Enforcement of Foreign Awards in India Application of Public

Policy
By Uttam Hathi
August 2013
Email: uttam@bruschambers.com
uttam.hathi@gmail.com

Abstract: enforcement of foreign awards has been subject to changes on judicial

ruling paradigm. This paper presents the evolution of enforcement of foreign award
in context of rulings on the doctrine of public policy

Keywords: enforcement of foreign awards; India; arbitration; public policy in India;

model law arbitration; foreign award convention; legal origins.

Enforcement of Foreign Awards in India Application of Public Policy

The narrative of the enforcement of foreign awards in India seems an evolving
process, its evolution jump started with UNCITRAL evolving conventions and model
law1 overriding Geneva Convention of 1927 and corresponding Arbitration (Protocol
and Convention) Act, 1937. The relevant UNCITRAL Convention and Model Laws
being:
UNCITRAL Convention

Convention on the Recognition and Enforcement of Foreign Arbitral Awards

(New York, 1958) (the "New York Convention") premised on which Foreign
Awards (Recognition & Enforcement) Act 1961 was enacted in India, which
presently is repealed by Arbitration and Conciliation Act, 1996

UNCITRAL Model laws

UNCITRAL Model Law on International Commercial Arbitration (1985), with

amendments as adopted in 2006

UNCITRAL Model Law on International Commercial Conciliation (2002)

UNCITRAL Model laws on which the present Arbitration and Conciliation Act, 1996
(1996 Act) is modeled which interalia addresses enforcement of foreign awards, has
on the doctrine of public policy traversed various paths and has paused with
recent judgment Re:Shri Lal Mahal Ltd2
The Model Law was developed to address considerable disparities between various
municipal laws on arbitration. The need for improvement and harmonization of such
laws was based on findings that various municipal laws were often particularly
inappropriate for international cases.3 India adopted the model law by enacting the
stated corresponding enactment namely: Arbitration and Conciliation Act, 1996 albeit
with modification to suit its municipal needs as per the wisdom of its legislature. It
contains two main parts wherein part I pertains to Arbitration, part II deals with
enforcement of foreign awards- New York convention award and Geneva convention

http://www.uncitral.org/uncitral/uncitral_texts/arbitration.html
ShriLalMahalLtdvProgettoGranoSpainCivilAppealNo.5085OF2013(ArisingoutofSLP(C)No.13721of2012)inthe
SupremeCourtofIndia.
3
ExplanatoryNotebytheUNCITRALsecretariatonthe1985ModelLawonInternationalCommercialArbitrationasamendedin
2006
2

awards, the other two parts (III & IV)

pertain to Conciliation, and Supplementary

Provisions.
Public Policy as laid down by judicial interpretation
The seminal judgment for enforcement of foreign award interalia is Renusagar Power
Ltd. v. General Electric Co.4. Here Supreme Court under section 7(1)(b)(ii) of the Foreign
Awards (Recognition & Enforcement) Act 1961 addressed the question on public policy
and concluded that the public policy in an enforcement setting shall include: i)
fundamental policy of Indian law, ii) the interests of India; or iii) justice and morality5.
This clearly was the interpretation of international public policy reflecting on the post
award enforcement status of the New York Convention as applicable then. Foreign
Awards (Recognition & Enforcement) Act 1961 was repealed by Arbitration and
Conciliation Act, 1996 as implementing the principles as laid down by the Model Law.
According to the Model Law, undefined public policy is a ground for setting aside an
award by the courts at the place of arbitration (Article 34)6 as well as a ground for
refusing the enforcement of a foreign award (Article 36)7.

