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Public Poilcy

Public policy is the means by which a government maintains order or maintains the needs of its citizen. Public policy is the rules and regulations made by the government for the better functioning of people living in society. Public policy is made keeping in mind the needs, wants, and betterment of society.

For instance, education policy is made by the government in such a way that all children till the age of 14 years are given free education in a government school and also various policies related to education department such as elementary, secondary, and higher education are made for the betterment of people.

Public policy is a broader concept and is governed by government laws, regulations, court decisions, local ordinances, etc. There are various types of policies such as policies related to criminal justice like the death penalty, drug and substance abuse, pretrial justice, fear, and violence in community; economic affairs like budget, tax, fiscal policy, inflation policy; environment include water pollution, air pollution, land conservation, wildlife protection.

There are various types of policies such as substantive, regulatory, distributive, redistributive. Substantive policies are structured keeping in view the socio-economic troubles and moral ethics of the society and are concerned with the general welfare and the development of the society and programs like law-and-order enforcement, anti-pollution legislation, economic stabilization, provision of education and employment opportunities, etc.

Regulatory policies are regulated by an independent organization working on behalf of the government and are concerned with the regulation of trade, business, public utilities, safety events, etc.

Various institutions which are working on behalf of the government and making the policies are Reserve Bank of India, Hindustan Steel, Life Insurance Company, etc. Distributive policies are made for the specific segment of the society, and they work on the areas like public welfare or health services, grant of goods, public education, highways, etc. Examples of this policy are vaccination camps, flood relief, education programs, etc. Redistributive policies are distributed again so as to promote social, political, and economic welfare.

Research Questions
  1. Public policy bar on enforcement of arbitral award in India.
  2. Public policy role in the globalized world
  3. Public policy role in the idea of public goods in economics.
Research Methodology:
The researcher has used doctrinal method i.e., reference from available primary sources like Acts, Rules and Regulations to study the present questions in hand. The researcher has also taken reference from secondary sources like books, articles and newspaper reports to understand the concept of public policy.

Public policy bar on enforcement of arbitral award in India

In India, the arbitration proceedings are governed by the Arbitration and Conciliation Act of 1996. Part I of the act deals with the domestic and international commercial arbitration, happening in India. And Part II deals with recognition and enforcement of foreign arbitral award. The main aim of this act is to enumerate and circumscribe the role of judiciary by limiting their role to primarily assisting the parties and make sure that there is no interference from outside and parties have not adopted delayed tactics. This is a private tribunal and matters related to this are kept confidential. The court here has been given the responsibility of coming into the final outcome of the case without affecting the values of the society and Constitution of India.

This act gives the power to the court to review an arbitral award, but this power is not the same as power to hear an appeal against the award. Arbitral award can only be reviewed and not appealed against. In the case of PR Shah, Shares & Stock Brokers (P) Ltd v BHH Securities (P) Ltd, it was said that:
The court will not appeal an arbitral award by reassessing or approving the evidence. An arbitral award may only be contested for the reasons set forth in Article 34 (2) of the Act. Without the reasons specified in Article 34 (2), it is difficult for a court to investigate the facts, even if the court could make another decision.[1]

In the case of Kwality Mfg. Corporation v Central Warehousing Corporation,[2] the scope of court on the decisions given by the arbitral tribunal was discussed and it was said that the scope of the court to interfere in the arbitral award is limited. The applications that have come before the Court under section 30 and 33 of the Act gives the Court only the power to review the decision which has been made by the arbitral tribunal but neither they have the right to sit in appeal over the decisions and the findings of the arbitrator nor they have the power under the Act where they can re-assess or re-appreciate the evidence or examine the sufficiency or otherwise of the evidence.

The award given by the arbitrator is final and if either of the parties didn't agree with the award given by the arbitrator, then they have a right for seeking review of the decision of arbitral tribunal before the Court only on those grounds which are mentioned in these two sections, i.e., Section 30 and Section 33 of the Act[3].

