Public Policy has been in a vigorous debate for the past few decades. This
research paper discusses the need for a public policy if there is, then to
what extent should the Public Policy guide the courts and the arbitral
tribunals in setting aside the award. This research paper further deals with
‘Globalisation' and how it has an effect on arbitration and Public Policy.
The first part of the research paper deals with the introduction to the
public policy and its evolution.
The second part deals with how globalisation has an effect on arbitration and enforcement of the arbitral
award. The last part of the research paper discusses the relationship
between public goods in economics with public policy in arbitration and how
public policy plays a vital role in both the fields. The researcher chose a
doctrinal method of research in order to find out the answers to his
Objectives of the Research
The research paper aims to manifest the researcher's opinion on public
policy and its bar on enforcement of arbitral awards in India. The
researcher's intention is to manifest the origin and evolution of the phrase
public policy in Indian and international context with the help of several
landmark judgements and amendments in the Arbitration and Conciliation Act,
1996. The researcher seeks to understand the role of Globalisation in
Transnational Arbitration and how public policy can affect international
arbitration and enforce limitations.
The second part of the research and the
paper involves answering the important question, that whether there is
enough jurisprudence vis-a-vis public policy in a globalised world. At last,
the research paper seeks to discuss how public policy is an effective tool
to restrict the recognition and enforcement of arbitral awards for public
interest and how economics helps us understand the phrase better.
According to the Black's Law Dictionary, Public Policy means anything that
is against the fundamental policy and law of the land, of a particular
state. These policies stop any action from going against the public
interest. Public Policy is a dynamic concept, it is not constant through
time. It's meaning, interpretation, understanding changes through time. The
deciding judge of the meaning of the term public policy is the society in rem.
The bar is set with regard to public policy, to protect the national
interest, the fundamental policies of the state, the social welfare and the
economic welfare. In the contemporary world, with minimal trade barriers, liberalised trade relationship in short after Globalisation, there has been
an abuse of that privilege by many companies, actors, arbitral tribunals
etc. This raised a concern of whether there should be judicial intervention
to ensure the public policy is not being exploited.
Public Policy is interpreted in different ways in different nations and
places vis-a-vi International Arbitration. The phrase is divided into three
types or divisions; Domestic Public Policy, International Public Policy and
Transnational Public Policy.
Domestic Public Policy has the fundamental
policies, morality, justice and notions. It consists of the mandatory laws
of the state. Domestic public policy is limited to the state boundaries. It
is not applicable outside the state territory. Whereas, International Public
Policy has been given a narrow interpretation than domestic public policy
where not every rule violation is counted under International Public
Policy. The International Law Association Committee on International
Commercial Arbitration gave a definition to International Public Policy in
the final report on Public Policy as a bar to Enforcement of International
The body of principles and rules recognized by a State, which, by their
nature, may bar the recognition or enforcement of an arbitral award rendered
in the context of international commercial arbitration when recognition or
enforcement of the award would entail their violation on account either of
the procedure pursuant to which it was rendered (procedural public policy)
or its content (substantive international public policy
And finally, the last type, Transnational public policy it is slightly
different from the idea of International public policy, in transnational we
are looking at countries or nations with common policies with regard to
public policy. It is said that transnational public policy considers
fundamental rules of natural justice, principles of universal justice,
international law and general principles of morality and justice. Its been
termed as the standard principles or accepted norms.
Evolution of public policy.
public policy as discussed earlier is a dynamic concept, it's definition,
interpretation changes through time. Public policy is not specifically
defined in any law therefore we have to interpret it from case laws and
various judicial interpretations. Section 34 of the Arbitration and
Conciliation Act, 1996 has been in debate for the past few decades with
regard to the definition of the term public policy in the section. There
have been several landmark judgements that discuss the term and its
interpretation. The meaning of Public Policy was first discussed in the
case Renusagar Power Electric Company v. General Electric Company
this case, the court stated that Section 7(1)(b)(ii) of the Foreign Awards
Recognition and Enforcement Act, 1961 uses the expression public policy,
this case stated that a mere violation of Indian Law would not be sufficient
to attract the limits set by public policy. This basically meant that,
regardless of an action violating any Indian law, it would not attract the
bar of Public Policy unless it goes against the fundamental policies of the
country, goes against the interests of the public.
