Extent of Judicial Review in Foreign Arbitral Award with reference to Public Policy

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This post has been written by Mamta Kumari, a law student from Banasthali Vidyapith.

INTRODUCTION

With immense increase in trade and investment, dispute between the contracting parties is also increasing which is not only within nation but also with people of cross boundaries. For solving such cross-border disputes parties started opting arbitration as a dispute resolution method in relation to international transaction. After passing of foreign arbitral award by the arbitration tribunal, the main task is to enforce it but when the arbitral award is not accepted by one of the party and its enforcement is not in progress then the party in whose favour the award is passed  do not get the fruit of arbitral award, may apply in court for the enforcement of such foreign arbitral award. But the loosing party may also file for the validity of such award. In such condition the domestic court may review the award judicially and order for enforcement.

JUDICIAL REVIEW: INTERPRETATION OF “PUBLIC POLICY”

The Arbitration and Conciliation Act,1996 under section 34(2)(b)(ii) and section 48(2)(b) in its explanatory statement states the ground when the arbitral award can be set aside. So the foreign arbitral award would be refused for the enforcement under section 48(2)(b) when it is contrary to “public policy” as the explanation 1 of this section clarifies that an award will be in conflict with public policy of India if –

  • The making of award was induced or affected by fraud or corruption
  • In contravention with fundamental policy of Indian Law
  • Its is against the notion Justice or morality.

Whenever in a foreign award, determination of material issue is not successful or something comes which is against public interest, it may be set aside on the ground of public policy. Contravention of provisions of law will also be sufficient for setting aside the award on the ground of public policy.

Judiciary is playing active role in interpreting law very well and has played a leading role in interpreting the term “public policy” in various cases as suits can  be filed in Indian courts challenging the foreign arbitral award whenever the award passed in the international transaction is against the “public policy of India” can be held violative by the courts. Supreme Court has dealt with the expression public policy in two ways as where it has not created any new interpretation and one, where the Supreme Court reviewed the term public policy judicially for giving it a new shape as per the requirement of the case.

 Shri Lal Mahal Ltd v. Progetto Grano Spa [1] is one of the latest cases of judicial review by the court where the courts interference was reduced in enforcement of foreign award. This case has overruled the Phulchand Export Ltd. V. O.O.O. Patriot [2] case and declined the consideration of merits of foreign arbitral award in enforcing it. The Judgment of Progetto Grano Spa case also establishes the different between the scope of enforcement of domestic award and international award. The court stated that the term public policy within section 48 of Arbitration and Conciliation Act,1996 should be construed narrowly.

Further court refused to grant wider interpretation to the term “public policy” under section 48 of the Arbitration and conciliation Act,1996 and also rejected the ground of “patent illegality”.

In Phulchand Exports v. O.O.O. Patriot [3], the scope of the expression was expanded by the court under section 48 of the Act. Further it was said that the term public policy under both section 34 and Section 48 lays down the same thing. Thus, it has widened the public policy scope and also extended the interference of judiciary in international Commercial arbitration but the recent decision of Shri Lal Mahal has overruled this Phulchand decision.

Renusagar Power Co. Ltd. General Electricity Co. [4] is one of the landmark judgments related to the judicial review of public policy and held that the term “public policy” under section 7(1)(b)(ii) would be used in narrower sense. Further, the court that the public policy in enforcement of foreign arbitral award would include the grounds mentioned under section 48 of the Act i.e. fundamental policy of India, the interest of India or justice or morality. In this case also the court had made a narrow interpretation of it.

In ONGC v. Saw Pipes [5], also the court dealt with the term public policy and held that nature of “patent illegality” of arbitral award is violative of Public policy. In Venture Global Engineering v. Satyam Computer Service Ltd. [6], the court observed that the foreign arbitral award in this case is violative on the basis of domestic notion and against public policy.

MINIMUM INTERFERENCE OF COURT IN ENFORCEMENT OF FOREIGN AWARDS

The judiciary always try to do minimal interference in the matter of arbitration whether it is at international or at domestic level. The court do not intervene unless it seems to be important. There are number of cases where the supreme Court has made lots of efforts regarding it. In Vijay & Ors v. Prysmian Cavi E Sistemi SRL & Ors. [7], the Supreme Court has Warned the lower courts not to interfere much in the matter of enforcement of Foreign Arbitral award.

The decision laid down in Shri Lal Mahal case is the important decision which has emerged as a step towards minimum judicial intervention in arbitration process of arbitral tribunal. This case has come up after Bhatia International v. Bulk Trading SA [8] case where the court held that Indian courts have the jurisdiction to intervene irrespective of the seat of arbitration.

CONCLUSION

The concept of judicial review is increasing with a good pace where the judiciary is applying its judicial mind in almost every field of cases even in the cases which are filed against the awards of domestic arbitration as well as the foreign arbitral awards. There have been a series of cases which has limited the scope of judicial intervention of by the courts in the matter of enforcement of foreign arbitral award under section 48 of the Arbitration and Conciliation Act, 1996. The judgments of Shri Lal Mahal case, Renusagar and Phulchand case are the examples where the scope of Public Policy is decided by the courts.

REFERENCES

[1] (2014) 2 SCC 433

[2] (2011) 10 SCC 300

[3] (2011) 10 SCC 300

[4] 1994 supp (1) SCC 644

[5] (2003) 5 SCC 105

[6] (2010) 8 SCC 660

[7] 2020 SCC Online SC 177

[8] (2002) 4 SCC 105

Arbitration and Conciliation Act,1996

https://www.mondaq.com/india/trials-appeals-compensation/897470/enforcement-of-foreign-arbitral-awards-supreme-court-promotes-a-minimal-interference-approach

Also Read:  The Legal Status of Cannabis in India

https://www.indialawjournal.org/archives/volume2/issue_4/references_tanuj.html

https://hsfnotes.com/arbitration/2013/07/22/shri-lal-mahal-ltd-v-progetto-grano-spa-supreme-court-of-india-overrules-phulchand-and-reduces-court-interference-in-enforcement-of-foreign-awards/

https://www.scconline.com/blog/post/2020/05/27/enforceability-of-foreign-arbitral-award-in-india-developments/

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