In India, Arbitration is a process for the resolution of disputes outside the judicial courts, wherein the parties to the dispute refer it to one or more individuals (an Arbitrator), by whose decision (Award) they agree to be bound to. It is private process, usually outside the scope of Judicial intervention, but not fully clear of it. There always exists certain criteria under which an arbitrational award could be challenged in the court of judicial authority, some of which are enumerated below:

1. The parties to the agreement were under some incapacity.
2. The agreement in question is not in accordance with the law to which the parties have agreed to, or under the law of the country where the award was made.
3. There was a failure on behalf of either of the parties to an agreement to give proper notice to the other regarding appointment of arbitrator or arbitral proceedings.
4. Award is against the agreement or submission to arbitration.
5. Award contains decisions on matters beyond the scope of submission to arbitration.
6. Composition of the arbitral authority or the arbitral procedure is ultra vires the agreement.
7. Composition of the arbitral authority or the arbitral procedure is not in accordance with the law of the country where the arbitration took place (Seat of arbitration).
8. The award has been set aside or suspended by a competent authority of the country in which, or under the law of which that award was made.
9. Subject matter of the dispute is not capable of settlement by arbitration under Indian law.
10. Enforcement of the award would be contrary to the public policy of India.

In this paper, the researcher would discuss the last issue (Issue 10), regarding the enforcement of awards in India that are contrary to its public policy with two questions.

Question I: What is your opinion as far as the Public Policy bar on enforcement of arbitral awards in India goes?

According to the UNCITRAL's Model law, upon which the Indian Arbitration and Conciliation Act 1996 is based, it is given that a judicial authority may refuse to recognise or enforce an award given by an arbitration tribunal, if doing so would be contrary to the public policy of the State in which enforcement is sought.[1] This means that the courts can intervene in the matters of a private arbitral tribunal, if such matters are actively opposing the public policy of the country. But the problem that currently exists with the concept of ‘public policy' is that there is no clear definition of it given anywhere, leading to a lot of confusion and chaos in the system of giving awards.

The argument regarding what constitutes public policy in India started with the case of Shi Lal Mahal Ltd v. Progetto Grano Spa,[2] wherein it was observed by the Hon'ble bench that the enforcement of a foreign arbitral award in India can only be refused if it is contrary to:

1. The fundamental policy of India
2. The interest of India
3. Justice or morality
   

This judgment led to an amendment in the Arbitration and Conciliation Act 1996, wherein Explanation 1 of Section 48(2)(b) states that:
For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if:

1. The making of the awards was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
2. It is in contravention with the fundamental policy if Indian Law; or
3. It is conflict with the most basic notions of morality and justice.

For clarification, it must be stated that there exists a difference between the fundamental policy of India and the law of India. This was clearly stated in the case of Penn Racquet Sports v. Mayor International Ltd that:
the recognition and enforcement of a foreign award cannot be denied merely because the award is in contravention of the law in India. The award should be contrary to the fundamental policy of Indian law, for the Courts in India to deny recognition and enforcement of a foreign award. [3]

Regarding the varied concept of Public Policy in India, the researcher would address many case laws in lieu with the subject matter, including Indian as well as Foreign cases, finally concluding the research question with findings of the single-judge bench of the Delhi High Court in the case of Cruz City Mauritius Holdings v. Unitech Limited[4], and then illustrate how the ratio of the judgment is being used further in different cases.

The term ‘Public Policy' was first questioned in the case of Renusagar Power Co Ltd v. General Electric Co, wherein it was adjudged that public policy is a term which is somewhat open-textured and flexible.[5] A similar line of thinking was applied by the judges of the Supreme Court in the case of Central Inland Water Transportation Corporation Ltd v. Brojo Nath Ganguly, wherein it was held that public policy constitutes some matters which concern public good and public interest and it was held that the heads of public policy can never be closed, and must be opened when justice so demands.[6]

