Public Policy

OP. ED.

Interpretation of Public Policy

A three-Judge Bench of the Supreme Court in Shri Lal Mahal Ltd. v. Progetto Grano SpA,[1] passed a landmark judgment, wherein the Court established a difference between the scope of Section 48 of the Arbitration and Conciliation Act, 1996 (the Act) concerning the enforceability of a foreign award in international commercial arbitration under the New York Convention Awards on the one hand and challenges to set aside an award under Section 34 of the Arbitration and Conciliation Act, 1996 on the other hand when the “seat” of arbitration is in India. The Supreme Court held that the expression “public policy” under Section 48(2)(b) would not include the ground of “patent illegality” and the judicial dictum of Renusagar Power Co. Ltd. v. General Electric Co.,[2] must apply to the expression “public policy” of Section 48(2)(b). In Renusagar,[3] the court narrowed “public policy” doctrine to a fundamental policy of Indian law, justice and morality, interests of India and thereby limiting the scope of judicial intervention in the foreign arbitral award. The Supreme Court added that the applicability of “public policy” of India doctrine for the purposes of Section 48(2)(b) is limited and narrow in cases involving conflict of laws and matters involving a foreign seated arbitration. Again, the Supreme Court in ONGC Ltd. v. Saw Pipes Ltd.,[4] held that “public policy” of India under Section 34 was required to be interpreted in the context of the jurisdiction of the court where the validity of the award is challenged before it becomes final and executable in contrast to the enforcement of an award after it becomes final. Therefore, public policy in Section 34 of the Act requires a wider meaning and so “patent illegality” was added as a new category for setting aside the arbitral award. Hence, the law laid down in Saw Pipes[5] would govern the scope of Section 34(2)(b)(ii) for setting aside an award under Section 34 of the Arbitration and Conciliation Act, 1996.

Precedents on “Public Policy”

The precedent laid down in Shri Lal Mahal case[6] was an important step forward in the right direction towards minimum judicial interference in arbitration process and thereby granting higher sanctity to foreign arbitral awards by laying down limited grounds under “public policy” based on which courts can refuse enforcement of foreign arbitral awards under Section 48 of the Act. Such was the necessity because the Supreme Court in Bhatia International v. Bulk Trading SA,[7] laid down that Indian courts would have jurisdiction in international commercial arbitrations irrespective of the seat of the arbitration. It led to a situation where foreign arbitral awards were challenged on the grounds of “patent illegality” in Indian courts. The scope of the expression “public policy” under Section 48 of the Act was further expanded in Phulchand Exports Ltd. v. O.O.O. Patriot,[8] wherein the Supreme Court held that expression “public policy” under Sections 34 and 48 of the Act are the same and added that a party could resist enforcement of a foreign award on grounds of “patent illegality”. Thus, it widened the scope of “public policy” under Section 48 of the Act and increased the chances of judicial intervention in international commercial arbitration but the decision of Phulchand[9] was ultimately overruled in Shri Lal Mahal[10] by Hon’ble Supreme Court.

Critical Analysis of Public Policy of India Under Section 48(2)(b)

In 2014, the Supreme Court of India clarified that expression “public policy of India” under Section 48(2)(b) is narrow and limited to the extent of[11]:

(i) Fundamental policy of Indian law.

(ii) Interests of India.

(iii) Justice and morality.

However, the Arbitration and Conciliation (Amendment) Act, 2015 with regard to enforcement of foreign awards added Explanation to Section 48(2)(b) and thereby clarifying when an award shall be considered to be in conflict with “public policy of India”. The Explanation states:

(i) That the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.

(ii) In contravention with the fundamental policy of Indian law.

(iii) In conflict with basic notions of morality or justice.

