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Globalization and Public Policy

Public Policy has been in a vigorous debate for the past few decades. This research paper discusses the need for a public policy if there is, then to what extent should the Public Policy guide the courts and the arbitral tribunals in setting aside the award. This research paper further deals with ‘Globalisation' and how it has an effect on arbitration and Public Policy. The first part of the research paper deals with the introduction to the public policy and its evolution.

The second part deals with how globalisation has an effect on arbitration and enforcement of the arbitral award. The last part of the research paper discusses the relationship between public goods in economics with public policy in arbitration and how public policy plays a vital role in both the fields. The researcher chose a doctrinal method of research in order to find out the answers to his questions.

Objectives of the Research
The research paper aims to manifest the researcher's opinion on public policy and its bar on enforcement of arbitral awards in India. The researcher's intention is to manifest the origin and evolution of the phrase public policy in Indian and international context with the help of several landmark judgements and amendments in the Arbitration and Conciliation Act, 1996. The researcher seeks to understand the role of Globalisation in Transnational Arbitration and how public policy can affect international arbitration and enforce limitations.

The second part of the research and the paper involves answering the important question, that whether there is enough jurisprudence vis-a-vis public policy in a globalised world. At last, the research paper seeks to discuss how public policy is an effective tool to restrict the recognition and enforcement of arbitral awards for public interest and how economics helps us understand the phrase better.

Public Policy

According to the Black's Law Dictionary, Public Policy means anything that is against the fundamental policy and law of the land, of a particular state. These policies stop any action from going against the public interest. Public Policy is a dynamic concept, it is not constant through time. It's meaning, interpretation, understanding changes through time. The deciding judge of the meaning of the term public policy is the society in rem.

The bar is set with regard to public policy, to protect the national interest, the fundamental policies of the state, the social welfare and the economic welfare. In the contemporary world, with minimal trade barriers, liberalised trade relationship in short after Globalisation, there has been an abuse of that privilege by many companies, actors, arbitral tribunals etc. This raised a concern of whether there should be judicial intervention to ensure the public policy is not being exploited.

Public Policy is interpreted in different ways in different nations and places vis-a-vi International Arbitration. The phrase is divided into three types or divisions; Domestic Public Policy, International Public Policy and Transnational Public Policy.

Domestic Public Policy has the fundamental policies, morality, justice and notions. It consists of the mandatory laws of the state. Domestic public policy is limited to the state boundaries. It is not applicable outside the state territory. Whereas, International Public Policy has been given a narrow interpretation than domestic public policy where not every rule violation is counted under International Public Policy. The International Law Association Committee on International Commercial Arbitration gave a definition to International Public Policy in the final report on Public Policy as a bar to Enforcement of International Arbitral Award;

The body of principles and rules recognized by a State, which, by their nature, may bar the recognition or enforcement of an arbitral award rendered in the context of international commercial arbitration when recognition or enforcement of the award would entail their violation on account either of the procedure pursuant to which it was rendered (procedural public policy) or its content (substantive international public policy

And finally, the last type, Transnational public policy it is slightly different from the idea of International public policy, in transnational we are looking at countries or nations with common policies with regard to public policy. It is said that transnational public policy considers fundamental rules of natural justice, principles of universal justice, international law and general principles of morality and justice. Its been termed as the standard principles or accepted norms.
Evolution of public policy.

public policy as discussed earlier is a dynamic concept, it's definition, interpretation changes through time. Public policy is not specifically defined in any law therefore we have to interpret it from case laws and various judicial interpretations. Section 34 of the Arbitration and Conciliation Act, 1996 has been in debate for the past few decades with regard to the definition of the term public policy in the section. There have been several landmark judgements that discuss the term and its interpretation. The meaning of Public Policy was first discussed in the case Renusagar Power Electric Company v. General Electric Company[1].

In this case, the court stated that Section 7(1)(b)(ii) of the Foreign Awards Recognition and Enforcement Act, 1961 uses the expression public policy, this case stated that a mere violation of Indian Law would not be sufficient to attract the limits set by public policy. This basically meant that, regardless of an action violating any Indian law, it would not attract the bar of Public Policy unless it goes against the fundamental policies of the country, goes against the interests of the public.