Although the Renusagar case ratio was not permanent until, subsequently, in
the judgement of ONGC v. Saw Pipes
 in 2003, the court widened the test of
what comes under the ambit of violation of public policy. The court, in
this case, decided that to attract the bar of public policy, with regard to
the arbitral award, mere violation of Indian law or the terms of the
contract is to be considered ‘patently illegal' and violating the public
. Similarly, when it comes to the foreign awards, the test laid down
by the ONGC case must be followed allowing the Indian court to deny
enforcement of a foreign award on the grounds of ‘patent illegality
But this was not for long, in the Lal Mahal case, the court upheld the Renusagar ratio
with regard to public policy. Therefore, the wider interpretation of the
Saw pipes ratio was no more in application. which meant the term public
policy in Section 48 was narrowed down once again. In 2014, in the Western
Geco case the court took side of the ratio of Saw Pipes case and it
further went ahead and manifested three Distinct and Fundamental jurist
principles it stated that the courts should take a judicial approach while
determining the rights of a citizen. Meaning, the adjudicating authorities
shall not act in an arbitrary manner. Then the courts or any judicial
authority for that matter should find out the rights of the parties and
obligations of the parties.
2015 Amendment of Section 34.
In the year 2015, a number of amendments took place in the Arbitration and
Conciliation Act, 1996. Section 34 was amended and the phrase public policy was given a precise interpretation by limiting the ambit of Public
Policy in India. The amendment stated if fraud or corruption is exercised
while giving an award; if it is in conflict with the fundamental principles
of morality and justice. The above-mentioned criteria are applicable to
setting aside awards in International Arbitration. When it comes to Domestic
Arbitration the test of ‘Patent Illegality' set by the Saw pipes case will
be upheld and will only be applicable to domestic arbitration. In domestic
arbitration, although the party can file an application on the grounds of
‘patent illegality' it cannot file an application to set aside the award on
mere account of erroneous or illegal conduct of application of law.
Since the changes made in the arbitration act in 2015, the courts have been
strictly following the guidelines laid down by the amendment. In the case
of Venture Global Engineering LLC and Ors v. Tech Mahindra Ltd and
Ors the court stated that the arbitration award can be set aside by the
court under the provision of Section 34 post amendment. The court cannot go
beyond that, it cannot go into the merits of the case. That's where the
amendment and the Section draws the line. A similar position was held by the
court in the case of Sutlej Construction v. The Union Territory of
Chandigarh. Upon analysis of these cases one can conclude that there's a
trend of courts not going beyond the parameters set by Section 34.
After the amendment, one of the changes apart from the public policy
interpretation was the courts power to look into the merits of the case.
After the 2015 amendment, an Explanation was added to the section (34) which
states that with respect to the question of setting aside the award, the
courts must not review the case on its merits. In the latest case of 2019,
the Supreme Court held that the award passed by an arbitral tribunal can be
set aside under section 34 and section 37 of Arbitration and Conciliation
Act, 1996. The apex court stated that the parties have no other recourse or
remedy in another law. This was held in the case of State of Jharkhand v.
M/SHSS Integrated SDN.
Globalization, the term is self-explanatory. The act or the process of
globalizing is the state of being globalisation. It is the process where
various nations come together and practice multiple things that benefit
their countries and others. Globalisation is the coming together of nations
to trade, exchange ideas, communicate etc. Tom Palmer defined Globalisation
the diminution or elimination of state-enforced restriction on exchange
across borders and the increasingly integrated and complex global systems of
production and exchange that has emerged as a result
Public Policy and Globalisation
In India, the trade liberalisation took place in the early 90s. This led to
a boom in Indian economy. Globalisation, theoretically might have a lot of
merits but when it comes to practice, there are some boons which are
One might question how Globalisation related to Public Policy, globalisation is a barrier that obstructs public policy from exercising its
power. Ever since the trade liberalisation and globalisation, the trade
barriers have come down to a point where there is no restriction to trade
(not absolutely). In an article, it was observed and stated that
Globalisation is the herald of a new world order and has been damned for
oppression, exploitation and injustice.
