) 15 SCC 131.
5
2019 SCC OnLine 1520. H
112 SUPREME COURT REPORTS [2021] 11 S.C.R.

A 25. The contention of the appellant, faced with the aforesaid judicial
pronouncements, solely rests on the wording of clause 9 of the Deed of
Settlement, which provides that “the Arbitration proceedings shall be
governed by the Arbitration and Conciliation Act, 1996 of India or any
amendment thereto.” (Emphasis supplied). The submission thus was
that this phraseology of clause 9 included the possibility of any future
B
amendments to the said Act being made applicable to the arbitration in
question.
26. We have to thus examine the effect of such phraseology used
in the arbitration clause.
C 27. In the context of the Arbitration Act, 1940 (hereinafter referred
to as the ‘Old Act’) and the said Act, there are some observations in
Thyssen Stahlunion Gmbh v. Steel Authority of India Limited6, which
are relevant for the purposes of this discussion. While opining that the
provisions of the Old Act would apply in relation to arbitral proceedings
which had commenced before the coming into force of the said Act, this
D Court referred to the ‘Repeal and savings’ provision in Section 85(2)(a)
of the said Act. It was observed that the phrase “in relation to arbitral
proceedings” cannot be given a narrow meaning so as to mean only
pendency of arbitration proceedings before the arbitrator, but would also
cover proceedings before the court. The appellants cited two judgments
E of the Bombay High Court in support of their case, i.e., Padmini
Chandran Menon v. Vijay Chandran Menon7 and Board of Trustees
of the Pot of Mumbai v. Afcons Infrastructure Limited,8 which in
turn rely on Thyssen Stahlunion Gmbh (supra).
28. However, the general observations aforesaid cannot come to
F the aid of the appellant in view of a number of judicial pronouncements
by this Court which deal with a similar issue.
29. In S.P. Singla Constructions Pvt. Ltd. v. State of Himachal
Pradesh & Anr.9, the arbitration clause provided that the arbitration
would be subject to the provisions of the Arbitration Act, 1940 or any
G statutory modification or re-enactment thereof. A plea was raised that
the amended provisions would apply in accordance with Section 26 of
the 2015 Amendment Act. This contention was repelled by the Court
6
(1999) 9 SCC 334.
7
(2018) 2 AIR Bom R 108.
8
2016 SCC Online Bom 10037.
9
H (2019) 2 SCC 488.
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 113
[SANJAY KISHAN KAUL, J.]

which opined that such general conditions of the contract cannot be A
taken to be an agreement between the parties to apply the provisions of
the 2015 Amendment Act. As a result, the provisions of the 2015
Amendment Act would apply only in relation to arbitral proceedings
commenced on or after the date of commencement of the 2015
amendment.
B
30. In a similar vein, the arbitration clause in Union of India v.
Parmar Construction Company10 provided that “subject to the provisions
of the aforesaid Arbitration and Conciliation Act, 1996 and the Rules
thereunder and any statutory modifications thereof shall apply to the
arbitration proceedings under this Clause.”
C
Relying on this clause, a contention was sought to be raised that
the 2015 Amendment Act would apply to the arbitral proceedings which
had been pending on 23.10.2015. It was opined by this Court that a
conjoint reading of Section 21 of the said Act and Section 26 of the 2015
Amendment Act left no manner of doubt that the provisions of the 2015
Amendment Act shall not apply to arbitral proceedings which had D
commenced in terms of the provisions of Section 21 of the said Act
unless the parties otherwise agree. Whether the application was pending
for appointment of an arbitrator or in the case of rejection because of no
claim as in that case for appointment of an arbitrator including change/
substitution of the arbitrator was held not to be of any legal effect for E
invoking the provision of the 2015 amendment. While S.P. Singla11 and
Parmar Construction Company 12 opined on the topic of arbitral
proceedings, we may note here that the matter concerns Section 34
proceedings for setting aside the award. In this case, the Section 34
proceedings had already commenced when the 2015 Amendment Act
came into effect. The court proceedings were already subject to the F
pre-2015 legal position. In a conspectus of the aforesaid, a generally
worded clause such as Clause 9 of the Deed of Settlement cannot be
said to constitute an agreement to change the course of law that the
Section 34 proceedings were subject to. We may also note that a learned
single Judge of the Delhi High Court in ABB India Ltd. v. Bharat G
Heavy Electricals Ltd.13, while referring to the judgment in Parmar

10
(2019) 15 SCC 682.
11
supra
12
supra
13
OMP (T) (Comm) No.48/2020 H
114 SUPREME COURT REPORTS [2021] 11 S.C.R.

