The phrase “Public Policy” refers to those policies, rules, and regulations framed by the government for the general public at large, on the other hand, the Role of Public Policy in
International Commercial Arbitration that in those disputes which arises or may arise in future
due to International Commercial Contracts which can be resolved via International Commercial Arbitration as it is an alternative measure to resolve disputes without going to the actual court of law. Arbitration being cost-effective and less time-consuming in comparison of national courts it is preferred more in International Trade and Commerce.
This article contemplates the meaning of arbitration, international commercial arbitration and public policy, the necessity for having the International Commercial Arbitration, the relationship between arbitration and public policy, public policy and commercial arbitration, domestic public policy and international public policy, grounds of challenges based on the public policy, International Conventions which governs the public policy, and case laws.
Arbitration is regarded as the cheapest and the best way for getting a dispute resolved especially the InternationalCommercial Disputes without the intervention of the court of law and on the other hand, Public Policy plays a primary role in the proceedings of enforcing the arbitral awards majorly in the foreign awards as in this either of the parties belongs to different countries. Public Policy is used as a primary weapon which that puts certain restrictions on having contracts with the people of other countries or within a country.
Arbitration refers to a process of settlement of a dispute in which an arbitrator helps in resolving the dispute between two or more parties without going to the actual court of law.
International Commercial Arbitration- As per Section-2(f) of Arbitration and Conciliation Act,1996, an arbitration means a dispute which may arise out of legal relations which may or may not be regarded as commercial, at least one should (a person, a corporate body), association be a habitual resident of any other country apart from India.
In Renusagar Power Co. Ltd v General Electric Co case,
Supreme Court in this case held that, the term “Public policy” has a wider meaning in both domestic as well as a foreign award. The Public policy distinguishes between the things which are good or bad for the public policy at large.
The Necessity for having International Commercial Arbitration:
With an increase in the number of economic activities which are taking place majorly through International Trade and Commerce which eventually has increased the number of International Disputes as well. Arbitration being cost-effective and less time-consuming helps in providing speedy justice without even revealing what all happened during the proceedings.To avoid the long national court’s procedure for solving the disputes, international parties prefer an arbitrational procedure for resolving the dispute as it is not only less costly but also time effective. It is believed that to excel in the business of the international trade and commerce, arbitration is key to have success and stay in an international market for a longer period.
Domestic Public Policy v International Public Policy:
In the case of Domestic Public Policy, courts have to abide only by the domestic policies of a country as the disputed parties are of one country only. In the case of International Public Policy, courts have to apply the principles of law by keeping in mind the international dimensions.
Relationship between Arbitration and Public Policy:
As per Section-34 of Arbitration and Conciliation Act,1996, it puts restrictions on an Arbitral Tribunal or sole arbitrator if it is against the Public Policy in India.
In other words, it says that if an award is in conflict with the public policy or for the process of making an award was done by corruption or fraud will lead to the violation of section- 75 and 81 of the arbitration and conciliation act,1996.
Public Policy and Commercial Arbitration:
“Lexi Arbitri” is a legal maxim that looks after the full procedure of arbitration which includes selecting an appropriate tribunal, validity and effects, and the procedure to be followed during the arbitral proceedings. It also includes that how will it be interpreted, reviewed, and will be enforced after an award in a particular case is been granted.
It is important to have a uniform “Lexi Arbitri” as there are possibilities in case of International Commercial Arbitration, every arbitral proceeding taking place in more than one state(for example, A and B are the disputed parties, A lives in India and B lives in the USA, so their place of arbitration will be different so it is important to note that both the countries should follow same( uniform) ways of solving the dispute).
Public policy plays a very important role in the enforcement of an international commercial arbitration award. For example, A import acid from B at 1 rupee and sells it at rupees 5, then it will be against the policy as selling of acid at such a cheaper rate will increase the case of acid attacks in a country.) It is necessary that when an award is been granted by an arbitral tribunal it should not be against the public policy especially in the case of International Commercial Arbitration.
Grounds of challenges based on Public Policy:
There are several things which can be challenged as a ground for not enforcing the award especially if it is against the public policy at large. Following are some of the challenge which is based on the public policy:
Public Policy is regarded as one of the most important grounds of a challenge for opposing the enforcement of a particular award in case it is against the public policy of a country at large.
