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PUBLIC POLICY UNDER ARBITRATION LAW

PUBLIC POLICY UNDER ARBITRATION LAW

Final draft submitted in fulfillment of the course Alternate Dispute Resolution,


Semester VI during the academic year 2018-19

Submitted by-

Govind Singh Chauhan - 1528

B.A LL. B

Submitted to-

Mr. Hrishikesh Manu

March 2019

Chanakya National Law University,

Mithapur, Patna, 800001

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PUBLIC POLICY UNDER ARBITRATION LAW

ACKNOWLEDGEMENT

I would especially like to thank my guide, mentor, Mr. Hrishikesh Manu without whose constant
support and guidance this project would have been a distant reality.

This work is an outcome of an unparalleled infrastructural support that I have received from
Chanakya National Law University, Patna.

I owe my deepest gratitude to the library staff of the college.

It would never have been possible to complete this study without an untiring support from my
family, specially our parents.

This study bears testimony to the active encouragement and guidance of a host of friends and well-
wishers.

Name: - Govind Singh Chauhan

Roll No- 1528

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PUBLIC POLICY UNDER ARBITRATION LAW

DECLARATION

I hereby declare that the work reported in the BA LL. B (Hons.) Project Report entitled

“Public Policy Under Arbitration Law,” submitted at Chanakya National Law University, Patna
is an authentic record of my work carried out under the supervision of Mr. Hrishikesh Manu, and
I have not submitted this work elsewhere for any other degree or diploma. I am fully responsible
for the contents of my Project Report.

Govind Singh Chauhan Signature of the student

Roll No- 1528 …………………………

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PUBLIC POLICY UNDER ARBITRATION LAW

OBJECTIVE OF THE STUDY

This project seeks to study the concept of public policy as generally understood in the arbitration
paradigm.

HYPOTHESIS

The research has adopted the hypothesis that:

Public Policy of India has most important role in the whole process of enforcement of an arbitral
awards.

RESEARCH METHODOLOGY

The research includes different options. They are:

• Exploratory research:

It is usually a small-scale study undertaken to define the exact nature of a problem and to gain a
better understanding of the environment within which the problem has occurred. It is the initial
research, before more conclusive research is under taken.

• Descriptive research:

It is to provide an accurate picture of some aspects of market environment. Descriptive research is


used when the objective is to provide a systematic description that is as factual and accurate as
possible. It provides the number of times something occurs, or frequency, lends itself to satisfied
calculations such as determining average number of occurrences.

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PUBLIC POLICY UNDER ARBITRATION LAW

TABLE OF CONTENTS
INTRODUCTION ................................................................................................................................ 5
International Public Policy .............................................................................................................. 9
Foreign Award and Public Policy ............................................................................................... 9
Arbitration Law on “Public Policy” .............................................................................................. 10
International Law Governing Public Policy ................................................................................. 12
Geneva Convention 1927 .......................................................................................................... 12
New York Convention, 1958 .................................................................................................... 12
Interpretation Of "Public Policy" .................................................................................................. 14
Conclusion and Criticism.............................................................................................................. 18
Bibliography ................................................................................................................................. 21
Primary Source .......................................................................................................................... 21
Secondary Source ...................................................................................................................... 21

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PUBLIC POLICY UNDER ARBITRATION LAW

INTRODUCTION
The basic purpose of arbitration is to bring about cost-effective and expeditious resolution of
disputes and further preventing multiplicity of litigation by giving finality to an arbitral award.
The article ambidextrously and comprehensively analyzes India’s Commitment and challenge to
the International Arbitration in the era of globalization when the investment by the foreign
entities is at the peak. Public Policy of India has most important role in the whole process of
enforcement of an arbitral award particularly the foreign awards because it involves parties,
lawyers and arbitrators form diverse legal &cultural traditions. Most often the arbitral tribunal
consists of arbitrators from multiple jurisdictions & legal traditions different from those of
parties and of their council. It is thus desirable that the International Companies/firms working in
India as Joint venture or otherwise should be fully aware for the law on public policy of India
and its impact on arbitration awards1.
Arbitration continues to grow at a rapid pace, antitrust cases in particular are increasingly being
arbitrated; and the law is still evolving in relation to the tension between the domestic legitimate
claims of a nation and the arbitral finality given to an International arbitral award. Further when
the arbitration proceedings are in themselves requiring a judicial process by producing the
evidence and giving the parties opportunity of hearing, why should the court at this level
interfere with the decision frustrating the very purpose of arbitration? If disputes are going to end
up in courts anyway, there is scant incentive for parties to bother to arbitrate in the first instance.
What should be the realm of judicial interference in such arbitral awards and where should it
meet the barricades. A supportive yet non-interventionist approach without undue interference
should be adopted by the courts to facilitate an efficient arbitral process within the permissible or
jurisdictional limits.

