ADR Internal

Assessment - II
Submitted to: Prof. Arpan Acharya

KARTIK BAIJAL
L18BALB021
 Acknowledgement
The present research work is a result of great efforts put by the researcher. However, it would not
have been possible without the kind support and help of many individuals. The researcher would
like to extend his sincere thanks to all of them.
The researcher is highly indebted to Professor Arpan Acharya for his constant supervision and
help in understanding the complex subject of Alternative Dispute Resolution and providing
necessary information regarding the research question and for support in completing the research
work.

With profound gratitude

Kartik Baijal

L18BALB021

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 Table of Contents

Contents
Public Policy and the enforcement of Arbitral Award .................................................................... 3
Jurisprudence of Public Policy in a globalized world................................................................ 6
Public Goods in Economics as related to Public Policy in Arbitration .......................................... 9

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I. Public Policy and the enforcement of Arbitral Award
Public policy of a country as a general concept and a ground for setting aside arbitral award is
difficult to define. The term ‘public policy’ is not defined in the 1996 Act and it is difficult to
define and determine a scope for Public Policy. Under Indian law as per the Arbitration and
Conciliation Act, 1996 the parties in an arbitration have two options with regard to the Arbitral
Awards rendered. Firstly, is Section 34 of the Act which states how the losing party can set aside
the arbitral award given1 and secondly, comes Section 48 of the which states how to resist the
enforcement of an arbitral award as per the grounds mentioned in above stated section.2

Indian courts dealing with the ground of public policy have acknowledged that it is a dwindling
concept and given its flexibility, can be interpreted to stall the enforcement process. Unlike
England, where there are distinctive and limited heads of defense of public policy, Indian courts,
in the light of the objectives of endorsing arbitration and ensuring conformity with the 1996 Act,
have interpreted ‘public policy’ in different ways. Recognizing the arbitral tribunal as the final
authority on the finality of facts, courts in India, over a period of time, have refrained from going
into the merits of the case, given greater weightage to the finality of arbitral award and have
consistently held that while adjudicating a challenge to an arbitral award, they have a very limited
role to play. Courts have also held that section 34 have to be given a strict interpretation and that
the effort should be made to uphold the award, unless it squarely falls within the ambit of the said
section.

As it has been clear that public policy has been interpreted to include several concepts. In the
current era of globalization, liberalization, and growing international trade, the term ‘public policy’
covers an expanding range of issues. Indian courts have made several attempts to define a structure
to the concept of Public Policy. Thus, two explain the above point further two landmark
judgements that take center stage in debates of public policy in arbitration are Renusagar Power
Co Ltd v General Electronic Co and Oil & Natural Gas Corporation Ltd v Saw Pipes Ltd.

In Renusagar & Saw Pipes, the Honorable Supreme Court of India has dwelt in detail with the
concept of Public Policy. These decisions have evidently affected arbitration in India and

1
Section 34, Arbitration and Conciliation Act, 1996
2
Section 48, Arbitration and Conciliation Act, 1996

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challenged the major objectives of the 1996 Act, namely, minimal court interference and finality
of an arbitral award.

The Supreme Court of India in the landmark judgment of Renusagar Case3 limited the scope of
public policy to three grounds: (I) fundamental policy of Indian law; (ii) The interest of India; and
(iii) justice and morality. In this case, as per the provision of contract between Renusagar Power
Co Ltd (‘Renusagar’) and General Electronics Company (‘GE’), arbitration was initiated under the
auspices of the International Chamber of Commerce (ICC) in Paris, against which Renusagar
applied to the Bombay High Court for injunction to prevent GE and the ICC from proceeding with
the arbitration. GE filed an application to obtain stay on judicial proceeding initiated by Renusagar
pursuant to section 3 of the Foreign Awards (Recognition and Enforcement) Act 1961. The single
judge found in favor of GE and, following Renusagar’ s appeal, so did the Court of Appeal.
Renusagar appealed the decision of the Court of Appeal to the Supreme Court arguing that the suit
it filed was for a declaration that the dispute fell beyond the scope of the arbitration agreement.
The Supreme Court agreed with both the lower courts and therefore, the prayer for injunction to
restrain ICC arbitration sought by Renusagar was refused. Renusagar was decided prior to 1996
and therefore, it dwelt with an interpretation as applied to the enforcement of foreign awards under
the repealed Foreign Award (Recognition and Enforcement) Act, 1961. Though the effect of
Renusagar was doubtful, the three grounds adopted in this case were followed in various
judgments.

