Public Policy in Arbitration

Introduction

Administrative structures shape the lives of citizens from one side of the world to the other, whether we are conscious of it or not. The wish for a better life, while subject to our efforts, is likely to be accompanied by open estimates that guide in its acknowledgement. Even though the public policy is a topic or field of study with a long history, present public policy analysis has a decidedly American and twentieth-century flavour to it. In the 1940s, the seeds of public policy were sowed, and they have had a significant impact on government and academic organizations over the years. In the mid-1950s, the public strategy began as a scholarly journey, and since then, it has been gathering fresh data and attempting to address the situation with a discipline in the field of social science. Because it is a study of “government goods. Public policy is created to influence how other significant choices are made, and it is much of the time given a public-interest issue. The objective of public policy is to answer an issue. Legalizing same-sex marriage, for example, is designed to address the issue of treating all members of society equally, so its approval benefits the entire population. The honour must be executed whether it is inverse to or in accordance with the country’s public arrangement, as per worldwide regulation on open strategy, the New York Convention of 1958. Uncitral Model Law, 1985 – Public Policy is a crucial criterion that has a significant impact on international awards, according to the UNCITRAL Model Law[1].

Principles of Public Policy

The flexibility of public policy is clear, as it contains natural justice principles that are in the public interest. The courts wisely apply the concept of public policy in a variety of scenarios. A thin line exists between a rule that is consistent with public policy and one that is not. The concept of public policy is flexible and adaptive to changing conditions. The court and the government analyze the public policy criteria of a contract before deciding whether it is legal or void and should be enforced against the intended parties. Finally, anything that leads to the breakdown of justice and is contrary to natural justice principles is referred to as “public policy[2].”

Arbitration And Its Relation to Public Policy

When it comes to effective justice delivery methods, ADR has proven to be beneficial in other countries. In India, the judiciary is in a poor state. Last year, it was stated that over 4 crore cases are waiting in Indian courts, with 3 crores of files piling up in district courts. As a result of fewer judges on the bench and a significant rise in court cases, justice is being delayed, leading to people seeking justice through other methods. The term “public policy” refers to decisions taken in the public interest. Many social organizations, including attorneys and social scientists, actively participate in policymaking for the benefit of the country’s population; only governments are mandated to formulate public policies. When it comes to implementing arbitral judgments, a country’s public policy is crucial, especially when the award is international. The reason for this is that it involves parties from various cultures and legal systems. The Tribunal for Arbitration regularly includes arbitrators from a variety of jurisdictions. This is why multinational businesses doing business in another country must be knowledgeable about the country’s public policies. In one of the judgments, the Supreme Court stated that when it comes to international awards, Public Policy has a broader connotation. As a result, the courts are particularly careful when an arbitrator’s ruling violates the country’s public policy. Awards should not be awarded in violation of a country’s interests, justice, morality, or fundamental policies, among other factors, according to the courts[3]. The Arbitration and Conciliation Act of 1996 under section 34(2)(b)(ii) states that any award that is contrary to Indian public policy can be set aside by the Court.

Renusagar Case: A Narrower View 

In the leading case of Renusagar court said that the word “public policy” should be defined narrowly, that breaking an Indian law alone would not be enough to trigger the threshold of public policy, and that something more than breaking the law is necessary. It was decided that the implementation of a foreign award would be prohibited because it would be detrimental to public policy if it would be opposed to I basic policy of Indian law. For three reasons, the court in the Renusagar case set the limits of Public Policy and contained them.

These three bases are

  1. the country’s fundamental policy,
  2. the country’s advantages, and
  • the ethical quality or equity[4].

The ONGC Case: A Broader View 

The scope of public policy was broadened when dealing with an application under Section 34 of the Arbitration Act[5]. The court included patent illegality as a subset of public policy for setting aside awards, in addition to the grounds laid out in the Renusagar decision. It was decided that if the award violates the substantive provisions of the law, the Act’s provisions, or the contract’s conditions, it is patently illegal. The award may also be set aside if the provisions of the award harm the court’s conscience or are unreasonable to society, according to the court[6].

Associate Builders v. Delhi Development Authority

The Supreme Court overturned the judgment and enforced the award granted by Arbitral Tribunal. It held that courts are not normally permitted to reconsider findings of fact established by arbitrators under section 34 of the Arbitration Act, and hence reinstated the decision. The court essentially expressed and didn’t restrict public policy regulation, holding that honour might be toppled assuming it breaks Indian regulation’s centre approach, India’s advantage, equity, or profound quality, or on the other hand assuming it is clearly unlawful[7].

