In this blog post, Surbhi Agarwal, a student pursuing an integrated B.B.A., LL.B from University of Petroleum & Energy Studies, Dehradun and a Diploma in Entrepreneurship Administration and Business Laws by NUJS, discusses the importance of public policy while deciding a foreign arbitral award.
Introduction
Justice Burroughs defines ‘public policy’ as an unruly horse; when once astride it, you never know where it will carry you.[1]Public Policy is one of the most popular grounds commonly used by parties to international arbitration to resist enforcement of arbitral awards and therefore, it remains a highly debatable, controversial and complex topic. This is just because of the diverse approach taken by National Courts about the concept of public policy in international arbitration. But, after various discussions and debate, a new amendment has been passed by elaborating the meaning of public policy under I[2] and Part II[3] of the Arbitration and Conciliation (Amendment) Act, 2015.
Due to an increase in international trade, investment and the globalization of commerce, international commercial arbitration has led to the development and hence, preferred as a method of resolving disputes. When this situation occurs, the claimant has been provided a remedy under Part II of the Act.[4]Section 48[5] of the Act, is an exception to the enforcement of the foreign arbitral award, under this section conditions has been laid down for the enforcement of foreign awards. Public policy possesses the attribute of fundamentality when it is restricted to the fundamental public policy of the Enforcement State. Fundamental public policies are those basic principles of Justice or morality that an enforcement court feels bound to apply not only to domestic matters but also to matters with a foreign element.
In 1993, the SC in Renusagar Power Co. v General Electric Company,[6] was faced with the interpretation of the expression public policy under Sec 7(1) of the Foreign Awards (Recognition and Enforcement) Act, 1961 which dealt with grounds for refusal of enforcement of foreign awards. This Act has since been repealed and now, section 48 of the Arbitration and Conciliation Act, 1996 governs the field. The court held that enforcement of a foreign award would be declined if enforcing the award would contravene the fundamental policy of India Law, the interest of the State of India and justice, and morality.
The Foreign Awards has been dealt separately under the New York Convention and Geneva Convention both of which are dealt under Chapter I and II of Part II of the Act. According to Sec 44[7] of the Act, Foreign Awards means an Arbitral Award on the differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after 11th October 1960 in pursuance of an Agreement in writing for Arbitration. The Award has to be passed in one such territory with which India has a reciprocal treaty. Similar conditions have been specified under Sec 53[8] for the Geneva Convention Awards. The said Awards can be executed as if it was a decree passed by the Civil Court of original jurisdiction in India as envisaged in Order 21 Rule 11(2) of the Code of Civil Procedure, 1908 where execution of a decree is required to be followed.
Under Section 48 of the Act, the Executing Court will enforce the Award only after, it is satisfied that the parties were not under some incapacity, were given proper notice and that the disputes submitted to arbitration were not beyond the scope of Arbitration Agreement. Also under Sec 57, conditions have been laid down, that Executing Court will enforce the Award only after it is satisfied that the conditions are fulfilled while dealing with the Geneva Convention Award.
However, for awards falling under both the conventions same rules are generally applicable, one of them being that there is no need to take separate proceedings in the nature of an application for seeking an order from the court that the Foreign Award can be enforced as a decree of the court and a separate one for execution. The SC in the case of M/s Fuerst Day Lawson Ltd. Vs. Jindal Exports Ltd.,[9] observed that for the enforcement of a foreign Award there is no need to take separate proceedings, one for deciding the enforceability of the Award to make a rule of the court or decree and the other to take up execution thereafter.
Further, the explanation to Section 47[10] of the Act provides that the application is to be filed in the court where the subject matter of the award lies. The subject matter of an award can be of any nature, which could be the part of the evidence as provided under Sec 47 or any other relief, which may arise during Arbitration proceedings.
In the case of Wireless, Developers Inc vs. India Games Limited,[11] the Court held that, if the party has a foreign award in its favor it can seek to enforce the award in any part of the country where it is sought to be enforced as long as money is available or suit for recovery of money can be filed.
