Law commission’s recommendations for amending Section 48 of the Arbitration Act, 1996...

Law commission’s recommendations for amending Section 48 of the Arbitration Act, 1996 – A review

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By Narayanan H

The 246th Law commission report deals with suggestions for amending the Arbitration and Conciliation Act (see here). The present article deals only with point number 22 in Chapter III – Proposed amendments to Arbitration Act.

The said amendment deals with Section 48 of the Arbitration Act that deals with the power of Indian courts to refuse enforcement of a foreign award if found contrary to Public policy of India.

The question of when an award would be contrary to public policy has been dealt with by the Indian Supreme court in the case of Renusagar Power Plant Co Ltd v. General Electric Co, AIR 1994 SC 860. The Court in that case held that an award would be contrary to public policy if such enforcement would be contrary to “(i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality”.

The law commission by way of the proposed amendment has suggested including the dictum of Renusagar as an explanation to Section 48. In doing so the Commission also has recommended to remove point no (ii) from the dictum i.e., Interests of India.

The present article argues that such recommendation from Law commission to remove “interests of India” is uncalled in light of the scope of recognition and enforcement of foreign awards and freedom granted to a Nation’s court under New York Convention.

New York convention is an international convention for recognition and enforcement of Foreign award to which India is a party. Article V (2) (b) of the Convention grants the freedom to National Courts of the country in which enforcement is sought, to refuse the award if found contrary to Public policy of that country.

While determining the nature of the public policy under Article V (2) (b), Renusagar case held that doctrine of public policy in Article V (2) (b) has to be understood as understood in the field of Private international law. This view has got a worldwide acceptance and many foreign courts have appreciated and followed Renusagar dictum both in letter and in spirit.

The Final court of Appeal of Hong Kong in the case of Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd, [1999] 2 HKC 205, and England and Wales High court in the case of Tamil Nadu Electricity Board v. STCMS Electric Co. Private Ltd., [2007] EWHC 1713 have accepted Renusagar dictum in full.

In addition to this the International Law association, an International Nongovernmental organization having a consultative status with number of UN agencies have recommended that: “The international public policy of any State includes: (ii) rules designed to serve the essential political, social or economic interests of the State, these being known as “lois de police” or “public policy rules”.”1

Be that as it may, Section 48 of the Arbitration Act reflects Article V (2) (b) of New York convention that gives freedom to the courts of each country that enforces a foreign award to refuse it, if found contrary to public policy. If the legislature were to accept the recommendation of the law commission, it would partly violate the rights of the Indian courts to determine the question of violation of public policy (as the question of “which award violates public policy?” can only be determined by courts and not legislature – in accordance with New York convention).

At present it is a settled law that mere violation of law will not be violation of public policy.2 Hypothetically if a Foreign award is granted against a public sector undertaking in India, and enforcing the award if not found contrary to Fundamental Policy (that covers only the basic legal frame work of India) or justice and morality (that covers only the procedural aspects ending in the award), then it would be very difficult for the court to refuse the award even if enforcing the award might result in huge loss to PSU thereby affecting the general public of India.

Thus it is submitted that the recommendations of the Law commission in removing “interests of India” from the explanation to public policy under Section 48 of Arbitration Act is unreasonable and contrary to interests of India in an international situation.


1. Recommendation 1(d) of ILA Report on Public Policy 2002, Available for Download at:

http://www.newyorkconvention.org/publications/full-text-publications/general/ila-report-on-public-policy-2002

2. Please see: Vitol S.A. v. Bhatia International Limited., NOTICE NO. 618 OF 2011, Bombay High court, Judgment dated 15th September, 2014.


 

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