Foreign award: Scope of ‘public policy’ challenge

In a recent decision in the case of Shri Lal Mahal Ltd v Progetto Grano SpA, a three-judge bench of the Supreme Court, comprising Justice Lodha, Madan B Lokur and Kurian Joseph, held that for the purposes of section 48(2)(b) of India’s Arbitration and Conciliation Act, 1996 – grounds on which enforcement of foreign awards may be refused – the expression “public policy of India” is to be construed narrowly as provided in Renusagar Power Co Ltd v General Electric Co (1993). Accordingly, it refused to allow “patent illegality” to be raised as an argument against recognition and enforcement of a foreign arbitral award.

Renusagar case

In Renusagar, a three-judge bench, while interpreting section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, held that the application of the expression “public policy” in the field of conflict of laws is more limited than in domestic law and the courts are slower in invoking public policy against a foreign element than where purely domestic legal issues are involved. The expression “public policy” in this section meant public policy of India. Further, the expression is used in a narrow sense and in order to attract the bar of public policy the enforcement of the award must invoke something more than violation of law of India.

Accordingly, the court held that the enforcement of a foreign award would be refused on the basis that it is contrary to the public policy of India if such enforcement is contrary to any of three categories, namely: (a) fundamental policy of Indian law; or (b) the interests of India; or (c) justice or morality.

Ranjana Roy Gawai is the managing partner and Shailesh Suman is a team leader at RRG & Associates.