Section 48: The Grounds for Refusing a Foreign Award, and the Narrow Public Policy Test

Ground (c)'s proviso runs the opposite way from section 34's. Section 34(2)(a)(iv) says the part not submitted may be set aside; section 48(1)(c) says the part submitted may be enforced. Same idea of severability, expressed from the enforcing end.

Ground (d) is where the difference between a domestic and a foreign award is starkest. The fallback is the law of the country where the arbitration took place, not Indian law. An Indian court enforcing a Swedish award tests the procedure against Swedish law, not its own.

Ground (e) is the setting-aside link, and it is the answer to a question chapter 500 raised. An Indian court cannot set aside a foreign award, but if the courts of the seat have set it aside or suspended it, that is a ground for refusing enforcement here.

Section 48(2): the two grounds the Court may find

Enforcement may also be refused if the Court finds that:

• (a) the subject matter of the difference is not capable of settlement by arbitration under the law of India; or
• (b) the enforcement of the award would be contrary to the public policy of India.

Explanation 1, inserted in 2015, in the same words as section 34: an award is in conflict with the public policy of India only if (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2: the test of contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

Note the wording in clause (b): it is the enforcement of the award that must be contrary to public policy, not the award in the abstract. That is a real distinction and it keeps the enquiry on the consequences in India.

And note ground (2)(a) uses "the law of India", unlike ground (1)(d)'s reference to the law of the seat. Arbitrability is judged by Indian law, because it is India's courts being asked to lend their machinery.

What is missing, and it is the point of the chapter

There is no patent illegality ground in section 48. Section 34(2A) creates it for domestic arbitrations only, and it has no counterpart here. Nor is there any equivalent to a review of the merits: Explanation 2 forbids it in terms.

So the correct statement, which is what an examiner is looking for, is: the public policy ground is narrower for a foreign award than for a domestic one, and patent illegality is not available against a foreign award at all.

Renusagar: where the narrow test came from

Renusagar Power Co Ltd v. General Electric Co, AIR 1994 SC 860, decided 7 October 1993.

Facts. A challenge to the enforcement in India of a foreign award, decided under the Foreign Awards (Recognition and Enforcement) Act 1961, whose section 7(1)(b)(ii) made it a ground of refusal that enforcement would be contrary to public policy. The question was how wide that expression was.

Held. The Court reasoned that because the Act was concerned with the recognition and enforcement of foreign awards, governed by the principles of private international law, "public policy" had to be construed in the sense in which the doctrine is applied in that field. It held that the expression had been used in a narrower sense, and that to attract the bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Applying that criterion, enforcement of a foreign award would be refused as contrary to public policy only if it would be contrary to (i) the fundamental policy of Indian law, (ii) the interests of India, or (iii) justice or morality.

Why it matters. It is the origin of the narrow test, and the phrase to remember is "something more than the violation of the law of India". Compare Saw Pipes, chapter 400, which read the same words in the setting aside context far more widely.

Shri Lal Mahal: the narrow test restored under the 1996 Act

Shri Lal Mahal Ltd v. Progetto Grano SpA, decided 3 July 2013, R.M. Lodha J with Madan B. Lokur and Kurian Joseph JJ.

Facts. Objections to the enforcement of two foreign awards, in which it was argued that the wider meaning of "public policy of India" given in Saw Pipes, and applied to section 48(2)(b) by the earlier decision in Phulchand Exports, governed the enforcement of foreign awards too.

Held. The Court held that Renusagar must apply for the purposes of section 48(2)(b) of the 1996 Act, while the principles in Saw Pipes govern the scope of proceedings to set aside under section 34. It accordingly held that enforcement of a foreign award would be refused under section 48(2)(b) only if such enforcement would be contrary to (i) the fundamental policy of Indian law, (ii) the interests of India, or (iii) justice or morality, and that the wider meaning given to public policy in section 34(2)(b)(ii) in Saw Pipes is not applicable where the objection is to the enforcement of a foreign award. The statement in Phulchand Exports that public policy in section 48(2)(b) had to be given a wider meaning and that the award could be set aside if patently illegal was held not to lay down correct law, and was overruled.

Why it matters. It is the case that keeps the two tests apart under the present Act, and it is the direct authority for saying that patent illegality is not a ground against a foreign award.

Both judgments predate the 2015 amendment, which enacted Explanation 1 to section 48(2). Compare the three heads: Renusagar and Shri Lal Mahal say fundamental policy of Indian law, the interests of India, justice or morality; the enacted Explanation says fraud or corruption or violation of section 75 or 81, contravention of the fundamental policy of Indian law, or conflict with the most basic notions of morality or justice. "The interests of India" is gone, exactly as it went from section 34, and morality or justice has been narrowed to its most basic notions. State the statutory list as the current law and use the cases for the reasoning.