The question before the court was, whether there was an error apparent on the face of the award and whether the arbitrator misconducted himself or the proceedings. The court said that they cannot correct the error of the arbitral tribunal on the ground of disagreement with the conclusions arrived at by the arbitral tribunal.[4]

The court has been given the power to review the decisions of the arbitral awards, given by the arbitral tribunal to ensure fairness. The court can interfere only on the case when there is a fraud, or when the arbitrator is biased, or when the principle of natural justice is violated, etc. The court in such a scenario can only quash such award of the tribunal which leaves the parties with two situations either they can again begin the proceedings of arbitration if they so desired or to leave it.

In the case of Renusagar v. General electricity, the issue for the first time was raised whether public policy can be considered as an exception for enforcement of foreign awards. The Supreme Court in the present case with respect to the term Public Policy refereeing to the Section 7(1)(b)(ii) of the Act[5] has said that the public policy as utilized by the Indian courts.

The Indian Courts in various cases have recognized the terms Public Policy as those matters that have public good and interest involved in it. This court further said that the expression Public Policy should be narrowly construed and to invoke the exception of public policy, the award should be more than just a violation of laws. It was also held that if the award given by the international arbitral tribunal is contrary to the interests of India, or Justice or morality, or Fundamental Policy of India then the award will not be enforceable in India.[6]

In the case of Bhatia International Ltd. v. Bulk Traders, the Supreme court went ahead and said that the award in question can be put aside because it falls under the exception of public policy as stated in provision 34(2)(b)(ii) of the Arbitration and Conciliation Act,1996 and it will not be in conflict with the section 48 or any other provisions of Part II of this act.[7]

However, the case of BALCO v Kaiser Aluminum overruled the Bhatia International case by saying that part I does not covers foreign arbitration. And it also held that this act lay emphasis on the principle of territory and therefore Part I this act would not be applied if the arbitration has a foreign seat.

Hence, in cases where the seat for arbitration proceedings is not in India and the award has been declared by the Foreign Court, then in such cases parties can no longer challenge such award in India under section 34 of the Act[8] by saying that it is violation of the provision. This decision was of utmost importance as it helped foreign parties restore their confidence to invest in India.[9]

In the case of ONGC v. Saw Pipes Ltd., the facts were that there was a delay in delivery by the Saw pipes and ONGC field a case and it was held in the foreign arbitration court that they set aside the penalty of the Saw Pipes by saying that ONGC has not shown the loss which they have suffered due to delay.

Then ONGC asked for the relief in Indian Court and the Supreme Court held that there is Patent illegality because the provision of the Indian Contract says that if there is a breach of contract by either of the parties than they have to pay damages to the parties who has suffered loss due to breach.[10]

Article 34(2)(b)(ii) of the Model Law empowers the court to annul an award if "the award is in conflict with the public policy of this State:
While Article 36(1)(b) provides that the recognition or enforcement of an arbitral award, may be refused only if the court finds that "the recognition or enforcement of the award would be contrary to the public policy of this State.

In the case of Phulchand Exports Ltd v. OOO Patriot, the Supreme Court with respect to the interpretation of the word public policy in the present case has said that the term should be given wider meaning when Section 48 (2)(b) of the Act[11] is referred in the case and the award could be set aside, 'if it is patently illegal'."[12]

Shri Lal Mahal Ltd v. Progetto Grano Spa, overruled the reason given in Phulchand and reverted back to the understanding of the word public policy in Renusagar.[13]The Supreme Court in this case also said when a foreign country has declared the award in case of arbitral proceedings, then in such case that foreign award cannot be reviewed under Section 48 of the Act[14].

In case if there is procedural defect present while the foreign court was delivering the award (like situation where they have rejected or have ignored certain evidence which with respect to the case may be of binding nature or they have admitted certain inadmissible evidence), then in such case we cannot go before the Court in India and ask them to set aside the award on public policy ground.

Jurisprudence of the Phrase 'Public policy' in the globalized world

The role of public policy in any part of the world is to secure the interest of the people in the society. The policies are made to protect the public health, safety, and welfare.

Cremades & Cairns suggested that:
The emergent civilization of arbitration has become a globalizing force in and of itself.