Although the Renusagar case ratio was not permanent until, subsequently, in the judgement of ONGC v. Saw Pipes[2] in 2003, the court widened the test of what comes under the ambit of violation of public policy. The court, in this case, decided that to attract the bar of public policy, with regard to the arbitral award, mere violation of Indian law or the terms of the contract is to be considered ‘patently illegal' and violating the public policy. Similarly, when it comes to the foreign awards, the test laid down by the ONGC case must be followed allowing the Indian court to deny enforcement of a foreign award on the grounds of ‘patent illegality.

But this was not for long, in the Lal Mahal[3] case, the court upheld the Renusagar ratio with regard to public policy. Therefore, the wider interpretation of the Saw pipes ratio was no more in application. which meant the term public policy in Section 48 was narrowed down once again. In 2014, in the Western Geco[4] case the court took side of the ratio of Saw Pipes case and it further went ahead and manifested three Distinct and Fundamental jurist principles it stated that the courts should take a judicial approach while determining the rights of a citizen. Meaning, the adjudicating authorities shall not act in an arbitrary manner. Then the courts or any judicial authority for that matter should find out the rights of the parties and obligations of the parties.
2015 Amendment of Section 34.

In the year 2015, a number of amendments took place in the Arbitration and Conciliation Act, 1996. Section 34 was amended and the phrase public policy was given a precise interpretation by limiting the ambit of Public Policy in India. The amendment stated if fraud or corruption is exercised while giving an award; if it is in conflict with the fundamental principles of morality and justice. The above-mentioned criteria are applicable to setting aside awards in International Arbitration. When it comes to Domestic Arbitration the test of ‘Patent Illegality' set by the Saw pipes case will be upheld and will only be applicable to domestic arbitration. In domestic arbitration, although the party can file an application on the grounds of ‘patent illegality' it cannot file an application to set aside the award on mere account of erroneous or illegal conduct of application of law.

Since the changes made in the arbitration act in 2015, the courts have been strictly following the guidelines laid down by the amendment. In the case of Venture Global Engineering LLC and Ors v. Tech Mahindra Ltd and Ors[5] the court stated that the arbitration award can be set aside by the court under the provision of Section 34 post amendment. The court cannot go beyond that, it cannot go into the merits of the case. That's where the amendment and the Section draws the line. A similar position was held by the court in the case of Sutlej Construction v. The Union Territory of Chandigarh[6]. Upon analysis of these cases one can conclude that there's a trend of courts not going beyond the parameters set by Section 34.

After the amendment, one of the changes apart from the public policy interpretation was the courts power to look into the merits of the case. After the 2015 amendment, an Explanation was added to the section (34) which states that with respect to the question of setting aside the award, the courts must not review the case on its merits. In the latest case of 2019, the Supreme Court held that the award passed by an arbitral tribunal can be set aside under section 34 and section 37 of Arbitration and Conciliation Act, 1996. The apex court stated that the parties have no other recourse or remedy in another law[7]. This was held in the case of State of Jharkhand v. M/SHSS Integrated SDN.

Globalization, the term is self-explanatory. The act or the process of globalizing is the state of being globalisation. It is the process where various nations come together and practice multiple things that benefit their countries and others. Globalisation is the coming together of nations to trade, exchange ideas, communicate etc. Tom Palmer defined Globalisation as
the diminution or elimination of state-enforced restriction on exchange across borders and the increasingly integrated and complex global systems of production and exchange that has emerged as a result.[8]

Public Policy and Globalisation
In India, the trade liberalisation took place in the early 90s. This led to a boom in Indian economy. Globalisation, theoretically might have a lot of merits but when it comes to practice, there are some boons which are inevitable.

One might question how Globalisation related to Public Policy, globalisation is a barrier that obstructs public policy from exercising its power. Ever since the trade liberalisation and globalisation, the trade barriers have come down to a point where there is no restriction to trade (not absolutely). In an article, it was observed and stated that Globalisation is the herald of a new world order and has been damned for oppression, exploitation and injustice.[9]

The author says that due to liberalisation, there has been exploitation in various ways. When we discuss about globalisation, it is important to bring International Arbitration into the picture because it is linked with globalisation and how the latter helped the former gain some autonomy in its field. Globalisation has helped arbitration go beyond the territorial boundaries of a nation and enabled the actors' practice alternative dispute resolution on international grounds.

