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Public policy connotes some matter which concerns public good and public interest According to Lord Truro, Public policy is that principle of law which holds that no subject can lawfully do, which has a tendency to be injurious to the public or against the public good, which may be termed, as it sometimes has been, the policy of the law or public policy in relation to the administration of the law.

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A form of Alternative Dispute Resolution Specifically, it is a legal alternative to litigation Parties to a dispute agree to submit their respective positions (through agreement or hearing) to a NEUTRAL third party called the Arbitrator (s) or Arbiter (s) for resolution

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Ad-hoc Arbitration Institutional Arbitration Statutory Arbitration Domestic or International Arbitration Foreign Arbitration

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The Geneva Protocol on Arbitration Clauses of 1923 The Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 and The NewYork Convention of 1958

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The governing arbitration statute in India Based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985 Applies to both domestic arbitration in India and to international arbitration

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Arbitration where at least one of the parties is: 
An individual who is a national of, or habitually resident in

any country other than India; or  A body corporate which is incorporated in any country other than India; or  A company or an association or a body of individuals whose central management and control is exercised in any country other than India; or  The Government of a foreign country

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Minimise the supervisory role of courts in the arbitral process and Provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court

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Foreign Party
General Electric Co., a company incorporated under the laws of State of NewYork in USA

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Terms of Contract 
GE to supply equipment and power services to Renusagar    

power for setting up a thermal power plant Items to be delivered in 15 months from the effective date Completion of the plant to be done within 30 months Payment to be made in installments Execution of unconditional negotiable promissory notes for all the installments

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Arbitration Clause
Any disagreement which the parties are unable to resolve by sincere negotiation shall be finally settled in accordance with the Arbitration Rules of the International Chamber of Commerce

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Problem 
Some delay of General Electric in adhering to the time

schedule for supply of equipment  Consequently, Renusagar rescheduled the payment installments and certain installments were unpaid under due dates.

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Arbitration result 
Award in favour of General Electric  Also awarded compensatory damages computed by

applying the average prime rate to the amount withheld
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Challenge to the award 
It was contrary to public policy of India  Order relating to the payment of interest in foreign

exchange was contrary to the Foreign Exchange Regulation Act  Supreme Court faced with the question whether to give the words public policy a narrow or a broad meaning

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Supreme Court gave narrow interpretation to the words public policy and held that
1. Payment of interest on interest (compound interest), 2. Possibility of violation of FERA, 3. Payment of damages, 4. Possibility of unjust enrichment by General Electric

did not amount to or was not contrary to the public policy of India

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Renusagar was thus 
Correctly decided  Took a narrow view of the word public policy  Left little scope of judicial interference in arbitration

proceedings and final determination of awards

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Foreign Party
SAW Pipes Ltd., a company incorporated in Europe

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Terms of Contract 
ONGC ordered pipes from SAW Pipes Ltd. on certain

terms and conditions  Arbitration clause for dispute resolution

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Problem 
Pipes was unable to conform to the time schedule for

supplies due to the strike of the workers in Europe for almost two months  SAW Pipes informed these facts to ONGC which in turn replied that damages as per the contract would have to be paid  SAW Pipes thereafter supplied the pipes  ONGC deducted a large sum from the bill on account of delay without there being any adjudication or determination by a third party

Arbitration passed an order in favour of SAW Pipes Order challenged before High Court and thereafter division bench but both dismissed the petition ƒ Appeal to Supreme Court under Article 136 (Special Leave Petition) heard by 2 Judges concluded that ONGC was justified in deducting the amount and the arbitrators were wrong in awarding the amount with interest and set aside the award ƒ The Court held that any arbitral award which violates Indian statutory provisions is patently illegal and contrary to public policy
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Equating patent illegality to an error of law , the Court paved way for losing parties in arbitral process to have their day in Indian courts Thus resurrected the potentially limitless judicial review which the 1996 Act was designed to eliminate Decision widely criticized in the International community 3 years later, Supreme Court had an opportunity to refer the matter to a larger Bench which it did not The Bench in Renusagar case held that the term public policy of India was to be interpreted in a narrow sense, whereas the Division Bench in ONGC case interpreted it in a narrow sense A huge step backwards in laws relating to alternate dispute resolution in the era of globalization

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Foreign Party 
Venture Global Engineering (VGE) incorporated in the USA

Terms of Contract 
A joint venture agreement to constitute a company named

Satyam Venture Engineering Services Ltd. (SVES) in which both VGE and SCSL have 50 per cent equity shareholding  Shareholders Agreement (SHA) executed between the parties provides that disputes have to be resolved amicably between the parties and failing such resolution, the disputes are to be referred to arbitration

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Problem 
SCSL alleged that owing to a breach in SHA VGE had purchased

shares in SVES at its book value owing to several venture companies becoming insolvent

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Case Proceedings 
London Court of International Arbitration appointed arbitrator passed

an award directing VGE to transfer the shares to SCSL  The City Civil Court, Secunderabad passed an interim order of injunction restraining SCSL  The Andhra Pradesh HC suspended the trial court s order holding that the award cannot be challenged even if it is against the public policy  VGE asserted that the award violated the Foreign Exchange Management Act, 1999, and therefore constituted a conflict with the public policy of India .

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SC Final Judgment 
The provisions of Part I of the Act (Arbitration and

Conciliation Act, 1996) would apply to all arbitrations including international commercial arbitrations  Where such arbitration is held in India, the provisions of Part-I would compulsorily apply and parties are free to deviate to the extent permitted by the provisions of Part-I  Even in the case of international commercial arbitrations held out of India provisions of Part-I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions

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Arbitration & Conciliation Act, 1996 is divided into four parts. The first two parts consists as follows: 
Part I deals with domestic arbitration  Part II deals with provisions relating to enforcement of New York

Convention Awards and Geneva Convention Awards in India

This has been the basis of all the Arbitration clauses incorporated in the contract between various Indian and Foreign companies until now ƒ However, with the case of VGE vs. SCSL, Part I of the Act is made applicable to all international commercial arbitrations ƒ This has led to a great deal of mistrust, confusion and uproar amongst the foreign companies
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Arbitration in India is not for the faint-hearted Continued intervention of courts in arbitration is harmful in two ways 
A pro-arbitration stance would reduce the pressure on the

courts in a legal system plagued by delays  For foreign investment, it is imperative that its legal system provides efficient and predictable remedies to foreign investors. Foreign investors typically prefer arbitration and have shied away from Indian courts due to prolonged delays in litigation

Recent judgment in the Satyam case has made Part 1 of the 1996 Act applicable to all International arbitrations ƒ Many foreign companies having relevant business interests in India have relied heavily upon Indian law based on the ACT itself and already opted for Arbitration procedures ƒ This recent judgment has infused a strong feeling of insecurity in dealings of foreign companies with their Indian counterparts. ƒ So, it is largely upto the Indian Judiciary to step in and contain the interventionist role it has assumed for itself and have greater trust in the arbitral process
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