THE JUXTAPOSITION BETWEEN PUBLIC POLICY OF INDIA AND INTERNATIONAL COMMERCIAL ARBITRATION
Author: Abhishek Sinha (Ultimate Year Law Student), ICFAI Law School, Dehradun.
Among few jurisdictions, India is the one to statutorily define public policy through Arbitration and Conciliation (Amendment) Act, 2015. While other countries consider the international public policy as a public policy only, the courts of India decided that there is no such workable definition of International Public Policy, hence it should be parsed to be the Doctrine of Public Policy as it is put by the Indian Court.
The risk of commercial disputes has been said to grow, with the increasing role of international trade and the developing economy. This is the reason why the international dispute resolution mechanism with arbitration is important to resolve trade disputes. As globalization arrives, this country had witnessed a rapid increase in commercial transactions between different nations. In order to sustain relations of trade in the market to maintain harmony with different countries globalization fuels international trade.
In certain circumstances it’s seen that parties are not satisfied with any condition present in any agreement then all of this gives rise to disputes between the parties. That’s why the government enacted the Arbitration and Conciliation (Amendment) Act, 2015 to govern international trade practices in India which especially highlighted the significance of the activities of International Commercial Arbitration.
Public Policy of India plays a vital role in whole affairs of enforcement of arbitral awards especially foreign awards as it forms diverse legal and cultural traditions involving parties, lawyers and arbitrators. As the national court takes completely a different approach in the situation of public policy in international arbitration, this is the reason why it remains a highly debated, controversial and complex issue.
Public policy is neither defined in Arbitration and Conciliation Act, 1996 nor the Contract Act, 1872. It is not the policy of any government. The policy of law and public policy both are equivalent to each other. This is the reason why any mischievous act which is injurious to the interest of the public or state is said to be against Public Policy.
The Apex court held in the case of Renusagar Power Co Ltd v General Electric Co that Public Policy has a wider meaning in the factors of domestic awards differentiated from a foreign award.
The word Public Policy denotes what is good in the public interest or what can turn out to be injurious from time to time.
The doctrine of Public Policy
The doctrine of Public Policy is considered open textured and pliable and this becomes the cause of judicial censure of doctrine. It is unable to change over time. Whatever point in the object of the contract would lead to obstruct or violate the statute or justice or be against Public Policy and be void hence it would not be enforceable.
As per section 34(2)(b)(ii) of the Arbitration and Conciliation Act, the court may set aside an arbitral award if it’s in conflict with the Indian public policy.
Convention and Treaties
1. Montevideo Treaty, 1889
- It is considered the genesis to run the procedures of different states for international commercial arbitration. It is said to be the first major treaty of its kind giving for recognition and enforcement of agreements of arbitration.
2. Bustamante Code, 1928
- It is also known as the Pan-American code of Private International Law and this code was the result of the effort of Antonio de Bustamante for Latin America. In Bustamante Code, only the majority of Latin American states elected the Convention of 1928. The 1923 Geneva Protocol on Arbitration Clause and 1927 Geneva Convention were involved after World War I.
3. European Convention, 1961
- This convention represents the New York Convention’s advancement in connection with the grounds on which the award can be set aside. European countries in which the Convention for international commercial arbitration is applicable in its enforcement of arbitral awards and rules formed within the community between parties of the region.
4. Arbitration Rules of UN, 1966
- The Nationals Economic Commission for Europe supplemented the Europe Convention, 1961. The arbitration was a consequently optional set of rules which could only be applied to the extent, that the parties agree to these.
5. ESCAP Arbitration Rules, 1966
- Rules of ESCAP Arbitration are in many ways similar to the European convention Arbitration Rules. Its drafting was largely inspired by the thorough study of the rules and procedures of different international bodies. Under these rules, there are no obligations on Arbitrators to provide reasons for their awards.
6. I.B.R.D. Convention, 1966
- This I.B.R.D. Convention mainly covers the investment disputes’ settlement. Necessary provisions are formed under section 6 art. 54(1) under chapter IV of this convention dealing with the enforcement and recognition of arbitral awards. And the provisions related to the execution of the award shall be governed by the laws.
7. Moscow Convention, 1972
- This convention includes the development of the provisions on dispute settlement which is considered to be necessary as a result of the intensification of economic cooperation among Council for Mutual Economic Assistance countries. Enforcement of award shall be in a similar way as a final judgment made by the state court.
8. UNCITRAL Model Law on International Commercial Arbitration, 1985
- Commission of United Nations on International Trade Law put together a Model Law on ICA, which the General Assembly of United Nations approved on 11 December 1985. This is considered a welcoming sign and different countries are in the procedure of developing their national laws keeping ICA in the mind.
Evolution of Public Policy of India in International Commercial Arbitration
In India, it is recently defined the concept of international commercial arbitration where it has been made clear that arbitration arose due to legal relationship and in that case the other party needs to be the resident of some other country than India then it will give way to international commercial arbitration. Further, if a company or individual central management is mainly controlled outside India and if the government of another country is also involved then India will come under this.