The author says that due to liberalisation, there has been exploitation in various ways. When we discuss
about globalisation, it is important to bring International Arbitration into
the picture because it is linked with globalisation and how the latter
helped the former gain some autonomy in its field. Globalisation has helped
arbitration go beyond the territorial boundaries of a nation and enabled the
actors' practice alternative dispute resolution on international grounds.
Globalisation and Arbitration have been going hand in hand for the past few
decades as there is a growth in technology, it has become easier for parties
to communicate and have trade relations. When parties have trade relations,
they tend to have disputes. Arbitration has reduced the gap by enabling the
parties from different countries have flexible and convenient dispute
resolution. With lower trade barriers and agreeing to arbitrate, the parties
gain conviction in extra judicial remedies and dispute resolution. Which
saves them time, expenses, legal advice expenses etc.
The important question is to what extent can globalisation affect
transnational arbitration. Public Policy defence comes into the picture to
put limitations on the disputes that arise between parties from different
nations. It is understood by majority of people that Public Policy
limitation that arises when there is a clear violation of the fundamental
policy or anything against the interests of the public. This is the
broader meaning of the phrase public policy.
When we try to understand the need and purpose of public policy
, we come
to a conclusion that it sets limitations. These limitations are important
especially in transnational arbitration because two different nationals,
have different set of laws and procedure. The researcher believes that the
perfect or a coherent analogy would be comparing public policy to a trunk of
the tree and different nations and actors from different nations to the
Different countries may have different set of laws just like
different branches have varied number of leaves. But they all, the
countries, can stand on equal and same ground in terms of public policy.
Maybe there might some difference since public policy is a dynamic concept.
Is there need of more robust jurisprudence vis-a-vi globalisation and public
policy in international arbitration? In the contemporary world, there are
numerous case laws in India to guide the parties when it comes to
intra-national trade and arbitration. But in terms of international
arbitration and to what extent public policy can be implemented there is
very little jurisprudence. The problem that arises is that due to a
heterogeneity in the understanding of the concept of Public Policy in
different nations. Although we have conventions that guide us in
interpreting the phrase public policy.
While in India, the term Public Policy has been given a narrow
interpretation, globally, on the international standards it has a very
narrow meaning even though it is not defined in any law. The phrase Public
is used to in two International conventions New York Convention and UNICTRAL's
Model law. Both of these provide that the state can deny to enforce an
arbitral award if the award violates the public policy of the state. The New
York Convention in its Article V (2)(b) states:
(b) The recognition or enforcement of the award would be contrary to the
public policy of that country.
The language of Article V is straight forward, it stipulates any award that
is against the public policy of that country
, it does not give us a
definition to the phrase but provides the extent of applicability of this
article. It refers to the country where the recognition and the enforcement
of the award is sought. If the award is contrary to the public policy of
that country, it can set aside the award on the aforementioned grounds.
it comes to international arbitration, the interpretation is narrower.
Usually, countries have domestic and international public policy where the
international public policy applies to the foreign awards. In a recent case
in Columbia, the apex court was asked to enforce the ICC foreign award that
was challenged on the grounds of violation of the country's domestic public
policy. It was concluded later on that the country's international public
policy was different and it did not infringe that and therefore the award
The researcher strongly urges on the point that there is a need for more
extensive jurisprudence with regard to the phrase Public Policy. But the
jurisprudence on public policy should not be in excess reason being, public
policy is a concept that is subjective when you take into account different
It depends on different countries, who have different
perspectives. When we are discussing about international arbitration, the
focus should not be narrow and there should be some ambiguity so that every
country gets some discretion when it comes to interpreting the phrase public
policy in relation to their own country.
If we give an absolute definition
to the phrase public policy, it will abstain the countries in interpreting
the concept with regard to their socio-economic conditions of the country.
What may be considered as violative of public policy in country A might not
be violative of country B. therefore, it can be said that there is a need
for jurisprudence around the phrase public policy but it should not be in a
vacuum, where the courts cannot go ultra the meaning of public policy.