Arbitration is an alternative system of dispute resolution. The system follows the mandate of
"minimal court intervention" and Courts can interfere in the arbitral process only under the
limited grounds provided under the Arbitration and Conciliation Act, 19962. One such provision,

1
Super User, LAWS ON PUBLIC POLICY OF INDIA AND ITS IMPACTS IN CONSTRUCTION INDUSTRYNBM MEDIA PVT.
LTD., https://www.nbmcw.com/project-mgmt-arbitration-consultant/17910-laws-on-public-policy-of-india-and-its-
impacts-in-construction-industry.html (last visited Mar 12, 2019).
2
Interpretation Of Public Policy U/S 34 Of The Arbitration And Conciliation Act, 1996 - Litigation, Mediation &
Arbitration - India, INTERPRETATION OF "PUBLIC POLICY" U/S 34 OF THE ARBITRATION AND CONCILIATION ACT,
1996 - LITIGATION, MEDIATION & ARBITRATION - INDIA, http://www.mondaq.com/india/x/669348/Arbitration

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section 34 provides grounds on which an arbitral award can be set aside by the Court. Section 34
(2)(b)(ii) states that a Court may set aside an arbitral award if it finds that the award is in conflict
with the public policy of India. Explanation 1 of S. 34(b) states three criteria on which an award
could be overturned on the ground of public policy – when the award was induced by fraud,
corruption or in violation S. 75 or S. 81; or it is against the fundamental policy of Indian Law; or
it is in contrast with the most basic notions of morality and justice. The second and third grounds
are vague and are susceptible to being interpreted too widely. Accordingly, a number of Supreme
Court judgments had widened the scope of interpretation of public policy. In 2015, section 34 for
amended in order to restrict the scope of “Public Policy."

Public policy imposes certain restrictions upon the freedom of persons to contract. An ostensibly
valid contract may be tainted by illegality. The source of the illegality may arise by statute or by
virtue of the principles of general law. In some instances, the law prohibits the agreement itself,
and the contract is then by its very nature illegal but in the majority of cases the illegality lies in
the object which one or both parties have in mind or in the method of performance. As a general
rule, although all the other requirements for the formation of an agreement are complied with, an
agreement that is illegal will not be enforceable. The issue is sufficiently related to fundamental
concepts of morality and fair dealing that a court should not, as litigants have sometimes urged,
ignore it merely because the claimant can plead its case without disclosing any contravention of
public policy. Indeed, even if neither party raises the issue, the court will do so on its own
initiative and refuse enforcement if justified by the record, at least if the contravention is serious.

Definition of Public Policy:


The Arbitration and conciliation Act, 1996 or the Contract Act, 1872 do not define the
expression “Public Policy” or “opposed to public policy.” “Public Policy” is not the policy of a
particular Govt. It connotes some matter which concerns the public good or the public interest3.
‘Public Policy’ is equivalent to the “Policy of Law.” Therefore, any acts that have a mischievous
tendency so as to be injurious to the interest of the state or the public is stated to be against
“Public Policy” or against the ‘Policy of Law.”

Dispute Resolution/Interpretation Of Public Policy US 34 Of The Arbitration And Conciliation Act 1996 08 (last
visited Mar 12, 2019).
3
FALI S. NARIMAN, THE STATE OF THE NATION: IN THE CONTEXT OF INDIAS CONSTITUTION(2013).

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In the case of Renusagar Power Co. Ltd v. General Electric Co4. the Apex Court has held that the
Expression ‘Public Policy’ has a wider meaning in the context of a domestic award as
distinguished from a foreign award.” The concept of the ‘Public Policy’ denotes that what is
good for the public or in public Interest or what would be injurious or harmful from time to time.
It has very wide and general connotations. Anything that hurts collective consensus is against the
‘Public Policy.’ Hence the Acts in violation of law shall be considered against the ‘Public
Policy’.

