Bombay High Court Clarifies the Scope of Section 34 Challenges in International Commercial Arbitration: ONGC v. Sapura Fabrication

Is the remedy of “patent illegality” available as an indirect lifeline to set aside an arbitral award involving a foreign contracting entity when the seat of arbitration is within India? In the landscape of international commercial arbitrations (ICAs), this critical question has been answered with absolute clarity by the judiciary. The Bombay High Court has reaffirmed that the statutory ground of patent illegality is entirely unavailable to a petitioner challenging an award arising out of an international commercial arbitration, irrespective of any alleged “perversity” or “misappreciation of evidence” by the tribunal. In its significant decision in Oil and Natural Gas Corporation Limited v. Sapura Fabrication SDN BHD (now known as VTEB Fabrication SDN BHD)¹. The High Court affirmed that standard domestic grounds used to dismantle domestic awards cannot be introduced through an indirect route by repackaging them as violations of the “Public Policy of India”.

Factual Matrix and the Statutory Exclusion of Patent Illegality in International Commercial Arbitrations 

The dispute originated from a lump-sum turnkey contract executed on June 27, 2015, between the petitioner, Oil and Natural Gas Corporation Limited (ONGC), and the respondent’s predecessor, Kencana HL Sdn. Bhd, an entity incorporated in Malaysia. The contract was awarded for engineering, procurement, fabrication, and offshore installation works related to the redevelopment of Phase III of ONGC’s Mumbai High South Field. The core offshore works were completed by April 30, 2017, to ONGC’s satisfaction, and the contractor’s performance bank guarantees were subsequently released without the levy of any liquidated damages. Post-completion, a commercial deadlock ensued when the respondent raised six distinct claims seeking financial compensation for additional structural variations outside the original contractual scope, operating under the contract’s “Change Order” mechanism. While ONGC accepted that two claims constituted additional work, it unilaterally applied undervalued commercial rates and flatly rejected the remaining claims as being subsumed within the lump-sum contract price. The dispute was referred to a three-member Arbitral Tribunal, which delivered an award directing ONGC to pay a total principal sum of approximately USD 24.725 million structured across individual claims: USD 1.927 million under Claim 1 (SCA Jacket V Bracing), USD 9.92 million under Claim 2 (additional work on N23 platform), USD 2.229 million under Claim 3 (modifications to the SCA platform), USD 8.011 million under Claim 4 (Intruder Detection cum Deterrence System (IDDS), and USD 2.638 million under Claim 5 (standby charges for the SK900 vessel), while completely rejecting Claim 6. The Tribunal also awarded post-award interest at LIBOR plus 2% and arbitration costs amounting to INR 1,87,82,866, leading ONGC to challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996.

Dismissing the petition, the Single Bench of Justice Sandeep V. Marne firmly anchored its judicial rationale on the explicit statutory boundaries governing international commercial arbitrations. The Court observed that because the respondent is an entity incorporated in Malaysia, the proceeding strictly constitutes an International Commercial Arbitration under Section 2(1)(f) of the Act, despite being physically seated in Mumbai. Consequently, the express ground of “patent illegality” under Section 34(2A) is completely unavailable to the petitioner. Relying on the foundational authority of Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI)².The Court reiterated that post the 2015 Amendments, the legislature deliberately kept patent illegality out of reach for ICA awards to enforce minimal judicial intervention.

The Boundary Between ‘Public Policy’ and ‘Patent Illegality’ and Judicial Deference to Contractual Interpretation

ONGC strenuously argued that the Tribunal’s findings were “perverse” and that it had ignored vital evidence, attempting to frame these flaws as violations of the “Public Policy of India” under Section 34(2)(b)(ii). The Bombay High Court rejected this contention, drawing clear boundaries from Associate Builders v. Delhi Development Authority³, and clarified that allegations of perversity or non-consideration of project evidence fall strictly within the territory of patent illegality. It ruled that such arguments cannot independently become a ground for interference in an ICA through a backdoor presentation of public policy. Justice Marne observed that the legislative objective is to give maximum possible latitude to the decision of the arbitral tribunal in an international commercial arbitration, meaning that even if the petitioner could demonstrate patent illegality or perversity such as in the award of Claim 5 the Court’s hands were statutorily bound.

On the commercial merits of the contractual interpretation,the Court ruled that a Section 34 court does not sit as a court of appeal to re-evaluate evidence, upholding the Tribunal’s interpretations as plausible and reasonable. In reviewing Claims 1 and 2, the Court rejected ONGC’s view that the phrase “as per actuals” in project communications granted it the discretion to unilaterally apply lower market rates from an unrelated project. The Court confirmed the Tribunal’s interpretation that “as per actuals” simply meant paying for the volume of work contractually executed, measured against the explicitly agreed rates within this specific contract’s annexures. Similarly, the Court rejected the defense that the lump-sum turnkey structure disentitled the contractor from claiming variations, observing that a lump-sum arrangement does not equate to infinite work for a fixed price; once instructions exceed the baseline scope, they legally constitute a Change Order. Most notably, regarding the modifications to the SCA platform under Claim 3, the Court upheld the finding that ONGC was not justified in insisting on a third pre-engineering survey after an earlier survey had already confirmed suitability, sharply reprimanding the petitioner’s factual defense with the observation that the Court does not appreciate the twisting of its stand by the petitioner in this regard.

Conclusion

This judgment serves as an important  enforcement of arbitral autonomy and predictability over judicial second-guessing in cross-border commercial engagements. By systematically cutting off the backdoor route of using perversity to mount a public policy challenge, the decision ensures that international contracting entities can rely on Indian seats without the risk of their awards being undone by expansive domestic judicial reviews. The takeaway is conclusive: In cross-border commercial disputes the arbitral tribunal must be treated as the final destination on merits, as an award won by or against a foreign entity remains tightly protected from domestic judicial intervention.

Citations

1. Oil and Natural Gas Corporation Limited v. Sapura Fabrication SDN BHD (now known as VTEB Fabrication SDN BHD), Commercial Arbitration Petition No. 720 of 2024, Bombay High Court, Neutral Citation: 2026:BHC-OS:12621 (Decided on June 9, 2026). ↩︎
2. Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI), (2019) 15 SCC 131 ↩︎
3. Associate Builders v. Delhi Development Authority, (2015) 3 SCC 49 ↩︎

Expositor(s): Adv. Jahnobi Paul, Shreya Shukla (Intern)