India: Widened Scope Of "Public Policy" Leaves Arbitral Awards Susceptible To Further Scrutiny By Courts

Last Updated: 15 October 2014
Article by Varuna Bhanrale, Ashish Kabra and Vyapak Desai

Supreme Court holds that:

  • Arbitral Awards maybe set aside if they violate the fundamental policy of Indian law;
  • Fundamental policy of Indian Law includes:

a. Judicial Approach: No Tribunal or court to act in an arbitrary, capricious or whimsical manner.

b. Principles of Natural Justice: Principles of natural justice to be followed and reasoned decisions to be made.

c. Wednesbury's principle of reasonableness: No decision should be perverse such that no reasonable person would arrive at it.

  • If the above principles are not followed by an arbitral tribunal, the award passed would be open to challenge under Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996.


The recent judgments of the apex court of the land clearly highlighted the recognition of the policy of least judicial intervention in arbitrations. However, the recent decision of the Hon'ble Supreme Court of India ["Court"], in the case Oil & Natural Gas Corporation Ltd. ["Appellant"] v. Western Geco international Ltd. ["Respondent"]1, appears to buck the trend. The Court has, in the decision, considered the ambit of "public policy" under Section 34 of the Arbitration and Conciliation Act, 1996 ["Act"] which is a ground available to challenge an award or its enforcement. .


In mid - 2001 a tender was awarded to the Respondent for technical upgrade of a Seismic Survey Vessel ["Vessel"]. The Respondent had submitted a bid, which included equipping the Vessel with "Geopoint" Hydrophones of U.S. origin ["US Hydrophones"].

In due course, the Respondent was unable to fit the US Hydrophones, since it was unable to obtain the requisite license from the concerned authority in U.S.A. The Respondent accordingly requested the Appellant to consent to replace the US Hydrophones with those of Canadian origin. However, the Appellant insisted that US Hydrophones be used, and only when the application for US Hydrophones had been formally rejected by the concerned authority in U.S.A. the Appellant consented to the use of Canadian Hydrophones.

Owing to this issue the Vessel could not be returned to the Appellant on the stipulated date of July 9, 2001 and was eventually returned on May 6, 2002.

While making payments to the Respondent, the Appellant, inter alia, deducted amount towards excess engagement charges under the Contract. Disputes arose between the parties on account of the deductions, which were then adjudicated upon by an Arbitral Tribunal.

The Tribunal held that the excess engagement charges for the period from November 1, 2001 to March 22, 2002 deducted by the Appellant from the payments made to the Respondent were unjustified. The Tribunal held that this period of delay in delivery of Vessel could not be attributed to the Respondent - as it had by October 31, 2001, informed the Appellant of its inability to procure the requisite license and had provided the details regarding the alternate Canadian hydrophones.

The Appellant aggrieved by the award of the tribunal challenged the decision under Section 34 of the Act.

It was contested by the Respondent that none of the grounds for setting aside an award under Section 34 of the Act existed in the present case and therefore, the Court did not have the jurisdiction to set aside / interfere with the Award. It was also urged that the Court could not, in the absence of any compelling reason, interfere with the view taken by the Arbitrators as if it was sitting in appeal over the Award.


The Court examined if the Award was in conflict with the "public policy of India", under Section 34(2)(b)(ii) of the Act. Reliance was placed on the judgment in ONGC Ltd. v. Saw Pipes Ltd.2 ["Saw Pipes Case"] while interpreting the phrase "public policy of India" wherein it has been held that an arbitral award should be "set aside if it is contrary to:

  • fundamental policy of Indian law; or
  • the interest of India; or
  • justice or morality, or
  • in addition, if it is patently illegal.

Interpretation of "fundamental policy of Indian law"

The Court observed that the phrase "fundamental policy of Indian law" had not been elaborated by the Court. Interpreting it in this case, the Court held that the phrase included, inter alia, the following three principles:

a. Judicial Approach: No Tribunal, court or other authority should act in an arbitrary, capricious or whimsical manner or be influenced by any extraneous consideration while making any determination which would affect the rights of citizens or have civil consequences.

b. Principles of Natural Justice: These principles should be followed by all courts and quasi – judicial authorities while determining the rights and obligations of parties. The parties to the dispute should be given the opportunity to be heard. The decision – makers should make reasoned decisions which reflects application of mind to the facts and circumstances of the case.

c. Wednesbury's principle of reasonableness: Where a decision by a court or tribunal is so perverse or irrational that no reasonable person would have arrived at it [the Wednesbury principle], then such decision shall not be sustained it a court of law and maybe challenged.

The Court stated that the aforementioned principles were applicable to the awards passed in arbitrations.

Application of principles to the facts in the case

The Court considered the facts of the case to determine if the excess engagement charges deducted by the Appellant were justified. The Court held that while on the one hand, the Appellant was held responsible for the delay as it did not act in right earnest, the same test was not applied to the Respondent.

In this regard, the period from November 1, 2001 to March 22, 2002 was considered.