RenusagarPowerCo.Limitedv.GeneralElectricCompany;1994Supp(1)SCC644

Para66.ArticleV(2)(b)oftheNewYorkConventionof1958andSection7(1)(b)(ii)oftheForeignAwardsActdonotpostulate
refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of
enforcementandthegroundofchallengeisconfinedtotherecognitionandenforcementbeingcontrarytothepublicpolicyof
thecountryinwhichtheawardissettobeenforced.Thereisnothingtoindicatethattheexpression"publicpolicy"inArticle
V(2)(b)oftheNewYorkConventionandSection7(1)(b)(ii)oftheForeignAwardsActisnotusedinthesamesenseinwhichit
was used in Article I(c) of the Geneva Convention of 1927 and Section 7(1) of the Protocol and Convention Act of 1937. This
wouldmeanthat"publicpolicy"inSection7(1)(b)(ii)hasbeenusedinanarrowersenseandinordertoattracttobarofpublic
policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign
AwardsActisconcernedwithrecognitionandenforcementofforeignawardswhicharegovernedbytheprinciplesofprivate
internationallaw,theexpression"publicpolicy"inSection7(1)(b)(ii)oftheForeignAwardsActmustnecessarilybeconstruedin
thesensethedoctrineofpublicpolicyisappliedinthefieldofprivateinternationallaw.Applyingthesaidcriteriaitmustbeheld
thattheenforcementofaforeignawardwouldberefusedonthegroundthatitiscontrarytopublicpolicyifsuchenforcement
wouldbecontraryto(i)fundamentalpolicyofIndianlaw;or(ii)theinterestsofIndia;or(iii)justiceormorality."

6
Article34.Applicationforsettingasideasexclusiverecourseagainstarbitralaward
34(2)(b)thecourtfindsthat:
(i)thesubjectmatterofthedisputeisnotcapableofsettlementbyarbitrationunderthelawofthisState;or
(ii)theawardisinconflictwiththepublicpolicyofthisState.

7
Article36.Groundsforrefusingrecognitionorenforcement
(1)(b)ifthecourtfindsthat:
(i)thesubjectmatterofthedisputeisnotcapableofsettlementbyarbitrationunderthelawofthisState;or
(ii)therecognitionorenforcementoftheawardwouldbecontrarytothepublicpolicyofthisState.

In Re: Saw Pipes8, - the ambit and scope of the courts jurisdiction under Section 34
(setting aside of arbitral award under part 1) of the 1996 Act pertaining to public
policy was under consideration. Supreme Court therein considered the meaning to be
assigned to the phrase public policy of India occurring in Section 34(2)(b)(ii)9, and
returned a finding that;
(@ paragraph 31) Therefore, in our view, the phrase public policy of India used
in Section 34 in context is required to be given a wider meaning. It can be stated
that the concept of public policy connotes some matter which concerns public good
and the public interest. What is for public good or in public interest or what would
be injurious or harmful to the public good or public interest has varied from time
to time. However, the award which is, on the face of it, patently in violation of
statutory

provisions

cannot

be

said

to

be

in

public

interest.

Such

award/judgment/decision is likely to adversely affect the administration of

justice. Hence, in our view in addition to narrower meaning given to the term
public policy in Renusagar case it is required to be held that the award could be
set aside if it is patently illegal. The result would be award could be set aside
if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interests of India; or
(c) justice or morality, or
(d) in addition, if it is patently illegal
Illegality must go to the root of the matter and if the illegality is of trivial nature it
cannot be held that award is against the public policy. Award could also be set
aside if it is so unfair and unreasonable that it shocks the conscience of the court.
Such award is opposed to public policy and is required to be adjudged void.
For the purposes of execution under section 48 it (Saw Pipes) had adjudged as;

OilandNaturalGasCorporationLimitedv.SawPipesLimited;(2003)5SCC705

34Applicationforsettingasidearbitralaward.
(b)theCourtfindsthat
(i)thesubjectmatterofthedisputeisnotcapableofsettlementbyarbitrationunderthelawforthetimebeinginforce,or
(ii) the arbitral award is in conflict with the public policy of India. Explanation. Without prejudice to the generality of sub
clause(ii),itisherebydeclared,fortheavoidanceofanydoubt,thatanawardisinconflictwiththepublicpolicyofIndiaifthe
makingoftheawardwasinducedoraffectedbyfraudorcorruptionorwasinviolationofsection75orsection81.

