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Meddling of judiciary in the efflorescence of arbitration
1. Introduction Public policy is an eclectic concept which has been treated as an abstract idea for a long time. The doctrine of public policy is said to have its roots in the Common Law and has even been treated as a branch of Common Law by the Courts in India. This concept attracts the attention of the masses when it bumps into the resolution of disputes through alternate measures like arbitration. Arbitration is an age-old method of resolving disputes. This concept has been commonly defined as a process of resolving disputes between two or more parties. Where the parties agree to submit their disagreement to one or more independent persons known as the arbitrator. The decision of the arbitrator is considered to be final and legally binding on the parties. In India, the first Arbitration Act was introduced in the year 1899 which was based on the module of Arbitration Act of Britain, 1889. However, this Act was later on repealed, and presently The Arbitration and Conciliation Act, 1996 is in force. This Act was enacted by the Parliament of India while keeping in view the UNICTRAL Model Law on International Commercial Arbitration, 1985. The basic purpose with which the Arbitration and Conciliation Act, 1996 was enacted was to ensure that an expeditious and cost-effective mechanism of settling disputes outside the four walls of a court is established. Which in the long run would play a part in reducing the litigation as the award passed by an arbitrator is considered to final and legally binding on both the parties. However, it is highly important to highlight that an award may be refused recognition under section 34 and 48 if the said award goes against the public policy.
2. Doctrine of public policy Public policy doctrine is a dynamic concept and is not limited to the domain of the Arbitration and Conciliation Act, 1996. To understand the doctrine of public policy with respect to the laws in India it is highly important to take into consideration the Indian Contract Act, 1872 as well as the Arbitration and Conciliation Act, 1996. Although the doctrine of public policy has not been defined under any law. But in a broader perspective doctrine of public policy is said to be based on the concept that any decision which would lead to the obstruction of justice or tend to violate any statute or any other law in force or entrench upon the good morals would be considered void as it goes against the public policy of India. Therefore, such a decision is sawed in the name of public policy and cannot be enforced. Since the concept of public policy was not defined under the laws in force it remained a question of debate on numerous occasions and left the courts with the utmost liberty to interpret it as per their understanding and the facts of each case. The Courts in India have interpreted the concept of public policy differently in various cases and the same have been summed up as follows;
a. Renusagar Power Co. Ltd v. General Electric Co.1 the Hon’ble Court in the said case gave a very circumscribed meaning to the doctrine of public policy while dealing with enforcement of a foreign award, under the Foreign Awards Act 1961 and the Indian Arbitration Act 1940. The Court held that an arbitral award could be refused enforcement only when the award is against fundamental policy of India interest of India justice or morality. b. Rail India Technical And Economic Services Ltd v Ravi Constructions2 In this case the Hon’ble court pronounced that the enforcement of an arbitral award is to be declined as being against public policy if it is against the fundamental policy of Indian Laws, country’s interests and its sense of justice and morality. c. ONGC Ltd v. Saw Pipes Ltd3 in this landmark case the Hon’ble court went a step ahead and broadened the spectrum of public policy. The Court held that in our view, the phrase Public Policy of India used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns the public good and the public interest. What is for the public good or in the 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 the public interest. Such an award/judgment/decision is likely to adversely affect the administration of justice. d. Phulchand Exports Ltd v. OOO Patriot4 In this case the court while defining the concept of public policy, held that the test laid down in ONGC Ltd v. Saw Pipes must be followed even in case of foreign awards. Thereby allowing Indian Courts to deny enforcement of a foreign award on additional grounds of patent illegality. e. Shri Lal Mahal Ltd v. Progetto Grano Spa5. In this case, the Hon'ble Supreme Court overruled the above-mentioned decision of Phulchand Exports Ltd v. OOO Patriot and reinstated the position earlier held in Renusagar Power Electric Company vs. General Electric Company with respect to the enforcement of foreign awards. The court in this case said that the test laid down in the Renusagar case shall apply for refusal of enforcement of a foreign award on the grounds of conflict with the public policy of India. f. ONGC Ltd v. Western Geco International Ltd6. In this case also the Hon’ble Court upheld its earlier decision in Saw pipes case and 1. 1994 SCC Suppl. (1) 644 2. (2003) 4 RAJ 394 3. (2003) 5 SCC 705: AIR 2003 SC 2629 4. (2011) 10 SCC 300 5. (2014) 2 SCC 433
Further went a step ahead and elaborated on the concept of fundamental policy of Indian law. The court, in this case, held that three distinct and fundamental juristic principles form a part and parcel of the fundamental policy of Indian law; -> The court or adjudicating authority must adopt a judicial approach when determining the rights. This implies that it cannot act in an arbitrary, capricious or whimsical manner7 -> The court or quasi-judicial authority must determine rights and obligations of parties in accordance with principles of natural justice which encompasses that the authority deciding the matter must apply its mind to the attendant facts; and -> The decision which is perverse or so irrational that a reasonable person could not have reached such a conclusion and it offends the conscience of the Court.
