Globally, in the area of international arbitration, for example, a search reveals that more than 160 arbitral awards at least those that have been made public have referred to the term public policy.1 . The extent to which arbitrators and mediators can assess public policies, as they come up during proceedings, remains highly unsettled. Furthermore, the scope of authority afforded to judges and national courts that re- view and enforce public policies has proven to be highly discretionary.2

The doctrine of public policy, is a concept through which public law enters private law, and bars it from normal legal consequences, it is an old doctrine, but the scope of the doctrine is not defined, thus it is on the courts that how they interpret it, in a broader sense or a narrower sense, the phrase public policy is used and pled in various national and international tribunals on daily basis, but the limitations of the term is itself limited.

And if we consider the law of arbitration in India, the Arbitration and Conciliation act of 1996, itself says a court can set aside an arbitral award if it is in contravention to public policy of India, there are various case laws, in which the applicability of the term public policy is discussed that are discussed in later part of this paper. Also the paper discusses about the relation of public goods in regards to the public policy in arbitration as, there are various instances one dispute is settled but it is hampering the accessibility to the general public to public goods, then again the doctrine of public policy kicks in and there is review by court.

How Is Public Policy A Bar On Enforcement Of Arbitral Awards In India?

The doctrine of public policy, in the context of arbitration, entails that not all subject matter of dispute between two or more parties can be subjected to arbitration owing to the public nature of the subject matter. Basically, if the subject matter affects the public at large, then there is a problem in enforcement of arbitral awards, and it is also been assumed that no arbitration tribunal should be not be allowed to settle the same and should be settles by lawful public authorities.

Article V (2) of the New York Convention of Recognition and Enforcement of Foreign Arbitral Awards 1958 gives the signatory countries leeway to not enforce a foreign arbitral award if: it is found to deal with a subject matter which is not arbitrable under the laws of that country, it is found to be contrary to public policy of that country.

The Hon'ble Supreme Court of India, on number of occasions has held that a suit can be filed in court of India challenging a foreign award passed by an arbitrator in matter concerning International Commercial transactions, if the award is against the public policy and in contravention of Indian Law. In the land mark case of Renusagar Power Co. v. General Electric Corporation 4, Supreme Court interpreted Public Policy as public policy as used in section 7 (1) (b) (ii) has been used in a very narrower sense and in order to attract a bar of public policy on enforcement of an award, it was being held that any foreign award would be refused on ground of public policy only and only when it violates the fundamental policy of Indian law, the interests of India and justice and morality.

But in case of Oil and Natural Gas Corp v Saw Pipes 5 the court took a different approach the opened a backdoor to review the merits of an arbitration award, which is a clear contravention of arbitration law and practice. In this case the court held that the ground for public policy should be given a wider meaning, because the whole concept of public policy is to lay emphasis on a matter that is concerned with public good and public interest. It was held that if an award was contrary to the substantive law, the Indian Arbitration Act and/or the terms of contract the court can review it.

Further in case of Bhatia international v. Bulk Carriers 6 the Supreme Court held that the Provisions in Part 1 of the Indian Arbitration Act would also apply to foreign awards unless specifically excluded by the parties. Its effect was now parties could rely on Bhatia case, using the patently illegal ground added by Saw Pipes case to resist enforcement of foreign awards. Section 34 and 48 of the Arbitration and Conciliation act of 1996, based on article 34 of the UNCITRAL Model Law also provides for the same conditions. But in recent case of Shri Lal Mahal Ltd v. Progetto Grano Spa 7, where the arbitral award was upheld by courts of United Kingdom and was sought to be enforced in India, but an objection was filed under section 48 of the New York Conventions Act, the Supreme Court ruled that the ground of Patent Illegalit' is not included in the expression of Public Policy under section 48, further this ground is only limited to section 34 of the Indian Act. In cases that are related to foreign arbitral seat and conflict of law, the doctrine of Public Policy is limited. Thus is this case Supreme court limited the meaning of public policy to fundamental policy of India, Interests of India, and Justice and Morality.

In A Globalized Is There A Need Of More Robust Jurisprudence Around The Word Public Policy?

