A Comparison Of The Use Of The Public Policy Defence By Different Countries To Resist The Enforcement Of International Arbitral Awards – A Rising Star Or Setting Sun?

A Comparison Of The Use Of The Public Policy Defence By Different Countries To Resist The Enforcement Of International Arbitral Awards – A Rising Star Or Setting Sun?

More recently in 2010, the Bombay High Court in Western Maharashtra Development Corporation Ltd. v Bajaj Auto Ltd , relying on the Saw Pipes case, set aside an arbitral award on the ground that it was contrary to the substantive provisions of Indian law and, as a result, patently illegal. In deciding whether the court should interfere with the award, the Bombay High Court analyzed the Supreme Court decision in the Saw Pipes case and held that the award could be set aside on grounds of public policy. The Bombay High Court felt that, inter alia, the arbitrator did not apply the provisions of the Indian company law correctly and, as a result the award contradicted the substantive provisions of law and was patently illegal. This decision is yet another example of the increasing prominence that Indian courts have given to the public policy defence.

So long as cases like Bhatia remain in place, the approach taken by the Indian court in Western Maharashtra Development Corporation Ltd. poses a serious threat to international arbitration with an Indian connection.
Professor Paulson, a Founding Partner with Three Crowns LLP had this to say about the interpretation of the public policy defence by the Indian courts in refusing enforcement of foreign arbitral awards:
“The courts of India have revealed an alarming propensity to exercise authority in a manner contrary to the legitimate expectations of the international community ….’ ,
These concerns were quickly identified by the Government of India which realised that its dispute resolution system needed to keep pace with its rapidly growing economy. The Government of India decided to take certain initiatives to bring about legislative changes in order to address the problems created by these decisions. It launched a 2010 consultation paper recommending changes to the Indian Arbitration Act in order to deal with the issues posed by excessive judicial intervention. The paper acknowledges that the Indian courts have misinterpreted the provisions of the Indian Arbitration Act in such a way so as to defeat its object and purpose. The consultation paper proposes some changes to the Arbitration Act to rectify the problems posed by decisions such as Saw Pipes, Bhatia and Satyam.

Funke Adekoya

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