‘PUBLIC POLICY’ AS GROUNDS FOR SETTING ASIDE AN

AWARD
The Arbitration and Conciliation Act, 1996 provides for limited grounds for setting
aside of an arbitral award by the Courts. Section 34 enumerates such grounds, one of
being when the arbitral award which is found to be “in conflict with the public policy
of India.” Section 48(2)(b) of the Act also uses the same expression as grounds for
non-enforcement of a foreign arbitral award.

However, since the Act, as it stood before the 2015 Amendment, did not provide for
any definition or explanation of the expression, the issue of exact scope of ‘public
policy’ has been subject to extensive judicial interpretation. Confusion around the
meaning of the phrase has been evinced in a series of decisions by the Supreme Court that
have introduced facets to the phrase that were not originally intended.

A. THE NARROW V. THE BROAD VIEW

The ambit of ‘public policy’ was first interpreted in Renusagar Power Co. Ltd. v
General Electric Co., AIR 1994 SC 860 (“Renusagar”) wherein the Court was
interpreting the expression under Section 7(1) of the Foreign Awards (Recognition
and Enforcement) Act, 1961 which dealt with grounds for refusal of enforcement of
foreign awards. The award was challenged on the ground that the awarding of interest
on a sum that was owed by way of interest was against the public policy of India. The
Court took a narrow interpretation in holding that enforcement could be refused
only if such enforcement was contrary to
1. “the fundamental policy of Indian law
2. the interests of India
3. justice or morality”

Further, The Court categorically held that contravention of law alone will not attract
the bar of public policy and “something more than contravention of law is required.”

However, in Oil and Natural Gas Commission v. Saw Pipes, (2003) 5 SCC 705
(“Saw Pipes”), the Supreme Court departed from Renusagar chose to broaden the
definition. It noted that the concept of public policy connotes some matter which
concerns public good and public interest, and an award which violates statutory
provisions cannot be said to be in pubic interest. Therefore, it held that, in addition to
the three grounds laid down in Renusagar, if the award passed by the Tribunal was
patently illegal, or in direct conflict with a statutory provision, an enforcement of the
award would be contrary to public policy.

It was further observed that “Illegality must go to the root of the matter and if the
illegality is of a trivial nature it cannot be held that the award is against public
policy. The Award could also be set aside if it so unfair and unreasonable that it
shocks the conscience of the Court. Such award is opposed to public policy and is
required to be adjudged void.”

However, the Saw Pipes case was widely criticized for having unnecessarily
expanded the definition, allowing for unwarranted judicial interference in examining
the validity of an arbitral award. Such criticism was also acknowledged in the
following cases:

 Mcdermott International Inc. v. Burn Standard Coal Company, (2006) 11

SCC 181.- “We are not unmindful that the decision of this Court in ONGC
had invited considerable adverse comments but the correctness or otherwise
of the said decision is not in question before us. It is only for a larger bench to
consider the correctness or otherwise of the said decision”

 Centrotrade Minerals & Metals Inc v. Hindustan Copper Ltd, 2006 (2)
Arb LR 547- The Court observed that irrespective of whether it agreed or
disagreed with the “rationale expressed in Saw Pipes”, it still remains binding
and they have no choice but to abide by it.

B. MEANING UNDER SECTION 48

Section 48(2)(b) of the Act also provides for ‘public policy’ as grounds for non-
enforcement of a foreign arbitral award. Since the enforcement of foreign awards is
regulated by the New York Convention, the term ‘public policy’ as borrowed from
Article V(2)(b) of the Convention ought to be interpreted in consonance with the
objectives of the convention, primarily being limited judicial intervention and pro-
enforcement stance. However, certain decisions blurred such a distinction between
domestic awards under Section 34 and foreign awards under Section 48, thus adding
to the confusion around the meaning of ‘public policy’.

