Bombay High Court Upholds $24.7 Million Arbitration Award Against ONGC: No Patent Illegality Challenge for International Arbitration

The Bombay High Court has upheld an arbitration award of more than $24 million against Oil and Natural Gas Corporation (ONGC) in favour of Malaysian contractor Sapura, ruling that an international commercial arbitration award cannot be set aside on the ground of patent illegality. In Oil and Natural Gas Corp Ltd v. Sapura Fabrication SDN BHD, Justice Sandeep Marne dismissed ONGC's challenge under Section 34 of the Arbitration and Conciliation Act, 1996, even while acknowledging that the public-sector company might have been able to show flaws in one of the claims had this been a domestic arbitration. The ruling is a significant reaffirmation of how narrow the grounds for challenging an international arbitration award really are.

The Dispute: An Offshore Redevelopment Contract

The case arose from a 2015 turnkey contract for offshore works connected to the redevelopment of ONGC's Mumbai High South field. The works were completed and ONGC paid substantial sums under the contract. After completion, Sapura raised six additional claims for extra work, of which ONGC accepted two and rejected four. The dispute went to a three-member arbitral tribunal led by former Chief Justice A. P. Shah, which in 2024 rejected one claim, partly allowed two and fully allowed three, directing ONGC to pay over $24 million plus interest and costs. ONGC then approached the High Court to set aside the award.

The Section 34 Challenge and Patent Illegality

ONGC argued that the tribunal had ignored key correspondence and meeting minutes when allowing one of the claims, an argument that, in essence, alleged that the award was perverse. Perversity falls under the ground of patent illegality. The High Court explained that patent illegality is set out in Section 34(2A) of the Arbitration Act, and that this sub-section applies only to awards arising out of arbitrations other than international commercial arbitrations. In other words, the legislature deliberately kept patent illegality out of reach for international commercial arbitration awards. The Court held that its hands were bound by the language of the statute, and that had this been a domestic arbitration, the ground would have been available to ONGC.

This narrow scope of court intervention is a recurring theme in Indian arbitration jurisprudence. Courts have repeatedly stressed that a Section 34 challenge is not an appeal on merits, a point that also surfaces in our coverage of how the limitation period for a Section 34 challenge is calculated and how the Supreme Court set aside an award over an unexplained four-year delay.

Why the Seat Did Not Change the Outcome

An interesting feature of the case is that the seat of arbitration was in Mumbai, yet the proceeding was still treated as an international commercial arbitration. Justice Marne reasoned that because Sapura is incorporated in Malaysia, the arbitration qualified as international commercial arbitration regardless of the Indian seat. The definition of international commercial arbitration under the Act turns on the foreign character of one of the parties, not on where the arbitration is physically held. As a result, the more limited grounds for challenge applied even though the dispute was heard in India. This distinction has real consequences for foreign companies contracting with Indian public-sector undertakings, because it means that an award in their favour enjoys greater insulation from judicial second-guessing once it is rendered. It also means that a party which expects to be on the receiving end of an award cannot count on the wider domestic grounds to escape it.

Ssangyong and the Narrow Grounds for ICA Awards

The Court relied on the Supreme Court's interpretation in Ssangyong Engineering and Construction Co. Ltd v. NHAI, which held that the ground of patent illegality does not apply to setting aside international commercial arbitration awards. For such awards, the available grounds under Section 34 are narrower and centre on issues such as incapacity, invalidity of the arbitration agreement, lack of proper notice, matters beyond the scope of submission, and conflict with the public policy of India. The Court found none of these grounds made out and dismissed the petition. The contrast between arbitration and statutory tribunals also surfaces where disputes are non-arbitrable, as in the ruling that corporate restructuring disputes belong to the NCLT.

Related Reading

For an example of how courts encourage parties to settle outside litigation, see the Supreme Court referring a high-profile defamation feud to mediation.

On contract enforcement more broadly, read our analysis of why a delay in legal notice is not a ground to deny specific performance.

Key Takeaways

Parties to international commercial arbitration seated in India should understand that the grounds to set aside an award are deliberately narrow and do not include patent illegality or perversity. Even a finding that appears to ignore evidence may survive challenge if the arbitration is international in character. Businesses should therefore invest in getting the arbitration right at the tribunal stage, because the courts will rarely revisit the merits afterwards.