Section 48(3): adjournment and security

If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1), the Court may, if it considers it proper, adjourn the decision on the enforcement of the award, and may also, on the application of the party claiming enforcement, order the other party to give suitable security.

A neat balance. If the loser is challenging the award at the seat, the Indian court may wait rather than decide in a vacuum; but the winner can ask that the loser be made to give security in the meantime, so that the delay is not free.

Section 34 and section 48 side by side

A worked example

An Indian company resists enforcement of an award made in Rotterdam. It says four things: the tribunal applied Dutch law although the contract chose Indian law; the sole arbitrator was appointed by a body not named in the clause; it was given only five days' notice of the final hearing; and the award orders it to pay in a way that would breach an Indian foreign exchange requirement.

The choice of law point. This is an attack on the merits, and it is not a ground. Explanation 2 to section 48(2) forbids a review on the merits, and there is no patent illegality ground here.

The appointment point. Section 48(1)(d): the composition of the arbitral authority was not in accordance with the parties' agreement. This is a real ground, and the company must furnish proof of it.

The five days' notice. Section 48(1)(b): not given proper notice of the arbitral proceedings, or otherwise unable to present its case. Again the burden is on the resisting party.

The exchange control point. This is the public policy argument, and it must be put through Explanation 1: is enforcement in contravention of the fundamental policy of Indian law? On Renusagar, refusal requires something more than the violation of the law of India, and on Shri Lal Mahal the narrow Renusagar test governs section 48(2)(b). A breach of a statutory requirement is not automatically enough; the argument must reach the fundamental policy of Indian law.

It has also applied to the Dutch courts to set the award aside. Under section 48(3) the Indian court may adjourn its decision, and on the winner's application may order the company to give suitable security meanwhile.

Suppose the Dutch court sets the award aside while that is pending. Then section 48(1)(e) is made out: the award has been set aside by a competent authority of the country in which it was made.

What beginners get wrong

A court under section 48 does not set the award aside. It refuses enforcement, and the award survives to be enforced elsewhere.

Patent illegality is not a ground against a foreign award. Shri Lal Mahal overruled the contrary statement in Phulchand Exports.

The procedural fallback is the law of the seat, not Indian law.

"The interests of India" is no longer part of the statutory test. Explanation 1 as enacted in 2015 does not contain it, although Renusagar and Shri Lal Mahal do.

Section 48 has no limitation period of its own, unlike section 34(3).

Quick revision

• 48(1), the resisting party furnishes proof of: (a) incapacity or an invalid agreement, under the law the parties chose or that of the country where the award was made; (b) no proper notice or otherwise unable to present his case; (c) beyond the scope of the submission, with a proviso allowing the submitted part to be enforced; (d) composition or procedure contrary to the agreement or to the law of the country where the arbitration took place; (e) the award not yet binding, or set aside or suspended at the seat.
• 48(2), the Court finds: (a) not arbitrable under the law of India; (b) enforcement contrary to the public policy of India, with Explanation 1's three heads and Explanation 2's bar on reviewing the merits.
• No patent illegality ground.
• Renusagar (7 October 1993): public policy in this context is used in a narrower sense; refusal requires something more than the violation of the law of India; the heads are the fundamental policy of Indian law, the interests of India, and justice or morality.
• Shri Lal Mahal (3 July 2013): Renusagar applies to section 48(2)(b), Saw Pipes governs section 34, and the contrary statement in Phulchand Exports is overruled.
• 48(3): where a setting aside application is pending at the seat, the Court may adjourn and may order suitable security.

Test yourself

1. Who bears the burden under section 48(1), and what does that reflect? The party against whom the award is invoked, who must furnish proof of a listed ground. It reflects the New York Convention's central reform, which was to shift the burden from the award-holder to the resister and so end double exequatur.

2. Is patent illegality available against a foreign award? No. It exists only under section 34(2A) and only for arbitrations other than international commercial arbitrations. Shri Lal Mahal overruled the statement in Phulchand Exports that the wider Saw Pipes meaning of public policy applied to section 48(2)(b).

3. State the Renusagar test. That public policy in the enforcement context is used in a narrower sense, so that to attract the bar the enforcement of the award must invoke something more than the violation of the law of India, and enforcement would be refused only if it would be contrary to the fundamental policy of Indian law, the interests of India, or justice or morality.

4. An award has been set aside by the courts of the seat. What follows in India? Section 48(1)(e) is made out: the award has been set aside by a competent authority of the country in which, or under the law of which, it was made, and enforcement may be refused on that ground.

5. How does section 48(1)(c)'s proviso differ in expression from section 34(2)(a)(iv)'s? Both are severability provisions. Section 34's says that where the decisions on matters submitted can be separated, only the part containing decisions on matters not submitted may be set aside; section 48's says that the part which contains decisions on matters submitted may be enforced.