(i) Former Position- Difference Ignored

Bhatia International v.Bulk Trading S.A. (2002) 4 SCC 105 (“Bhatia”)- In this
case, the Supreme Court held that provisions of Part I of the Arbitration and
Conciliation Act, 1996 are applicable also to International commercial arbitration
which take place outside India unless the parties by agreement express or impliedly
exclude it or any of its provisions. The court reached the conclusion that by not
specifically providing that the provisions of Part I apply to international commercial
arbitrations held out of India, the intention of the legislature appears to be to allow
parties to provide by agreement that Part I or any provision therein will not apply.
The significance of the Bhatia case for the purposes of defining ‘public policy’ under
Section 48 was brought out in Venture Global Engineering v. Satyam Computer
Services Ltd., AIR 2008 SC 1061 (“Venture Global Engineering”) - In this case,
the award had been made in London and the governing law of contract was that of
Michigan. However, when it came up for enforcement, the Court relied upon Bhatia
to hold that that it is permissible to set aside a foreign award in India by applying the
provisions of S. 34 of Part I of the Act, unless otherwise agreed upon by the parties.
The Court applied the test of ‘patent illegality’ introduced by Saw Pipes for
enforcement of the foreign award under Section 48 also and, thus, set the award aside
for violating Indian statutory provisions under FEMA. In this manner, it extinguished
the difference of ‘public policy’ between domestic and foreign awards.

Phulchand Exports Ltd v. OOO Patriot, (2011) 10 SCC 300- Taking the position
in Venture Global Engineering further, the Supreme Court extended the expansive
meaning given to the expression ‘public policy’ in ONGC v. Saw pipes under Section
34 of the Act to the expression used in Section 48 of the Act and again held that even
in international commercial arbitrations, a foreign award can be set aside on the
additional ground of patent illegality. The Court, thus, ignored the interpretation by
Renusagar which was in fact rendered when dealing with a provision identical to
Section 48.

(ii) Later Position: Difference Acknowledged

Recognition of the difference between grounds for setting aside domestic and foreign
awards first came about with the Bharat Aluminium Co Ltd v. Kaiser Aluminium
Technical Services Inc. (2012) 9 SCC 552 (“BALCO”)- In BALCO, the Court drew
a very clear demarcation between Indian and foreign seated arbitrations and provided
that Part I of the Arbitration and Conciliation Act, 1996 would not be applicable to
foreign seated arbitrations. In overruling the Bhatia judgment prospectively, BALCO
affirmed that a foreign award was not amenable to challenge under Section 34 of Part
I of the Act. Thus, it confirmed that the level of judicial interference in a foreign
seated arbitration under Section 48 should be limited as compared to interference with
domestic awards under Section 34.

Reinforcing this stance, in Shir Lal Mahal v. Progato Grano Spa, (2014) 2 SCC
433, the Supreme Court overruled the judgment in Phulchand Exports and
categorically restricted the gamut of expression ‘public policy’ in case of international
commercial arbitrations under Section 48 of the Act. The Court reinstated
the Renusagar position with respect to enforcement of foreign awards and confirmed
that the Renusagar test shall apply for refusal of enforcement of a foreign award on
the grounds of conflict with public policy of India. The wider import of the term as
laid down in Saw Pipes therefore ceased to apply to enforcement of foreign awards
under Section 48.
 C. THE 246TH LAW COMMISSION REPORT

In August 2014, the Law Commission submitted its 246th Report to the Central
government recommending several amendments to the Act which ultimately formed
the basis of the 2015 Amendment. To eliminate the confusion created by the aforesaid
decisions, the Report sought to water down their effect and narrow down the meaning
of ‘public policy’ in the following manner.

(i) Narrow Explanation

The Committee noted how the grounds for challenge under Section 34 relate to the
process of arriving at the decision and do not provide for any part of the merits of the
award. In its opinion, the Saw Pipes case had disturbed the balance between finality
of arbitral awards and permissible judicial review.

Thus, in order to avoid expansive interpretation, an explanation was sought to be

added clarifying the meaning of ‘conflict with the public policy of India’ as only the
following:
a) The making of the award was induced or affected by fraud or corruption or
was in violation of Section 75 or Section 81
b) It is in contravention with the “fundamental policy of Indian law”
c) It is in conflict with the “most basic notions of morality or justice.”

Thus, the Report removed “interests of India” as well as “patent illegality” from the
explanation and thus, recommended a narrow interpretation of the term ‘public
policy’.

