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In India, public policy plays a significant role in determining whether an arbitral award can be enforced. The Arbitration and Conciliation Act, 1996 (ACA) allows courts to set aside or refuse enforcement of arbitral awards on the grounds that the award contravenes public policy. While the scope for refusing enforcement is narrow, violations of public policy can occur in various forms, such as the violation of local laws, the application of illegal contracts, or issues of fairness and justice.
Arbitral awards based on illegal contracts or fraudulent activities are often challenged on the grounds of public policy. For instance, a contract based on corrupt practices or involving illegal activities may lead to the setting aside of the award.
Example: In the ONGC v. Saw Pipes case (2003), the Supreme Court of India held that an arbitral award could be set aside if it was found to be in conflict with public policy, including awards based on fraudulent contracts.
If an arbitral award requires a party to perform an action that violates Indian penal laws or contravenes basic moral and ethical principles, it may be set aside.
Example: In the Renusagar Power Co. Ltd. v. General Electric Co. case (1994), the court ruled that if an arbitral award mandates actions that go against public policy (e.g., corruption or bribery), it could be set aside. The award in this case involved issues relating to the application of Indian law, and the court found that the enforcement of the award would violate Indian public policy.
Awards that conflict with the constitutional principles of India, such as the fundamental rights guaranteed under the Constitution, can be challenged.
Example: In the case of Shri Lal Mahal Ltd. v. Progetto Grano SPA (2014), the Supreme Court ruled that an arbitral award could be refused enforcement if it violated the fundamental principles enshrined in the Indian Constitution, particularly when it concerned issues like freedom of trade or equality before the law.
If an arbitral award is made in violation of principles of natural justice, such as when a party is denied a fair hearing or there is bias in the selection of arbitrators, it can be considered a violation of public policy.
Example: In Associate Builders v. Delhi Development Authority (2015), the Supreme Court observed that an award could be set aside if the arbitral process was unfair or violated the principles of natural justice. The case highlighted that if a tribunal acts in a way that undermines fairness, such as ignoring key evidence or arbitrators having conflicts of interest, it can lead to the award being challenged on public policy grounds.
If an arbitral award mandates something that goes against the sovereignty, integrity, or national security of India, it will be rejected based on public policy grounds.
Example: In the National Highways Authority of India v. M. Hakeem case (2020), the Supreme Court held that an award that violates India’s sovereignty or national security interests could be refused enforcement. For example, an award that requires an Indian company to take actions that compromise national security or breach state sovereignty would be invalid under public policy.
If an arbitral award requires actions that are in direct violation of Indian labor laws or public welfare policies (e.g., awards against worker protection), such an award may be set aside.
Example: In K.K. Verma v. Union of India (2016), the Delhi High Court refused to enforce an arbitral award that was inconsistent with Indian labor laws, as it was seen to undermine the protection of workers’ rights. The case reaffirmed that arbitral awards should respect the minimum standards prescribed by Indian labor law.
Foreign arbitral awards are also subject to scrutiny under Indian public policy principles. If an international arbitral award is found to contravene Indian public policy, it can be refused enforcement under Section 48 of the Arbitration and Conciliation Act, 1996.
Example: In Bhatia International v. Bulk Trading S.A. (2002), the Supreme Court ruled that foreign arbitral awards could be set aside if they violated Indian public policy. In this case, the court examined whether a foreign award conflicted with Indian legal principles, particularly concerning contract law and the enforcement of foreign judgments.
Indian courts apply the principle of public policy even to international arbitral awards. Under the New York Convention, which India is a signatory to, Indian courts can refuse enforcement of foreign awards if they violate Indian public policy. For instance, if the enforcement of a foreign arbitral award contravenes India's legal or constitutional principles, it can be set aside or denied.
If you are involved in arbitration and concerned about the public policy of India, it is essential to consult legal experts who can guide you through the nuances of the Arbitration and Conciliation Act, 1996, and related public policy concerns.
Public policy is a broad and somewhat subjective term. Understanding how courts interpret public policy and its limitations can help minimize the risk of enforcement challenges.
For both domestic and international awards, ensure that the arbitration process and the underlying contract comply with Indian laws, including labor laws, constitutional provisions, and public welfare regulations, to avoid challenges.
Avoid including any terms in your arbitration agreement or underlying contracts that might violate public policy principles, such as illegal actions or provisions that contravene national or international law.
Ensure the arbitrators are neutral and unbiased to avoid challenges on the grounds of procedural unfairness or violation of natural justice.
If you believe that an award may violate public policy, raise the issue early in the proceedings to avoid delays or the inability to contest the award at a later stage.
Suppose a company in India, IndoTech Ltd., enters into an arbitration agreement with a foreign partner, Global Enterprises, based in the USA. The arbitral award requires IndoTech to make a payment related to a contract involving illegal bribery and corruption.
Discover clear and detailed answers to common questions about public international law. Learn about procedures and more in straightforward language.