Doctrine of Public Policy


Doctrine of ‘Public Policy’ is somewhat open textured and flexible, and this flexibility has been
the cause of judicial censure of the doctrine. There is a general agreement that the courts may
extend existing ‘Public Policy’ to new situations and the difference between extending on
existing principle as opposed to creating a new one will often be wafer thin5. ‘Public Policy’ is
not immutable. Rules which rest on the foundation of ‘Public Policy,’ not being rules which
belong to the fixed Customary Law, are capable on proper occasion, of expansion or
modification depending upon circumstances. In the broader view, the doctrine of “Public Policy”
is equivalent to the “Policy of Law,” whatever leads to obstruction of justice or violation of a
statute or is against the good morals when made the object of contract would be against ‘Public
Policy of India” and being void, would not be susceptible to enforcement. Though misconduct of
“Arbitral Tribunal” or of the “proceedings before an arbitral tribunal” and “error of law on the
face of an arbitral tribunal award” by themselves are not made as grounds for recourse against an
arbitral award under section 34 of the 1996 Act6. Interpreting the doctrine of “Public Policy of
India” in its broader view, courts of law may intervene permitting recourse against an arbitral
award based on irregularity of a kind which the court considers has caused or will cause
substantial injustice to the applicant. Extreme cases where arbitral tribunal has gone so wrong in

4
(1994) AIR SC 860.
5
legal Service India, PUBLIC POLICY UNDER ARBITRATION LAW,
http://www.legalservicesindia.com/article/1224/Public-Policy-under-Arbitration-Law.html (last visited Mar 12,
2019).
6
Badrinath Srinivasan & Badrinath Srinivasan, PUBLIC POLICY AND SETTING ASIDE PATENTLY ILLEGAL ARBITRAL
AWARDS IN INDIASSRN ELECTRONIC JOURNAL,
http://www.academia.edu/3796573/Public_Policy_and_Setting_Aside_Patently_Illegal_Arbitral_Awards_in_India
(last visited Mar 12, 2019).

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its conduct of arbitration that justice calls out for it to be corrected may justifiably fall within the
ambit of the doctrine of ‘Public Policy of India” to enable courts of law in India to intervene
under section 34 of the 1996 Act permitting recourse against arbitral award.

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International Public Policy


In view of the absence of a workable definition of “International Public Policy” the Supreme
Court of India in the case of “Renusagar Power Co Ltd. v. General Electric Co. –while
construing section 7 (1) (b) (ii) of the foreign Award Act held that it was difficult to construe the
expression ‘Public Policy’ in Article (v) (2) (b) of the New York convention to mean
international Public Policy and the said expression must be construed to mean the doctrine of
‘Public Policy’ as applied by the courts in which the foreign award is sought to be enforced and
consequently the expression ‘Public Policy’ in section 7 (1) (b) (ii) of the foreign Award Act
means the doctrine of Public Policy as applied by the courts in India. This controversy has been
set at rest by the legislature now using the expression ‘Public Policy of India” in section 48 (2) of
Arbitration and Conciliation Act, 1996.

Foreign Award and Public Policy


Enforcement of foreign award, if resulting in violation of Provisions of foreign Exchange
Regulation Act, 1973, would be contrary to “Public Policy” as envisaged in section 48 (2) of
Arbitration and Conciliation Act, 1996.

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Arbitration Law on “Public Policy”


The Arbitration and Conciliation Act, 1996 restrain an Arbitral Tribunal or sole Arbitrator to make
any award which is against the Public Policy of India. Various provisions laid down under 1996
Act are briefed here under: - Section34.(2)(b)(ii)Section 34. (2) (b) (ii) of the said -Act lays down
that an Arbitral Award may be set aside if the court finds that the arbitral award is in conflict
with the public policy of India. Explanation to section 34 of the 1996 Act, without prejudice to the
generality of sub-clause (ii), it is here by declared, for the avoidance of any doubt, that an award
is in conflict with the Public Policy of India if the making of the Award was induced or affected
by fraud or corruption or was violation of Section 75 or Section 81 of 1996 Act. .

Fraud

Section 17 of the Indian Contract Act, 1872 defines fraud. However, ‘fraud’ has a wider meaning,
far wider than the definition given under the Contract Act. Fraud is an act of deliberate deception
with the design of securing something by taking unfair advantage of another. It is a deception in
order to gain by another’s loss. It is a cheating intended to get an advantage.

