PREFACE
The New York Convention of 1958 to which India is a signatory, specifies that an Arbitral Judgment might inter alia be refused enforcement if it is in disagreement with the public policy of the country where enforcement is sought. Interestingly, the phrase 'public policy' is not defined in the New York Convention which means that the phrase will be interpreted by each country's own public policy criteria. In the past, India has struggled to harmonize its public policy definition and standard with international standards.
LAW ON PUBLIC POLICY
In the landmark case of Renusagar Power Co. Limited v. General Electric Company (Renusagar)1, the Supreme Court declared that simply breaking Indian laws would not be enough to trigger the public policy threshold. The Supreme Court ruled that the term "public policy" as prescribed by Section 48 of the Arbitration and Conciliation Act, 1996 (Act), does not include the ground of "Patent illegality". The court further clarified that Section 48 of the Act does not allow a re-examination of the evidence. Accordingly, the court held that the meaning of the expression public policy under Section 48 of the Act is limited to:
- Fundamental policy of India;
- Interests of India;
- Justice and morality
After the Renusagar Judgment, the apex court proceeded in ONGC v. Saw Pipes (ONGC)2, to enlarge the scope of "public policy" to include an award that breaches Indian law or contract conditions. In ONGC the Supreme Court recognized "patent illegality" as the valid ground to challenge an Award as a breach of public policy.
Following the aforesaid, in the case of Associate Builders v. DDA (Associate Builders)3, the phrase "basic policy of Indian law" as used in the Renusagar Judgement was attributed to three juristic concepts. First, courts must take a judicial approach when deciding a dispute. Second, rights and obligations must be determined in accordance with natural justice principles. Third, any decision must be based on Wednesbury Principles of Reasonableness.
In a shift from the above backdrop of law on Public Policy, the Supreme Court in, Shri Lal Mahal Ltd. v. Progetto Grano Spa (Lal Mahal)4, established a distinction between the scope of objections to the enforceability of a foreign award under Section 48 of the Act and challenges to set aside an award entirely under Section 34 of the Act. As a result, the Supreme Court has significantly limited the scope of the term "public policy," which is a cause for objecting to the execution of foreign award in India and aligned it with the New York Convention.
The abovementioned judicial precedents show that the judiciary progressed towards adopting a favorable approach towards arbitration, thereby recognizing sanctity of arbitral awards and arbitration as a dispute resolution process.
India is one of the few jurisdictions to have statutorily defined public policy through the Arbitration & Conciliation Act. Indian courts have held that there is no workable definition of international public policy thus, it should be construed to be the doctrine of public policy as applied by the courts in India. Pertinently, in the Arbitration & Conciliation Act, 1996, the term "public policy" appears twice.
- Domestic Arbitration (Under Section 34)
- Foreign Arbitration (Under Section 48)
DEVELOPMENT POST THE 2015 AMENDMENTS - NARROW DEFINITION
The amendments brought in the year 2015 saw significant alterations in Sections 34 and 48 of the Act. While both Sections 34 & 48 of the Act have the same definition of the phrase "public policy", however, the scope of the ground of "public policy" to challenge a Foreign Award or a domestic award rendered in an International Commercial Arbitration having seat in India, differs from those applicable to a domestic award. In an international commercial arbitration held in India, the reasons for challenge under the ground of public policy would be the same as the ground for refusing to implement a foreign judgment in India. This is because Section 34 of the Act distinguishes the mode of challenge between an award rendered in international commercial arbitrations held in India and other domestic awards. Pursuant to the amendment of 2015, "patent illegality" grounds appearing on the face of an award no longer apply to an award rendered in international commercial arbitration.
In the case of Cruz City 1 Mauritius Holdings v. Unitech Limited, ("Cruz City")5, the Delhi High Court held that even as the width of discretion to refuse the enforcement of an arbitral award is slender and limited if sufficient grounds are established, courts can refuse the enforcement of an arbitral award. Additionally, in the case of Vijay Karia & Ors. v. Prysmian Cavi E Sistemi SRL (Vijay Karia)6, the Supreme Court held that while the courts can exercise discretion on various grounds for refusing the enforcement of an overseas award, they (courts) no longer have any discretion concerning the grounds of fraud, corruption, fundamental coverage of Indian law, primary notions of justice and morality. The Supreme Court has frequently decided that Section 48's scope of inquiry does not allow for a merits review of a foreign arbitral ruling. As observed in the following paragraph:
"38. In terms of Sub-section (1) of Section 48 of the Act, the Court can refuse enforcement of a foreign award only if the party resisting the enforcement furnishes proof to establish the grounds as set out in Section 48(1) of the Act. However, the court may refuse enforcement of a foreign award notwithstanding that a party resisting the enforcement has not provided any/sufficient proof of contravention of public policy. In such cases, the Court is not precluded from examining the question of public policy suo motu and would refuse to enforce the foreign award that is found to offend the public policy of India. The approach of the court while examining whether to refuse enforcement of a foreign award would also depend on the nature of the defense established."