2015 Amendment Act

In 2015, after the recommendations are given by the 246th law commission report, certain amendments were done to the arbitration and conciliation act 1996. Section 34(2) and section 2A now have “Explanation 2.” This change prevents courts from intervening with arbitral rulings on the basis of “public policy”[8].

Ssangyong Engineering & Construction Company v. NHAI

The Supreme Court used its inherent powers under Article 142 of the Indian Constitution to affirm the minority arbitral ruling and ordered that it be implemented between the parties, together with interest. The definition of ‘public policy of Indian law’ has been reduced. First, that a domestic award violates Indian law’s basic policy, or second, that such an award violates basic concepts of justice[9].

Delhi Metro Rail Corporation v. Delhi Airport Express Private Limited

In this case, the Supreme Court overruled the Division Bench’s decision, holding that judicial action should be limited to Section 34 of the Arbitration and Conciliation Act of 1996. (Act). Because, in the current situation, the domestic award is not in violation of Indian law’s fundamental policy or basic notions of justice and morality. Furthermore, there was no clear illegality in the judgment because no crucial evidence was missing. As a result, the Supreme Court concluded that the Division bench failed in interfering with the tribunal’s decision since it was not empowered under the Act to appreciate or reappreciate facts already decided by the arbitral panel, and there was no need to apply Section 34 of the Act[10].

Conclusion

Arbitration is a cost-effective and quick method of resolving disputes, but increased court participation has rendered Indian arbitration untrustworthy. Organizations and elites are neglected in studies of the effect of opinion, whereas public opinions are ignored in studies of the impact of interest groups and parties, therefore research must be coordinated. Data made publicly available on social media could help policymakers improve institutional responsiveness, accountability, and learning. Social media analysis, on the other hand, should not be considered a panacea that can be utilized in place of other research methods. India has ratified the New York Convention, and international awards that violate public policy should be investigated. The Convention suggests a simplified technique for enforcement, which should be followed. It properly emphasizes the fact that, in examining our words and applying our laws, India should be mindful of international laws before making an equitable verdict[11]. The fundamental source of worry is the lack of a specific international definition of public policy, as defined by the New York Convention. It is true that if the public law had not been modified and developed, the court would have failed to offer justice to the public and the communal welfare would have been harmed[12].

Author(s) Name: Jahnavi Daga (Institute of Law, Nirma University)

References:

[1] (n.d.). united nations commission on international trade law [Review of united nations commission on international trade law]. United Nations.

[2] (n.d.). Public Policy under Arbitration Law [Review of Public Policy under Arbitration Law]. Legal Services India; hitesh050991.‌

[3] S Agrawal. (n.d.). Renusagar Power Co. Ltd vs General Electric Co on 7 October 1993 [Review

of Renusagar Power Co. Ltd vs General Electric Co on 7 October 1993].

1994 AIR 860, 1994 SCC Supl. (1) 644

[4] 1994 AIR 860, 1994 SCC Supl. (1) 644

[5] Section 34 outlines the circumstances in which an aggrieved party may file a petition in court to contest an arbitral judgement.

[6] Appeal (civil) 7419 of 2001 Oil & Natural Gas Corporation Ltd. v Saw Pipes (Setting aside of arbitral award for violating ‘public policy’) AIR 2003 SC 2629; (2003) 5 SCC 705

[7] (2015) 3 SCC 49

[8] (2016, January 7). The Arbitration and Conciliation (Amendment) Act, 2015. Legally India; ABHAY NEVAGI ASSOCIATES.‌

[9] (2021, March 8). Ssangyong Engineering & Construction Co. Ltd. vs National Highways Authority of India

(NHAI) [Review of Ssangyong Engineering & Construction Co. Ltd. vs National Highways Authority

of India (NHAI)]. Indian Constitution.

[10] L. Nageswara Rao. (n.d.). Supreme Court of India Delhi Airport Metro Express Pvt. … vs Delhi Metro Rail Corporation Ltd. on 9 September 2021. Indian Kanoon.
paragraph 35‌

[11] (2015). Public Policy and social media: How Sentiment Analysis Can Support Policy-Makers Across the Policy Cycle [Review of Public Policy and social media: How Sentiment Analysis Can Support Policy-Makers Across the Policy Cycle]. Rivisteweb; Andrea Ceron, Fedra Negri.

[12] (2021). Demystifying Public Policy To Enable Enforcement Of Foreign Awards – Indian Perspective [Review Of Demystifying Public Policy To Enable Enforcement Of Foreign Awards – Indian Perspective]. Bhavana Sunder & Kshama A. Loya.

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