Globalisation and Arbitration have been going hand in hand for the past few decades as there is a growth in technology, it has become easier for parties to communicate and have trade relations. When parties have trade relations, they tend to have disputes. Arbitration has reduced the gap by enabling the parties from different countries have flexible and convenient dispute resolution. With lower trade barriers and agreeing to arbitrate, the parties gain conviction in extra judicial remedies and dispute resolution. Which saves them time, expenses, legal advice expenses etc.

The important question is to what extent can globalisation affect transnational arbitration. Public Policy defence comes into the picture to put limitations on the disputes that arise between parties from different nations. It is understood by majority of people that Public Policy is a limitation that arises when there is a clear violation of the fundamental policy or anything against the interests of the public. This is the broader meaning of the phrase public policy.

When we try to understand the need and purpose of public policy, we come to a conclusion that it sets limitations. These limitations are important especially in transnational arbitration because two different nationals, have different set of laws and procedure. The researcher believes that the perfect or a coherent analogy would be comparing public policy to a trunk of the tree and different nations and actors from different nations to the branches.

Different countries may have different set of laws just like different branches have varied number of leaves. But they all, the countries, can stand on equal and same ground in terms of public policy. Maybe there might some difference since public policy is a dynamic concept.

Is there need of more robust jurisprudence vis-a-vi globalisation and public policy in international arbitration? In the contemporary world, there are numerous case laws in India to guide the parties when it comes to intra-national trade and arbitration. But in terms of international arbitration and to what extent public policy can be implemented there is very little jurisprudence. The problem that arises is that due to a heterogeneity in the understanding of the concept of Public Policy in different nations. Although we have conventions that guide us in interpreting the phrase public policy.

International Arbitration.
While in India, the term Public Policy has been given a narrow interpretation, globally, on the international standards it has a very narrow meaning even though it is not defined in any law. The phrase Public Policy is used to in two International conventions New York Convention and UNICTRAL's Model law. Both of these provide that the state can deny to enforce an arbitral award if the award violates the public policy of the state. The New York Convention in its Article V (2)(b) states:
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
The language of Article V is straight forward, it stipulates any award that is against the public policy of that country, it does not give us a definition to the phrase but provides the extent of applicability of this article. It refers to the country where the recognition and the enforcement of the award is sought. If the award is contrary to the public policy of that country, it can set aside the award on the aforementioned grounds.

When it comes to international arbitration, the interpretation is narrower. Usually, countries have domestic and international public policy where the international public policy applies to the foreign awards. In a recent case in Columbia, the apex court was asked to enforce the ICC foreign award that was challenged on the grounds of violation of the country's domestic public policy. It was concluded later on that the country's international public policy was different and it did not infringe that and therefore the award was upheld.

The researcher strongly urges on the point that there is a need for more extensive jurisprudence with regard to the phrase Public Policy. But the jurisprudence on public policy should not be in excess reason being, public policy is a concept that is subjective when you take into account different countries.

It depends on different countries, who have different perspectives. When we are discussing about international arbitration, the focus should not be narrow and there should be some ambiguity so that every country gets some discretion when it comes to interpreting the phrase public policy in relation to their own country.

If we give an absolute definition to the phrase public policy, it will abstain the countries in interpreting the concept with regard to their socio-economic conditions of the country. What may be considered as violative of public policy in country A might not be violative of country B. therefore, it can be said that there is a need for jurisprudence around the phrase public policy but it should not be in a vacuum, where the courts cannot go ultra the meaning of public policy.

Public Goods And Public Policy

In economics, goods are classified into four types. Public goods, Private goods, Common goods and Club goods. For our discourse we will consider ‘Public Goods'. Public goods are those goods which are non-excludable and non-rival in nature. These goods are open to public at large and everyone can consume these goods without any restrictions. Now, in the contemporary world the problem is that there is no regulation on these public goods.