Mr. Desai submitted that the narrow meaning given to the term 'public policy' in
Renusagar's case is in context of the fact that the question involved in the said
matter was with regard to the execution of the award which had attained finality.
It was not a case where validity of the Award is challenged before a forum
prescribed under the Act. He submitted that the scheme of Section 34 which deals
with setting aside the domestic arbitral award and Section 48 which deals with
enforcement of foreign award are not identical. A foreign award by definition is
subject to double exequatur. This is recognized inter alia by Section 48 (1) and
there is no parallel provision to this clause in Section 34. For this, he referred to
Lord Mustill & Stewart C. Boyd QC's "Commercial Arbitration" 2001 wherein [at
page 90] it is stated as under:"Mutual recognition of awards is the glue which holds the international
arbitrating community together, and this will only be strong if the enforcing
court is willing to trust, as the convention assumes that they will trust, the
supervising authorities of the chosen venue. It follows that if, and to the
extent that the award has been struck down in the local court it should be
a matter of theory and practice be treated when enforcement is sought as
if to the extent it did not exist."
He further submitted that in foreign arbitration, the award would be subject to
being set aside or suspended by the competent authority under the relevant law
of that country whereas in the domestic arbitration the only recourse is to Section
34. The aforesaid submission of the learned senior counsel requires to be
accepted. From the judgments discussed above, it can be held that the term
'public policy of India' is required to be interpreted in the context of the jurisdiction
of the Court where the validity of award is challenged before it becomes final and
executable. The concept of enforcement of the award after it becomes final is
different and the jurisdiction of the Court at that stage could be limited. Similar is
the position with regard to the execution of a decree. It is settled law as well as it
is provided under Code of Civil Procedure that once the decree has attained
finality, in an execution proceeding, it may be challenged only on limited grounds
such as the decree being without jurisdiction or nullity. But in a case where the
judgment and decree is challenged before the Appellate Court or the Court
exercising revisional jurisdiction, the jurisdiction of such Court would be wider.

Therefore, in a case where the validity of award is challenged there is no

necessity of giving a narrower meaning to the term 'public policy of India'. On the
contrary, wider meaning is required to be given so that the 'patently illegal award'
This inclusive interpretation of patently illegal as set forth in the said judgment, then
read to define and be a part the public policy of India.
But in Venture Global10 the court relying on the Saw Pipes ratio on patent illegality
and of Bhatia International11 on application of part I to part II annulled a foreign
arbitral award under a civil suit being in the nature for setting aside a foreign arbitral
award on the ground that Indian law is a substantive law of the contract and that
Indian law would govern the dispute resolution
Bharat Aluminium overruled Bhatia International which then ruled that Part I of the
Act applies to all arbitrations, including international commercial arbitrations seated
outside India, unless the parties have expressly or impliedly excluded its application to
international commercial arbitrations seated outside India.
In Phulchand Exports Ltd12 on an application to enforce a foreign award in India reopened the arbitral tribunals decision on its merits on the grounds of public policy
doctrine being read as coterminous in section 34 and 48 of the Act.

10

VentureGlobalEngineeringvSatyamComputerServicesLtd(2008)4SCC190

11

BhatiaInternationalvBulkTradingSA[2002]4SCC105
32.Toconclude,weholdthattheprovisionsofPartIwouldapplytoallarbitrationsandtoallproceedingsrelating
thereto.WheresucharbitrationisheldinIndiatheprovisionsofPartIwouldcompulsorilyapplyandpartiesarefree
to deviate only to the extent permitted by the derogable provisions of Part I. In cases of international commercial
arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or implied,
excludealloranyofitsprovisions.Inthatcasethelawsorruleschosenbythepartieswouldprevail.Anyprovision,in
PartI,whichiscontrarytoorexcludedbythatlaworruleswillnotapply.
35. Lastly, it must be stated that the said Act does not appear to be a welldrafted legislation. Therefore the High
CourtsofOrissa,Bombay,Madras,DelhiandCalcutta cannotbefaultedforinterpretingit inthemannerindicated
above.However,inourviewaproperandconjointreadingofalltheprovisionsindicatesthatPartIistoapplyalsoto
international commercial arbitrations which take place out of India, unless the parties by agreement, express or
implied,excludeitoranyofitsprovisions.Suchaninterpretationdoesnotleadtoanyconflictbetweenanyofthe
provisionsofthesaidAct.