g. Associate Builders v Delhi Development Authority8. The Hon’ble Supreme Court, in this case, held that an award could be set aside when the award is of such a nature that it would shock the conscience of the Court. Furthermore, an award which goes against the morality was also held by the court to shock the conscience of the Court.
h. Venture Global Engineering LLC and Ors v Tech Mahindra Ltd. and Ors9. In this case, the Hon’ble court opined that the Award of an arbitral Tribunal can be set aside only on the grounds specified in Section 34 of the Act and on no other ground. The Court cannot act as an Appellate Court to examine the legality of Award, nor can it examine the merits of the claim by entering in factual arena like an Appellate Court. The abovementioned interpretations of the concept of public policy over the period of time show that the courts have followed both a liberal and narrow approach while understanding the dynamic and multifarious concept of public policy. However, in the end, a restrictive approach has been well-acknowledged by courts in India.
3. Meddling of judiciary in arbitration In India laws like the Indian Contract Act, 1872, and the Arbitration and Conciliation Act, 1996 have enshrined such provisions that directly discuss the importance and relevance of public policy. Section 2310 of the Indian Contract Act specifically lays down that if the object of the contract or the consideration of the contract goes against the public policy then such object or consideration of the contract would be considered as unlawful and void. Similarly the Arbitration and 7. Role Of Public Policy Under The Arbitration And Conciliation Act, 1996, For Setting Aside An Arbitral Award; Priyadarshini Singh & Associates 8. (2015) AIR 620 (SC) 9. (2017) 13 SCALE 91 (SC) 10. The consideration or object of an agreement is lawful, unless" it is forbiddenby law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
Conciliation Act, 1996 highlights the importance of public policy under sections 34 and 48 of the Act respectively. The Arbitration and Conciliation Act is largely dived into two parts. The first part of the Act deals with domestic arbitration while the second part of the Act lays down provisions for international arbitration. Section 34 falls within the first part of the Act which discusses the relevance of public policy concerning arbitration cases within the territory of India. While as section 48 falls within the second part of the Act dealing with international arbitration and lays down the relevance of public policy with respect to matters of international arbitration. Section 3411 of the Arbitration and Conciliation Act, 1996 is based on section 34 of the UNICTRAL MODEL LAWS. This section lays down the condition which needs to be satisfied in order to set aside a domestic arbitral award. Although the Arbitration and Conciliation Act was enacted with the purpose to promote resolution of disputes outside the court yet it was considered necessary that the 11. Section 34; Application for setting aside arbitral award.— (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if— (a) the party making the application furnishes proof that— (i) a party was under some incapacity, or (ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or (v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that— (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation. —Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that 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. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
Courts must be vested with the power to set aside an award of an arbitrator in certain exceptional circumstances in order to ensure that justice is met at all times. The grounds on which an arbitral award may be set aside by the court under section 34 may be summed up as follows; a. The subject matter of the case is not arbitrable. b. The arbitral award is in conflict with the public policy. However, to avail the provisions of this section, it is highly important that the person challenging the awards must satisfy the court with the proof that; a. A party was under some incapacity, or b. The arbitration agreement is not valid under the law to which the parties have subjected it. c. The party making the application was not given proper notice of the appointment of an arbitrator d. The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration e. The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties These provisions clearly allow the meddling of the courts in the matters of arbitration to some extent. On one hand, the object of enacting a law like the Arbitration and the Conciliation Act was to limit the interference of courts in matters of arbitration. But at the same time, it was considered extremely necessary to allow limited judicial intervention in matters of arbitration in order to ensure that the dignity of the laws in India is maintained and justice is delivered. Although the concept of public policy which allows the courts to interfere in the matters of arbitration has been discussed by the courts on several occasions the Supreme Court of