Judicial Aspect of the Act
The 2012 landmark decision of the Supreme Court of India in Bharat Aluminium Company v. Kaiser Aluminium Technical Service Inc[12] (Balco) marked the beginning of a new chapter in the Indian arbitration regime, bringing it in sync with the international approach. In this case, Judges have clearly demarcated between Indian and Foreign seated arbitrations and Part 1 of the Act[13] would not apply to foreign seated arbitrations. The judgment affirmed that a foreign award was not amenable to challenge under Section 34[14] of Part 1 of the Act.
Taking the above proposition further, in Shri Lal Mahal Ltd. v. Progetto Grano Spa,[15] (Lal Mahal), the SC unmistakably established a difference between the scope of objections to the enforceability of a foreign award under Section 48[16] of the Act, and challenged to set aside an award altogether under Sec 34[17] of the Act.
Thereafter, with the advent of the ruling in Venture Global v. Satyam Computers[18] (“Venture Global”), foreign awards, i.e., awards passed in arbitrations seated outside India became amendable to challenge under Section 34 of the Act. This resulted in foreign awards being subject to the boarder test of “public policy” as enunciated in ONGC case.
Then, in the case of Pulchand Exports Limited v O.O.O. Patriot[19] (Phulchand), the SC expanded the meaning of the expression ‘public policy’ under Sec 48 of the Act, and held that the scope and purport of the expression under Sec 34 and 48 are the same. After that, the decision given in Pulchand has now been overruled by Lal Mahal.
The Supreme Court held that the expression ‘public policy’ as found under Sec 48 of the Act would not bring within its folds the ground of ‘ patent illegality.’ Further, such ground is limited to Sec 34 of the Act where the issue is whether the award should be set aside or not.
The court noted that the applicability of the doctrine of ‘public policy’ is comparatively limited in cases involving a conflict of laws and matters involving a foreign element such as a foreign-seated arbitration. The court ruled that the expression ‘public policy of India’ under Sec 34 required to be interpreted in the context of the jurisdiction of the court where the validity of the award is challenged before it becomes final and executable in contrast to enforcement of an award after it becomes final.
The SC clarified that Sec 48 does not offer an opportunity to have a second look at the foreign award at the enforcement stage or permit review of the award on merits. Accordingly, the court held that the meaning of the expression public policy under Sec 48 is limited to:
- Fundamental policy of India
- Interest of India
- Justice and morality
Conclusion
Therefore, The Indian Arbitration and Conciliation Act, 1996 governs with the provisions related to public policy and foreign arbitral award. This Act is based on the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. So, in conclusion, it can be inferred that the territorial jurisdiction for enforcement of a Foreign Award can be understood by referring to the place where the Award accrues confer the right and this award will not be enforceable when it is against the public policy.
References:
[1] Phulchand Exports Limited v OOO Patriot (2011) 10 SCC 300.
[2] Part I- Arbitration
[3] Enforcement of Central in Foreign Awards
[4] Arbitration and Conciliation (Amendment) Act, 2015
[5] Conditions for Enforcement of Foreign Awards
[6] (1995) 20 Y.B.CO ARB 681
[7] Definition.
[8] Interpretation.
[9] AIR 2001 SC 2293
[10] Evidence.
[11] 2012 (3) MhLj449
[12] (2012) 9 SCC 552
[13] The Arbitration and Conciliation Act, 1996.
[14] Section 34 provides the grounds on which a party may seek to have an arbitral award set aside by the courts. Specifically, section 34(2) (b) provides that a court may set aside an arbitral award if it found to be “in conflict with the public policy of India.”
[15] Civil Appeal No. 5058 of 2013 arising from SLP(c) No. 13721 of 2012.
[16] Section 48 provides the grounds on which enforcement of a foreign award in India may be refused. Specifically, section 48(2) (b) provides that enforcement of an arbitral award may also be refused of the court finds that “the enforcement of the award would be contrary to the public policy of India.”
[17] Application for setting aside Arbitral Award.
[18] (2008) 4 SCC 190.
[19] (2011) 10 SCC 300