The term Public Policy didn't appear until 18th Century in common law, before that the term against public policy was more generally referred to as encounter common ley, which meant something against the benefits of commons. One of the first instances where the courts employed the term public policy is the case of Mitchel v. Reynolds, in this case, Lord Macclesfield invalidated a contract that would result in restraint of trade.

In 1750 Lord Hardwicke offered one of the first definitions of pub- lic policy that was illuminating: contracts against public policy are of no effect not because either of the parties has been deceived but be- cause they are a general mischief to the public. But the modern approach to doctrine of public policy entailed political considerations and not merely public values for its justification. The politicization of public policy gave rise to resistance and hesitation in 19th century common law. In case of Richardson v. Mellish, Justice Burrough famously called Public policy as unruly horse and when you get astride of it, you never know where it will carry you10.

The unruliness of public policy simply is related to its nature of logical reasoning that departs its away from legal reasoning. Now if we consider the concept of public policy with respect to arbitration, there are four key areas that are needed to be addressed,

1. firstly, should claims in regard to public policy be arbitrable?
2. Secondly what is the authority of an arbitral tribunal to entertain public law claims, particularly if the law implicated is not the law of the contract as chosen by the parties;
3. thirdly will the tribunal properly apply the mandatory law and have proper incentive to do so; and
4. fourthly what should a supervising court do in terms of the scope of public policy review for these issues either at the stage of annulment or enforcement?

The main task in beginning of an arbitration proceeding is that whether mandatory law should be applied to a dispute, and if applied would the supervisory court at enforcement stage would accept the rules or would they merit under the defense of public policy exception.

Hence if the defense of public policy be accepted in all cases, then the matters relating to public policy be not arbitrable When an arbitral tribunal entertains public law claims, defenses, a question can always arise about the authority of the arbitral tribunal, because according to the jurisprudence of the term, a public authority has jurisdiction over the questions of public policy.

Thus there is a dire need of more robust jurisprudence around the term Public Policy, firstly as explained earlier the interpretation given to the term public policy has no limits, firstly it needs to be narrowed down because if not did so, the variation in the same around the world would hamper the pace of globalisation and the pace of development of international arbitration, as around the world every country have its own set of cultures and rules that comes under the umbrella of public policy.

Hence there is a need for formation of a proper definition of the term Public Policy, which would thus serve as a limitation to its interpretation. Thus, Public policy doctrine is an avenue through which public affairs collide with that of private arrangements between parties, and also bars them from yielding ordinary results. It might be the fifty-third card in the deck, yet it is a trump card capable of freezing contracts, foreign judgments, or arbitral awards.

What Can We Learn From The Idea Of Public Goods In Economics Vis-a-Vis The Question Of Public Policy In Arbitration?

Public goods are defined by two criteria. The first is non-rivalry: if one person consumes the good, this does not exclude another person from consuming the good as well. The second criterion is non-excludability: it is impossible to provide the good to one person (or a defined set of persons) while at the same time excluding others.

Examples of public goods can be fresh air, knowledge, light houses, street lightning etc. But sometimes due to excessive use of public goods by a single individual, raise disputes, which is generally understood as a violation of public policy, because public policy itself suggests that the goods that are public in nature, should be used by everyone in harmony and not to be used exclusively by one for his/her benefit.

And sometimes during arbitral proceedings, these public goods play a very important role, for example a dispute between two companies, one of them is being granted an award to double its production, with some benefit to other, this would certainly settle the dispute between the two parties, but would be against public policy, as the production would double for a party, the pollution released by that particular company would also increase, thus hampering the public goods, which is to be utilised by public at large.

Thus in respect to arbitration, public policy can be established as set of rules and regulations, set by a government, for public to not over use the public goods, and use them in harmony, so that by one's use no one another is harmed or affected. Although there are several obstruction with regard to public goods. Some of these obstructions could be with regard to information about what is the preference of an individual with regard to a public good.

An optimal state where the price paid by an individual equals to the per unit cost of the public good is called Lindahl equilibrium.12 In addition, public choice literature has identified reasons why state institutions often will not provide optimal solutions: state agents act on the basis of incentives that are not always optimally congruent with public or common interests 13.