Regarding the period from October 24, 2001 to November 26, 2001 (when the Appellant had failed to provide prompt directions for making application for the requisite license for the hydrophones) it was held that the Tribunal had rightly attributed the delay to the Appellant.

Thereafter, the period from November 26, 2001 (when the Appellant issued instructions for making of a formal request for the grant of license) to January 8, 2002 (when the application was actually made by the Respondent) was considered. This delay was attributed to the Respondent by the Court, for its lack of diligence in making a timely application. Since under the Award this delay was attributed to the Appellant instead of the Respondent, the Court held that the Tribunal had failed to appreciate the facts, leading to miscarriage of justice. It was held that the Tribunal had failed to apply consistently the test for determining the liability for the delays.

The delay for the period from January 8, 2002 to March 7, 2002 (time taken by US authority to process the application and reject the same) was attributed to the Appellant, as it was on their insistence that an application had been made.

Further, the delay from March 8, 2002 (when the application was rejected) to March 22, 2002 (when such rejection was conveyed by the Respondent to the Appellant) was attributed by the Court to the Respondent, contrary to the Tribunal's finding.

The Court, conclusively, held that if arbitrators fail to draw an inference which ought to have been drawn; or if they draw an inference which is prima facie untenable, and results in miscarriage of justice then such an award is liable to be challenged cast away or modified, as necessitated.

In light of this, the Award was modified such that the Respondent was held liable for the delay for the periods being November 26, 2001 to January 8, 2002; and March 8, 2002 to March 22, 2002.


In this case, the Court has, for the first time, defined, albeit non-exhaustively, the term "fundamental policy of Indian law" which is an ingredient of "public policy" under Section 34 and 48 of the Act.3 It is curious that the Court has not tested the award in the present case on the grounds of patent illegality, but has chosen to give a broad interpretation to "fundamental policy of Indian law".

In the present case, the Court allowed the challenge to the award on the following basis:

  • The arbitral tribunal failed to consistently apply the tests for determination of a dispute to both the parties; and
  • The inference drawn by the tribunal from the proven facts was untenable resulting in miscarriage of justice.

The Court seems to have suggested that an award could be tested under the ambit of "fundamental policy of Indian law" on the aforesaid basis.

It is appreciable that the principles have been suggested to be applied to ensure that no award is passed without appreciating the facts and circumstances of a case and without consistent treatment to both the parties.

However, rendering the inferences drawn by a tribunal open to scrutiny of the courts based on the principles is a regressive step by the Court. While it is common for courts to ensure that an award is reasoned and has been passed after application of mind by the arbitrators, the courts do not usually adjudicate on the outcome of such application of mind. Such restrain is exercised to protect the independence of the arbitration process. The Court's indication that a detailed scrutiny into the merits of the award may be undertaken may now liken the courts powers under Section 34 and 48 of the Act to an appeal.

Effect on Domestic and Foreign Awards

The Saw Pipes case prescribed four facets while elaborating on the meaning of the expression 'public policy of India' in context of Section 34. Of the four facets of public policy prescribed in the Saw Pipes case, only the test of "patent illegality" is inapplicable to a challenge to enforcement of foreign awards under Section 48 of the Act.4

Thus, the principles enunciated in the present case, being part of "fundamental policy of Indian law" are applicable to domestic and foreign awards alike.

Resultantly, the change has been brought about as follows, by the present judgment, in the ambit of "public policy" for setting aside a domestic award under Section 34 of the Act and for refuting the enforcement of a foreign award under Section 48:

Public Policy under Section 34

of the Act

Public Policy under Section 48

of the Act

Position before this judgment

Public Policy included:

1. Fundamental policy of Indian law;

2. The interest of India;

3. Justice or morality, or

4. Absence of patent illegality.5

Public Policy included:

1. Fundamental policy of Indian law;

2. The interest of India; or

3. Justice or morality

Position after this judgment

Public Policy now includes:

1. Fundamental policy of Indian law;

  • Judicial Approach
  • Principles of Natural Justice
  • Wednesbury's principle of reasonableness

2. The interest of India;

3. Justice or morality;

4. Patent illegality

Public Policy now includes:

1. Fundamental policy of Indian law;

  • Judicial Approach
  • Principles of Natural Justice
  • Wednesbury's principle of reasonableness

2. The interest of India;

3. Justice or morality.


1 Civil Appeal No. 3415 of 2007

2 (2003) 5 SCC 705

3 The Court had for the first time in Renusagar Power Co. Ltd v. General Electric Co. [1994 SCC Supl. (1) 644] defined the term public policy to include (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.

4 As held by the Supreme Court in Shri Lal Mahal Ltd. v. Progetto Grano Spa, Civil Appeal No. 5085 of 2013 arising from SLP(c) No. 13721 of 2012

5 The ambit of "public policy" was widened in Saw Pipes case where "patent illegality" was also pronounced to be an aspect of public policy

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

Click to Login as an existing user or Register so you can print this article.

Varuna Bhanrale
Ashish Kabra
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
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).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions