INDORE INSTITUTE OF LAW

(Affiliated to D.A.V.V. & BCI)

[Link].B. (HONS.)

Project No. : 01
Project Sub. : Civil Procedure Code
Project Topic : Public Policy In Arbitration Law

Submitted to: Submitted by:

Asst. Prof.: Mr. Navin Dave Name : Akanksha Chouhan

Date-: 05/ 05/ 20 Semester: VIII

Marks Obtained :

Remark : Signature :

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 ACKNOWLEDGEMENT

This research study will not be successful without the help and support of many people around
us. First of all, we would like to express our sincere gratitude to our professor in study of
PUBLIC POLICY UNDER ARBITRATION LAW, Asst. Prof Mr. Navin Dave, who is very
helpful and offered invaluable assistance, guidance and support for us to fully understand and
finish this study. He has imparted sufficient knowledge for us to learn and he always ensures that
we understand everything before we apply the information in our research study. It is not
possible to prepare a project report without the assistance and encouragement of other people.
This is certainly no exception. On the very outset of this project I would like to extend my
sincere and heartfelt obligation towards all the persons who have helped me in this endeavor.
Without their active guidance, help cooperation and encouragement, I would not have made
headway in this project.

We also give our plenteously gratitude to our family, who are always there to support and
always give encouragement to do our task better and for supporting us in financial assistance in
paying all of the cost required just to finish this report. We also gave our appreciation to our
friends and classmates, who always guide us on our task and they also give us an idea on what
are the things we should do in order to make this research.

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 CERTIFICATE

This is to certify that Akanksha Chouhan of 8th semester, [Link].B (HONS.) Has
successfully completed the project work in partial fulfillment of requirements for the knowledge
of “Public Policy Under Arbitration Law” prescribed by INDORE INSTITUTE OF LAW by
Asst. Prof Mr. Navin Dave with his proper guidance and training I completed my project.

This assignment is the record of authentic work carried out during the academic year 2020.

Teacher’s signature -----------------------------------------

Date-------------------------

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 DECLARATION

I hereby declare that the project work entitled “Public Policy under Arbitration Law”
submitted to the INDORE INSTITUTE OF LAW, is a record of an original work done by me
under the guidance of Mr. Navin Dave B.B.A. LL.B. (HONS.), Indore Institute of Law for the
Academic session 2020.

___________________________

[Link].B (HONS.)

8th SEMESTER

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 RESEARCH METHODOLGY

Due to absence of authentic literature source, the author has primarily referred to online sources
that are available for the purpose of research work on the subject. The research has its orientation
towards the governmental portals and the authentic legal websites along with the articles in the
articles in the blogs of legal experts. The research has begun from exploring the history of
arbitration in India and has gradually progressed through the emergence of laws and the changes
experienced them in the light of need of the hour. The content available online is in full capacity
can be regarded as authentic and duly recognized in this research paper work.

For reference the author used the secondary data which has been collected from various sources
of secondary data. Secondary data refers to-

Paper-based sources – books, journals, periodicals, abstracts, indexes, directories, research

Secondary data: Secondary data is one type of quantitative data that has already been collected
by someone else for a different purpose to yours

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 TABLE OF CONTENT

Page No.
Introduction To Alternative Dispute Resolution 07

Page
Definitions of Arbitration by different authors No.08

Page
Scope of ADR No. 8

Page
Competence of arbitral tribunal to rule on its jurisdiction No.9

Introduction to Public Policy Page

Page No.
Definitions of Public Policy 10-11

Page No.
Doctrine of Public Policy 12

Case Law Page No.

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 Introduction to Arbitration Law

Disputes are part of our daily life, and human nature in general. When two people or parties
don’t correspond on same grounds often disputes arise, where there is human-interaction and
communication; disputes find its way to creep in. However, not all disputes end up in court of
law. There have been revolutionary changes in the ways that we deal with disputes and many
platforms for resolution of disputes are available in the modern civilization; reason being
dynamic development, globalization, and exchange in all kinds of fields be it medicine, law,
technology, or the private sectors. ‘Arbitration’ is one such populous method which is used
around the globe as a measure of dispute resolutions. Arbitration is kept out of the courts and
considered cost effective method. Arbitration allows convenience and flexibility to the parties
involved. It is a neutral and confidential process which is kept out of courts unless exceptions
occur. Arbitration is a legal procedure where two parties consensually submit their issues, in
presence of third party which is neutral; arbitration procedure makes sure confidentiality of
disputes and is cost effective compared to other methods of dispute resolution. ADR includes
many other methods as well which generally includes collaborative law, mediation, negotiation
and arbitration. The method ensures and conforms to the basic principles of justice and
fundamental grounds. Arbitration dispute resolution is not merely concerned with local dispute
resolutions but also extends to international disputes; generally ADR is been divided into four
broad category of – Ad hoc arbitration, Domestic arbitration, International arbitration,
Institutional arbitration. Domestic arbitrational activities in India are governed under the act
‘The Arbitration and Conciliation Act, 1996. It lays down the fundamentals and an essential of
carrying out ADR it covers various dimensions of arbitration such as Arbitration agreement,
Conduct of arbitral proceedings, awards et. cetra.

Alternative Dispute Resolution (ADR) in the common law system can be originated from the
English law. Ancient English legal charters, documents, annexations suggest that presence of
certain institutions where something so similar as sort of arbitration took place. The mechanism
of these offices and methods of working was quintessentially quasi-judicial. In India we can
establish the roots of ADR to a time as old as concept of ‘panchayat. It wouldn’t be wrong to call
the ‘Panchayat System’ was ADR in disguise back in times; as mechanism of Panchayat has
similar ground rules as of Arbitration. The crux of panchayat is two disputing parties and a
neutral third party. Therefore the term Arbitration may have not been around for the longest of
times but its concept can be traced to ancient times and all around the world.

Definitions of ADR by various authors and org.

World Intellectual Property Organization defines Alternative Dispute Resolution as –

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or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the
parties opt for a private dispute resolution procedure instead of going to court.”1

“Arbitration: a neutral person called an "arbitrator" hears arguments and evidence from each
side and then decides the outcome. Arbitration is less formal than a trial and the rules of
evidence are often relaxed. In binding arbitration, parties agree to accept the arbitrator’s
decision as final, and there is generally no right to appeal. In nonbinding arbitration, the parties
may request a trial if they do not accept the arbitrator’s decision.”2

Elements of Arbitration Dispute Resolution

● Arbitration is cost effective

● Arbitration ensures speedy resolution

● Arbitration is neutral

● Arbitration conforms confidentiality

● Arbitration allows flexibility

Scope of ADR
ADR has a wider scope for many reasons some discussed earlier in the research paper; most of
the cases have a capability and higher probability of being resolved by ADR, a mutual agreement
between the parties. Ground mechanism of ADR is quasi-judicial in nature. ADR covers
numerous sorts of disputes which vary in nature for instance family disputes, commercial
disputes, or disputes which are urgent in nature. The ADR works across the full range of
business disputes: banking; contract performance and interpretations, construction contracts,
intellectual property rights, insurance coverage, conflicts in joint ventures, partnership
differences, personal injury; product liability; professional liability, real estate and securities.

The mechanism of ADR system may offer best solution in commercial disputes of an
international character. The scope of an ADR System is not intended to supplant existing means
of dispute resolution. It offers only alternative options to litigation. There is large number of
important areas where there is no substitute for Court decision. For example the matter
pertaining to the Constitutional law and Criminal laws are beyond the purview of amicable
settlement. But the ADR system through conciliation or negotiations offers viable substitute to

1
What is Arbitration? World Intellectual Property Organization.
[Link]
2
Alternative Dispute Resolutions, New York State Unified Court System, NY Courts Gov.
[Link]

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resolve the dispute, if the matters are of such a nature which are compoundable in the eyes of
law.

Competence of arbitral tribunal to rule on its jurisdiction—

1. The arbitral tribunal may rule on its own jurisdiction, including ruling on any
objections with respect to the existence or validity of the arbitration agreement,
and for that purpose,—

a. an arbitration clause which forms part of a contract shall be treated as an

b. a decision by the arbitral tribunal that the contract is null and void shall
not entail ipso jure the invalidity of the arbitration clause.

2. A plea that the arbitral tribunal does not have jurisdiction shall be raised not later
than the submission of the statement of defence; however, a party shall not be
precluded from raising such a plea merely because that he has appointed, or
participated in the appointment of, an arbitrator.

3. A plea that the arbitral tribunal is exceeding the scope of its authority shall be
raised as soon as the matter alleged to be beyond the scope of its authority is
raised during the arbitral proceedings.

4. The arbitral tribunal may, in either of the cases referred to in sub-section (2) or
sub-section (3), admit a later plea if it considers the delay justified.

5. The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-
section (3) and, where the arbitral tribunal takes a decision rejecting the plea,
continue with the arbitral proceedings and make an arbitral award.

6. A party aggrieved by such an arbitral award may make an application for setting
aside such an arbitral award in accordance with section 34.

Interim measures ordered by arbitral tribunal—

Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a
party to take any interim measure of protection as the arbitral tribunal may consider necessary in
respect of the subject-matter of the dispute.