The above explanation of “public policy of India” in Section 48(2)(b) is not in consonance with the judicial pronouncement laid down in Shri Lal Mahal case[12]. The Supreme Court has categorically limited the context of “public policy” to fundamental policy of Indian law, justice and morality, and in the interests of India. The Court also refused to give a wide import to the meaning of “public policy” under Section 48 of the Act and rejected “patent illegality” as a ground under public policy for non-enforcement of a foreign arbitral award. The Arbitration and Conciliation (Amendment) Act, 2015 by adding the words “fraud or corruption or in violation of Section 75 or Section 81” instead of “interest of India” as a ground under “public policy” has blatantly violated the judicial principles laid down in Shri Lal Mahal Ltd. case[13].

 Furthermore, in Associate Builders v. DDA,[14] the Supreme Court while interpreting the term “patently illegal” has held that under the Explanation to Section 34(2)(b), an award is said to be in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption. Therefore, the Arbitration and Conciliation (Amendment) Act, 2015 by including the words “the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81” in Explanation 1 of Section 48(2)(b) has widened the scope of judicial review by impliedly inferring “patent illegality” within the expression “public policy of India” in complete disregard to the law laid down in Shri Lal Mahal case[15].

 Moreover, similar explanation of “public policy” in both Sections 34(2)(b)(ii) and 48(2)(b) is in violation of the precedent laid down in ONGC Ltd. v. Saw Pipes Ltd.[16] The Supreme Court in Saw Pipes[17] agreed to the subtle distinction in the concept of “enforcement of foreign award” as per Section 48 of the Act and “jurisdiction of the court in setting aside the award” as per Section 34 of the Act and held that the expression “public policy” in Section 34 requires a wider meaning and so the court added “patent illegality” as a category for setting aside the award. An arbitral award induced by fraud or corruption can be declared as patently illegal as it is so unfair and unreasonable that it shocks the conscience of the court. Therefore, Arbitration and Conciliation (Amendment) Act, 2015 by adding exactly similar explanation to the expression “public policy” in Section 48 of the Act which deals with enforcement of foreign awards and Section 34 which deals with setting aside of arbitral awards when the “seat” of arbitration is in India either domestic or international commercial arbitration, the Arbitration and Conciliation (Amendment) Act, 2015 left no scope for distinction between the two sections and had completely ignored the judicial pronouncements laid down on public policy.

It is pertinent to note that for arbitration regime to succeed in India it is important that limited grounds are laid down for judicial review in the enforcement of foreign arbitral awards in international commercial arbitration. Hence, explanation 1 of Section 48(2)(b) of the Act which states that “the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81” should be replaced by the words in the “interest of India” under explanation of  “public policy”.

Conclusion

The decision of Shri Lal Mahal[18] and other cases on “public policy” has limited the scope of judicial interference of Indian courts regarding enforcement of foreign awards under Section 48 of the Arbitration and Conciliation Act, 1996 and has provided a ray of hope to help India establish as an international commercial arbitration destination. However, the Arbitration and Conciliation (Amendment) Act, 2015 which included “fraud or corruption” instead of “interest of India” has expanded the scope of “public policy” under Section 48 of the Act in violation of the judicial decision laid down in Shri Lal Mahal case[19]. Moreover, precedents show that courts have interpreted “fraud or corruption” as “patent illegality” which was rejected as a ground under “public policy” in Section 48 of the Act. Hence, Parliament should bring a further amendment in Section 48 of the Act by substituting the words “interest of India” in place of “the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81” which would limit the scope of judicial review in enforcement of foreign arbitral awards.

†2nd-year law student, National University of Study and Research in Law, Ranchi (NUSRL), e-mail: soumyajitsaha02@gmail.com.

[1]  (2014) 2 SCC 433.

[2]  1994 Supp (1) SCC 644.

[3]  Ibid.

[4]  (2003) 5 SCC 705, para 22.

[5]  Ibid.

[6]  (2014) 2 SCC 433.

[7]  (2002) 4 SCC 105.

[8]  (2011) 10 SCC 300.

[9]  Ibid.

[10]  (2014) 2 SCC 433.

[11]  Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC 433, para 29.

[12]  (2014) 2 SCC 433.

[13]  Ibid.

[14]  (2015) 3 SCC 49, para 40.