The Supreme Court of India in the case of S.P. Chengalvaraya “Naidu v. Jagannath 7had held that
“A litigant, who approaches the court, is bound to produce all documents executed by him, which
are relevant to the litigation. If he withholds a vital document in order to gain advantage on the
other side, then he would be guilty of playing fraud on the court as well as on the opposite party.”

CORRUPTION

Corruption means bribery. It need not necessary be in monetary terms. An improper relationship
between an arbitrator and a party or a party’s legal advisor may render the award open to attack
also on this ground. Procurement by “Undue Means” was a ground for setting an award aside
under clause (c) of section 30 of the Arbitration Act., 1940.

7
(1994) AIR SC 853.

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ACCEPTING HOSPITALITY

If an arbitrator accepted hospitality from one of the parties and the invitation was extended with
the intention to induce the arbitrator to act unfairly or had the effect of inducing the arbitrator to
act unfairly, it may be said that the award was induced or affeded by corruption. But mere dining
or lunching with one of the parties or his witness or witnesses in the absence of the other may not
make him guilty. To induce the court to interfere on such ground, there must be something more
than mere suspicion.

In the matter of Chouthmal Jivrajjec poddar v. Ram Chandra Jivrajjec Poddar8, it has been held
that, “Putting up with one of the parties may not by itself be sufficient to vitiate the award, but if
it enables the arbitrators to have a private conference with one of the parties on an important
topic, it would entitle the court not to accept the award.”

Illegal Gratification

The arbitrator should always scrupulously avoid any course of action which even remotely bears
the complexion of his having put himself into a position where it might be said against him that
he had received a pecuniary inducement which might have had some effect on his determination
of the matter to his adjudication9. An arbitrator ought to be an indifferent person between the
disputes and should be incorrupt and impartial. If the arbitrator take bribe, the award would be
liable to be set aside.

8
(1955) AIR Nagpur 126.
9
Hubert W. Smith, COMPONENTS OF PROOF IN LEGAL PROCEEDINGSTHE YALE LAW JOURNAL(1942),
https://www.jstor.org/stable/792613 (last visited Mar 12, 2019).

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International Law Governing Public Policy


Geneva Convention 1927
Under the Geneva Convention, 1927, in order to obtain recognition or enforcement of a foreign
arbitral award, the requirements of clause (a) to (e) of Article 1 had to be full filled and in Article
2, it was prescribed that even if the conditions laid down in that article were fulfilled recognition
& enforcement of the award would be refused if the court was satisfied in respect of matters
mentioned in clause 10(a), (b) and (c) as given hereunder:-

a) The award has been annulled in the Country in which it was made.

b) That the party being under a legal incapacity, he was not properly represented.

c) That the award contains decisions on matters beyond the scope of the submission to
arbitration.

The principles which apply to recognition and enforcement of foreign awards are in substance,
similar to those adopted by the English court at Common law, It was, however, felt that the
Geneva Convention suffered from certain defects which hampered the speedy settlement of
disputes through arbitration.

The New York Convention has sought to remedy the said defects by providing for a much more
simple and effective method of obtaining recognition and enforcement of foreign awards.

New York Convention, 1958


The York Convention (1958), Art III provides that each contracting State Shall recognize awards
as binding and enforce them in accordance with the rules & procedure of the territory, where
award is relied upon. Accordingly, the procedural laws of the Country in which the award is
relied upon would govern the procedural aspect of the filing of foreign award.

10
GENEVA CONVENTION ON THE EXECUTION OF FOREIGN ARBITRAL AWARDS, 1927,
https://www.arbitrationindia.com/geneva_convention_1927.html (last visited Mar 12, 2019).

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Further, New York Convention (1985) Article. V (2) provides that the enforcement of an arbitral
award may also be refused, if the law of the Country where the recognition and enforcement is
sought finds that.

a) The Subject matter of the difference is not Capable of Settlement by arbitration under the law
of that Country or

b) The recognition or enforcement of the award would be contrary to the public policy of that
country.

UNCITRAL Model law (1985)

The UNCITRAL model Law (1985), Article 36 (b) provides the grounds for refusing recognition
or enforcement of an arbitral award, irrespective of the country in which it was made, it may be
refused if the court finds that: -

a) The subject matter of the dispute is not capable of Settlement by arbitration under the law of
this state, or

b) The recognition or enforcement of the award would be contrary to the public policy of this
state.