12

PhulchandExportsLtdvOOOPatriot(2011)10SCC300

Public policy- International Arbitration jurisprudence and legal origins.

The expression public policy13, undoubtedly, is a nebulous concept as it varies from
one country to other, with respect to the application of this defense under the doctrine
of public policy in international arbitration jurisprudence, some argue that, the
interpretation must be based on truly international considerations as opposed to the
individual State notions of public policy in order to have a uniform application of this
defense.
The issue under discussion on public policy on how does the Explanatory Note by the
UNCITRAL secretariat on the 1985 Model Law on International Commercial Arbitration
(as amended in 2006) was developed to address considerable disparities in various

municipal laws on arbitration, map under Part I (section 34) and Part II (section 48) of the
1996 Act. To understand and appreciate the reasons of disparities one needs to

understand the concept of Legal Origins and thus do different standards need to be
addressed to Part I (section 34) and Part II (section 48) of the 1996 Act as one operates for
recourse against an award the other for enforcement of foreign awards.

Legal Origin: Legal scholars believe that some national legal systems are sufficiently
similar in certain critical respects to others to permit classification of national legal
systems into major families of law (David and Brierley 198514 Reynolds and Flores
198915 Glendon et al. 199216 Zweigert and Kotz 199817). Further Zweigert and Kotz18
evolved the theory that The following factors seem to us to be those which are crucial
for the style of a legal system or a legal family: (1) its historical background and
development, (2) its predominant and characteristic mode of thought in legal matters,

13

TheconceptofpublicpolicyisdiscussedindetailinSawpipes

14

David,Rene,andJohnBrierley.1985.MajorLegalSystemsintheWorldToday.London,UK:StevensandSons.

15

Reynolds, Thomas and Arturo Flores. 1989. Foreign Law: Current Sources of Basic Legislation in Jurisdictions of the World.
Littleton,CO:RothmanandCo.

16
Glendon, Mary Ann, Michael Gordon, and Christopher Osakwe. 1992. Comparative Legal Traditions in a Nutshell. St. Paul:
WestPublishingCompany.

17
Zweigert,Konrad,andHeinKotz.1998.IntroductiontoComparativeLaw.Oxford,UK:ClarendonPress.

18
ibid

(3) especially distinctive institutions, (4) the kind of legal sources it acknowledges and
the way it handles them, and (5) its ideology
Further La Porta et al19 observed All writers identify two main secular legal traditions:
common law and civil law, and several sub-traditions French, German, socialist, and
Scandinavian within civil law. Occasionally, countries adopt some laws from one
legal tradition and other laws from another, and researchers need to keep track of
such hybrids, but generally a particular tradition dominates in each country. And at
page 8 & 9 The common-law legal tradition includes the law of England and its
former colonies. The common law is formed by appellate judges who establish
precedents by solving specific legal disputes. Dispute resolution tends to be
adversarial rather than inquisitorial. Judicial independence from both the executive
and legislature are central. English common law developed because landed
aristocrats and merchants wanted a system of law that would provide strong
protections for property and contract rights, and limit the crowns ability to interfere in
markets (Mahoney 2001, p. 504). Common law has spread to the British colonies,
including the United States, Canada, Australia, India, South Africa, and many other
countries. Of the maximal sample of 150 countries used in our studies, there are 42
common law countries.
The civil law tradition is the oldest, the most influential, and the most widely
distributed around the world, especially after so many transition economies returned
to it. It originates in Roman law, uses statutes and comprehensive codes as a primary
means of ordering legal material, and relies heavily on legal scholars to ascertain and
formulate rules (Merryman 1969). Dispute resolution tends to be inquisitorial rather
than adversarial. Roman law was rediscovered in the Middle Ages in Italy, adopted by
the Catholic Church for its purposes, and from there formed the basis of secular laws
in many European countries. Though it has been observed that there has been some
convergence in legal systems of the world, one thus need to appreciate the doctrine of