A Construction Company14 case, has proceeded in accordance with this
Court’s observations while distinguishing the judgment in Thyssen
Stahlunion Gmbh15. In the context of anticipating new enactments that
may come into operation, it was opined that while Thyssen Stahlunion
Gmbh16 dealt with Section 85(2)(a) of the said Act, this provision is
dissimilar to Section 26 of the 2015 Amendment Act. Section 26 starts
B
with a negative covenant which is subject to an exception in the case of
an agreement between the parties, whereas the observations in Thyssen
Stahlunion Gmbh17 were coloured by Section 85(2)(a) of the said Act
which is structured differently. We refer to the same only to give our
imprimatur. The relevant portion of ABB India Ltd. (supra) reads as
C follows:
“71. Besides, in Thyssen Stahlunion GMBH, there was no
provision, similar to Section 26 of the 2015 Amendment Act, which
is crucial to adjudication of the dispute in the present case. In this
context, it is necessary to distinguish the structure of Section
D 85(2)(a) of the 1996 Act, with Section 26 of the 2015 Amendment
Act. Whereas Section 85 (2)(a) of the 1996 Act made, inter alia,
the 1940 Act applicable to arbitral proceedings which commenced
before the coming into force of the 1996 Act, unless otherwise
agreed by the parties. Section 26 of the 2015 Amendment Act
starts with a negative covenant, to the effect that nothing contained
E in the 2015 Amendment Act – which would include the insertion
of Section 12(5) of the 1996 Act – would apply to arbitral
proceedings, commenced before the 2015 Amendment Act came
into force, i.e. before 23rd October, 2015. This negative covenant
was subject to an exception in the case of agreement, otherwise,
F by the parties. Structurally and conceptually, therefore, Section
26 of the 2015 Amendment Act is fundamentally different from
Section 85(2)(a) of the 1996 Act, and requires, therefore, to be
interpreted, keeping this distinction in mind.”
31. We may note that the line of reasoning in Ssangyong
G Engineering and Construction Company Ltd. 18 itself shows that to
prevent any uncertainty in law, while seeking to fine tune the law to
14
supra
15
supra
16
supra
17
supra
18
H supra
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 115
[SANJAY KISHAN KAUL, J.]

restrict the scope of interference in awards the legislature took a A
conscious decision to make applicable the amendments only from the
date it came into force. Thus, the general phraseology of a clause which
seeks to include any amendment to the Act would not be able to be
availed of to expand the scope of scrutiny as it would appear to run
contrary to the legislative intent of Section 26 of the Amendment Act. In
B
this regard it may be appropriate to refer to the Supreme Court’s
observations in Ssyangong Engineering and Construction Company
Ltd.19 (supra) relating to the scope of ‘public policy’ as a ground to set
aside arbitral awards before the 2015 Amendment Act:
24. Yet another expansion of the phrase “public policy of
India” contained in Section 34 of the 1996 Act was by another C
judgment of this Court in Western Geco [ONGC v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12],
which was explained in Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] as
follows : (SCC pp. 73-77, paras 28-34) D
“28. In a recent judgment, ONGC v. Western Geco
International Ltd. [ONGC v. Western Geco International Ltd.,
(2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12], this Court added
three other distinct and fundamental juristic principles which must
be understood as a part and parcel of the fundamental policy of E
Indian law. The Court held : (SCC pp. 278-80, paras 35 & 38-40)
[…]
29. It is clear that the juristic principle of a “judicial
approach” demands that a decision be fair, reasonable and
objective. On the obverse side, anything arbitrary and whimsical F
would obviously not be a determination which would either be
fair, reasonable or objective.
30. The audi alteram partem principle which undoubtedly
is a fundamental juristic principle in Indian law is also contained in
Sections 18 and 34(2)(a)(iii) of the Arbitration and Conciliation G
Act. These sections read as follows:

19
supra H
116 SUPREME COURT REPORTS [2021] 11 S.C.R.

A ‘18. Equal treatment of parties.—The parties shall be
treated with equality and each party shall be given a full opportunity
to present his case.
***
34. Application for setting aside arbitral award.—(1)
B
* * *
(2) An arbitral award may be set aside by the court only
if—
(a) the party making the application furnishes proof that—
C
***
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to present his
D case;’
31. The third juristic principle is that a decision which
is perverse or so irrational that no reasonable person would
have arrived at the same is important and requires some
degree of explanation. It is settled law that where:
E (i) a finding is based on no evidence, or
(ii) an Arbitral Tribunal takes into account something
irrelevant to the decision which it arrives at; or
(iii) ignores vital evidence in arriving at its decision, such
F decision would necessarily be perverse.”
Factual Analysis:
32. We have considered the aforesaid two legal issues which would
govern the present case and have come to the conclusion that it would
be the pre-2015 legal position which would prevail. That being the position,
G we would have to examine whether in the conspectus of that legal position
it can be said that the learned Single Judge and the Division Bench erred
in setting aside the award.
33. It is no doubt true that the arbitrator has the first hand benefit
of recording evidence and examining the factual scenario. The present
H case is one which is solely based on an interpretation of a clause against
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 117
[SANJAY KISHAN KAUL, J.]

the background of a dispute which gave rise to the Deed of Settlement. A
We have reproduced the relevant clauses which would emphasise that
the respondent was required to take a couple of steps back from the
position they had reached in the dispute, in order to avail the financial
benefit under the Deed of Settlement.
34. The first such step was to withdraw all complaints and B
proceedings against appellant and all other named and unnamed persons
before the EOW. The respondent complied with the same and all such
proceedings were brought to an end. US $ 1.5 million was kept in escrow
to ensure that those proceedings came to an end, and on achieving the
said objective the escrow amount had to be released to the respondent.
C
35. The second stage was of the sale of shares and the escrow
amount of US$ 2 million was to be paid to the respondent when the
shares were sold. It appears that there was some delay in the sale of
shares which is what was objected to by the wife of the respondent and
the appellant claimed that he could not be pushed into an early sale. Be
that as it may, the sale did take place. Thus, the necessary conditions of D
the Deed of Settlement stood satisfied. It is in this context that we have
to consider whether clause 6 would come into play, so as to deprive the
respondent of the benefits which were two fold, i.e., monetary benefit to
cease and desist on complaints and litigations, and the proceeds from
the sale of shares that were owned by him. Clause 6 provided for the E
return of the amount of US$ 1.5 million in case the representations/
assurances of the respondent turn out to be false or incorrect. That was
not the case. The only aspect emphasised by the appellant as a cause
for denying the respondent his dues are the two e-mails sent by his wife.
We may note here that though the wife was initially impleaded in the
proceedings under Section 9 of the said Act, she was later dropped from F
the arbitration proceedings as she was not a party to the agreement vide
consent order dated 06.08.2012. In a sense the agreement accepted
that the wife of the respondent had no role to play and the respondent
could not be penalised for her conduct.
36. We may note that what has weighed with the Courts below is G
the fact that the respondent did nothing to ratify the e-mails of his wife.
The effect of the award would be to deprive the respondent of the due
valuation of the shares and what was paid to him to bring his complaints
to an end.
H
118 SUPREME COURT REPORTS [2021] 11 S.C.R.

A 37. Even if we turn to the complaints of the wife, at best they
would fall in the category of some indiscreet language. The e-mail dated
09.06.2011 makes a grievance to the appellant about not being informed
about the deal term sheet having been signed and uses the expression
that the appellant was not being “straight with us.” This can hardly be
objected to. Of course, this was circulated to their associates but the
B
e-mail itself can hardly be called damaging. If we turn to the e-mail
dated 15.06.2011, once again, a grievance about updates not being given
is made. Certainly, the sentence “I have no wish to fraternise with a
forger.” must be called wholly inappropriate. But then, that by itself
cannot deny the respondent of his dues merely because of such an
C indiscreet e-mail by his wife, who was not even party to the proceedings
nor party to the Deed of Settlement which contained the arbitration clause.
It is in the aforesaid context that the impugned orders have been delivered
and we consider it appropriate to extract para 23 of the learned Single
Judge’s order which succinctly set forth what would be the consequences
of the result of the award.
D
“23. When we see the bizarre outcome it has brought about in the
matter, the extent of the fallacy can be realised better. The
Respondent got practically everything that he wanted from the
Petitioner in return for payment of USD 3,500,000 to the latter.
He got the EOW complaint withdrawn; he got the Petitioner to
E ratify the original Placement Instruction to SCB for sale of Atlas
shares and for making over of the consideration to Grandway; he
got an irrevocable power of attorney in his name for sale of shares
of Atlas from the Petitioner; he got all the Petitioner’s claims
against him, his wife and Atlas and Grandway and their
F shareholders released; he got the Petitioner’s resignation from
the Board of Atlas; he got an agreement and irrevocable consent
from the Petitioner for sale and transfer of Atlas shares; he got
an agreement or consent from the Petitioner for dividend
distribution and winding up of Atlas in a manner as the Board and
the other shareholders might deem fit; and he got a confirmation
G of no claim against him or his family member or Atlas or Grandway
of their shareholders by the Petitioner. And after all that is done,
he even gets back his entire money of USD 3,500,000. And that
because the Petitioner’s wife calls him a ‘forger’ in a private
communication made to a couple of acquaintances or associates.
H Can such award be ever sustained as something a fair and
RATNAM SUDESH IYER v. JACKIE KAKUBHAI SHROFF 119
[SANJAY KISHAN KAUL, J.]

judiciously minded person could have made. In my humble opinion, A
it is the very opposite of justice; it would be a travesty of justice to
uphold such award.”
38. The aforesaid scenario cannot be countenanced and this is
what has been responsible for interference with the award of the learned
arbitrator in the context of the legal position applicable to the award pre B
the amendment. We find that the arbitrator’s conclusions are not in
accordance with the fundamental policy of Indian law, and can thus be
set aside under the pre-2015 interpretation of S. 34 of the said Act. We
may also note that clause 6 of the Deed of Settlement could not have
been relied on to award liquidated damages in favour of the appellant,
we agree with the observations of the Single Judge and the Division C
Bench in this regard. In fact, the consequences are so inappropriate that
the same appears to be the reason that both the learned Single Judge
and the Division Bench have opined that whatever be the position that is
applicable - pre or post amendment, in these facts the award would not
stand, something with which we agree. D
Conclusion:
39. In the conspectus of the aforesaid discussion we are not able
to find fault with the judgment of the learned Single Judge and the Division
Bench to the extent it interferes with the award and sets aside the award.
Consequently, the appeal is dismissed with costs. E

Nidhi Jain Appeal dismissed.

F

G

H