V Public policy connotes some matter which concerns

public good and public interest

V According to Lord Truro, DzPublic policy is that principle

of law which holds that no subject can lawfully do,
which has a tendency to be injurious to the public or
against the public good, which may be termed, as it
sometimes has been, the policy of the law or public
policy in relation to the administration of the law.dz
V A form of Alternative Dispute Resolution

V Specifically, it is a legal alternative to litigation

V Parties to a dispute agree to submit their respective

positions (through agreement or hearing) to a
NEUTRAL third party called the Arbitrator (s) or
Arbiter (s) for resolution
V Ad-hoc Arbitration
V Institutional Arbitration
V Statutory Arbitration
V Domestic or International Arbitration
V Foreign Arbitration
V The Geneva Protocol on Arbitration Clauses of 1923

V The Geneva Convention on the Execution of Foreign

Arbitral Awards, 1927 and

V The NewYork Convention of 1958

V The governing arbitration statute in India

V Based on the Model Law on International Commercial

Arbitration adopted by the United Nations
Commission on International Trade Law (UNCITRAL)
in 1985

V Applies to both à
 arbitration in India and to

  
arbitration
V Arbitration where at least one of the parties is:
ΠAn individual who is a national of, or habitually resident in
any country other than India; or
ΠA body corporate which is incorporated in any country
other than India; or
ΠA company or an association or a body of individuals
whose central management and control is exercised in any
country other than India; or
ΠThe Government of a foreign country
V Minimise the supervisory role of courts in the arbitral
process and

V Provide that every final arbitral award is enforced in

the same manner as if it were a decree of the Court
V r   
General Electric Co., a company incorporated under the laws
of State of NewYork in USA

V 
    
ΠGE to supply equipment and power services to Renusagar
power for setting up a thermal power plant
ΠItems to be delivered in 15 months from the effective date
ΠCompletion of the plant to be done within 30 months
ΠPayment to be made in installments
ΠExecution of unconditional negotiable promissory notes
for all the installments
V ÷   

Any disagreement which the parties are unable to resolve by
sincere negotiation shall be finally settled in accordance with
the Arbitration Rules of the International Chamber of
Commerce

V  


ΠSome delay of General Electric in adhering to the time
schedule for supply of equipment
ΠConsequently, Renusagar rescheduled the payment
installments and certain installments were unpaid under
due dates.
V ÷   

ΠAward in favour of General Electric
ΠAlso awarded compensatory damages computed by
applying the average prime rate to the amount withheld

V 

    à
ΠIt was contrary to public policy of India
ΠOrder relating to the payment of interest in foreign
exchange was contrary to the Foreign Exchange
Regulation Act
ΠSupreme Court faced with the question whether to give
the words Ǯpublic policyǯ a narrow or a broad meaning
V Supreme Court gave narrow interpretation to the
words public policy and held that
1. Payment of interest on interest (compound interest),
2. Possibility of violation of FERA,
3. Payment of damages,
4. Possibility of unjust enrichment by General Electric
did not amount to or was not contrary to the public
policy of India
V Renusagar was thus
ΠCorrectly decided
Œ Took a narrow view of the word Ǯpublic policyǯ
ΠLeft little scope of judicial interference in arbitration
proceedings and final determination of awards
V r   
SAW Pipes Ltd., a company incorporated in Europe

V 
    
ΠONGC ordered pipes from SAW Pipes Ltd. on certain
terms and conditions
ΠArbitration clause for dispute resolution
V  