Distinction between Domestic and Foreign Awards

On this issue, the Law Commission observed that although grounds for setting aside
domestic awards under Section 34 and conditions for refusal of enforcement of
foreign awards under Section 48 are in pari materia, the legitimacy of judicial
intervention in a domestic award is far greater than in instances of foreign awards.

Thus, in line with the position of Shri Lal Mahal, the Commission recommended that
Section 34 (2A) be inserted to provide “patent illegality appearing on the face of the
award” as grounds for setting aside only “an arbitral award arising out of
arbitrations other than international commercial arbitrations.”

Therefore, it provided for the test in Renusagar and not Saw Pipes to be applicable to
foreign awards. Further, in order to avoid excessive intervention into domestic awards
under “patent illegality” as envisaged in Saw Pipes, a proviso was recommended
stating that the award would not be rendered defective merely “due to erroneous
application of law or by re-appreciating of evidence”.

D. EXPANSIVE INTERPRETATION POST THE REPORT

Even though recommendations of the Law Commission Report were expected to

significantly narrow down the interpretation of meaning of ‘public policy’, the
Supreme Court still seemed to be disposed towards broadening its interpretation in the
following:

Oil and Natural Gas Corp Ltd v. Western Geco International Ltd., (2014) 9 SCC
263 (“Western Geco”)- The Supreme Court in this case first observed that the term
“fundamental policy of Indian law” as grounds for challenge had not been elaborated
upon yet. It opined that the expression must “include all such fundamental principles
as providing a basis for administration of justice and enforcement of law in this
country.”

The Court, thus, laid down the ambit of the term to include “three fundamental
juristic principles”, first, adopting a ‘judicial approach,’ which involves giving a fair,
reasonable and objective decision not given in an arbitrary or whimsical
manner, second, adhering to the principles of natural justice, and third, the decision
must not be “so perverse or irrational that no reasonable person would have arrived
at the same.”

In including the third principle, the Court incorporated the test of the Wednesbury
principle to the meaning of public policy, which requires adherence to a high
threshold of reasonableness. Such a test would necessarily mean involvement in the
facts of the matter and the evidence available, hence requiring an enquiry into the
merits of the dispute.

Associate Builders v. Delhi Development Authority, 2014 SCC OnLine SC 937-

The case concerned challenge against an arbitral award holding that a delay of twenty
five months in the completion of the construction project was attributable to the
Respondent. The Court relied on and expounded on the Western Geco decision. It not
only affirmed an expansive interpretation to the words 'fundamental policy of India'
but also elaborated and expanded the concepts of 'justice', 'interest of India' and
'morality'. It observed against the ‘fundamental policy of India’ included violations of
Foreign Exchange legislations, orders and binding judgments of superior courts etc.

Further, it observed contrary to justice and morality to mean “only when it shocks the
conscience of the court” or when “such agreements as are not illegal but would not be
enforced given the prevailing mores of the day“.
Thus, the Associate Builders case aggravated the situation by giving force to further
expansive interpretation of ‘public policy’ to challenge arbitral awards.

E. THE SUPPLEMENTARY LAW COMMISSION REPORT

Having witnessed the expansive interpretation in the Western Geco case, the Law
Commission considered it imperative to remedy the situation, and thus released a
Supplementary to Report No. 246 in February 2015, only to address this point.

The Report noted that the Western Geco case had expanded the Court’s power to
review an award on merits and such a review was “contrary to the object of the Act
and international practice.” The Report observed that such a construction would
render all of its previo

us recommendations in the original report nugatory.

Thus, in need of clarification in this regard to ensure narrower interpretation, the

Report recommended that an explanation be added to Section 34(2)(b) stating that
“fundamental policy of Indian law shall not entail a review on the merits of the
dispute.”

F. THE 2015 AMENDMENT

The Arbitration and Conciliation (Amendment) Act, 2015, which took effect in
October 2015, incorporated all the aforesaid recommendations of both the 246th
Report and the Supplementary Report to significantly narrow down the meaning of
‘public policy’. It, now, stands as follows:

“Section 34(2)(b)- (ii) the arbitral award is in conflict with the public policy of India.

