Public Policy Review.
Public Policy Review in Arbitration
Public policy review refers to the power of courts to set aside or refuse enforcement of arbitral awards when such awards conflict with the fundamental legal, moral, or economic principles of a state. It is one of the most debated doctrines because it sits at the intersection of judicial oversight and arbitral autonomy.
1. Concept and Purpose
Public policy review acts as a safeguard mechanism to ensure that arbitral awards:
- Do not violate fundamental legal principles
- Are free from fraud, corruption, or illegality
- Respect natural justice and due process
At the same time, courts must avoid re-examining the merits, preserving arbitration’s finality.
2. Legal Basis of Public Policy Review
(A) International Framework
- New York Convention (1958), Article V(2)(b)
→ Enforcement may be refused if contrary to public policy
(B) Indian Law
- Arbitration and Conciliation Act, 1996
- Section 34 → Setting aside domestic awards
- Section 48 → Refusal of enforcement of foreign awards
3. Evolution of Public Policy Review (India & Global)
(A) Narrow Approach (Minimal Review)
- Renusagar Power Co. Ltd. v. General Electric Co.
- Limited public policy to:
- Fundamental policy of Indian law
- Interests of India
- Justice or morality
- No review on merits
- Limited public policy to:
- Parsons & Whittemore Overseas Co. v. RAKTA
- Public policy applies only to basic notions of morality and justice
- Strong pro-enforcement stance
(B) Expansion Phase (Broad Judicial Review)
- ONGC Ltd. v. Saw Pipes Ltd.
- Introduced patent illegality
- Allowed review of legal errors
- Expanded court intervention significantly
- ONGC Ltd. v. Western Geco International Ltd.
- Included:
- Judicial approach
- Reasonableness
- Opened door to merits review indirectly
- Included:
(C) Restrictive/Corrective Phase
- Associate Builders v. Delhi Development Authority
- Structured public policy into clear categories
- Limited scope of interference
- Ssangyong Engineering & Construction Co. Ltd. v. NHAI
- Reaffirmed minimal interference
- Prohibited re-appreciation of evidence
(D) International Harmonization
- Eco Swiss China Time Ltd. v. Benetton International NV
- Public policy includes mandatory EU competition law
- Hall Street Associates, L.L.C. v. Mattel, Inc.
- Courts cannot expand statutory grounds of review
4. Grounds of Public Policy Review
Modern public policy review generally includes:
(i) Fundamental Policy of Law
- Violation of rule of law
- Breach of natural justice
- Arbitrary or perverse decisions
(ii) Justice or Morality
- Awards contrary to fairness or ethical standards
(iii) Patent Illegality (India – Domestic Awards Only)
- Apparent legal error
- Must be on the face of the award
(iv) Fraud and Corruption
- Awards obtained through bribery or fraud
5. Scope of Judicial Intervention
Permitted Review
- Procedural fairness
- Jurisdictional errors
- Violation of statutory provisions
Prohibited Review
- Re-assessment of evidence
- Reinterpretation of contract
- Substitution of arbitrator’s view
6. Distinction: Domestic vs Foreign Awards
| Aspect | Domestic Awards | Foreign Awards |
|---|---|---|
| Scope of Review | Broader (includes patent illegality) | Narrow (Renusagar standard) |
| Judicial Intervention | Moderate | Minimal |
| Governing Provision | Section 34 | Section 48 |
7. Critical Analysis
Advantages
- Prevents enforcement of unjust or illegal awards
- Maintains integrity of legal system
- Protects public interest
Disadvantages
- Risk of judicial overreach
- Delays enforcement
- Reduces predictability
Modern Trend
- Move toward restrictive interpretation
- Public policy used only in exceptional cases
8. Conclusion
Public policy review has evolved from a narrow doctrine to an expansive tool and back to a controlled safeguard. Today, it is firmly established that:
- Courts should not act as appellate bodies
- Public policy must be applied sparingly
- Arbitration’s core values—finality, efficiency, and party autonomy—must be preserved
Thus, public policy review remains a necessary but limited check, ensuring that arbitral awards are legally sound without undermining arbitration itself.
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