At the enforcement stage, courts are unable to take a "second look" at the foreign arbitral ruling. Section 48(2) b), Explanation 2 now incorporates this as a statutory rule. Moreover, in the case of Campos Brothers Farms vs. Matru Bhumi Supply Chain Pvt. Limited and Ors.7, it was held by the Delhi High Court that:
"90. The Court does not have the power to modify the Award in the process of its enforcement. The only limited power is in the proviso to Section 48(1)(c) of the Act, wherein the Court may separate the part of the Award which contains a decision on matters submitted to arbitration from the one which was beyond the scope of the submission to arbitration, and enforce only that portion of the Award." This clearly shows the limited interference by the court in cases of Foreign Award.
RECENT JUDICIAL APPROACH
In the case of EIG (Mauritius) Limited Vs McNally Bharat Engineering Company Limited (Calcutta High Court)8, the petitioner filed for the enforcement of a foreign arbitral award against the respondent. The execution turned into challenges at the floor of Public Policy of India.
The court observed that Section 48, which is placed in Part II of the Act deals with the enforcement of certain foreign awards. Section 48 of the Act covers conditions for enforcement for foreign awards which in other words is a kind of roadblock to the facilitators for enforcement of such awards under Part II. Under this section of the Act, the onus is placed on the party who would suffer the consequences of the enforcement. The Ratio Decidendi is as follows:
Firstly, Section 48(1) of the Act lists the grounds too for the refusal, subject to the party furnishing proof of the ground. The grounds are limited to grounds mentioned under subsections (a) to (e) of Section 48 of the Act. Secondly, the word "only" preceding the said grounds indicates that the grounds are limited to only those stated in 48(1) of the Act. Moreover, Section 48(2)(b) of the Act provides for an additional ground where the enforcement of the award may be refused when such enforcement would be contrary to the public policy of India. And lastly, Explanations 1 and 2 to 48(2)(b) of the Act narrow down the threshold for refusal of enforcement even further by restricting the public policy argument to the three disjunctive conditions thereunder which includes Explanation 1(ii) where the award is in contravention with the public policy of Indian law. Explanation 2 further clarifies the restricted domain of refusal of enforcement of a foreign award by putting the stops on a review on the merits of the dispute in order to determine whether the award is in contravention of the fundamental policy of Indian law. In view of the above discussion and reasons, the court rejected the contentions of the respondent that the enforcement of the award should be refused on the grounds urged. The court thus found the foreign award enforceable under Sections 46, 47, and 49 of the Act.
CONCLUDING REMARKS
When the requirements for rejection under Section 48(1) and 48(2) of the Act are considered combined, it appears that the threshold for a violation of Indian law's fundamental policy must be a violation of the country's most fundamental values, which serve as the foundation for the country's laws.
The notion of public policy, often dubbed as an "unruly horse," is well on its way to being tamed. India is attempting to position itself as a hub of arbitration, and its efforts to pair with international enforcement norms are visible. While there were numerous ups and (mainly) downs in the enforcement of foreign awards prior to the amendments, the scope of denial under section 48 of the Act has reduced since 2015. From Renusagar Case to McNally Bharat Engineering Company Case (most recent) India has gone a long way and created public policy jurisprudence that is able to live up to the international standards and expectations.
Footnotes
1. Renusagar Power Co. Ltd v. General Electric Co 1994 Supp (1) SCC 644.
2. ONGC v Saw Pipes Ltd AIR 2003 SC 2629.
3. Associate Builders vs. Delhi Development Authority (25.11.2014 - SC): MANU/SC/1076/2014.
4. Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC 433.
5. Cruz City 1 Mauritius Holdings v. Unitech Limited, (2017) 239 DLT 649.
6. Vijay Karia & Ors. v. Prysmian Cavi E Sistemi SRL, 2020 SCC OnLine SC 177.
7. Campos Brothers Farms vs. Matru Bhumi Supply Chain Pvt. Limited and Ors. (02.05.2019 - DELHC) : MANU/DE/1526/2019.
8. EIG (Mauritius) Limited vs. McNally Bharat Engineering Company Limited (10.11.2021 - CALHC) : MANU/WB/0759/2021.
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