ABSTRACT
International Commercial Arbitration is an essential component of global dispute resolution centred on principles such as party autonomy, efficiency and the finality of arbitral awards. However, the public policy exception poses a significant challenge to the enforcement of foreign arbitral awards, often undermining their finality through broad judicial interpretations in domestic courts. The application of this exception in India warrants careful examination, as its expansive scope creates uncertainty for award holders and compromises India’s standing as a jurisdiction that supports arbitration. Even though the 1996 Arbitration and Conciliation Act has a pro-enforcement bias, some court rulings have expanded the public policy exception by rejecting enforcement, citing domestic ideas such as illegality. These interpretations diverge from the exception’s intended purpose of providing limited protection for important national values. These developments have far-reaching implications, threatening to erode trust in India as a reliable centre for international arbitrations. Inconsistencies in judicial approaches highlight the urgent need for a unified and restrictive criterion to define the public policy exception. By bridging India’s arbitration system into compliance with international norms, this clarity could improve predictability and preserve the finality of awards. As case studies highlight how conflicting judicial perspectives create ambiguity, discouraging foreign investors and parties from seeking timely dispute resolution. Judicial harmonisation is essential to establish a clear framework for public policy exceptions and enhance India’s position in global arbitration. Integrating local legal principles with international obligations will foster confidence in India’s arbitration ecosystem, positioning the country as a top destination for cross-border commerce and ensuring reliable conflict resolution.
KEYWORDS: International Commercial Arbitration; Public policy conundrum; Award enforcement; party autonomy; judicial harmonisation; NAFED-Alimenta case.
- INTRODUCTION
In today’s interconnected global economy,effective dispute resolution mechanisms are essential. International Commercial Arbitration has become the favoured means for resolving disputes,offering parties a neutral,efficient and confidential alternative to conventional litigation. Unlike court proceedings,which can be rigid and influenced by local laws or biases,arbitration allows parties to choose expert arbitrators,customise procedures and achieve finality in outcomes. This flexibility is particularly beneficial in international contexts. The modern framework of ICA has evolved in response to globalisation, with institutions such as the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA) and the Singapore International Arbitration Centre (SIAC) playing vital roles in administering arbitrations worldwide.
International commercial arbitration’s success hinges on the global recognition and enforcement of arbitral awards,largely due to the New York Convention of 1958[1].Article V lists specific grounds for refusal,with the public policy exception being particularly controversial due to its vague definitions,which cause varied interpretations and uncertainties in enforcement across jurisdictions. India is striving to become a global arbitration hub like Singapore and London by aligning its legal framework with international standards through the Arbitration and Conciliation Act of 1996[2],based on the UNCITRAL Model Law. Amendments in 2015,2019 and 2021 aimed to reduce judicial intervention and expeditethe arbitration process.
However, the Supreme Court’s decision in NAFED v. Alimenta[3] has raised concerns about India’s consistency in supporting arbitration, highlighting both the challenges and opportunities in its evolving landscape. NAFED appealed to the SupremeCourt, arguing that enforcing a contract without government approval would violate Indian public policy. On22 April 2020, a three-judge bench led by Justice Arun Mishra deemed the contract unenforceable under section 32 of the Indian Contract Act 1872[4]. Critics claim the ruling improperly reviewed merits and excessively broadened the public policy conundrum,potentially deterring foreign parties fromchoosing India for arbitration. Addressing these issues requires judicial restraint and better legislative clarity.
[1]Convention On The Recognition And Enforcement Of Foreign Arbitral Awards, June 10, 1958,330 U.N.T.S. 3.
[2]Arbitration And Conciliation Act 1996, No.26, Acts Of Parliament,1996(India).
[3]Nat’l Agric. Coop. Mktg. Fed’n Of India Ltd. V. Alimenta Sa, (2020) 19 Scc 260 (India).
[4]Indian Contract Act, 1872, No. 9, Acts Of Parliament, 1872 (India)