The court held that foreign arbitral awards can be set
aside if it contravenes public policy.
Australian companies seeking to take advantage of
opportunities in India should be aware of a recent decision of
the Indian Supreme Court which exposes foreign arbitral awards
to challenge in Indian courts.
Arbitration is a backbone for protecting international
commercial arrangements. In the event of a dispute commercial
parties can resolve their differences without having to resort
to the courts in the other party's country of residence
International arbitration is regarded to be very effective
in the international business arena because arbitral awards are
readily enforceable under the New York Convention in most of
the world's key economic nations. These awards can only
be challenged on very limited grounds.
Unfortunately, the Indian Supreme Court's decision
in Venture Global Engineering, USA v Satyman Computer
Services Limited, India, shows a worrying trend by Indian
courts to set aside foreign arbitral awards. In particular, the
court adopted the view that a foreign arbitral award which is
inconsistent with Indian domestic law could be set aside for a
contravention of "public policy".
In 2003 the Supreme Court in Oil & Natural Gas
Corporation Ltd v Saw Pipes Ltd gave the term
"contravention of public policy" such a broad
interpretation that it allowed for almost unlimited judicial
review by the courts. That decision was much criticised
throughout the international business community and it was
expected that the Supreme Court would review its approach. The
Supreme Court has instead given investor confidence a further
blow by expanding such review to foreign awards.
One aspect that contributes to the discomfort amongst
investors following the Venture Global decision is
that the Indian Supreme Court accepted jurisdiction to set
aside an award which was rendered in a foreign jurisdiction
(London) for which enforcement was sought outside India
What are the consequences of the
The decision has serious consequences for companies that are
doing business in India or business elsewhere with Indian
parties. In particular, the decision illustrates that
irrespective of the seat of an arbitration, or where
enforcement of an award is sought, an Indian court may exercise
jurisdiction to set aside an award merely because of a
potentially tenuous nexus to India.
In this regard, the Indian Supreme Court is exercising a
form of jurisdiction over the arbitration award that is not
contemplated by the New York Convention, The full legal
consequences of this are not clear. The fact that an Indian
court has set aside an award may however discourage courts in a
third state from subsequently enforcing the award, even where
this may arguably be contrary to the New York Convention.
What's the solution?
Importantly, the Supreme Court in Venture Global
acknowledged that parties can draft suitable language in their
contract to eliminate judicial review and that the court should
respect the written terms of the arbitration agreement.
For a start, companies should never include provisions in
arbitration agreements that may be construed to conflict with
the governing law of the contract. The Supreme Court was
undoubtedly influenced by an ambiguous provision of the
shareholder agreement which required the parties to act at all
times "in accordance with the Companies Act and other
applicable Acts/Rules being in force, in India at any
More importantly, parties engaged in any business
arrangement that links them to India should include in their
arbitration agreements a provision which explicitly excludes
the operation of Part 1 of the Indian Arbitration and
Conciliation Act 1996.
In any event, it is advisable to seek expert advise on these
issues when an Indian party is likely to become involved in a
business transction. This will ultimately save time, money and
hopefully an unwanted visit to the Indian courts.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
A downsizing strategy is superior to a reverse mortgage option as it provides greater cashflow to meet living expenses.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).