If confidentiality of details of dispute is violated and evidence is produced as a shred of evidence connected to the dispute in any other matter or proceedings, it can turn out to be the reason for refusing an arbitral award on the ground of public policy.
It is important to know the interface between arbitrability and public policy where it shows that it encourages commercial practices and foreign investment in India.
International Approach to Public Policy
UNICTRAL Model Law illustrates the international benchmark given to the ground of public policy in the international commercial sector. The award will be set aside only if the court considers the award to be contrary in nature to the public policy. Again the court considers the award to be contrary to the policy then arbitral award can be refused on recognition and enforcement of Model Law.
India is committed to these international conventions which have provided for international recognition to the ground of public policy in their arbitration mechanism. For instance, India is a party to international conventions such as the New York and Geneva Convention. To elaborate, the New York Convention states that recognition and enforcement of an arbitral award might be refused when the competent authority considers it to be contrary to the public policy of the respective country.
India became a party to the New York Convention in 1958 which was ratified in 1961. Moreover, the Geneva Convention depicts recognition or enforcement of the arbitral awards will be set aside if it is contrary to public policy or if it is against the principles of the law of the country. At present Hong Kong and Singapore is the most preferable seat for international arbitration among the Asian region In order to have a financially strong economy, ADR plays an important role in settling the disputes outside the court and lessening the burden of Indian courts from pending cases. This will encourage maintaining global standards in Indian practice, which provide India international recognition in the commercial sector.
For example, under Singapore arbitration law it has been made clear that a court may refuse enforcement of a foreign award when it finds it to be against the public policy of Singapore. There has been a narrow interpretation of public policy in the case of Singapore. In order to have better international commercial activities, their arbitration law states that enforcement should shock the conscience or it is against the notion of morality in order to set aside an arbitral award.
There are exceptional situations where the focus has been made on the principle of morality and justice and focus has been made on the public good. Also, under Hong Kong arbitration law focus has been made on the narrow interpretation of the public policy. The arbitration law states that an arbitral award will be set aside if the award is against the principle of morality and justice. If there is the presence of substantial injustice then the award will be set aside as it affects the court’s conscience. The conduct should be of serious nature and only serious errors are recognized under this aspect. Goa Haiyan v. Keeneye Holdings Ltd is a significant judgment, which reflects on the understanding of public policy. The arbitration laws are based on Model Law, the objectives of which the lawmakers of these respective countries must keep in mind while framing the law.
In order to have growth in international trade activities, the laws must maintain uniformity and should be of such nature that it boosts the flow of capital and economy in the country by the way of investment. With predictable results, the investors will develop their faith and this will develop certainty in their commercial relationship. Keeping this perspective in mind, one can focus on the fundamental value given to arbitration under the Indian Constitution under Article 51. The Indian arbitration law is the result of three important legal frameworks which we had in the past such as the Arbitration (Protocol and Convention) Act 1937, the Foreign Awards (Recognition and Enforcement) Act 1961 and Arbitration and Conciliation Act 1996.
Recently, the High-Level Committee presented its Report where the focus has been made on making India an arbitration-friendly country in near future. For instance, the Report has the international approach towards the notion of public policy where it has been reflected only three awards have been set aside in Hong Kong since 2011. It is essential that we at present gain support from the judiciary in order to have a fair and independent mechanism.
Moreover, Arbitration and Conciliation (Amendment) Bill 2018 got approved by the cabinet with the objective of making India the centre for International arbitration activities. One needs to keep in mind that Arbitration and Conciliation (Amendment) Act 2015 was aimed to ensure a friendly environment that could promote a healthy trade relationship with our neighbouring countries. In order to encourage the practice of neutrality, speedy justice and cost-saving mechanism changes have been made under the Indian arbitration laws. In order to have effective ecosystem changes have been brought through the recent amendment. One needs to understand that public policy exception is one of the most debatable aspects related to international arbitration.
In India, we need to have a proper understanding of the need and necessity to have a public policy defence. Arbitration has travelled a long way in Indian jurisdiction and making recent amendments in the Act has depicted the need to have a better arbitration process in India. The interpretation and conceptual understanding of this exception is our prime concern in order to make India a preferable seat. There is a need to encourage those activities which can be helpful in making awareness in the commercial sector about the benefits of having this defence in India. It will further galvanize the Indian arbitration regime and help in making India a hub for international arbitration in near future. By maintaining international standards and providing better facilities we can improve the Indian arbitration mechanism. Although at present we need to have a proper implementation of the present law concerning public policy exception in arbitration.
The recommendations given under 246 Report of Law Commission of India has focused on reducing the burden of Indian court from pending cases. Rationally, it has encouraged the practice of reducing judicial participation in such matters. The IBA Report on recognition and enforcement of the arbitral award in India reflects that enforcement of a foreign arbitral award can be set aside only on three grounds at present. It includes the fundamental policy of Indian law, the interest of India and justice and morality. With the 2015 amendment the Act has become clearer and has defined what constitutes public policy defence in arbitration. It is believed that there is still room for improvement in the observance of how the defence of public policy has been understood after the recent amendment in the Act.
 1994 AIR 860, 1994 SCC Supl. (1) 644
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 Id., Prof. Heinz Strohpach 9.
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