It also provides contracting states “state valve” in a way not to allow the enforcement of an award which is creating a hindrance in one’s legal system mentioned under Article-V (2) (b) of convention governing the contracting states. Public policy is one aspect that has huge importance and is the most controversial topic is well because even the national courts will not implement any law or policy which will endanger the public at large.
In each country, public policy is having different jurisdiction, an arbitral award can be set aside if it is against the principles of “Natural Justice” or “Justice, Equity and Good Conscience”.
Following are some of the examples for setting aside an arbitral award if it is against the public policy of a country:
If it is believed that an award was enforced by doing some kind of fraud then it will not be enforced.
Corruption is regarded as one of the most dangerous grounds which is against the public policy at large. It will be one of the strongest grounds for the non- enforcement of an award.
If an award was made under the influence of someone else and not through free consent then it will be regarded as against the public policy. An award should be made with free consent and without the consent of someone else especially when the intentions of that person were wrong.
Acceptance of Hospitality:
If Arbitral Tribunal gets to know the amount an incident where the arbitrator had privately communicated with either of the parties to the dispute then the tribunal will set aside the award without hearing any kind of explanation for the same.
International Conventions governing the Public Policy:
Geneva Convention 1927:
This convention talks about giving recognition as well as enforcement of foreign award which is mentioned under Article- 1 and 2 of the convention. The court was in the opinion that even if an award full fills all the provisions mentioned under article-1 and 2 but it does not abide by certain principles then the award will be termed as null and void. Following are the principles:
- Award made was annulled in the country of either of the parties.
- Either of the parties was having some kind of incapacity.
- The terms of the application submitted were beyond the scope of the Arbitration Act.
New York Convention, 1958:
The New York Convention came into the picture to cover the defects of the Geneva Convention. It recognized an arbitral award which will be binding upon the people and its enforcement will be refused it follows certain instances which are as follows:
- Enforcing an award which is against the public policy at large.
- The nature of the dispute is such that it cannot be settled through the arbitration.
- UNICTRAL model of law was not followed while implementing the arbitral award.
Konkan Railway Corporation Ltd & Ors v M/S Mehul Construction Co
In this case, The Supreme Court compared the Act of 1940 with that of the present act of 1996 and held that the present act has limited the Indian Court’s intervention in the arbitration process.
ABC Laminart Pvt. Ltd v A.P Agencies, Salem
It was held in this case, that there must be restrictions on the judicial intervention in case of International Commercial Arbitration and this case through an arbitration clause that provided the jurisdiction to Singapore.
Public policy indeed plays a very vital role in the International Commercial Arbitration, no award can be enforced if it will be against the public policy of a country at large. With an increase in the number of international trade and commerce activities, arbitration is becoming the best alternative for resolving the disputes between the parties being cost and time friendly. The Public policy is a ground for challenging enforcement of a foreign award. For every country, the safety of their citizen is their first and foremost priority so no foreign award can be implemented or enforced if it is against their public policies. But on the other side, arbitration should not become a medium of ignoring the actual court of law.
Question and Answers:
Q-1 What do you mean by public policy?
It refers to those policies, rules, and regulations framed by the government for the general public at large.
Q-2 What do you mean by domestic public policy and international public policy?
Domestic Public Policy, courts have to abide only by the domestic policies of a country as the disputed parties are of one country only. In the case of International Public Policy, courts have to apply the principles of law by keeping in mind the international dimensions.
Q-3 Which convention corrected the defects of Geneva Convention 1927?
The New York Convention 1958.
Q-4 Which articles of the Geneva Convention,1927 gave recognition and enforcement of foreign awards?
Article-1 and 2 of the Geneva Convention.
Q-5 What are some of the instances which are against the public policy?
Fraud, Corruption, undue influence, etc are some of the instances which are against the public policy at large.
- 1994 AIR 860, 1994 SCC Supl. (1) 644
- 1989 AIR 1239, 1989 SCR (2) 1
 1994 AIR 860, 1994 SCC Supl. (1) 644
 1989 AIR 1239, 1989 SCR (2) 1