Perusal of the International laws laid down at Geneva Convention, 1927, New York Convention
1958 & UNCITRAL Model Law (1985) reveals that Public Policy of any Country has a great
impact on the International/Foreign awards. Therefore, it is desirable that the constructing
agency should be conversant with the Public Policy of the Country, where it undertakes
construction works.

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Interpretation Of "Public Policy"


ONGC v. SAW PIPES

The Supreme Court, in the case of Renusagar Power Co. Ltd. v General Electric Co 11, held that an
award against public policy would be an award that was passed in contravention of "(i)
fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality". In 2003,
the scope of interpretation of public policy was significantly widened in ONGC Ltd v Saw Pipes
Ltd12. The Court held that in case of an application u/s 34 to set an award aside, the role of the
Court was similar to an appellate/revision court, therefore, it had wide powers. Further, the Court
also added a new ground – patent illegality to the grounds enumerated in Renusagar Power Co.
Ltd; under which the arbitral award could be set aside.

"Therefore, in our view, the phrase 'Public Policy of India' used in Section 34 in context is required
to be given a wider meaning. It can be stated that the concept of public policy connotes some
matter which concerns public good and the public interest. What is for public good or in public
interest or what would be injurious or harmful to the public good or public interest has varied from
time to time. However, the award which is, on the face of it, patently in violation of statutory
provisions cannot be said to be in public interest. Such award/judgment/decision is likely to
adversely affect the administration of justice."

This opened a floodgate of litigation under S. 34 as every award where there was an alleged error
of application statutory provisions could now be challenged.

ONGC v. WESTERN GECO

Further expansion of the interpretation of "public policy" was given in the Apex Court Judgment
of ONGC Ltd v Western GECO Ltd13. Here, a three-judge bench of the Supreme Court cited the
Saw Pipes Case and noted that the judgment was silent on the meaning of "fundamental policy of
Indian Law". The Court went on to interpret "fundamental policy of Indian Law" to comprise of
three separate heads – "duty (of the tribunal) to adopt a judicial approach", "adhering to the
principles of natural justice (by the tribunal)" and that the decision of the tribunal must not be

11
[1994] AIR 860 (SC)
12
[2003] 5 SCC 705
13
[2015] AIR 363 (SC

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"perverse or so irrational that no reasonable person would have arrived at the same" – thereby
further expanding the scope of "Public Policy", as each of these heads could then be a subject of a
challenge. In addition, the Court also held that the award of the arbitral tribunal resulted in a
miscarriage of justice, the award could be set aside, or even modified to the extent the offending
part was not severable.

Thus, not only did this judgment further leave it open to the Courts to examine arbitral awards
based on merits, it also stated that under the head of "fundamental policy of India Law" it would
be open to Courts to modify the arbitral award as well. This would thus defeat the purpose of
arbitration and reduce trust in the arbitral process.

INTERPRETATION OF MORALITY AND JUSTICE IN ASSOCIATE BUILDERS V.


DDA

Further, in Associate Builders v Delhi Development Authority14 the Supreme Court also clarified
the scope of interpretation of most basic notions of morality and justice. Accordingly, an award
could be set aside under the ground of justice when the "award" would be such that it would shock
the conscience of the Court. Further, an award against morality was considered to be something
that was against the mores of the day that would shock the conscience of the Court.

CHANGES MADE BY THE 2015 AMENDMENT

The Arbitration and Conciliation (Amendment) Act, 2015 made major changes to section 34. The
changes were suggested by the 246th Report of the Law Commission of India on Amendments to
the Arbitration and Conciliation Act, 1996 of August 2014 and the Supplementary to the 246th
Report of the Law Commission of India on Amendments to the Arbitration and Conciliation Act,
1996 of February 2015. These changes were aimed at restricting Courts from interfering with
arbitral awards on the ground of "public policy." Accordingly, the amendment added "Explanation
2" to section 34(2) as well as Section 2A. Explanation 2 of section 34(2) states –

"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."

