Proposed Amendments to Arbitration Law

[The following guest post is contributed by Shriya Jain, Fourth year student and Param Pandya, Fifth year student at the
Gujarat National Law University, Gandhinagar, Gujarat. The authors can be
contacted at [email protected] and
[email protected]. respectively]
This post covers the developments which triggered the Law Commission of
India to submit a Supplementary Report to the 246th Law Commission of India
Report in February, 2015]
Section 34 of the Arbitration and Conciliation
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.[1]
The debate over the term ‘public policy’ in
the Indian context is rather protracted.
The Supreme Court has called ‘public policy’ to be an
‘unruly horse’ and an ‘untrustworthy guide’.[2] 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.[3] Later, the pronouncement
in Saw Pipes case further added the
ground of ‘patent illegality’[4] for challenge of an arbitral
award and the Phulchand case[5] 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.[6] Thus, it excluded the
application of ‘patent illegality’ as a ground for challenge of foreign awards.
In August, 2014 the
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”
be restricted to
domestic awards and not foreign awards.[7] Thus, the Law Commission distinguished
between the treatment to domestic and foreign awards as visualized under the
However, in
September, 2014 the Supreme Court in ONGC
v. Western Geco[8]
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
Aggrieved by the decision, ONGC appealed to the Supreme Court.
The Apex Court brought
back the Saw Pipes judgement and
treated domestic and foreign awards at par in terms of challenge.[9] The Supreme Court enlisted
three additional points under fundamental policy of India – principles of
natural justice, judicial approach and Wednesbury unreasonableness[10] 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.[11]
The disquieting
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.[13] 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.[14] 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
The Government of India in its quest for
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.[15]
– Shriya Jain & Param Pandya

[1] For detailed
analysis of Section 34 & 48, See Avtar Singh, Law of Arbitration & Conciliation, Eastern Book Company,
Lucknow, (9th eds., 2009) pp. 292-395, 457- 460.

[2] Justice
Burroughs in Richardson v. Mellish, 2 Bing 229 (1824) at 303. Reiterated
by Justice Subba Rao in Gherulal v. Mahadeodas, AIR 1959 SC 781.

[3] Renusagar
Power Plant Co. Ltd v General Electric Co AIR 1994 SC 860.

[4] ONGC
Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705.

[5] Phulchand Exports
Limited v. OOO Patriot (2011) 10 SCC 300.

[6] Shri
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).

[7] Prachi Narayan &
Aditya Pal, Proposed Amendments to Arbitration Law, IndiaCorpLaw Blog, (August 22, 2014).  

[8] [2015]
54 331 (SC).

[9] Economic
Laws Practice, India: Public Policy In
Arbitration Gets New Wings: Review of Indian Supreme Court Decisions In 2014
,, (January 21, 2015).

[10]It is true to say that, if a decision on a
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.

[11] Government
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.

[12] For detailed
analysis of ONGC v. Western Geco, see Shriya Jain & Param Pandya,
The Disquieting Expansion of
Public Policy: ONGC v. Western Geco International Ltd,
[2015] 32 CPT 616 – 620.

[13] Associate
Builders v. Delhi Development Authority, 2014 SCC SC 937.

[14] Supplementary
to the 246th Law Commission of India Report on Amendment to Arbitration &
Reconciliation Act, 1996, Public Policy’ Developments  post Report No. 246, Supplementary _to_
Report_No._246.pdf (February, 2015).

[15] Prithvij Beniwal, The Arbitration and Conciliation (Amendment)
Bill, 2015
, Arbiter Dictum, (February 26, 2015).

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • “The debate over the term 'public policy' in the Indian context is rather protracted.”
    REACTION: Not just in Indian context, but in today’s context, globally, nothing is regarded to be fit enough to pass muster without a debate; and a debate not simply protracted but endlessly procrastinated, often with no rhyme or reason , or sound logic at that. As independently perceived, the malady has to be traced to the fatal fallacy in trying and construing or misconstruing the two concepts, – ‘public’ and ‘policy’ themselves ; differently for different purposes/ in varying contexts, so much so many times going off unwittingly at a tangent. More so, individual perceptions, with lawyers and judiciary bent upon making own ‘valuable’ contribution, to keep the issues kicking and alive perennially to eternity.
    Worthwhile looking back to know comments in the like vein posted previysly on the same topic.

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