THE INTERPLAY BETWEEN PUBLIC POLICY AND ENFORCEMENT OF FOREIGN ARBITRAL AWARD
Realizing that arbitration can be a productive means of settling conflicts in a world growing more interconnected by the day, India has set out in recent years to establish itself as the worldwide centre of arbitration. Arbitration is a popular option for both domestic and foreign corporations because it provides parties with a flexible, private, and frequently quicker alternative to traditional litigation. The Arbitration and Conciliation Act, 1996 (the “Act”) attempted to reduce the role of judges in arbitration procedures to help India realize its goal of becoming a centre for arbitration.
THE CONCEPT OF ARBITRABILITY
Arbitration is the consensual dispute resolution mechanism that allows the parties to mutually settle their disputes in a shorter time frame as compared to the traditional method of the court of law adjudicating the disputes. The term “arbitrability” describes whether or not a given disagreement can be resolved by arbitration. It distinguishes between the kinds of disputes that can only be settled in court and those that can be settled through arbitration. There is no internationally accepted definition of “arbitral award,” but the characterisation of any given decision as an arbitral award is nevertheless of great practical significance, since only arbitral awards are covered by international conventions governing recognition and enforcement of awards
The role of public policy in enforcing the arbitral award is a controversial and contentious issue in the field of Arbitration, the UNCITRAL model law and New York Convention acknowledges the importance of public policy while enforcing the arbitral award. In India Section 34 & Section 48 of the Arbitration and Conciliation Act, 1996 state that an arbitral award can be set aside if it violates the public policy of India.
THE DOCTRINE OF PUBLIC POLICY
The doctrine of public policy simply means that an arbitral award cannot be enforced if the award is against public policy of the country where it is going to be enforced. It is based on the maxim “Ex dolomalo non oritur action” which means that no court of law will aid a man who bases his cause of action upon an immoral or illegal activity.
The rationale behind the doctrine of public policy is that even though the parties have the autonomy to make a contract and can refer the dispute to arbitration, the autonomy of the parties and the arbitral award given by the tribunal can be set aside if it’s in opposition to the public interest. It is important to remember that the courts are only obligated to take into account whether the enforcement of an arbitral award would result in a violation of public policy. The meaning of public policy has been defined by a variety of legal scholars and judicial pronouncements.
INTERNATIONAL PUBLIC POLICY VS. DOMESTIC PUBLIC POLICY
International jurists generally hold that Article V(2) of the New York Convention applies to the idea of international public policy, which has a more limited scope than domestic public policy. Stated differently, public policy in domestic affairs differs from public policy in international affairs. Legislation and judicial rulings increasingly mention international public policy in relation to the enforcement of arbitral awards.
On the other hand, a national judge should determine what exactly qualifies as international public policy. International jurists generally hold that Article V(2) of the New York Convention applies to the idea of international public policy, which has a more limited scope than domestic public policy.
Stated differently, public policy in domestic affairs differs from public policy in international affairs. Legislation and judicial rulings increasingly mention international public policy in relation to the enforcement of arbitral awards. On the other hand, a national judge should determine what exactly qualifies as international public policy.
In Renusagar Power Co. Ltd. v. General Electric Co., the Supreme Court examined how public policy differs in domestic and public international law. The Court noted that prohibiting the execution of a foreign award for violating Indian domestic law cannot be justified by the too expansive definition of “public policy.
PUBLIC POLICY AND ARBITRATION
The link between public policy and arbitration necessitates a corresponding balance between the pursuit of justice and the need to give ADR procedures a sense of finality. In light of the fact that arbitration is still in its infancy when compared to more traditional conflict resolution techniques like litigation, courts have an obligation to maintain public trust in alternative dispute resolution procedures.
Section 34 of the Act, 1996 lays forth a comprehensive list of grounds to dispute an award and the report of the 246th Law Commission has underlined that these grounds mostly pertain to procedural concerns without delving into substantive issues. In the past, the Law Commission had declared that section 34 of the Act had to clearly specify that an award could not be overturned just because the tribunal had erred in law or because the court of law had a different interpretation of the facts.
Section 34 of the Act had significant amendments in 2015 pursuant to the Arbitration & Conciliation (Amendment) Act, 2015 upon the recommendations made by the 246th Law Commission report. The main goal of these amendments was to limit the ability of courts to modify arbitral verdicts on the pretext of “public policy”. The change added Section 2A of the Act and explanation 2 to Section 34(2) of the Act. The second explanation of Section 24(2) of the Act reads: “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.”
The Apex Court of India used the public interest exemption in National Agricultural Co-operative Marketing Federation of India v. Alimenta S.A. to prevent the implementation of an arbitral award in line with Section 32 of the Indian Contracts Act, 1872.
In the case of ONGC vs SAW Pipes Ltd., the Supreme Court stated that the term “public policy” refers to matters pertaining to the public interest and the public benefit.
The supreme court through its various decisions further stated that enforcement of foreign awards would be refused on the ground of public policy if the award would be contrary to
- fundamental policy of Indian law,
- The interests of India, and
- justice or morality.
Renusagar Power Co. Ltd. v. General Electric Co., The Supreme Court examined how public policy differs in domestic and public international law. The Court noted that prohibiting the execution of a foreign award for violating Indian domestic law cannot be justified by the too expansive definition of “public policy.”
CONCLUSION
Lack of arbitrability of any subject matter in arbitration renders such an arbitration agreement null and void. Public policy is included into arbitration to protect both the integrity of the arbitration process and society interests. It guarantees that private agreements don’t take advantage of disparities in information and resources between parties or jeopardize the welfare of the group as a whole. By balancing the necessity for ADR’s finality with the ideals of justice and fairness, courts play a critical role in preserving public confidence in ADR techniques like arbitration.
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