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Setting Aside an Arbitral Award on grounds of Public Policy: Bestowing too much Power on Courts?
Since the enactment of the Arbitration and Conciliation Act, 1996 Arbitration has become a standardized and institutionalized method of Alternate Dispute Resolution followed in India and chosen by many for dispute resolution. The process of arbitration involves a neutral third party known as the arbitrator, who analyses the evidence presented before him, hears the perspectives and issues put forth by the parties to the dispute, and then pronounces an arbitral award which brings about resolution and finality to the dispute must like a decree passed by a Civil Court. The Act came about when cases in the courts were piling up and judges were becoming overburdened so as to make the judiciary extremely inefficient and leading to people to turn to other mechanisms of resolution for speedy results and a fast-track process. So, when the Arbitration and Conciliation Act, 1996 was enacted, the legislators ensured that the courts would not have exclusive power to interfere with the arbitration process and overturn arbitral awards and to this extent, Section 34 of the Act provides an inclusive and thorough list of circumstances and instances when Courts are allowed to intervene and Public Policy is one of them. However, the term “public policy” has created a lot of uncertainty in the Indian arbitration regime because by its nature it fluctuates and varies with the changing habits, trends and culture of society.
Justice Burroughs appropriately described “public policy” as an “unruly horse”, taking into consideration the pain and hardship in determining the exact limits within which it would apply[1]. The most difficult aspect of public policy is the challenge of defining it because it varies between communities and even between generations and therefore it has a very wide base of application which courts can misuse and thereby it encroaches on the very basic principle of Alternate Dispute Resolution which is limited judicial intervention[2]. The Indian judiciary has not helped the situation because there is a plethora of judgements that widen the scope of “public policy” and the term has now been expanded to mean “fundamental policy of Indian law, justice and morality[3].”
In the case of Renusagar Power Co. Ltd. v. General Electric Co.[4] the Supreme Court of India stated that a foreign arbitral award can be set aside by the Court if its enforcement would be contrary to Indian Law, interests of the country or justice and morality. The verdict in the case of ONGC v. Saw Pipes[5] clarified the meaning of “public policy” and explained why it cannot be given a narrow meaning. The Court stated that public interest plays an important role in deciding the ambit of “public policy” and this is a concept that cannot be given a concrete definition and hence “public policy” includes, in addition to the grounds laid down in the Renusagar Case, illegality, unreasonableness and nature which “shocks the conscience of the court.” This view was reinforced in the case of Phulchand Exports Ltd. v. OOO Patriot[6] but it was overruled by a three-judge bench of the Supreme Court in the case of Shri Lal Mahal Ltd. v. Progetto Grano SPA[7], wherein the Court held that “public policy” must be interpreted in a narrower construct and no arbitral award can be set aside on any grounds stating “Public Policy” unless it falls within the categories enumerated in the Renusagar Case. However, a three-judge bench of the Supreme Court attempted to provide some finality to the issue in 2014 by widening the scope of “public policy” in the case of ONGC v. Western Geco International Ltd.[8], stating that the term includes all fundamental principles that provide a basis for administration of justice and enforcement of law in the country.
Even though the undefined term “public policy” bestows upon the courts a wide power to set aside arbitral awards, the nature of arbitration where it encourages cooperation between parties allows for matters to be decided with the parties’ consent usually and this considerably reduces the chances of arbitral awards being challenged.
[1] Richardson v. Mellish, 2 Bing.229.
[2]Editor, Law of Arbitration in India – In a Nutshell, Vakilno1, (May 11, 2018, 6:21 PM), https://www.vakilno1.com/legal-news/law-of-arbitration-in-india-in-a-nutshell.html.
[3] Bharti Airtel Limited v. Union of India, (2016) DLT 71.
[4] Renusagar Power Co. Ltd. v. General Electric Co., 1994, (1) SCC 644.
[5] ONGC v. Saw Pipes, (2003) SLT 324.
[6] Phulchand Exports Ltd. v. OOO Patriot, (2011) SLT 732.
[7] Shri Lal Mahal Ltd. v. Progetto Grano SPA, (2013) SLT 229.
[8] ONGC v. Western Geco International Ltd., (2014) SLT 564.
- Alternate Dispute Resolution
- Arbitration
- Public Policy