On some public goods the government has regulations and has enacted laws to control and regulate the consumption. The current problem with the public goods is the free rider problem. This happens when some subjects of the society fail to contribute their share to the costs of the resources shared by all. This shows us that there is a need to have some sort of regulation and limitation on the resources especially limited resources.

When we say that public policy is a limitation that is set to remind the parties their limits and boundaries, similarly, it is important to create some boundaries and restraints on the utilisation of public goods. The interface between public policy in arbitration and restrictions on the public goods is the limitation imposed on the people or the parties involved, the interests of the public at large.

The problem with public goods is its limited availability in the society. When the public has no incentive to maintain and utilize the goods (public) judicially and carefully in a reasonable manner, over-utilisation occurs. It is said, in economics, that when you enable the public with the duty to maintain and utilize the goods properly, there's sustainable utilisation of the said goods. This generally happens with the private goods, where the goods or properties are sold to private individuals in order to maintain and work on that particular property.

We can relate the concept of public goods and open-access regime to public policy in arbitration. The interesting thing, we can find an intertwining thread between globalisation and its effect on arbitration and how economics helps us understand this problem and gives us a fragmented solution. In economics, with regard to public goods, there's open access to the goods which means the goods are available for the public at large and there is no restriction. No one is excluded and the goods are not rival in nature[10].

Therefore, there is an open-access regime which can be resolved by defining the property rights and imposing effective rules and regulating the goods and services[11].

In Arbitration's context, the open access regime is the lower trade barriers and the effects of globalisation. When there are low trade barriers, parties and the tribunals tend to over-step their limits. There needs to some sort of limitation that needs to be imposed.

Just like it is important to impose some kind of limitation or restriction on the public goods in economic context, it is important to impose similar restrictions and limitations on the enforcement of arbitral awards. In both the cases, it is for the well-being of the public at large, for public welfare. Public policy's most simple definition is anything which is contrary to the interests of public it falls within the gamut of public policy limitation. Public policy tries to draw the line on the subject matters that can be arbitrated in the tribunals and the awards that can be passed.

When the parties are from different nations, due to low trade barriers, there is exchange of goods and resources from one state to another. This can sometimes lead to exploitation of those resources. There are situations where different countries exchange their resources with each other, in that scenario the state should consider the public good and interest before taking any decisions like allowing foreign states to utilize the resources.

Public Policy is a dynamic concept, it cannot have a constant definition or an interpretation that can be followed for generations of arbitration. We try to seek a right and suitable definition of something that cannot be defined, it should not be. If it is given a definition and if it gets a narrow interpretation then there is a chance of abuse of that definition and almost all or a lot of cases will fall under that. Its better off to leave it to some extent of ambiguity so that the courts have some discretion in interpreting it according to the country's policy, especially in the context of international arbitration. Economic helps us in a very unique way to understand the need of a concept of limitation like having something like public policy. It helps us not define the phrase but understand the purpose of having public policy.


  1. Acts/ Conventions/Regulations/Rules Referred
    1. Indian Arbitration and Conciliation Act. 1996.
    2. Foreign Awards Recognition and Enforcement Act, 196.
    3. New York Convention,1959 (Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1959.).
  2. Online Websites referred


  1. 1994 SCC Supl. (1) 644
  2. (2003) 5 SCC 705
  3. Civil Appeal No. 5085 of 2013
  4. (2014) 9 SCC 263
  5. 2017 SC 1272.
  6. 2017 14 SCALE 240 (SC)
  7. MANU/SC/1438/2019
  8. Tom G. Palmer, Globalisation Is Great! 2002.
  9. Bernado Cremades and David Cairns, The Brave New World of Global Arbitration, 2002
  10. Ostrom, E., & Hess, C. (2010). Private and common property rights. In Property Law and Economics.
  11. Dales, John H. (1968), Pollution, Property, and Prices: An Essay in Policy-making and Economics, Toronto, University of Toronto Press.
Written By: Aditya Vemulakonda - 2nd Year BBA-LLB Student, School of Law, Bennett University.  

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