[15]  (2014) 2 SCC 433.

[16]  (2003) 5 SCC 705.

[17]  Ibid.

[18]  (2014) 2 SCC 433.

[19]  Ibid.

Case BriefsForeign Courts

Singapore High Court (Family Division): A Three-Judge Bench comprising of Sundaresh Menon, CJ.,  Judith Prakash, JA., and  Debbie Ong, J., allowed an adoption order in the favor of a same-sex couple.

The facts of the case are that the appellant was a gay man.  He wanted to adopt his biological son who was conceived through in-vitro fertilization and was born in the US by a surrogate mother. She was paid by the appellant for her services. She then abdicated her parental rights over the child, whom the appellant and his partner then brought to Singapore.  In these circumstances, the principal question was whether an adoption order would serve the best interests of the child considering the parenting arrangement and the ethics of the means by which his birth was procured.  The court focused on the difficult interplay between law and public policy in the determination of this question. Here the court answered the question that whether or not the appellant should be allowed to adopt his son. It also discussed the appropriate methodology to be applied in determining and weighing the material considerations of public policy that may bear on this particular issue.

The court gave an adoption order in the favor of the appellants.  The Court, while doing this, held that in determining this question the main concern should be the welfare of the child. Attention must be given not only to his psychological and emotional development but also to the environment within which his sense of identity, purpose and morality will be cultivated. The Court held that the welfare of a child refers to his well-being in every aspect, that is, his well-being in the most exhaustive sense of that word. It refers to his physical, intellectual, psychological, emotional, moral and religious well-being. It refers to his well-being both in the short term and in the long term. The inquiry under the Adoption of Children Act requires an assessment of the impact of making an adoption order on the child’s welfare, and if the court is not satisfied that the impact of such an order would be for the child’s welfare, then the Court cannot make the order. The welfare of the child ought to define the scope of the inquiry.

The Court also held that the adoption of a child clearly concerns his “upbringing”, and therefore, an adoption proceeding must be a proceeding concerning the upbringing of a child within the meaning of Section 3 of the Act. Section 3 was said to apply “whatever the proceedings, as long as within such proceedings an issue of the custody or upbringing of a child arises”, such that the consideration of the child’s welfare is the “ubiquitous” standard by which all such proceedings are to be guided.

The Court next addressed the appellant’s submission that an adoption order should nevertheless not be made because it would be in violation of public policy. In the Court’s view, there was a legal basis, in Section 3(1) of the Act, for the Court to take public policy considerations into account in arriving at its decision in this case. In evaluating this submission, the first question that was addressed was whether there was any legal basis for the Court to take public policy considerations into account in arriving at its decision in this case. The Court held that there was both a statutory basis and a common law basis for doing so, although, having regard to the specific public policies that the appellant relies on, it is the statutory basis that was applied here.

The Court attributed significant weight to the concern not to violate the public policy against the formation of same-sex family units on account of its rational connection to this dispute and the degree to which this policy would be violated should an adoption order be made.

The Court said that neither of these reasons were sufficiently powerful to enable it to ignore the statutory imperative to promote the welfare of the child, and to regard his welfare as first and paramount. The welfare of the child should always be kept before public policy consideration. Thus the Court concluded that an adoption order ought to be made in this case. [UKM v Attorney-General, [2018] SGHCF 18, decided on 17-12- 2018]

