Public Policy and Setting Aside Patently Illegal Arbitral Awards in India

Abstract

The Indian Arbitration and Conciliation Act, 1996 was enacted for the purpose of making the law of dispute resolution in tune with the international economic scenario. The Act was hence modelled on the basis of the UNCITRAL Model Law on International Commercial Arbitration, 1985. The Model Law was based on the philosophy of limited grounds for setting aside arbitral awards at the legal seat of arbitration and the grounds are almost identical to those of the New York Convention for refusal to recognise or enforce foreign awards. The same philosophy was adopted in the Indian context under Section 34 of the Act. One of those grounds is public policy, by virtue of which, any award rendered by the arbitral tribunal that is contrary to the public policy of India could be set aside.Initially, the courts in India interpreted this ground of public policy in a sumptuary manner, in consonance with practice in various countries. In Oil and Natural Gas Corporation Ltd. v. SAW Pipes Ltd., however, the Supreme Court broadly read the ground of public policy to the consternation of many lawyers and stakeholders of the arbitral process.The reason for their anguish was that in SAW Pipes, the Court held that an award could be set aside if it was patently illegal. The SAW Pipes decision has been criticised for subverting the arbitral process and for being in contradiction to the policies contained in the Act, especially the policies of finality of awards and minimum judicial intervention into the arbitral process.However there are many who argue in support of SAW Pipes for expanding the notion of public policy and specifically for reading patent illegality into public policy. The supporters of the latter view argue that commercial arbitration cannot exist in the area of lawlessness and the arbitral award should not be free from scrutiny. The legal fraternity has argued either for a broad notion of public policy without giving due regard to the promptness of the arbitral process in dispensing justice or for a swift arbitral process without due regard to the role of public policy in the arbitral process. Placing this issue in the form of a dichotomy leads to problems. Hence, this paper attempts to (1) find out what are the merits of having a broader notion of public policy in connection with setting aside arbitral awards, as contemplated by SAW Pipes; (2) look into the possible problems that could crop up because of a SAW Pipes type reading of public policy in Section 34(2)(b)(ii) of the Act, especially the effect on the finality of arbitral awards in an era of globalisation; and (3) find out if the problems created by a wide reading of the term public policy in Section 34(2)(b)(ii) could be eliminated.