19

RafaelLaPorta,FlorencioLopezdeSilanes,andAndreiShleifer.2007.TheEconomicConsequencesofLegalOrigins
availableathttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1028081

public policy contextually to its applicability in different jurisdiction and its

formulation on adversarial and inquisitorial systems.
The Inflexion point
To appreciate the present evolution on public policy as applicable for the 1996 Act one
needs to appreciate the award in UNCITRAL Arbitration in White Industries Australia
limited v/s Republic of India under Bilateral Investment Treaty (BIT award), The claim
in White Industries BIT matter related to delays in the enforcement by the Indian
courts of an ICC arbitration award obtained in 2002 by White Industries against Coal
India Limited and was looked as a scathing statement on India on its state of legal
affairs, in the BIT award against Republic of India tribunal observed that -14.3.5 had
India not failed to provide White with effective means of asserting its claims, the Indian
courts ought by now to have determined the award to be enforceable in India. This was
an inflexion point.
Thereafter followed the judgment of Bharat Aluminium20 (which heard and disposed
multiple applications with a common order where White Industries was a party for
enforcement of a foreign award from which led the BIT award) which interalia ruled as:
-part I applies only to arbitrations (domestic as well as international) that have
their juridical or legal seat within the territory of India - If upon a construction
thereof arbitration agreement is held to provide for seat of arbitration outside
India, Part. I would be inapplicable to the extent inconsistent with arbitration law
of the seat of arbitration, even if arbitration agreement purports to provide that
1996 Act shall govern arbitration proceedings
- Awards made in foreign-seated international commercial arbitrations are subject
to jurisdiction of Indian courts only when same are sought to be enforced in India
in accordance with, and only to the extent provided for by, provisions of Part. II
Thus effectively ruled that all applications post award arising out of international
commercial arbitrations with seats outside India, Indian courts were devoid of
jurisdiction save and except when applicability of section 48 of the Act arose for
execution of a foreign award in India.

20

BharatAluminiumCo.v.KaiserAluminiumTechnicalServicesInc.,(2012)9SCC552

This left with what ought to be the principle of public policy for the purposes of
section 48 of the Act:
This was recently addressed in Re; Shri Lal Mahal Ltd21 which overruled an earlier
Supreme Court judgment of Saw Pipes and held that enforcement of a foreign arbitral
award could not be challenged on the grounds of patent illegality. It held that review
of a foreign arbitral award on its merits is untenable as it is not permitted under the
New York Convention. The judgment exposes the difference in the scope of inquiry
during the annulment of a domestic award and the enforcement of a foreign award. It
stated that the expression public policy of India under section 48 of Act should be
construed narrowly; whereas the same could be given a wider meaning under section
34 of the Act. The relevant findings of Shri Lal Mahal Ltd are as:
26We have no hesitation in holding that Renusagar must apply for the
purposes of Section 48(2)(b) of the 1996 Act. Insofar as the proceeding for setting
aside an award under Section 34 is concerned, the principles laid down in Saw
Pipes would govern the scope of such proceedings.
27. We accordingly hold that enforcement of foreign award would be refused
under Section 48(2)(b) only if such enforcement would be contrary to (i)
fundamental policy of Indian law; or (2) the interests of India; or (3) justice or
morality. The wider meaning given to the expression public policy of India
occurring in Section 34(2)(b)(ii) in Saw Pipes is not applicable where objection is
raised to the enforcement of the foreign award under Section 48(2)(b).
28. It is true that in Phulchand Exports, a two-Judge Bench of this Court speaking
through one of us (R.M. Lodha, J.) accepted the submission made on behalf of the
appellant therein that the meaning given to the expression public policy of India
in Section 34 in Saw Pipes must be applied to the same expression occurring in
Section 48(2)(b) of the 1996 Act. However, in what we have discussed above it
must be held that the statement in paragraph 16 of the Report that the expression
public policy of India used in Section 48(2)(b) has to be given a wider meaning
and the award could be set aside, if it is patently illegal does not lay down
correct law and is overruled.