ΠPipes was unable to conform to the time schedule for
supplies due to the strike of the workers in Europe for
almost two months
ΠSAW Pipes informed these facts to ONGC which in turn
replied that damages as per the contract would have to be
paid
ΠSAW Pipes thereafter supplied the pipes
ΠONGC deducted a large sum from the bill on account of
delay without there being any adjudication or
determination by a third party
V Arbitration passed an order in favour of SAW Pipes
V Order challenged before High Court and thereafter division
bench but both dismissed the petition
V Appeal to Supreme Court under Article 136 (Special Leave
Petition) heard by 2 Judges concluded that ONGC was
justified in deducting the amount and the arbitrators were
wrong in awarding the amount with interest and set aside
the award
V The Court held that any arbitral award which violates Indian
statutory provisions is Dzpatently illegaldz and contrary to
Dzpublic policydz
V Equating Dzpatent illegalitydz to an Dzerror of lawdz, the Court paved
way for losing parties in arbitral process to have their day in Indian
courts
V Thus resurrected the potentially limitless judicial review which the
1996 Act was designed to eliminate
V Decision widely criticized in the International community
V 3 years later, Supreme Court had an opportunity to refer the
matter to a larger Bench which it did not
V The Bench in Renusagar case held that the term Ǯpublic policy of
Indiaǯ was to be interpreted in a narrow sense, whereas the
Division Bench in ONGC case interpreted it in a narrow sense
V A huge step backwards in laws relating to alternate dispute
resolution in the era of globalization
V r   
Œ Îenture Global Engineering (ÎGE) incorporated in the USA
V 
    
ΠA joint venture agreement to constitute a company named
Satyam Îenture Engineering Services Ltd. (SÎES) in which
both ÎGE and SCSL have 50 per cent equity shareholding
ΠShareholders Agreement (SHA) executed between the
parties provides that disputes have to be resolved
amicably between the parties and failing such resolution,
the disputes are to be referred to arbitration
V  


Œ SCSL alleged that owing to a breach in SHA ÎGE had purchased
shares in SÎES at its book value owing to several venture companies
becoming insolvent

V    à
ΠLondon Court of International Arbitration appointed arbitrator passed
an award directing ÎGE to transfer the shares to SCSL
ΠThe City Civil Court, Secunderabad passed an interim order of
injunction restraining SCSL
Œ The Andhra Pradesh HC suspended the trial courtǯs order holding that
the award cannot be challenged even if it is against the public policy
Œ ÎGE asserted that the award violated the Foreign Exchange
Management Act, 1999, and therefore constituted a Dzconflict with the
public policy of Indiadz.
V ir
à

ΠDzThe provisions of    of the Act (Arbitration and
Conciliation Act, 1996) would 


  
including international commercial arbitrations
ΠWhere such arbitration is held in India, the provisions of
Part-I would compulsorily apply and parties are free to
deviate to the extent permitted by the provisions of Part-I
ΠEven in the case of international commercial arbitrations
held out of India provisions of Part-I would apply unless
the parties by agreement, express or implied, exclude all
or any of its provisions
V Arbitration & Conciliation Act, 1996 is divided into four parts.
The first two parts consists as follows:
ΠPart I deals with domestic arbitration
ΠPart II deals with provisions relating to enforcement of New York
Convention Awards and Geneva Convention Awards in India
V This has been the basis of all the Arbitration clauses
incorporated in the contract between various Indian and
Foreign companies until now
V However, with the case of ÎGE vs. SCSL, Part I of the Act is
made applicable to all international commercial arbitrations
V This has led to a great deal of mistrust, confusion and uproar
amongst the foreign companies
V DzArbitration in India is not for the faint-hearteddz
V Continued intervention of courts in arbitration is
harmful in two ways
ΠA pro-arbitration stance would reduce the pressure on the
courts in a legal system plagued by delays
ΠFor foreign investment, it is imperative that its legal
system provides efficient and predictable remedies to
foreign investors. Foreign investors typically prefer
arbitration and have shied away from Indian courts due to
prolonged delays in litigation
V Recent judgment in the Satyam case has made Part 1 of the
1996 Act applicable to all International arbitrations
V Many foreign companies having relevant business interests
in India have relied heavily upon Indian law based on the ACT
itself and already opted for Arbitration procedures
V This recent judgment has infused a strong feeling of
insecurity in dealings of foreign companies with their Indian
counterparts.
V So, it is largely upto the Indian Judiciary to step in and
contain the interventionist role it has assumed for itself and
have greater trust in the arbitral process