14
[2015] AIR 620 (SC)

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Thus, this explanation significantly curtailed the scope of interpretation supplied in ONGC v
Western GECO. Because of this amendment, Courts would no longer be able to interfere with the
award passed by the arbitrator. The explanation makes it especially clear that in no way would a
Court be entailed to review the award on merits of the dispute. Similarly, section 2A also curtails
the scope of interpretation of "patently illegal" as propounded in ONGC v Saw Pipes. Section 2A
states –

"An arbitral award arising out of arbitrations other than international commercial arbitrations, may
also be set aside by the Court, if the Court finds that the award is vitiate 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
law or by reappreciation of evidence."

Thus, Courts can no longer reappraise evidence or set aside awards merely because the Arbitral
Tribunal has made errors when dealing with the same. It is interesting to note that the amendment
did not make any changes to the interpretation of "justice and morality" as explained in Associate
Builders.

Recent Trends in Interpretation of "Public Policy"

Since the amendment, Courts have refrained from giving a wide interpretation to "public policy"
or interfering with the merits of the case. In the November2017 Supreme Court Judgment of
Venture Global Engineering LLC and Ors v Tech Mahindra Ltd. and Ors15 the Court observed –

"The Award of an arbitral Tribunal can be set aside only on the grounds specified in Section 34 of
the AAC Act and on no other ground. The Court cannot act as an Appellate Court to examine the
legality of Award, nor it can examine the merits of claim by entering in factual arena like an
Appellate Court."

15
[2017] 13 SCALE 91 (SC)

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A similar view was also taken in the judgment of Sutlej Construction v. The Union Territory of
Chandigarh16. These judgments show that the recent trend of interpretation of "public policy" has
been one where the Courts have refused to examine the arbitral awards on merits, thereby
upholding the legislative mandate of "minimal intervention of the Courts in the arbitral process"
as reflected by the changes brought by the Arbitration and d Conciliation (Amendment) Act, 2015.

16
[2017] 14 SCALE 240 (SC)

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Conclusion and Criticism


May the tussle between the evangelists of arbitral finality and the advocates of Judicial review of
International Arbitral awards continue, may the traditionalists yell on the uncertainty and illusion
of the scrutiny of the arbitral awards and may the reformists stand for the respect of International
arbitral awards, one thing that stands clear on every footing is that the Supreme Court has extra-
ordinary dimensions and role to make the International arbitral awards challengeable on the
touchstone of ‘public policy’ and further giving a strained interpretation to the applicability clause
of the Act thereby bringing the International arbitrations taking place outside India reviewable by
the Indian courts17. Where parties to the contract are choosing the mode of arbitration for solving
the legal tussle, it shows the intention to avoid litigation procedure. The contrary judgments of
various courts of the country are frustrating the purpose of arbitration and it has become a threat
to International Commercial Arbitration.

Secondly, the countries interested to invest in India, will rescue themselves from doing the same
seeing the prevailing circumstances of Arbitration and huge pendency of cases in courts.

In Konkan Railway Corporation v. Mehul Construction Co., the SC while comparing the 1940 Act
to the present Arbitration Act of 1996, concluded that the statute of 1996 limits intervention of the
Indian Courts with the arbitral process to the minimum. In this regard, the subsequent conclusions
of the Apex Court in the ONGC v. Saw Pipesand Venture Global v. Satyan Computers creates
contradictions. To concluded, it simply be said that the merits of these decisions have a need to be
revisited.

The decision of ABC Laminart Pvt. Ltd v. AP Agencies and Max India Ltd. v. General Binding
Corporation 18also attempts to reach to a conclusion restricting the judicial intervention in ICA. In
this case, arbitration clause expressly provided for the jurisdiction of Singapore. Furthermore,
recently, in April 2010 the LCIA has established its seat in India and has introduced the ‘London
Court of International Arbitration India Arbitration Rules’. This is the first ever instance where an
international arbitration institution has drafted International Commercial Arbitration rules
exclusively tailored for India. Much to the need of International Commercial Arbitration in India,

17
INDIA LAW JOURNAL, http://www.indialawjournal.org/archives/volume2/issue_4/article_by_tanuj.html (last visited
Mar 12, 2019).
18
(1989) 2 SCC 163

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these rules have brought in a draft arbitration clause which purposely excludes part I of the Indian
Arbitration and Conciliation Act, 1996.