This field of thought can be termed to be a Broader Interpretation of the principle of public policy, as instead of confining it to a certain criteria, the judicial authority have left it open to interpretation for the judges. In contrast to the same, the Supreme Court allowed a Narrower Interpretation of the term public policy in the case of Shi Lal Mahal Ltd v. Progetto Grano Spa with regards to a foreign tribunal award in accordance with the Renusagar Case and in sharp differentiation to a challenge of an arbitral award under Section 34 of the Arbitration and Conciliation Act 1996, as adjudged in the case of Oil and Natural Gas Corporation v. Saw Pipes.[7]

While discussing about the term public policy in the foreign scenario, it is imperative that we look at the case of Parsons and Whittemore Overseas Co. Inc v. Societe Generale De L' Industries Du Papier, wherein it was held that:
the Convention's public policy defence should be construed narrowly. Enforcement of foreign arbitral awards may be denied in this basis only where enforcement would violate the forum state's most basic notions of morality and justice[8]

This means that other countries have always interpreted the term public policy in a narrow way, which may have been done to avoid confusion while determining or challenging awards.

Finally, while talking about the case of Cruz City Mauritius Holdings v. Unitech Limited, the Delhi High Court considered the above-mentioned cases while adjudging on the meaning of public policy. They also referred to various foreign judgments, like the case of Ameropa AG v. Havi Ocean Co LLC, to understand the various interpretations of public policy, specially challenges to the enforcement of awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention).[9]

After such consideration, the bench set out the contours to the expression public policy in reference to whether a mere infringement of the Indian legal provision would add up to a contravention to the fundamental policy of Indian law as follow:
a contravention of a provision of law is insufficient to invoke the defence of public policy when it comes to enforcement of a foreign award. Contravention of any provision of an enactment is not synonymous to contravention of fundamental policy of Indian law. The expression fundamental policy of Indian law refers to the principles and the legislative policy on which Indian Statutes and law are founded. The expression fundamental policy connotes the basic and substrata rationale, values and principles which from the bedrock of law in our country.[10]

The Delhi High Court's basis for the above reasoning was as per the following text:

It is necessary to bear in mind that a foreign award may be based on foreign law, which may be at variance with a corresponding Indian statute. And, if the expression fundamental policy if Indian law is considered as a reference to a provision of the Indian statute, as is sought to be contended on behalf of Unitech, the basic purpose of the New York Convention to enforce foreign award would stand frustrated. One of the principle objectives of the New York Conventions is to ensure enforcement of awards notwithstanding that the award are not rendered in conformity to the national laws.

Thus, the objections to enforcement on the grounds of public policy must be such that offend the core values of a member State's national policy and which it cannot be expected to compromise. The expression fundamental policy of law must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy and not a provision of any enactment.[11]

Thus, it was held in this case that an award cannot be challenged on the mere grounds that there is a violation of an Indian legal provision, unless such violation is in contravention to the fundamental policy of Indian law and also defined the term fundamental policy of India, stating it to be fundamental and substratal legislative strategies, standards and values which form the bedrock of Indian legal system.

This principle laid down in the case of Cruz City was later followed in the case of Daiichi Sankyo Company Limited v. Malvinder Mohan Singh, wherein Judge Jayant Nath quoted that the fundamental Policy of Indian Law does not mean provisions of the statute but the substratal principles on which Indian Law is founded.[12] The case limited the interpretation of fundamental policy of Indian law only to the substratal principles, while dealing with a case of challenge to the award given by an arbitral tribunal.

Thus, even though under Section 34(2A) of the Arbitration and Conciliation Act 1996, an award can be set aside due to patent illegality[13] in India, various decisions given by Delhi High Court and Supreme Court judges should help re-establish investor trust in India's situation as an enforcement-friendly jurisdiction and at the same time encourages foreign-seated arbitration.

Question II: In a globalised world, is there a need for a more robust jurisprudence around the phrase Public Policy?

These days, the world has become a globalised place, i.e. one with interconnected economies of countries from around the world. Such globalisation has led to rapid development and exchange of ideas and values throughout the world. In such a situation, it is almost impossible for one countries' decision (in a legal sense) not to influence the other countries in contact with it. Considering such a statement, the researcher would now discuss about the current situation in the domestic as well as foreign scenario vis-à-vis the phrase ‘Public policy' and whether there is a need for more robust jurisprudence around it.

