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Public Policy under Arbitration Laws in India

Arbitration has been one of those legal reforms which India is waiting for for the past 2 decades. ADR has been successful in foreign countries when it comes to effective justice delivery mechanisms. The situation of the judiciary in India is pretty bad. It was reported last year that approx. 4 crore cases are pending in the courts of India, especially district courts where the piled cases amount to 3 crores. With lesser judges on the bench and a rapid increase in court cases, justice is being delayed which led to opting for other methods of getting Justice. Arbitration ensured that for getting justice, it is not necessary for one to go to court only. One can get justice through out-of-the-court settlements too. Several Policies regarding the creation of Arbitration reforms have been made and many of them are conducting research on how to strengthen the mechanisms. Public Policy can be defined as the policy made in Public Interest. It is not necessary that only Governments shall make public policies but also many social groups comprising of lawyers, social scientists also indulge in policy-making for the interest of the citizens of the country. 

When it comes to enforcing arbitral awards, the public policy of a country has an important role, especially when it is a foreign award. The reason is that it has parties who are from different cultures and different legal frameworks. Many times, the Tribunal for the Arbitration has Arbitrators who are from different jurisdictions. This is why it is necessary for the Multinational Companies who are working in another country to know about the country’s Public Policy. 

Arbitration is growing. Growing at a very fast rate, especially for the companies who don’t want to waste their time on long court cases. There has been an increase in anti-trust cases being resolved through arbitration. Domestic law is also getting to know with the development of the business society and its need to have a fast-paced justice delivery system. Many experts criticised the way the courts are interfering in the decision of the arbitrator. Experts say if the judiciary is interfering in the decision-making, then why there is a need for arbitration? Experts suggest that the Judiciary should remove the barricades of a smooth arbitral process by not interfering in the judgments delivered by the Arbitrator. 

Public Policy even though is not defined under the Arbitration and Conciliation Act as well as the Indian Contracts Act, surely tells that the policy is for the welfare of the public. In one of the cases, the SC said that Public Policy has a broader meaning when it comes to foreign awards. That is why the courts are very protective when the decision of the Arbitrator goes against the Public Policy of the country. The courts believe that the awards must not be violative of the interests of a country, justice or the morality and the Fundamental policies of the country’s law etc. 

The Arbitration and Conciliation Act of 1996 has provisions that restrict an Arbitral Tribunal to create any awards which go in opposition to the Public Policy of India. Fraud and Corruption are also covered under the provisions of the Act. In Corruption, the court in a case said that the Arbitrator shall not make any award where “Undue Means” were done to procure the award. 

Several International Conventions have also acknowledged the violation of public policy in one’s country and have laid provisions regarding the same. In the Geneva Convention of 1927, it was given that the award may be refused if 

  1. the award is being declared invalid by the country 
  2. the party is not represented properly due to incapacity.
  3. the decision is beyond the scope of the submissions to the arbitration. 

In the New York Convention of 1958, it was ruled that the award must be enforced only if the award is contrary is in lines with the public policy of the country. 

In the end, it is up to the courts to decide whether they want to pass judgments that hamper the arbitration process or stop interfering in the decisions of the arbitrator to ensure a smooth flow in the process of arbitration. Parties go for arbitration to save themselves from exhausting court battles. If the courts still disturb the arbitration process, it will be bad for the country because companies abroad will resist investing in India. Public Policy also should be made in a transnational way so that it will be easier for the arbitrator to conduct arbitrations and enforce awards.  

By Siddhant Dutta