Gujarat National Law University, Gandhinagar, Gujarat. The authors can be
contacted at [email protected] and
[email protected]. respectively]
India to submit a Supplementary Report to the 246th Law Commission of India
Report in February, 2015]
Act, 1996 (‘Act‘) covers grounds of
challenge for setting aside of an arbitral award. These include incapacity of a
party, invalidity of an arbitration agreement under the law for the time being
in force, failure to give proper notice for appointment of an arbitrator, the
arbitral award dealing with a dispute which is not within the purview of the
arbitration agreement, the composition of the tribunal or the procedure not being
in accordance with the arbitration agreement, the subject-matter of dispute being
incapable of settlement through arbitration in India or is against the public
policy of India. Section 48 of the Act lays down similar grounds of challenge for
foreign awards apart from the ground of the award being set aside by a
competent authority of the foreign country.
the Indian context is rather protracted. The Supreme Court has called ‘public policy’ to be an
‘unruly horse’ and an ‘untrustworthy guide’. The Renusagar case interpreted the said term to include (i) fundamental policy
of Indian law; (ii) the interests of India; or (iii) justice or morality. Later, the pronouncement
in Saw Pipes case further added the
ground of ‘patent illegality’ for challenge of an arbitral
award and the Phulchand case expanded the application
of the same explanation to foreign awards as well under Section 48. However, in
the Lal Mahal case the affirmation
that Saw Pipes received in Phulchand was reversed and the original
position of Renusagar was restored. Thus, it excluded the
application of ‘patent illegality’ as a ground for challenge of foreign awards.
Law Commission of India (‘Law Commission‘) submitted its 246th Report to the Government of
India. The Law Commission envisages India to emerge as a global arbitration hub
and hence seeks to bring more objectivity to arbitration law in India. It recommended that no further
grounds should be added to the term ‘public policy’ and the ratio of the Renusagar case should serve as the basis
for challenging arbitral awards. It further recommended that the ground of
‘patent illegality’ subject to
“an award shall not be set aside merely on the ground of an erroneous
application of the law or by re-appreciating evidence” shall be restricted to
domestic awards and not foreign awards. Thus, the Law Commission distinguished
between the treatment to domestic and foreign awards as visualized under the
UNICITRAL Model Law.
September, 2014 the Supreme Court in ONGC
v. Western Geco
went on to enlarge the contours of the ‘public policy’ debate in India. The Oil
and Natural Gas Corporation (‘ONGC’)
entered into a contract with the Respondent, Western Geco International Limited
(‘Western Geco’) for technical
upgradation of its seismic survey vessel, requiring “Geophone” Hydrophones
(‘U.S. Hydrophones’). There was a delay in delivery of the said vessel due to
certain approval issues which gave rise to the dispute and ONGC claimed
liquidated damages from Western Geco. The Arbitral Tribunal did not allow the
deduction claimed from the consideration to be paid by ONGC since a part of
delay was caused due to approval pending from US authorities, of which ONGC was
duly informed, and hence not attributable to Western Geco. Also, it held that
the deductions by ONGC on account of change in Indian tax laws were not valid.
ONGC filed a suit for setting aside the arbitral proceedings in the Bombay High
Court under Section 34 of the Act. The petition was dismissed by a Single Judge of the High Court but
was allowed in part by the division bench of the High Court to the extent of
deleting pendente lite future interest from the award made by the
Tribunal. Aggrieved by the decision, ONGC appealed to the Supreme Court.
back the Saw Pipes judgement and
treated domestic and foreign awards at par in terms of challenge. The Supreme Court enlisted
three additional points under fundamental policy of India – principles of
natural justice, judicial approach and Wednesbury unreasonableness as fertile grounds for
challenge of domestic as well foreign awards. It provides that an award may be
cast away or modified depending on the severability of such a part and comments
on the merits of the dispute. This approach is criticized as an excess of judicial
intervention, frustrating the very object of alternative dispute resolution.
Also it is against the international practice and courts in various
jurisdictions have held it to be against the said position.
expansion of ‘public policy’ in ONGC
v. Western Geco is detrimental to
overall legal landscape and is likely to disincentivize parties from resorting to
Further, the said judgement has been highlighted with added emphasis in the Associated Builders case. Although in the said case
the arbitral award has been maintained, the Court has made several passing
remarks tracing the evolution of the ‘public policy’ debate opening avenues for
future litigation. The Law
Commission, sensing the later development, in February, 2015 submitted a
Supplementary Report (‘Report‘) to
the Government of India. The Report clearly states
that the verdict in ONGC v. Western Geco “undermines the Law Commission’s attempts to bring the Act in line with
international practices and will discourage the possibility of international
arbitration coming to, and the domestic arbitration staying in, India.”
Hence, an explanation to the Section 34(2)(b)(ii) is proposed which states that
“to determine the contravention of
fundamental policy of Indian law shall not entail a review of the merits of the
enhancing the ease of doing business in India has reacted to the Report
declaring to amend the Act. However, the contents of the Arbitration &
Conciliation (Amendment) Bill, 2015 are still awaited.
analysis of Section 34 & 48, See Avtar Singh, Law of Arbitration & Conciliation, Eastern Book Company,
Lucknow, (9th eds., 2009) pp. 292-395, 457- 460.
Burroughs in Richardson v. Mellish, 2 Bing 229 (1824) at 303. Reiterated
by Justice Subba Rao in Gherulal v. Mahadeodas, AIR 1959 SC 781.
Power Plant Co. Ltd v General Electric Co AIR 1994 SC 860.
Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705.
Limited v. OOO Patriot (2011) 10 SCC 300.
Lal Mahal Ltd. v. Progetto Grano Spa 2013 (4) CTC 636. For details, See Public Policy under section
48 of the Arbitration Act, IndiaCorpLaw Blog, (September 12, 2013).
Aditya Pal, Proposed Amendments to Arbitration Law, IndiaCorpLaw Blog, (August 22, 2014).
54 taxmann.com 331 (SC).
Laws Practice, India: Public Policy In
Arbitration Gets New Wings: Review of Indian Supreme Court Decisions In 2014,
www.mondaq.com, (January 21, 2015).
competent matter is so unreasonable that no reasonable authority could ever
have come to it, then the courts can interfere.” Lord Green in Associated Provincial Picture Houses Ltd. v.
Wednesbury Corpn., (1948) 1 KB 223.
of the Republic of the Philippines v. Philippine International Air Terminals
Co, Inc (Singapore High Court, 2007); Hall Street v Mattel (United States
Supreme Court, 2008). These Judgements have clearly laid down that courts
should not resort to reconsideration of the award on the merits.
analysis of ONGC v. Western Geco, see Shriya Jain & Param Pandya, The Disquieting Expansion of
Public Policy: ONGC v. Western Geco International Ltd,  32 CPT 616 – 620.
Builders v. Delhi Development Authority, 2014 SCC SC 937.
to the 246th Law Commission of India Report on Amendment to Arbitration &
Reconciliation Act, 1996, Public Policy’ Developments post Report No. 246,
http://lawcommissionofindia.nic.in/reports/ Supplementary _to_
Report_No._246.pdf (February, 2015).
Bill, 2015, Arbiter Dictum, (February 26, 2015).