In Saw Pipes Case4, an arbitral award, rendered with regard to a dispute relating to supply of
equipment’s for offshore oil exploration by the Respondent, was challenged. The delivery was
delayed due to a general strike of mill workers in Europe, which could not be complied with even
after extension of time. The Arbitral Tribunal while deciding the matter rejected the contention of
Saw Pipes relating to force majeure but at the same time held that Oil & Natural Gas Corporation
Limited (ONGC) could not establish real damage. ONGC challenged the arbitral award as it was
contrary to public policy. Supreme Court accepted this contention and set aside the award, holding
that in addition to the grounds laid down in Renusagar, an award would be contrary to public policy
if it were ‘patently illegal’. The Court further defined patently illegal as being ‘contrary to law’.

3
(1994) Supp 1 SCC 644
4
(2003) 5 SCC 705

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Public policy was interpreted in light of principles underlying the 1996 Act, the Indian Contract
Act, 1872, and the Constitutional Provisions. The Court found that public policy concerns public
good and public interest matters and not the policies of a particular government. It was held that
section 34 of the 1996 Act read conjointly with the other statutory provisions, indicates that the
legislative intent could not be that if the award is in contravention of the Act, it could still not be
set aside by the court. The Court also concluded that it was unnecessary to give a narrow meaning
to the term public policy. In fact, the Court concluded that a wider meaning was necessary so that
a patently illegal arbitral award could be set aside.

But the Saw Pipes Case due to the decision given by the supreme court was subjected to criticism
like the patent illegality has to a large extent diluted the spirit of the 1996 Act. It is the same as
retaining the grounds for challenge that were already available in section 30 of the 1940 Act.
Another criticism it received was that it clearly impinged upon arbitration as an effective method
of dispute resolution and has undermined certain benefits of Arbitration, namely those of speed
and efficiency and the finality of award.

The Supreme Court’s decision in Saw Pipes to construe the provision under section 34(2) (b) (ii)
liberally, but to confine this wide interpretation only to domestic awards without extending the
same to foreign awards under section 48(2) (b) was contentious, as the language used in both the
provisions is identical. This interpretation indeed led to dilution of the legislative intent of the two
provisions with the same language. To make matters worse, the Supreme Court in Phulchand
Exports Ltd v O Patriot5 held that ‘patent illegality’ as laid down in Saw Pipes, needed to be looked
at while examining the enforcement of a foreign award under section 48 (2) (b) of Act.

Thus, public policy and the relation it shares with the arbitral awards has gone through a long
history of both enactments and cases in court.

5
(2011) 10 SCC 300

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II. Jurisprudence of Public Policy in a globalized world

Though, the researcher does believe that there is a need for a more robust jurisprudence around
the phrase ‘Public Policy’ it is also the belief of the researcher that the same would be
floccinaucinihilipilification as will be proven through this chapter. The idea of ‘Public Policy' is
notorious among judges and scholars as a concept not susceptible to definition. Theory and practice
generally agree that public policy reflects some moral, social, economic or legal principles 'so
sacrosanct as to require maintenance at all costs and without exception'6. Although heavily
criticized as a vague and ambiguous concept7, the role of public policy is nevertheless said to be a
'fundamental one from the viewpoint of the respective legal system’8.

The issue of public policy arises at two stages in the arbitration process: first, during the arbitration
itself, where the possible conflict between the applicable legal systems is resolved by the arbitrator;
and, secondly, when the arbitral award is enforced before the national courts, and the judge may
be required to protect fundamental policies of the forum. The texts of various international
instruments also typically refer to the public policy of the state where recognition and enforcement
is sought. 9However, recently certain courts have begun to consider relevant public policies of
other states, not solely the public policy of the forum state10.