Explanation 1—For the avoidance of any doubt, it is clarified that an award is in

conflict with the public policy of India, only if,—
A. the making of the award was induced or affected by fraud or corruption or
was in violation of section 75 or section 81; or
B. It is in contravention with the fundamental policy of Indian law; or
C. It is in conflict with the most basic notions of morality or justice.
Explanation 2—For the avoidance of doubt, the test as to whether there is a
contravention with the fundamental policy of Indian law shall not entail a review on
the merits of the dispute.

(2A) An arbitral award arising out of arbitrations other than international

commercial arbitrations, may also be set aside by the Court, if the Court finds that the
award is vitiated by patent illegality appearing on the face of the award: Provided
that an award shall not be set aside merely on the ground of an erroneous application
of the law or by re-appreciation of evidence.”

Thus, the final position taken in the Act can be traced to decisions discussed
previously as follows:

Explanation 1 Meaning limited to three narrow grounds, in line with

Renusagar
Explanation 2 Rejects the incorporation of the Wednesbury Principle in
Western Geco
Sub-section 2A Codifies distinction between domestic and foreign awards,
in line with Shri Lal Mahal
Proviso to Sub-Section Narrower meaning of ‘patent illegality’ to avoid
2A expansive interpretation of Saw Pipes

In this manner, the Amendment attempts to put to rest all the debate around the ambit
of ‘public policy’ under both Section 34 and Section 48. In giving it a clear narrow
meaning, it seeks to curb the floodgates of litigation challenging arbitral awards and
give effect to the aim of minimum judicial intervention in arbitration. It also signifies
a pro-arbitration stance for the International community to repose confidence in the
efficacy of arbitration in India.

G. THE SASAN POWER JUDGMENT

Even after the 2015 Amendment, issues have arisen which can make the application
of the amended provisions potentially problematic. In the Sasan Power v. North
American Coal Corporation, Madhya Pradesh High Court, on 11 September 2015,
held that two Indian parties can legitimately have a foreign seated arbitration. Even
though the Supreme Court, in appeal, left the issue unresolved, it can lead to a serious
anomaly if upheld in the future.

The issue in such a scenario is that when two parties have a foreign-seated arbitration,
as per Section 44 of the Act, the award passed in such arbitration would be a ‘foreign
award’ under Part II of the Act. Since the test of ‘patent illegality’ is now limited to
domestic arbitrations, when two Indian parties proceed for enforcement of their
foreign-seated arbitration under Section 48, it cannot be challenged on the ground of
being ‘patently illegal’ to any laws being force in India, hence cannot be termed as
against public policy even if the award is in patent violation of laws in India. This
may lead to the anomaly that an award passed between Indian parties may be patently
illegal in view of Indian Laws, but may still be enforceable under Section 48, simply
because they chose a foreign seat of arbitration.

Thus, there are still other issues that continue to exist with respect to ‘public policy’
as grounds for challenge of domestic and international arbitral awards, and the
approach of the judiciary in this regard post the Amendment still remains to be seen.

My Class Rank is 15.

1.I was shortlisted for the Aditya Birla Scholarships Programme for the academic year
2014-15.
2. I secured the highest grade in the four procedural law courses in my third year (Three
courses on the Code of Civil Procedure, 1908 and one course on the Code of Criminal
Procedure, 1973).

1. Topped in School, in the commerce stream.

2. Secured an All India Rank of 3 in the Common Law Admission Test (CLAT), 2014.
3. Secured an All India Rank of 63 in the All India Law Entrance Test (AILET), 20

The project involved extensive research and analysis into three specific aspects:
Firstly, the scope and rationale of financial statements and the need to impose liability in
context of the principle of 'full disclosure'.
Secondly, the basis of liability that arises i.e. the various compliance requirements with
respect to preparation, presentation and adoption of financial statements under both the
1956 and the Companies Act, 2013.
Thirdly, the issues emanating from default in filing financial statements with the Registrar
with the defences available in such cases.14.