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 PUBLIC POLICY UNDER ARBITRATION LAW

Public Policy of our country has a vital part to play in the entire process of enforcement of an
arbitral awards predominantly if we talk about the international awards as parties have many
differences between them and people involved as lawyers, third parties are also belonging to
different backgrounds something so simple as language can be tricky when it comes to
international arbitration. “Selection of the arbitral tribunal is the first major procedural step in
any arbitration and involves some of the most important strategic decisions which will have a
continuing impact, for better or for worse, on the proceedings, from commencement through to a
final award and even enforcement. The arbitral tribunal is the principal conductor of the
proceedings, regardless of whether the parties adopt a procedural organization influenced by
common law or civil law approaches or something in between. In this role, the arbitral tribunal
wields a significant amount of power that can be used to manage the proceedings in a way which
maximizes efficiency. As the ICC Commission's report noted, the arbitral tribunal's judgment is
crucial to achieving a cost-effective arbitration and even more so for complex cases.” 3

Definition of Public Policy:

The Arbitration and conciliation Act, 1996 or the Contract Act, 1872 do not define the
expression “Public Policy” or “opposed to public policy.” “Public Policy” is not the policy of a
particular Govt. It connotes some matter which concerns the public good or the public interest.

‘Public Policy’ is equivalent to the “Policy of Law.” Therefore any acts that have a mischievous
tendency so as to be injurious to the interest of the state or the public is stated to be against
“Public Policy” or against the ‘Policy of Law.”

In the case of Renusagar Power Co. Ltd v. General Electric Co. the Apex Court has held that
the Expression ‘Public Policy’ has a wider meaning in the context of a domestic award as
distinguished from a foreign award.”

The concept of the ‘Public Policy’ denotes that what is good for the public or in public Interest or
what would be injurious or harmful from time to time. It has very wide and general connotations.

3
Andrea Utsay Clark, International arbitration: selection of the arbitral tribunal, Pinset Mansons
[Link]

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Anything that hurts collective consensus is against the ‘Public Policy.’ Hence the Acts in
violation of law shall be considered against the ‘Public Policy’

Arbitration continues to grow at a rapid pace, antitrust cases in particular are increasingly
being arbitrated; and the law is still evolving in relation to the tension between the domestic
legitimate claims of a nation and the arbitral finality given to an International arbitral award.
Further when the arbitration proceedings are in themselves requiring a judicial process by
producing the evidence and giving the parties opportunity of hearing, why should the court at
this level interfere with the decision frustrating the very purpose of arbitration? If disputes are
going to end up in courts anyway, there is scant incentive for parties to bother to arbitrate in the
first instance. What should be the realm of judicial interference in such arbitral awards and where
should it meet the barricades. A supportive yet non-interventionist approach without undue
interference should be adopted by the courts to facilitate an efficient arbitral process within the
permissible or jurisdictional limits.

“Broadly, we might say that a public policy is simply what government (any public official who
influences or determines public policy, including school officials, city council members, county
supervisors, etc.) does or does not do about a problem that comes before them for consideration
and possible action.

Specifically, public policy has a number of key attributes:

● Policy is made in response to some sort of issue or problem that requires attention. Policy
is what the government chooses to do (actual) or not do (implied) about a particular issue
or problem.

● Policy might take the form of law, or regulation, or the set of all the laws and regulations
that govern a particular issue or problem.

● Policy is made on behalf of the "public."

● Policy is oriented toward a goal or desired state, such as the solution of a problem.

● Policy is ultimately made by governments, even if the ideas come from outside
government or through the interaction of government and the public.

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 ● Policymaking is part of an ongoing process that does not always have a clear beginning
or end, since decisions about who will benefit from policies and who will bear any
burden resulting from the policy are continually reassessed, revisited and revised.”4

Doctrine of Public Policy

Doctrine of ‘Public Policy’ is somewhat open textured and flexible, and this flexibility has been
the cause of judicial censure of the doctrine. There is a general agreement that the courts may
extend existing ‘Public Policy’ to new situations and the difference between extending on
existing principle as opposed to creating a new one will often be wafer thin. ‘Public Policy’ is
not immutable. Rules which rest on the foundation of ‘Public Policy,’ not being rules which
belong to the fixed Customary Law, are capable on proper occasion, of expansion or
modification depending upon circumstances. In the broader view, the doctrine of “Public Policy”
is equivalent to the “Policy of Law,” whatever leads to obstruction of justice or violation of a
statute or is against the good morals when made the object of contract would be against ‘Public
Policy of India” and being void, would not be disposed to enforcement.

