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Arbitration- Setting Aside Award on Grounds of Public Policy

January 17, 2020

By Vikrant Rana and Nihit Nagpal

Public Policy has remained one of the most contentious issues of all time and was appropriately remarked by Justice Borroughs as an “unruly horse”[1]. Section 34 (2)(b)(ii) of the Arbitration and Conciliation Act, 1996 stipulates that an Arbitral Award shall be set aside if it is in conflict with the public policy of India. Hence, the statutory provision under Section 34 confers wide powers on the Court to set aside an award.

In catena of cases, the Indian Judiciary has made attempts to define the term “public policy”, however the very nature of public policy remains uncertain and ever-changing.

Indian Judiciary’s Stance on Public Policy under Section 34 of Arbitration Act

In a recent case of Bharti Airtel Limited v. Union of India[2], the High Court of Delhi was of the view that being opposed to “public policy” would mean to be in conflict with the fundamental policy of Indian Law. Additionally, the Delhi High Court while substantiating on what constitutes “fundamental policy of Indian Law” stated that the rules of issue estoppel, of res judicata and constructive res judicata and prohibiting re-litigation would be fundamental policy of India and not just procedural laws.

Renusagar Power Co. Ltd. v. General Electric Co.[3] is a landmark case when deliberating on the aforesaid legal principle. In this case, the Apex Court while discussing the concept of public policy, stated that enforcement of a foreign award would be refused on the ground that it is opposed to public policy if such enforcement would be contrary to the following:

  • fundamental policy of Indian law; or
  • (ii) the interests of India; or
  • (iii) justice or morality.

ONGC v. Saw Pipes[4], is one of the most celebrated cases which deliberated on the concept of ‘public policy’ under the Arbitration Act. In this case, the Supreme Court while stressing on the wider meaning of ‘Public Policy of India’ used under Section 34 observed that public policy would refer to matters of public good and the public interest. The Apex Court pointed that “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.”

The Court in the case also remarked that the term public policy was given a narrower meaning in Renusagar’s case and enumerated four circumstances under which an award can be said to be in conflict with the public policy of India:

  •  fundamental policy of Indian law; or
  • the interest of India; or
  • justice or morality, or
  • in addition, if it is patently illegal

The Supreme Court in a latter case[5] reiterated the principles settled in ONGC case and stated that the expression ‘public policy of India’ has to be given wider meaning and the award could be set aside, ‘if it is patently illegal’.

However, a Three-Judge Bench of the Supreme Court in the case of Shri Lal Mahal Ltd. v. Progetto Grano SPA[6] overruled Supreme Court’s verdict in the ONGC case to hold that the expression “public policy of India” must be given narrow meaning. The Court further also enumerated the circumstances when enforcement of foreign award would be refused on the grounds of being against public policy, they are- (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.

The Judiciary’s conundrum in the arbitration and public policy regime continues with Supreme Court’s yet another verdict in the recent case of ONGC v. Western Geco International Ltd.[7], wherein the Apex Court again widened the scope of ‘public policy’ and stated that the expression includes all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country.

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[1] Richardson v. Mellish, 2 Bing.229

[2] 231 (2016) DLT 71

[3] 1994 Supp. (1) SCC 644

[4] (2003) SLT 324

[5] Phulchand Exports Ltd. v. OOO Patriot; (2011) SLT 732

[6] Civil Appeal No.  5085     Of 2013

[7] (2014) SLT 564

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