The Arbitration and Conciliation Act, 1996 (Act) was framed to minimize
judicial interference. Accordingly, Section 34 of Act, provides limited grounds
on which an aggrieved party can rely on and get the award annulled through an
application to the Court. One of the most controversial grounds enumerated in
Section 34 is the ground of public policy.
Section 34(b)(ii) states 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.
The term 'public policy' is an ambiguous term which is open to interpretation
and as a result has been in the midst of controversy in the past.
Role played by the Judiciary
The Supreme Court had first attempted to interpret the term 'public policy' in
the case of Renusagar Power Co. Ltd. vs General Electric Company
 where the Court
was dealing with the grounds for refusal of enforcement of foreign awards under
the Foreign Awards (Recognition and Enforcement) Act, 1961. In this case the
Supreme Court held that enforcement of a foreign award would be refused on the
ground that it is contrary to public policy if such enforcement would be
- fundamental policy of Indian law; or
- the interests of India; or
- justice or morality.
However, this interpretation did not make the situation
any better as it attempted to define one vague term with three other vague
terms. The Supreme Court again tried to interpret the term 'public policy' in
the case Oil and Natural Gas Corporation Ltd. vs. SAW Pipes Ltd
the Court significantly widened the scope of public policy
another ground on which an award can be set aside. This new ground was the
ground of patent
which was another ambiguous and controversial term.
Court in this case held that an award can be challenged if it is in
contravention of any statutory provision and as the award was challenged before
a Court with revisionary jurisdiction, it ought to have a wider jurisdiction and
wider meaning ought to given to the term 'public policy' to set aside patently
The Supreme Court justified its decision by stating that:
For achieving the object of speedier disposal of dispute, justice in accordance
with law cannot be sacrificed. In our view, giving limited jurisdiction to the
Court for having finality to the award and resolving the dispute by speedier
method would be much more frustrated by permitting patently illegal award to
operate. Patently illegal award is required to be set at naught, otherwise it
would promote injustice.
This judgement of the Supreme Court was widely criticised as
it afforded the Courts an opportunity to review an arbitral award on merits
which would defeat the purpose of arbitration and fundamental principles of the
Act. The Supreme Court attempted to rectify this mistake in the case McDermott
International vs. Burn Standard Co. Ltd
.  where the Court, being mindful of the
ONGC vs Saw Pipes case
, ruled on the scope of Section 34 of the Act and held
The 1996 Act makes provision for the supervisory role of courts, for the
review of the arbitral award only to ensure fairness. Intervention of the court
is envisaged in few circumstances only, like, in case of fraud or bias by the
arbitrators, violation of natural justice, etc.
The court cannot correct errors of the arbitrators. It can only quash the award
leaving the parties free to begin the arbitration again if it is desired. So,
scheme of the provision aims at keeping the supervisory role of the court at
minimum level and this can be justified as parties to the agreement make a
conscious decision to exclude the court's jurisdiction by opting for arbitration
as they prefer the expediency and finality offered by it.
The Supreme Court further reiterated its stand on
minimal judicial interference in arbitral proceedings in the case of Madhya
Pradesh Housing Board vs Progressive Writers and Publishers
where the Court
stated that It is fairly well settled and needs no restatement that the award
of the arbitrator is ordinarily final and the courts hearing applications under
Section 30 of the Act do not exercise any appellate jurisdiction. Reappraisal of
evidence by the court is impermissible.
Another such progressive decision was
given by the Supreme Court in the case of Associate Builders vs. Delhi
, where the Supreme Court gave a narrow interpretation to
the term 'public policy' and stated that a Court while applying the different
heads of public policy to an arbitral award cannot act as a court of appeal and
correct errors of facts.
Role played by the Legislature
The underlying issue with the interpretation of the term public policy
was discussed in the 246th Law Commission Report
, wherein the Commission
suggested restrictive scope of public policy in Section 34 and Section 48 of the
Act. The Commission further stated in its report that:
Under the formulation of the Commission, an award can be set aside on public
policy grounds only if it is opposed to the fundamental policy of Indian law
or it is in conflict with most basic notions of morality or justice
Subsequently, the Arbitration and
Conciliation (Amendment) Act, 2015
 (2015 Amendment) was passed which narrowed
the scope of the term 'public policy' and gave a definition to the said term by
adding two explanations to Section 34(b) of the Act.
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 in violation of section 75 or section 81 or
- it is in contravention with the fundamental policy of Indian law or
- it is in conflict with the most basic notions of morality or justice.
was added to clearly define the role of the Courts when ruling on
an application to set aside an arbitral award which is alleged to be in
contravention of the public policy of India. The said proviso states that:
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
Section 34(2-A) was also added by the said amendment which briefly states that
the ground of 'patent illegality' can only be used in domestic arbitration
and when an award is challenged on the ground of patent illegality
, the award
cannot be merely set aside on the basis of erroneous application of law or
re-appreciation of evidence.
The Parliament, through the Arbitration and Conciliation (Amendment) Act, 2019
(2019 Amendment) replaced the words furnishes proof that
on the basis of the record of the tribunal that
in S. 34(2)(a) of the Act. This
entails that a party can only rely on the record of the arbitral tribunal when
an application is made under S. 34 of the Act and cannot produce any new
In conclusion, the nature of the term public policy
is such that it can never
be precisely defined and will always be open for interpretation. However, the
recent Amendments to the Act as well as the progressive judgements given by the
Courts will certainly ensure uniform interpretation of the term 'public policy'
and minimal judicial interference. Hopefully, this trend of narrow
interpretation of the term 'public policy' will deter parties to invoke the
ground of public policy to seek annulment of the award passed by the tribunal,
thereby delaying the enforcement of the award.