Under the Indian Arbitration and Conciliation Act, 1996 (the Act) a court may set aside a
domestic arbitration award if it conflicts with the public policy of India (section 34 of the Act).
The Indian courts have interpreted "public policy of India" widely. In ONGC v Saw Pipe (Saw
Pipes) the Supreme Court said it included circumstances where a tribunal has made an error in
applying Indian law. This interpretation has led to the courts reviewing the merits of awards, as if
the arbitrators were a lower tier of the court system. “Public policy is a ground for setting aside
an arbitral award under section 34 of the Arbitration and Conciliation Act, 1996, the provision
UNCITRAL Model Law on International Commercial Arbitration. Section 48 of the Act also
states that a foreign arbitral award may be set aside if it is in opposition to the public policy of
India.”5

There are certain restrictions to impose public policy on the person’s freedom to contract. And
seemingly a valid contract can be adulterated and is unlawful; the source of illegitimacy can
appear by statue or by ethic of the principals of general law. In some occasion, the law restricts

4
An Introduction to the Policy Process, by Thomas A. Birkland (2011, M.E. Sharpe, Armonk, NY)
[Link]
5
O.P Malhotra, The Scope Of Public Policy Under The Arbitration And Conciliation Act (1996)
[Link]

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the agreement itself, but the nation of law is not legal but mainly the cases of unlawfulness lie in
the object where only one or both of the parties are aware or in the method of performance. As a
general command, although every other obligation for the formation of an agreement is
assembled with, an agreement that is unlawful and cannot be enforced. The matter is sufficient
and is related to the basic concept of righteousness and fair dealing that a court should not, as
litigants have sometimes desired, and should be totally ignored because the one who claimed can
totally plead its case without disclosing any breach of public policy. Indeed, even either parties
had an issue, the court will do so on its own capability and deny the enforcement of it is justified
by the record at least if the contravention is significant

When considering the enforcement of foreign awards, the courts have adopted a narrower
approach. As far as domestic awards are concerned; however, the broad view of public policy
still holds sway. This has been confirmed in two recent Supreme Court decisions.

ONGC v. SAW PIPES

ONGC v. Saw Pipes is one of the infamous cases in ADR where Supreme Court delivered a
landmark judgment. Case dates back to the year 1996 when dispute between two parties rose in
regards to payment of liquidated damages. Appellant moved to Arbitral tribunal to seek relief.
The arbitral tribunal ordered in favor of the appellant that is SAW PIPES LTD., which is the
defendant in the case Oil and Natural Gas Corporation Ltd. (ONGC) to pay the amount that is
due to the appellant. However the defendant was not satisfied by the decision of Arbitral tribunal
and decided to move to High Court against the decision delivered by Arbitral tribunal.

The High Court dismissed this appeal giving no relief to Oil and Natural Gas Corporation ltd.
They moved to the Supreme Court against the order of the High Court. However In the Supreme
Court their appeal was upheld and the order of the Arbitral Tribunal was adjudged to be beyond
its jurisdiction. The question of law in this case is whether the order passed by the Arbitral
Tribunal this case is against the public policy of India. In this case both the judges, Justice M.B.
Shah and Justice Arun Kumar has referred many cases and tried to interpret the application of the
public policy of India in the present case.

The judgment of this case also establishes a strong reasoning which can be used in cases in
future. This case involved two big parties, big in the sense that both of them were giants in the
industrial field. ONGC which is presently one of the four Maharatnas of the country and SAW
Pipes Ltd. is part of the O.P. Jindal group.

The case involved jurists like Ashok H. Desai, Dushyant A. Dave and Sunil Gupta who all
brought in the different facets of the issues involved in the said case. 1996 can be said to be the
starting of Arbitration as the way of settlement, therefore, this case was important for the growth
of Arbitration in India.

Conclusion
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It may thus be seen that ‘public policy’ has had varied interpretations across the globe. Courts
have interpreted it keeping in mind their own laws and morals. Almost common to all the courts
has been the fact that ‘public policy’ has been narrowly constructed and very limited options are
available for widening its scope, for the judiciary does not encourage the same. Amongst other
reasons, the parties resort to arbitration as it has limited grounds for filing an appeal; enlarging
the scope of public policy as a ground for refusal of enforcement of the arbitral award has the
capacity to terminate the advantages inscribed in the very purpose of resorting to arbitration .

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 WEBLIOGRAPHY

● What is Arbitration? World Intellectual Property Organization.

● Alternative Dispute Resolutions, New York State Unified Court System, NY Courts Gov.
[Link]

● Andrea Utsay Clark, International arbitration: selection of the arbitral tribunal, Pinset
Mansons
[Link]

● O.P Malhotra, The Scope Of Public Policy Under The Arbitration And Conciliation Act
(1996)
[Link]
[Link]

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