But in era of globalisation a state has to keep environment and global trade both in mind and also individual preferences. Thus, is viewed as a core target of the international law to regulate and enable the production of public goods but without a central decision-making authority as different countries have different individual preferences. Hence the contrast between international arbitration and public goods becomes relevant

Conclusion:
The concept of public policy is needed to be narrowed down, until and unless done so, the courts would be interfering with the arbitral awards given by various arbitral tribunals, a proper definition needs to be formed for the concept of public policy, with its boundaries specified. Until then the defense of public policy would act as an unruly horse, and would also serve as an obstruction, to various contracts, arbitral proceeding and arbitral awards.

Similar is with the jurisprudence of the term public policy, the term needs to be not as flexible as it is presently but should have a concrete structure. But it is difficult to achieve as public policy differs across world, different countries have different public policies, according to which the courts have jurisdiction, but to minimalize the intervention of courts a robust jurisdiction is needed.

With regards to public goods in relation to public policy in arbitration, it's a concept that is not still clear, as the importance of public goods varies between different individuals, thus it is difficult for a central authority to filter the individual preferences in public goods, and also in era of globalization, it is difficult for a country to access maintain a balance between environment protection of public goods and global trade, thus the contrast between international arbitration and public goods become relevant.

End Notes:

1. Arbital award search, KLUWER ARBITRATION, http://www.kluwerarbitration.com (follow Advance Search hyperlink; search for term public policy in free text
   tab; check box awards next to text type tab
2. William S. Dodge, Breaking the Public Law Taboo, 43 HARV. INT'L L. J. 161 (2002).
3. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Article V (2). 4 Renusagar Power Co. Ltd vs General Electric Co, 1994 AIR 860
4. Oil and Natural Gas Corp v Saw Pipes, (2003) 5 SCC 705
5. Bhatia international v. Bulk Carriers, (2003) 5 SCC (Jour) 22
6. Shri Lal Mahal Ltd v. Progetto Grano Spa (2014) 2 SCC 433
7. Mitchel v. Reynolds (1711) 24 Eng. Rep. 347 (Q.B.)
8. The term public policy doctrine has been used in earlier pieces. See, e.g., W.S.W. Knight, Public Policy in English Law, 38 L.Q.R. 207 (1922). The term has also been defined in the conflict of laws field. See, e.g., Arthur Nassbaum, Public Policy and the Political Crisis in the Conflict of Laws, 49 YALE L. J. 1027 (1940); Monrad Paulsen & Michael Sovern, Public Policy in Conflict of Laws, 56 COLUM. L. REV. 969 (1956).
9. Richardson v. Mellish, (1824) 130 Eng. Rep. 294, 303.
10. Farshad Ghodoosi, The Concept of Public Policy in Law: Revisiting the Role of the Public Policy Doctrine in the Enforcement of Private Legal Arrangements, 94 Neb. L. Rev. 685 (2015)
11. Leif Johansen, Some Notes on the Lindahl Theory of Determination of Public Expenditures, 4 Int'l Econ. Rev. 346-358 (1963), based on Erik Lindahl, Die Gerechtigkeit der Besteuerung (Lund 1919).
12. See, e.g., Gordon Tullock, Public Decisions as Public Goods, 79 J. of Pol. Econ. 913-918 (1971)

Bibliography

1. Arbitration and Conciliation Act of 1996
2. UNCITRAL
3. New York Convention.

Websites Referred:

1. https://www.indialawjournal.org/archives/volume2/issue_4/article_by_tanuj.html
2. http://www.legalservicesindia.com/article/1224/Public-Policy-under-Arbitration-Law.html
3. https://barandbench.com/public-policy-double-edge-sword-enforcement-proceedings/
4. https://blog.ipleaders.in/doctrine-public-policy-enforcement-arbitral-awards/

Books Referred:

1. Dr PC Markanda , Arbitration Step by Step, ed. 2, Lexis Nexis

Articles Referred:

1. Farshad Ghodoosi, The Concept of Public Policy in Law: Revisiting the Role of the Public Policy Doctrine in the Enforcement of Private Legal Arrangements.
2. Christopher S. Gibson, Arbitration, Civilization and Public Policy: Seeking Counterpoise between Arbitral Autonomy and the Public Policy Defence in View of Foreign Mandatory Public Law.
3. Ralf Michaels, International Arbitration as private and public good