International commercial arbitration has become a key element in the spread and compression of legal methodologies and ideas across the world, achieved through various levels of activity as reflected in international instruments such as the New York Convention and UNCITRAL Model Law, investor State arbitration, and the active practice of international commercial arbitration. At each level, various measures have been taken to further the establishment of arbitration as a universally accepted method for resolving disputes between different state and non-state actors in civilization at large. At each level, arbitration has facilitated legal and cultural exchange as important dimensions to globalization.[15]

The term public policy has been given wider as well as narrower meaning time and again in many cases. The main aim is to protect the interest of the party.

In the case of Renusagar v. General electricity, the Supreme court said that the expression public policy should be narrowly construed and to invoke the exception of public policy, the award should be more than just violation of laws. It was also held that if the award given by the international arbitral tribunal is in contrary to the interests of India, or Justice or morality, or Fundamental Policy of India than the award will not be enforceable in India.

And in the case of Bhatia International ltd. v. Bulk Traders, the Supreme court went ahead and said that the award in question can be put aside because it falls under the exception of public policy as stated in provision 34(2)(b)(ii) of the Arbitration and Conciliation Act,1996 and it will not be in conflict with the section 48 or any other provisions of the Part II of the Act.[16]

BALCO v Kaiser Aluminum overruled the Bhatia International case by saying that part I does not covers foreign arbitration. And it also held that this act lay emphasis on the principle of territory and therefore Part I this act would not be applied if the arbitration has a foreign seat.

The public policy exception to enforcement is discretionary in nature. Meaning, even if an award violates the public policy of an enforcing nation, that nation may still grant recognition and enforcement to the award. The same is true for an application to set aside the award. The initial wording of art.34(2) Model Law and s.34 of the 1996 Act provides that:
an arbitral award may be set aside by the court.

Similarly, in the opening paragraph of art.36(1) and the s.48 of the 1996 Act, an enforcing court is directed that "recognition or enforcement of an arbitral award may be refused" only on the basis of one of the enumerated grounds stated under the Arbitration and Conciliation Act, 1996. These provisions give the power to the court to review the decision if it is a biased decision, or is against the principle of natural justice. However, the scope and extent of such discretion and the mode of its exercise is yet to be conclusively understood by the Indian courts.

Under the UNCITRAL model law it has been said that the traditional understanding of public policy should be narrowly construed for setting aside arbitral award. Arbitral awards are set aside and not enforced if it violates the forum basic notion of morality or shock the conscience. It is a generally recognized view of several convention countries for reaffirming the narrow scope of the public policy ground for challenging arbitral awards under art.34(2)(b)(ii) of Model Law. And it said that contract would not invalidate on the ground of public policy unless that particular ground has been well established by authorities.

Public policy role in the idea of public goods in economics

In economics, public goods are both excludable and non-rivalrous in nature. Here individuals cannot be excluded from the use of land and property and can enjoy it without paying for it. Some of the examples of public good are, knowledge, lighthouses, flood control systems, fresh air, national defense, and street lighting.

Hardin's theory of The Tragedy of the Commons provides a particularly useful framework for the analysis of property rights.

Its thesis is that resource depletion and pollution problems both stem from the incentives created by open access regimes, in which no one can exclude anyone else from using a given resource. Unless property rights are imposed, these incentives lead inexorably to the tragedy of the commons - the despoliation and ultimate destruction of environmental goods.

For example, if there is a pond near the village and in that pond, fishes are there, and people come to pond to take the fish for eating or for selling it. This pond is available to general public, here they are not excluded, and they don't have to pay for it. Suppose if the pond is there in their plot, then general public are excluded from using it. In the first case individuals can take as many fish they want but in the second case they will take only limited number of fish as per there requirement.

So, in the first case people will not have incentive to protect the fish from getting depleted whereas in second case they will have incentive to protect the fish from being depleted. So, the inference which can be drawn from here is we should use the resource in such a manner that it doesn't extinguish, and they can take the fish for a longer period of time. It should be taken into consideration that if things are available to us without restriction, we should not misuse it instead use it properly so that all the people can use it and it can be used for a longer period of time.