The domestic scenario is at a very abstract and confusing place at best regarding the phrase Public Policy. The Courts of judicial authority in India have interpreted public policy in both a broad and a narrow way, leading to the so-called confusion. Various decisions given by the Courts in different cases have favoured a broad interpretation to the term Public Policy, whereas various others have favoured the narrow interpretation. Regardless of the means of interpretation, both have certain drawbacks and advantages that make it appealable to the judicial courts to make use of them.

The broad view of interpretation is very useful in the sense that, it helps in considering different situations under its jurisdiction, which may otherwise be out of its reach. But if such a view is used, the Courts then would gain the power to entertain challenges to arbitral awards and set them aside, not only in the case if such an award is in contravention to the fundamental policy of Indian law, but also if such award is at odds with a legal provision given under any of the statutes of Indian legal system.

This power then becomes a drawback to the process of arbitration in India, because if the courts gain and exercise this power, then people would lose faith in the process of arbitration as any award given by a tribunal could be easily set aside by a judicial authority on the given condition. People would prefer to directly approach the Courts instead of an arbitral tribunal to save their time and get a valid and binding judgment, instead of a challengeable one.

In contrast, a narrow view of interpretation means that although such a view would limit the jurisdiction of the judicial authority to adjudicate on the challenge of an arbitral award, this would clearly define the limits on which the Court could do so. Such a limitation would in fact help in avoiding confusion among the Courts and help in the better and fair disposal of cases.

The narrow interpretation means that Courts can only set aside arbitral awards if such awards are in contravention to the fundamental policy of India, and not if they go against any law given under any of the statutes under the Indian Law. This view helps in establishing India as an arbitration-friendly nation and supports people to put their faith in the arbitration process.

In the foreign scenario, any jurisprudence regarding the term ‘public policy' is very strict in nature, with the majority opinion clearly lying with the narrow view of interpretation. The US Courts have given various judgments in the favour of an arbitration-friendly situation regarding the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1948 (The New York Convention), by favouring the view that an award by a tribunal can only be challenged when such an award violates a State's most basic notions of morality and justice. This was also done in the case of Ameropa AG v. Havi Ocean Co, LLC.[14] Thus, the globalised consensus on the term Public Policy steers towards a narrow view of interpretation.

Thus, according to the researcher, the Indian arbitration system should also follow the pattern set by the globalised world, and therefore stand firmly in the favour of the narrow view of interpretation on the term Public Policy. There is a strong need for more and non-contrasting jurisprudence on the topic, which would solidify the argument and make India a favourable place for arbitration, contesting for the usually favourable places of arbitration like London or Singapore.

End-Notes:

1. Article 36(1)(b)(ii)
2. Shi Lal Mahal Ltd v. Progetto Grano Spa, (2013) 3 ARBLR 1 (SC)
3. Penn Racquet Sports v. Mayor International Ltd, (2011) 1 ARBLR 244
4. Cruz City Mauritius Holdings v. Unitech Limited, (2017) 239 DLT 649
5. Renusagar Power Co Ltd v. General Electric Co, (1994) Supp 1 SCC 644
6. Central Inland Water Transportation Corporation Ltd v. Brojo Nath Ganguly, (1986) 3 SCC 156
7. Oil and Natural Gas Corporation v. Saw Pipes, (2003) 5 SCC 705
8. Parsons and Whittemore Overseas Co. Inc v. Societe Generale De L' Industries Du Papier, 508 F 2 D 969
9. Ameropa AG v. Havi Ocean Co LLC, (2011) WL 570130
10. Id at 5
11. Id at 5
12. Daiichi Sankyo Company Limited v. Malvinder Mohan Singh, OMP (EFA) (COMM) 6/2016, decided on 31st January 2018
13. 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 vitiated by patent illegality on the face of the award.
14. Id at 6