However, fact remains that fourteen years after the enactment of the Indian Arbitration and
Conciliation Act, 1996 arbitration in India us at a junction where it has to choose between the
concepts of party autonomy and finality of arbitral award’ or Mere lawful by-pass of a domestic
law to be a violation of the Indian Public Policy. It may thus be seen that ‘public policy’ has had
varied interpretations across the globe. Courts have interpreted it keeping in mind their own laws
and morals. Almost common to all the courts has been the fact that ‘public policy’ has been
narrowly constructed and very limited options are available for widening its scope, for the judiciary
does not encourage the same. Amongst other reasons, the parties’ resort to arbitration as it has
limited grounds for filing an appeal; enlarging the scope of public policy as a ground for refusal
of enforcement of the arbitral award has the capacity to terminate the advantages inscribed in the
very purpose of resorting to arbitration.

The Hon’ble Supreme Court, on a number of occasions has held that a suit can be filed in a court
in India challenging a foreign award passed by an arbitrator in a matter concerning International
Commercial transactions if the award is against the ‘public policy’ and in contravention of
statutory provisions. It is always in the domain of the judiciary to interpret the public policy at a
given point of time19.

In the historic ruling of Renu sagar Power Co. v. General Electrical Corporation the Supreme Court
construed the expression "public policy" in relation to foreign awards as follows:

"This would mean that "public policy" in Section 7 (1) (b) (ii) has been used in narrower sense and
in order to attract to bar of public policy the enforcement of the award must invoke something
more than the violation of the law of India. Applying the said criteria, it must be held that the
enforcement of a foreign award would be refused on the ground that it is contrary to public policy
if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests
of India; or (iii) justice or morality."

19
INDIA LAW JOURNAL, http://www.indialawjournal.org/archives/volume2/issue_4/article_by_tanuj.html (last
visited Mar 12, 2019).

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In its later judgment of Oil & Natural Gas Corporation v. SAW Pipes, the Apex Court addressed
a challenge to an Indian arbitral award on the ground that it was “in conflict with the public policy
of India”. The said decision has been followed in a large number of cases. Despite precedent
suggesting that “public policy” be interpreted in a restrictive manner and that a breach of “public
policy” involves something more than a mere violation of Indian law, the Court interpreted public
policy in the broadest terms possible. The Court held that any arbitral award which is violative of
Indian statutory provisions is “patently illegal” and contrary to the canons of “public policy”.

By equating “patent illegality” to an “error of law”, the Court effectively paved the way for losing
parties in the arbitral process to have their day in Indian courts on the basis of any alleged
contraventions of Indian law, thereby resurrecting the potentially limitless judicial review which
the 1996 Act was designed to eliminate. The doctrine of public policy undoubtedly is governed by
precedents. Its principles have been crystallized under different heads. Recently in Patel
Engineering case, the Supreme Court has sanctioned further court interventions in the arbitral
process20. It was held that the Chief Justice, while discharging this function, is entitled to adjudicate
on contentious preliminary issues such as the existence of a valid arbitration agreement and the
Chief Justice’s findings on these preliminary issues would be final and binding on the arbitral
tribunal. Further, the consequences of Venture Global are far reaching for it creates a new
procedure and a new ground for challenge to a foreign award. The new procedure is that a person
seeking the enforcement of a foreign award in India has not only to file an application for
enforcement under Section 48 of the Act, it has to meet an application under Section 34 of the Act
seeking to set aside the award. The new ground is that, not only must the award pass the New York
Convention grounds incorporated in Section 48, it must pass the expanded "public policy" ground
created under Section 34 of the Act.

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INDIA LAW JOURNAL, http://www.indialawjournal.org/archives/volume2/issue_4/article_by_tanuj.html (last
visited Mar 12, 2019).

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PUBLIC POLICY UNDER ARBITRATION LAW

Bibliography

Primary Source
 BOOKS
 Anson's Law of Contract (28th ed., 2002)
 Farnsworth on Contracts (2nd ed., 1998) Ishita Chatterjee,
 Arthur L, ADR Principles and Practice (1993).
 Margaret C. Jasper, The law of alternative dispute resolution, (2000).

Secondary Source

 WEBSITES

 https://www.arbitrationindia.com
 http://www.indialawjournal.org
 http://www.legalservicesindia.com
 http://www.mondaq.com
 https://www.nbmcw.com
 http://fao.org
 http://wordpress.com
 http://plato.stanford.edu/entries/
 http://www.aphroditewounded.org
 http://www.springer.com
 http://www.uoguelph.ca
 http:// www.ageconsearch.umn.edu
 https://www.lawteacher.net

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