Public Goods And Public Policy
In economics, goods are classified into four types. Public goods, Private
goods, Common goods and Club goods. For our discourse we will consider
‘Public Goods'. Public goods are those goods which are non-excludable and
non-rival in nature. These goods are open to public at large and everyone
can consume these goods without any restrictions. Now, in the contemporary
world the problem is that there is no regulation on these public goods.
some public goods the government has regulations and has enacted laws to
control and regulate the consumption. The current problem with the public
goods is the free rider problem. This happens when some subjects of the
society fail to contribute their share to the costs of the resources shared
by all. This shows us that there is a need to have some sort of regulation
and limitation on the resources especially limited resources.
When we say
that public policy is a limitation that is set to remind the parties their
limits and boundaries, similarly, it is important to create some boundaries
and restraints on the utilisation of public goods. The interface between
public policy in arbitration and restrictions on the public goods is the
limitation imposed on the people or the parties involved, the interests of
the public at large.
The problem with public goods is its limited availability in the society.
When the public has no incentive to maintain and utilize the goods (public)
judicially and carefully in a reasonable manner, over-utilisation occurs. It
is said, in economics, that when you enable the public with the duty to
maintain and utilize the goods properly, there's sustainable utilisation of
the said goods. This generally happens with the private goods, where the
goods or properties are sold to private individuals in order to maintain and
work on that particular property.
We can relate the concept of public goods and open-access regime to public
policy in arbitration. The interesting thing, we can find an intertwining
thread between globalisation and its effect on arbitration and how economics
helps us understand this problem and gives us a fragmented solution. In
economics, with regard to public goods, there's open access to the goods
which means the goods are available for the public at large and there is no
restriction. No one is excluded and the goods are not rival in nature.
Therefore, there is an open-access regime which can be resolved by defining
the property rights and imposing effective rules and regulating the goods
In Arbitration's context, the open access regime is the lower trade barriers
and the effects of globalisation. When there are low trade barriers, parties
and the tribunals tend to over-step their limits. There needs to some sort
of limitation that needs to be imposed.
Just like it is important to impose
some kind of limitation or restriction on the public goods in economic
context, it is important to impose similar restrictions and limitations on
the enforcement of arbitral awards. In both the cases, it is for the
well-being of the public at large, for public welfare. Public policy's most
simple definition is anything which is contrary to the interests of public
it falls within the gamut of public policy limitation. Public policy tries
to draw the line on the subject matters that can be arbitrated in the
tribunals and the awards that can be passed.
When the parties are from
different nations, due to low trade barriers, there is exchange of goods and
resources from one state to another. This can sometimes lead to exploitation
of those resources. There are situations where different countries exchange
their resources with each other, in that scenario the state should consider
the public good and interest before taking any decisions like allowing
foreign states to utilize the resources.
is a dynamic concept, it cannot have a constant definition
or an interpretation that can be followed for generations of arbitration. We
try to seek a right and suitable definition of something that cannot be
defined, it should not be. If it is given a definition and if it gets a
narrow interpretation then there is a chance of abuse of that definition and
almost all or a lot of cases will fall under that. Its better off to leave
it to some extent of ambiguity so that the courts have some discretion in
interpreting it according to the country's policy, especially in the context
of international arbitration. Economic helps us in a very unique way to
understand the need of a concept of limitation like having something like
public policy. It helps us not define the phrase but understand the purpose
of having public policy.
- Acts/ Conventions/Regulations/Rules Referred
- Indian Arbitration and Conciliation Act. 1996.
- Foreign Awards Recognition and Enforcement Act, 196.
- New York Convention,1959 (Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, 1959.).
- Online Websites referred
- 1994 SCC Supl. (1) 644
- (2003) 5 SCC 705
- Civil Appeal No. 5085 of 2013
- (2014) 9 SCC 263
- 2017 SC 1272.
- 2017 14 SCALE 240 (SC)
- Tom G. Palmer, Globalisation Is Great! 2002.
- Bernado Cremades and David Cairns, The Brave New World of Global
- Ostrom, E., & Hess, C. (2010). Private and common property rights.
In Property Law and Economics.
- Dales, John H. (1968), Pollution, Property, and Prices: An Essay in
Policy-making and Economics, Toronto, University of Toronto Press.
2nd Year BBA-LLB Student,
School of Law, Bennett University.