‘Public Policy’ under Section 34 of Arbitration and Conciliation Act, 1996
Arbitration is one of the methods for resolving disputes alternatively. It follows the mandate of ‘minimal intervention of courts’ and court can interfere only in limited grounds mentioned in the Arbitration and Conciliation Act, 1996. One such provision is Section 34 of the Arbitration and Conciliation Act, 1996, which provides grounds on which an arbitral award can be set aside by the court. Section 34 (2)(b)(ii) states that a court may set aside an arbitral award if it finds that the award is in conflict with the public policy of India. Explanation 1 of Section 34(b) states three criteria on which an award could be overturned on the ground of ‘public policy’- when the award was induced by fraud, corruption or in violation of section 75 or 81; or if it is against the fundamental policy of Indian law; or if its is against the most basic notions of morality and justice. The second and third grounds are vague and are susceptible to being interpreted too widely. Accordingly, a number of judgments of the apex court had widened the scope of interpretation of ‘public policy’
In Renusagar Power Co. Ltd. Vs. General Electric Co. , the supreme courts held that an award against public policy would be an award that was passed in contravention of:
- Fundamental policy of Indian law
- The interests of India
- Justice and morality
In 2003, the scope of public policy was widened by the apex in ONGC Ltd. Vs. Saw Pipes Ltd. The court said that the concept of public policy connotes some matter which concerns public good and public interest which varied from time to time and therefore, added a new ground of ‘patent illegality’ to the grounds enumerated in Renusagar’s case.
This opened a floodgate of litigations under section 34 as every award where there was an error of statutory provisions could now be challenged. Then, in ONGC Vs. WESTERN GECO , the court interpreted the meaning of ‘fundamental policy of Indian law’ the court went on to interpret ‘Fundamental policy of Indian law’ to comprise of three separate heads:
- Duty (of the tribunal) to adopt a judicial approach
- Adhering to the principles of natural justice (by the tribunal)
- The decision (of the tribunal) should not be perverse or so irrational that no reasonable person would have arrived at the same
In addition, the court also held that the award resulted in ‘miscarriage of justice’ can be set aside or modified.
Further, in Associate Builders vs. Delhi Development Authority , the court clarified the scope on interpretation of ‘most basic norms of justice and morality’. An award could be set aside on the same ground when the award would be such that ir shock the conscience of the court.
Recently, after the 2015 amendment, courts have refrained from giving wide interpretation to
‘public policy”. In, Venture Global Engineering LLC and Ors. Vs. Tech Mahindra Ltd. and Ors. , the court observed that “the award of an arbitral tribunal can be set aside only on the grounds specified in section 34 of the AAC Act and no other ground.” A similar view was also taken in the judgment of Sutlej Construction vs. The Union Territory of Chandigarh .
Therefore, the term “public policy” under section 34 of the Act was no doubt ambiguous, which was interpreted by the supreme court. However, much interference then required cannot be permitted, it will defeat the purpose of Arbitration and every other award will be challenged in the court as a consequence.