India in McDermott International Inc. v. Burn Standards Co. Ltd12 rightly limited the scope of public policy and laid down that an arbitral award would be considered to violate public policy if a. the making of the award was persuaded or affected by fraud or corruption b. it is against the fundamental policy of Indian Law c. it is in contravention with the most basic notions of morality or justice13 Furthermore, the Court held that the Arbitration and Conciliation Act, 1996 makes courts a supervising agency for the purpose of reviewing the arbitral awards and maintaining fairness at all times. Moreover, the court in this case highlighted that the court can only put an end to the award if it goes against the public policy thereby enabling the parties to bring a fresh arbitration if it is desired. The provisions of section 34 are strictly limited to matters of domestic arbitration and the same cannot be applied to matters of international arbitaration14.
Section 4815 has been specifically designed to deal with the enforcement of foreign awards. The Hon’ble Supreme Court of India in Shri Lal Mahal Ltd. v. Progetto Grano Spa16, held that review of a foreign arbitral award on its merits is untenable as it is not permitted under the New York Convention. The judgment clearly exposes the difference in the scope of inquiry during the annulment of a domestic award and the enforcement of a foreign award. It stated that the expression ‘public policy of India’ under Section 48 of the Act should be construed narrowly; whereas the same could be given a wider meaning under Section 34 of the Act. In the abovementioned case, the court overruled its earlier decision in Phulch and Exports Ltd v. OOO Patriot17 and said “It is true that in Phulchand Exports, a two-Judge Bench of this Court speaking through one of us (R.M. Lodha, J.) Accepted the submission made on behalf of the appellant there in that the meaning given to the expression “public policy of India” in Section 34 in Saw Pipes must be applied to the same expression occurring in Section 48(2)(b) of the 1996 Act. However, in what we have discussed above it must be held that the statement in para 16 of the Report that the expression “public policy of India used in Section48(2)(b) has to be given a wider meaning and the award could be set aside if it is patently illegal” does not lay down correct law and is overruled.”18 Although both sections 34 and 48 provide that an award could be set aside if it goes against the public policy yet the court through it was necessary to chalk out the difference when discussing each section respectively. It is highly important to mention that section 48 of the Arbitration and Conciliation 15. Section 48; Conditions for enforcement of foreign awards.— (1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that— (a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or (d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) the award has not yet become binding on the parties, or 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. (2) Enforcement of an arbitral award may also be refused if the Court finds that— (a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or (b) the enforcement of the award would be contrary to the public policy of India. Explanation.—Without prejudice to the generality of clause (b) of this section, it is hereby declared, for the avoidance of any doubt, that 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. (3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming
Act is designed on the lines of Article V of the New York Convention19 and lays conditions for setting aside of an international award. Although the Act allows the courts to meddle in the arbitration proceedings in a limited fashion. Yet the courts have followed a very strict interpretation of the section language and given a very restrictive meaning to the term public policy under section 48 when compared to section 34 of the Act. Recently in Daiichi Sankyo vs. Malvinder Mohan Singh 20 the Hon’ble High Court of Delhi observed that under Section 48(2)(b) of the Act, the enforcement could be refused only if the award was contrary to the -> fundamental policy of India -> interest of India and -> justice or morality
The court went ahead and said that an award could not be said to be against the fundamental policy of Indian law if there only existed the violation of provisions of a statute. An award would be considered to be against the policy of Indian laws if there was a breach of a substantial principle on which is Indian law is based upon. Prior to this decision the Hon’ble Supreme Court in Bharat Aluminum Company v. Kaiser Aluminum Technical Services Inc21 marked the difference between the domestic and international arbitral awards for the first time and brought a wave of limiting judicial interference in the enforcement of arbitral awards. This decision was later on expanded by the court in the Lal Mahal Case. From the abovementioned cases, it is abundantly clear that the approach of courts has helped in promoting the resolution of disputes through arbitration and maintained the authority of arbitral awards.