21

ibid.

43. Moreover, Section 48 of the 1996 Act does not give an opportunity to have a
second look at the foreign award in the award - enforcement stage. The scope of
inquiry under Section 48 does not permit review of the foreign award on merits.
Procedural defects (like taking into consideration inadmissible evidence or
ignoring/rejecting the evidence which may be of binding nature) in the course of
foreign arbitration do not lead necessarily to excuse an award from enforcement
on the ground of public policy.
45 While considering the enforceability of foreign awards, the court does not
exercise appellate jurisdiction over the foreign award nor does it enquire as to
whether, while rendering foreign award, some error has been committed. Under
Section 48(2)(b) the enforcement of a foreign award can be refused only if such
enforcement is found to be contrary to (1) fundamental policy of Indian law; or (2)
the interests of India; or (3) justice or morality.
Conclusion:
One needs appreciate the issue by comparing the Grounds for refusing recognition or
enforcement of foreign awards as in:
Section 48(2) in the Arbitration and Conciliation Act, 1996
48(2) Enforcement of an arbitral award may also be refused if the Court finds
that(a) ..; or
(b) the enforcement of the award would be contrary to the public policy of India.
with
Article V of Convention of Recognition and Enforcement of Foreign Arbitral award
1. . . .
2. Recognition and enforcement of an arbitral award may also be refused if the
competent authority in the country where recognition and enforcement is sought
finds that:
(a) ..; or
(b) The recognition or enforcement of the award would be contrary to the public
policy of that country.
And
Article 36 of the Model Law. -Grounds for refusing recognition or enforcement
(b) if the court finds that:
(i) .; or
(ii) the recognition or enforcement of the award would be contrary to the public
policy of this State.
One notes that grounds for refusing recognition or enforcement of a foreign award the
texts are the same enforcement of the award would be contrary to the public policy.. in
the convention, model law and 1996 Act, as opposed to application for setting aside as
exclusive recourse against arbitral award as reflected under section 34 of the 1996 Act

Thus in the matrix stated in Renusagar then elaborated in Saw pipe on public policy
being: (a) fundamental policy of Indian law; or (b) the interests of India; or (c) justice or
morality, or (d) in addition, if it is patently illegal
I Vary On a circumstance to include and exclude patently illegal.
II What does the word in addition above connote to appreciate the evolving law. Thus
is Patently illegal an subsumption of a,b,c above or can the fundamental policy of
Indian law, the interests of India, justice or morality, be devoid of legality.
On the facts of the matter in Re: Shri Lal Mahal Ltd it is appreciable that the findings
returned Moreover, Section 48 of the 1996 Act does not give an opportunity to have a
second look at the foreign award in the award - enforcement stage if parties were
represented in for setting aside as exclusive recourse against arbitral award. This then
raises the issue if an award is from a common law country and is passed ex-parte
without inquisitorial acts by the tribunal would it test the touchstone of public policy
in a civil law country can that touchstone be without considering patent illegality.
Would an award made in common law jurisdiction on an application and submission
alone without any evidence test the touchstone of public policy in a common/civil law
country. Can issue of legality be kept out public policy circumstantially? Thus can a
narrative on public policy a settled principle legally.
Thus is is in conflict with the public policy of India substantially different from
.. would be contrary to the public policy of India contextually. Or is it a public policy
that decreed matters on execution do not retest the rigors of a decree and
applications/appeals for setting aside notwithstanding its legal origin on principles of
acceptance of the conventions for execution of foreign awards.