It is very difficult for the private market to provide public goods because of the free-rider problem in public goods. A free rider can be seen as a situation wherein a person is receiving the benefit of the goods, but they avoid paying for it. In other words, if good is not excludable, people have the incentive to be free riders, because firms cannot prevent non-payers from consuming the good. The result will be the goods will not be produced, even if buyers collectively value the good higher than the cost of providing it.

An example from tragedy of commons, wherein it explains why common resources get used more than is socially desirable. In a town where sheep graze on common land. The situation when population increases the grazing of grass will also grow. Here the amount of land is fixed, and it can begin to deplete because of overgrazing. The private incentive (using the land for free) outweighing the social incentives (using it carefully). So, to conclude it can be seen we should use the things carefully even though if it is available to us for free.

Conclusion:
Public policy as such is not describe anywhere. Policies are made by the government keeping in mind the requirement of the society and also moral values and ethics. Part I of the act deals with the domestic and international commercial arbitration, happening in India. And Part II deals with recognition and enforcement of foreign arbitral award.

Public policy has been given both narrower and wider scope from time to time as per the situation. Policies are made for the betterment of the society. It has also been seen that jurisprudence related to public policy has changed or taken different turns with respect to that of domestic awards and that of foreign awards.

Bibliography
Acts/ Regulations/ Rules Referred
  1. Arbitration and Conciliation Act, 1996
  2. UNCITRAL Model Law.
Articles
  1. Daniel Mathew, Situating Public Policy In The Indian Arbitration Paradigm: Pursuing The Elusive Balance
  2. Kartikey Mahajan and Vikram Aditya Narayan, The Indian Supreme Court and its public policy seesaw.
  3. Fali S. Nariman, India And International Arbitration
  4. Christopher S. Gibson, Arbitration, Civilization and Public Policy: Seeking Counterpoise between Arbitral Autonomy and the Public Policy Defense in View of Foreign Mandatory Public Law
  5. Gracious Timothy, The final chapter to the public policy saga: The Arbitration Amendment Act 2015?
  6. Yash Dubey, Analysis of Public Policy and Enforcement of Domestic and Foreign Arbitral Awards in India.
  7. Elinor Ostrom, Private And Common Property Rights
Websites Referred:
  • SCC online
  • Manupatra
  • Indian Kanoon
  • Hein online
  • Westlaw
End-Notes:
  1. PR Shah, Shares & Stock Brokers (P) Ltd v BHH Securities (P) Ltd (2012) 1 SCC 594
  2. Kwality Mfg. Corporation v Central Warehousing Corporation (2009) 5 SCC 142 [7].
  3. Section 33, The Arbitration and Conciliation Act, 1996.
  4. Supra 2.
  5. Section 7(1)(b)(ii), The Foreign Awards (Recognition and Enforcement) Act, 1961.
  6. Renusagar Power Plant Ltd. v. General Electric Co., AIR 1994 SC 860.
  7. Bhatia International v Bulk Trading S.A, (2002) 4 SCC 105
  8. Section 34, The Arbitration and Conciliation Act, 1996
  9. BALCO v. Kaiser Aluminum, (2012) 9 SCC 552.
  10. ONGC v. Saw Pipes Ltd., AIR .2003 SC 2629.
  11. Section 48 (2)(b), The Arbitration and Conciliation Act, 1996.
  12. Phulchand Exports Ltd v. OOO Patriot, MANU/SC/1217/2011.
  13. Shri Lal Mahal Ltd v. Progetto Grano Spa, MANU/SC/0655/2013.
  14. Section 48, The Arbitration and Conciliation Act, 1996.
  15. Bernardo M. Cremades & David J. A. Cairns, The Brave New World of Global Arbitration, 3 J. WORLD INV. & TRADE 173, 182 (2002).
  16. Bhatia International v Bulk Trading S.A, (2002) 4 SCC 105.
Written By: Samyak Lunia, 4th Year BBALLB Student at Bennett University, Greater Noida
LinkedIn:https://www.linkedin.com/in/samyak-lunia-1431b71a0

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