4. Conclusion Arbitration is an extensively flexible and reliable means of resolving disputes in today’s world. Arbitration is one of the most preferred and reliable means of dispute resolution in the present time as the decision given by the arbitrator is legally binding on the parties which ultimately saves a lot of time of the parties at dispute and helps them in arriving at a mutually benefitting conclusion. Earlier the approach of the courts in India was such that an unwanted interference of courts was witnessed in arbitration matters. But this trend has changed since the decision of the apex court in the BALCO case followed by the decision of the Lal Mahal case. Although the term public policy has not been defined by the laws in force but the courts have made an effort and somehow limited the scope of public policy in order to avoid unnecessary meddling of judiciary in arbitration. Many are still of the opinion that the concept of public policy is an unruly horse and a need exists to put this concept in a straitjacket formula. But the changed approach of the judiciary has promoted arbitration and somehow tamed the concept of public policy.
5. Bibliography
a. Renusagar Power Co. Ltd v. General Electric Co. 1994 SCC Suppl. (1) 644
b. Rail India Technical And Economic Services Ltd v Ravi Constructions (2003) 4 RAJ394
c. ONGC Ltd v. Saw Pipes Ltd (2003) 5 SCC 705: AIR 2003 SC 2629
d. Phulchand Exports Ltd v. OOO Patriot (2011) 10 SCC300
e. Shri Lal Mahal Ltd v. Progetto Grano Spa (2014) 2 SCC 433
f. ONGC Ltd v. Western Geco International Ltd 2014 (9) SCC 263
g. Associate Builders v Delhi Development Authority (2015) AIR 620 (SC)
h. Venture Global Engineering LLC and Ors v Tech Mahindra Ltd. and Ors (2017) 13 SCALE 91 (SC)
i. McDermott International Inc. v. Burn Standards Co. Ltd (2006) 11 SCC 181
j. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) 9 SCC552.
k. Shri Lal Mahal Ltd. v. Progetto Grano Spa (2014) 2 SCC 433
l. 18. Enforceability of Foreign Arbitral Award in India: Developments by Byron Sequeira & Dhruv Srivastava
m. Daiichi Sankyo vs. Malvinder Mohan Singh
n. Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc (2012) 9 SCC552
o. Role Of Public Policy Under The Arbitration And Conciliation Act, 1996, For Setting Aside An Arbitral Award; Priyadarshini Singh & Associates
p. An Evaluation of Section 34 of the Arbitration and Conciliation Act with Special Emphasis on Judicial Intervention by Prof. (Dr.) Bhavish Gupta and Ms. Shaheen Parween
q. Analysis of Public Policy and Enforcement of Domestic and Foreign Arbitral Awards in India by Yash Dubey; Christ University Law Journal 2018, Vol. 7,
No. 2, 63-81
r. Emerging Judicial Trends In The Enforceability Of International Arbitral Awards In India by Satwik Singh; Singh & Associates
s. The Unruly horse of Indian Arbitration: The evolution of Public Policy under sections 34 and 48 of the Arbitration and Conciliation Act 1996. by Rohit Shankar
t. Indiakanoon.com
u. Arbitration and Conciliation with Alternative Dispute Resolution; By Madhusudan Saharay
v. Law of Arbitration and Conciliation: Including Alternative Dispute Resolution Systems; By Avtar Singh
Arbitration and Conciliation Act, 1996; Bare Act
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