Under the Geneva Convention, the enforcement of an arbitral award was subject to its compliance
with 'the public policy or the principles of the law of the country in which it is sought to be relied
upon’.

After World War II the system of enforcement of arbitral awards, established by the Geneva
Convention proved itself clearly inadequate and the International Chamber of Commerce proposed
its revision.

6
Geoffrey Chevalier Cheshire et al, Cheshire and North Private International Law (1987, 11th edn) at p. 131.
7
Klaus Peter Berger, International Economic Arbitration (Kluwer Law, Deventer, 1993) at p. 670
8
Karl Heinz Bockstiegel ‘Public Policy and Arbitrability' in Comparative Arbitration Practice and Public Policy in
Arbitration (ed. Pieter Sanders) (Kluwer Law, Deventer, 1986) at p. 177 and 179.
9
The 'Public Policy' Exception to the Recognition and Enforcement of Arbitral Awards in the Theory and
Jurisprudence of the Central and East European States and Russia by Vesselina Shavela at p. 3
10
Gary Born, International Commercial Arbitration: Commentary & Materials (Transnational Publishers, Ardsley,
N.Y. 2001, 2nd ed.) at p. 817, citing to Northrop Corporation, v. Triad International Marketing, 811 F.2d 1265 (9th
Cir. 1987).

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Legislation in France and Portugal, for example, requires an award to comply with 'principles of
international public policy', as a condition of the enforcement of mat arbitral award. Tunisian and
Romanian legislations adopt a similar approach narrowing die public policy exception to 'public
policy as understood in private international law. In contrast, the legislation of most countries
refers simply to 'Public Policy'. Another legislative formula is 'Public Policy or public order and
good morals'. For example, Japan, Libya, Oman, Qatar and the United Arab Emirates employ this
formulation. In Austria and Sweden, enforcement of arbitral awards is contingent upon compliance
with the basic principles of the respective legal system. A wider formulation is adopted in China,
where enforcement will be refused if it 'goes against social and public interest’. And finally, at the
far end of the spectrum the legislation in Brazil provides that enforcement will be denied if 'the
decision is offensive to national public policy'11.

The various ambiguities around the globe make it impossible for a universal jurisprudence on the
term ‘Public Policy’. Therefore, the researcher found that any number of International Conventions
will not be able to change the entire world’s opinion on the definition of such a wide term and it
is truly “An unruly horse”.

The Draft Convention on enforcement of arbitral awards made a step towards limiting the scope
of the provision on public policy in the new convention and proposed a narrower exception to the
enforcement of arbitral awards: ‘clearly incompatible with public policy or with fundamental
principles of law'12.15 The drafters of the proposed Convention remained concerned, however,
about a possible broad interpretation of the exception. Accordingly, the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (hereinafter the 'New York Convention')
refers to 'public policy' alone. The Inter-American Convention on International Commercial
Arbitration (hereinafter the 'Panama Convention') and the Inter-American Convention on
Extraterritorial Validity of Foreign Judgments and Arbitral Awards (hereinafter the 'Montevideo
Convention') have adopted similar approaches.

11
Lei 9.307/1996, Artigo 39.11.
12
‘United Nations Economic and Social Council, Report of the Committee on the Enforcement of International
Arbitral Awards, 28 March 1955, UN Doc. E/2704 and Corr., reproduced in Giorgio Gaja, International Commercial
Arbitration: New York Convention, Part III (Oceana, Dobbs Ferry, N.Y. 1980)

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Currently, the jurisprudence on arbitrability stands overshadowed by the judgment of the
Honorable Supreme Court of India [the “Court”] in Booz Allen and Hamilton Inc. v. SBI Home
Finance Ltd. [“Booz Allen”]13 where the Court, while upholding public policy in the face of
arbitration clauses, propounded the test of ‘in rem and in personam’ i.e. rights against particular
persons (in personam) are arbitrable but those against the world at large (in rem) are not. The test
has been criticized in subsequent judgments of the Supreme Court and is not comprehensive
enough to be the sole test for arbitrability of disputes. Some courts have attempted to find
alternatives, such as the test of relief sought by the parties i.e. whether the tribunal can grant the
relief prayed for, or the test of public policy. In fact, due to the lack of clear reasoning in Booz
Allen, courts have completely misinterpreted and misapplied the public policy exception while
determining arbitrability of a dispute14.

