Court Rules Patent Illegality Ground Not Available in International Commercial Arbitration; Validates Claims for Additional Works and Rejects ONGC’s Challenge on Rates and Survey Costs
In a significant judgment dated June 9, 2026, the Bombay High Court, presided over by Justice Sandeep V. Marne, dismissed Oil and Natural Gas Corporation Limited’s (ONGC) petition challenging an arbitral award in favor of Sapura Fabrication SDN BHD (now known as VTEB Fabrication SDN BHD). The dispute arose from ONGC’s contract with Sapura for the redevelopment of the Mumbai High South Field.
The arbitration tribunal had adjudicated six claims raised by Sapura relating to additional works and change orders post completion of the contract. While ONGC accepted two claims partially, it rejected the others, leading to arbitration. The tribunal’s award partly allowed two claims and fully allowed three claims, rejecting one.
ONGC challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, mainly on grounds of patent illegality and perversity in findings. However, the Court clarified that the ground of patent illegality under Section 34(2A) is expressly excluded for international commercial arbitrations seated in India. As Sapura is a Malaysian company and the arbitration was international commercial arbitration seated in Mumbai, ONGC could not invoke patent illegality or perversity as a ground to challenge the award. The Court emphasized that interference is restricted to grounds under Section 34(2), including conflict with the fundamental policy of Indian law.
Regarding the substance of the claims, the Court upheld the tribunal’s interpretation and award:
- Claims 1 and 2 relating to additional works at SCA Jacket V Bracing and N23 platform were recognized as additional works. The tribunal’s application of contract rates as per Annexure-C, rather than ONGC’s unilateral application of rates from a different contract (B-127), was found plausible and upheld.
- Claim 3 concerning topside modification and deck extension was partly upheld, particularly the costs related to an unnecessary third pre-engineering survey and additional time/materials due to installation philosophy changes directed by ONGC. The Court rejected ONGC’s argument that the contract being lump sum excluded such claims.
- Claim 4 for Intruder Detection cum Deterrence System (IDDS) installation costs, including additional firewater header connections and deck extensions, was also upheld. The tribunal found these constituted Change Orders beyond the original scope.
- Claim 5 for standby charges due to presence of Rig GD Chaaya was maintained despite ONGC’s contention that the schedule preponement was conditional on simultaneous operations (SIMOPs). The Court noted that the tribunal drew an adverse inference against ONGC for failing to provide timely interface information, and while some evidence was arguably ignored by the tribunal, such omission does not amount to a ground for setting aside the award in international commercial arbitration.
The Court also upheld the award of post-award interest at LIBOR plus 2% simple interest and costs in favor of the Respondent.
This judgment reinforces the narrow scope for judicial interference in international commercial arbitration awards seated in India, particularly excluding patent illegality as a ground for challenge, thereby upholding the finality and sanctity of arbitration awards.
Bottom line:-
Arbitration and Conciliation Act - In an international commercial arbitration seated in India, the ground of patent illegality under Section 34(2A) of the Arbitration and Conciliation Act, is not available to challenge the arbitral award; perversity in findings amounts to patent illegality which is excluded in such arbitrations, restricting interference only on grounds under Section 34(2), including conflict with the fundamental policy of Indian law.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 2(1)(f), Section 2(2), Section 8.1.1.4, Section 21, Section 33, Section 34(2), Section 34(2A), Sections 34(2)(a)(iii), 34(2)(b)(ii)