This project focused primarily on two distinct aspects:

Firstly, the establishment of Special Courts, their jurisdiction and the procedure relating
to inquiry and investigation into the alleged commission of a corporate crime, with
specific focus on the constitution
of the Serious Fraud Investigation Office (SFIO).
Secondly, a comparative analysis around the issues of compounding of offences between
Section 621A of the Companies Act, 1956 and Section 441 of the Companies Act, 2013.
In this research paper focussing on criminal convictions on the basis of only
circumstantial evidence in Indian Law, I have argued cases resting upon circumstantial
evidence must be subject to a heightened standard of review and caution as compared to
the current standard, and the well-established ‘chain of circumstances’ test must be
applied as strictly as possible when reaching the
conclusion of guilt.

This project addresses the presence of gender discrimination at workplace, particularly in

the private sector. It discusses the various forms of prevalent discrimination in terms of
job segregation, wage differentials, lack of selection and promotional opportunities and to
answer the question 'Is gender discrimination economically efficient?' in the aforesaid
context.

As Joint Convenor of The Campus Development and Management Committee, NLSIU

Bangalore, 2016-2017, my role was to manage the affairs of the committee accountable
for infrastructural developments and recreational activities on the college campus.

As member of the NLSIU Coordination Council, 2016-17, my role was to participate in

resolving issues amongst the working of various committees through the year and
collectively formulating financial assistance policies for allocation of college funds.

As member of the Legala Core Coordination Committee, NLSIU, 2016-17, I contributed

towards the successful organization of Legala, the annual college cultural festival.

Working under the Litigation team of the firm, my work was primarily focused on:
1. The Insolvency and Bankruptcy Code- Drafting demand notices under Section 8 and
the meaning of 'dispute'
2. Arbitration and Conciliation Act- Retrospective applicability of the 2015 Amendment
and grounds for challenging enforcement of foreign arbitral awards under Section 48 and
time limits imposed under the new Section 29A.

I would invest in Lupin Limited, a transnational pharmaceutical company and the third
largest in India by revenue. This is because:
Firstly, the Indian pharma industry, which is expected to grow at over 15 percent in the
next 5 years to USD 55 billion by 2020, presents an attractive potential investment. This
is fuelled by the recent nod by the Union Cabinet allowing FDI up to 100 per cent,
improved affordability of generic drugs and government initiatives such as ‘Pharma
Vision 2020’.
Secondly, Lupin boasts of a very strong balance sheet, with net debt expected to come
down to zero by this year’s end and a comfortable return on equity at 23 percent. Further,
it has a very strong ANDA (Abbreviated New Drug Applications) pipeline in the US with
154 pending filings in 2017. The company is aiming for a larger complex generics mix by
enhancing investments in inhalation and injectables and is successfully gathering
geographic speed.
Thirdly, even though Lupin’s current domestic market growth has muted at 14% due to
the impact of demonitisation and US FDA worries, its elevated R&D expenses into
respiratory and biosimilars research are sure to yield huge returns in a 10 year long period.

If I were to have political power for a day, I would do the following:

1. Enact a law solely addressing the management of renewable energy and its use in
power generation, penalising providers for non-conformity with purchase obligations.
This is because India, although having immense renewable energy potential, has failed to
realize its capacity owing to the lack of a strong compliance mechanism in law and the
lack of harmonization among state policies on the same.
2. Introduce a comprehensive legislation on data protection and privacy, especially in the
wake of the recent Supreme Court ruling privacy to be a fundamental right. This is
imperative in context of increasing BPO industry in India and heightening concerns over
cyber security in view of recent instances of massive data breaches around the world.
2. Enact an anti-corruption law, backed by an effective anti-corruption institution
accorded requisite powers to abolish activities such as bribery that continue to plague
India's economic growth and ensure transparency in the working of governmental
instutions.

Having previously done two internships at the corporate and litigation teams at Khaitan &
Co., a well reputed law firm, I have developed an in-depth and hands-on understanding of
corporate law and dispute resolution. I see an internship with HUL as an opportunity to
gain valuable exposure to the functioning of an industry leader in areas of law that I am
deeply interested in.

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finance/investment/2016/09/8-best-shares-long-term-
investment/articlecontent-pf8340-494926.html