Law School NewsOthers

The Republic Day marks the day when the Constitution came into effect. Today, the Constitution is often used as an instrument for progressive change, or seen as an aspirational document of what the State should be. While it is both of them in limited capacities, it’s fundamental role is to pose a set of constraints–to establish separation of powers, a system of checks and balances and to constrain the scope of legislation, among other things.
The document has been remarkable in ensuring peaceful transitions of power, protection of linguistic minorities, women’s and dalits’ rights and in constraining majoritarianism. At the same time, government policy has shaped its interpretation in such a way that it has failed to effectively constrain the State from intervening in citizens’ lives. The Indian state’s long conflict with individual liberties is manifest in constitutional cases like Champakam Dorairajan (1951), Golaknath (1967), Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225 and K.S. Puttaswamy v. Union of India (Privacy-9 J.), (2017) 10 SCC 1. The Directive Principles of State Policy and Fundamental Rights raise some fundamental contradictions inherent in the Constitution.
These issues are not of mere academic interest. On the contrary, government intervention continues to weigh heavy on India’s growth story. There are a ‘million mutinies’ across the country, on issues such as land rights, reservation in education and jobs, the unemployment crisis, religious freedom and others whose roots lie in an unrestrained state which acted as an arbiter of privilege for one section over the other.
On this Republic Day, join us as we attempt to understand the role of the constitution in India’s history and the future that lies ahead. Seats are limited.
Program Highlights:
 A 2-day certificate course in law and public policy. The course will explore the various ways in which the constitution remains the fundamental determinant of government policy, and what implications it has had on India’s policy success and failures.
Program Date: 26-27 January
Application deadline: 16 January 2019
Venue: Mumbai & Delhi
Course Fee: Rs. 2,000/-

Selection: Since the seats are limited and the candidates will be selected on a rolling basis, those who apply earlier will have a higher chance of selection.

To apply click here
For any queries, send an mail at reeta@ccs.in
Conference/Seminars/LecturesLaw School News

Symbiosis Law School, NOIDA and the Outreach and Training Division of the Centre for Civil Society, New Delhi (CCS Academy) collaborated to conduct a Three day Certification Course on Public Policy, called “ipolicy” on July 20-22, 2018 . The Course focused on liberal approaches to public policy, aspects of individual liberty and institutional accountability.  

Over the past several years, CCS Academy has the privilege of conducting the said programs in leading Indian colleges like IIM Ahemdabad, FMS, IIT-Delhi, IIT Madras, IIT Mumbai, ISB-Hyderabad, Delhi School of Economics, National Law School-Bangalore, St Stephens-Delhi and St Xaviers-Mumbai, to name a few.

The resource person for the course were Mr. Parth J. Shah, President, Centre for Civil Society,  Mr. Shubho Roy,Legal Consultant, National Institute of Publica Finance and Policy (NIPFP) and Mr. Yugank Goyal, Founding Faculty Member, O P Jindal Global University

About the resource persons

Mr. Parth J. Shah, President, Centre for Civil Society 

Mr. Parth’s research and advocacy work focus on the themes of economic freedom (law, liberty and livelihood campaign), choice and competition in education (fund students, not schools), property rights approach for the environment (terracotta vision of stewardship), and good governance (new public management and the duty to publish). He has published extensively in international and Indian journals, on various topics from currency regulation to education policy. He holds a PhD in Economics from Auburn University, and taught at the University of Michigan.

Mr. Shubho Roy, Legal Consultant, National Institute of Publica Finance and Policy (NIPFP)

Mr. Shubho is a Legal Consultant at National Institute of Public Finance and Policy. He is a member of the research team for the Financial Sector Legislative Reforms Commission. This involves research support to one of the largest legislative redrafting projects India has undertaken to revamp the regulation of the financial sector. Previously, he has served as a law clerk to a judge at the Supreme Court of India.

Mr. Yugank Goyal, Founding Faculty Member, O P Jindal Global University 

Mr. Yugank Goyal received his Ph.D. in Economics and Law from University of Hamburg, Erasmus University Rotterdam and University of Bologna as Erasmus Mundus Fellow. He has an LL.M. from University of Manchester and Bachelor of Technology from NIT Surat, India.

Mr. Yugank is a founding faculty member of OP Jindal Global University. In addition to helping establish the University, he spearheaded several institution building initiatives, including designing curriculum and academic policies of the University in its formative stage. Between 2009 and 2012, Mr. Yugank was the Assistant Professor and Assistant Dean (Research & International Collaborations) at Jindal Global Law School. In his capacity as Assistant Dean, he cultivated research architecture of the law school and led its collaboration with world’s leading law schools and think tanks around the world.