As mentioned, some jurisdictions have a narrower scope of what is against public policy, while
other jurisdictions have a very broad scope. Jurisdictions that have a particularly narrow scope
include France, Switzerland, Belgium, India and Singapore. For example, only the fundamental
notions of the French or Belgian legal systems can be regarded as belonging to public policy. In
contrast England can be seen to take a more expansive scope of domestic public policy.15

US courts take a narrow view to public policy. In this regard, Born States, “some courts have held
that a public policy cannot be derived from ‘general considerations of supposed public interest’,
but must be based upon explicit and clearly-defined ‘laws and legal precedents’16 There exists
numerous cases from various jurisdictions that highlight this point. Other jurisdictions have
comprehensively defined scope of public policy in legislation, while others have developed a
comprehensive body of case law on public policy, such as England. However, the comment above
by Born aligns with the basic proposition that public policy is violated by an illegal act, this
demonstrates the difficulty their existing uniformity of domestic public policy as there exist
differences in legal status of many acts across jurisdictions.17

13
Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., AIR 2011 SC 2507 [hereinafter “Booz Allen”].
14
6 IJAL (2019) 162
15
English Arbitration Act 1996 Ss. 67-71.
16
(2002) All ER 465 (HL)
17
Norton Rose International Arbitration Report 22 (2013), Citing the Russian Supreme Arbitrazh Court Practice
Review. (public policy means the fundamental legal principles that are most imperative, universal, of special social
and public significance, and that form the core for the State's economic, political or legal systems. In particular, this

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III. Public Goods in Economics as related to Public Policy in Arbitration

In economics, a public good is a good that is both non-excludable and non-rivalrous in that,
individuals cannot be excluded from use or could be enjoyed without paying for it, and where use
by one individual does not reduce availability to others or the goods can be effectively consumed
simultaneously by more than one person.18 Public goods include knowledge, official statistics,
national security, common language, flood control systems, lighthouses, and street lighting. Public
goods that are available everywhere are sometimes referred to as global public goods. Many public
goods may at times be subject to excessive use resulting in negative externalities affecting all
users; for example, air pollution and traffic congestion. Public goods problems are often closely
related to the "free-rider" problem, in which people not paying for the good may continue to access
it. Thus, the good may be under-produced, overused or degraded.19
Public policy is usually something that is brought into effect by the government in power, which
includes a set of rules and regulations that are made by the either a government which is in power
or an authoritative government which may be put to regulate public goods because if the public
goods are overused in a society this may lead to the ‘free rider’ problem. Public Policy as a concept
is to be defined, which may be through judicial interpretation or deriving it through societal
conventions. Therefore, if the government implements a uniform public policy in the state it would
help in preventing the misuse of public goods, thus having a strong and flexible public policy has
always helped a state in economic efficiency.
The above stated points can further be elaborated by the way on an example of air. Air is a public
good since it is both non – rivalrous and non – excludable, that is air can be used by every person
in the society. If there is a dispute with regard to building a chimney in the houses it would pollute
the air because of all the smokes and other chemicals that would be emitted by the chimney would
be inhaled by the people living in the society and thus could cause a lot of respiratory diseases to
people. If the government imposes regulations as to the specifications to how the chimneys are to
be build to reduce the pollutants that would be emitted by the chimney and thus would provide a

includes actions expressly prohibited by the super-mandatory provisions of the laws of Russian Federation (article
1192 of the Civil Code of the Russian Federation); and if such actions prejudice the sovereignty or security of the
State, affect large social groups, or violate the constitutional rights and freedoms of individuals.)
18
(Mankiw, 2018)
19
id

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cleaner environment to people to live in. Thus, this shows that regulations are made to secure the
public interest of the citizens.
Therefore, in the end, we can say that public policy is device which is in the hands of the three
organs of the government which comprise of the legislature, executive and judiciary. Thus, we can
say that all of these three organs together in coordination can derive the meaning of public policy
for the efficient use of the resources.

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