general electric co

“7. Conditions for enforcement of foreign awards.- (1) A foreign award may not be enforced under this Act- (a) if the party against whom it is sought to enforce the award proves to the court dealing with the case that- (i) the parties to the agreement were under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it, or failing any indication thereon, under the law of the country where the award was made; or (ii) that party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (iii) the award deals with questions not referred or contains decisions on matters beyond the scope of the agreement: Provided that if the decisions on matters submitted to arbitration can be separated from those not submitted, that part of the award which contains decisions on matters submitted t o arbitration may be enforced; or (iv) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (v) the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made; or (b) if the Court dealing with the case is satisfied that- (i) the subject-matter of the difference is not capable of settlement by arbitration under the law in India; or (ii) the enforcement of the award will be contrary to public policy; (2) If the Court before which a foreign award is sought to be relied upon is satisfied that an application for the setting aside or suspension of the award has been made to a competent authority referred to in sub-clause (v) of clause (a) of sub-section (1), the Court may, if it deems proper, adjourn 667 the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to furnish suitable security.” 25. The objection of Renusagar against enforceability of the award is based on (i) Section 7(1)(a)(ii) of the Foreign Awards Act, on the ground that Renusagar was unable to present its case; and (ii) Section 7(1)(b)(ii) of the Foreign Awards Act, on the ground that the enforcement of the award would be against public policy. 26. In support of his submission that Renusagar was unable to present its case, Shri Venugopal has urged that after the Mirzapur Court had refused to stay the civil suit filed by Renusagar on the application submitted by General Electric under Section 3 of the Foreign Awards Act on July 9, 1985, Renusagar had raised a preliminary objection before the Arbitral Tribunal that it had become functus officio and on the said objection raised by Renusagar, the Arbitral Tribunal had issued a further notice on September 2, 1985 stating that the effect of the rejection of the application under Section 3 of the Foreign Awards Act would be considered as a preliminary issue at the scheduled meeting of the Arbitral Tribunal fixed for October 1, 1985. The submission of Shri Venugopal is that Renusagar was not informed by the Arbitral Tribunal that if the decision of the Arbitral Tribunal on the objection that the Arbitral Tribunal had become functus officio were to go against Renusagar, the Arbitral Tribunal would straight away proceed to hear the case on merits without informing Renusagar about its decision and that if Renusagar had been put on notice, it would have been able to decide whether to proceed with the merits or not and that the action of the Arbitral Tribunal in going into the merits of the dispute without notice to Renusagar was a gross, blatant and unpardonable violation of principles of natural justice and the elementary tenets of fair play inasmuch as on account of the said procedure adopted by the Arbitral Tribunal, Renusagar was deprived of an opportunity to meet and deal with the entirety of claims of General Electric. 27. As regards bar to the enforcement of the award under Section 7(1)(b)(ii) of the Foreign Awards Act, Shri Venugopal has argued that : (i) under Section 7(1)(b)(ii), enforcement of the award could be refused by the courts in India not only on the ground that the award is against the public policy of India but also that it is against the public policy of the State of New York; (ii) the expression “public policy” in Section 7(1)(b)(ii) of the Act has to be construed in a liberal sense and not narrowly and it would include within its ambit disregard of the provisions of the Foreign Exchange Regulation Act, 1973 (hereinafter referred as FERA) and would also cover unjust enrichment; (iii) it would be contrary to the public policy of India as well as of the State of New York to award interest on interest and compounding it further and to award damages on damages; (iv) under the contract, interest was payable only up to the date of maturity of each promissory note and no interest was payable for the period subsequent to the said date and the only remedy available to General Electric in the event of default in payment of an instalment on the due date was to enforce the bank guarantee or to recall all the promissory notes; (v) under the original approval dated January 2, 1964 given by the Government of India the total amount of loan was to be repaid in sixteen semi-annual instalments between 30 and 120 months from contract effective date and payment of interest was specifically 668 restricted for the period from 16th to 30th month and thereafter upon capitalisation from the 30th month to the 120th month and no interest was payable without FERA sanction after due date of each instalment; (vi) no liability for interest for delayed payment of instalments would accrue in respect of the period from June 30, 1967 to August 1, 1969 while the application for approval under FERA was pending before the Government of India; (vii) after the refusal by the Government to give its approval to the rescheduling of the instalments the award of interest was in breach of the prohibition contained in FERA and was contrary to public policy of India; (viii) while awarding compensatory damages under item Nos. 2 and 4 the Arbitral Tribunal has failed to deduct 46 per cent U.S. tax payable by General Electric on the amount of regular interest and delinquent interest and compensatory damages could only be awarded on the amount receivable by General Electric after deducting the said tax and this has resulted in unjust enrichment which is contrary to public policy; (ix) compensatory damages have been awarded by way of interest on interest and that too by compounding the rate of interest which is contrary to public policy of India and New York; (x) compensatory damages awarded on delinquent interest under item No. 4 constitutes award of damages upon damages which is contrary to public policy of India; (xi) award of compensatory damages on regular interest under item No. 2 in respect of the period from 1970 to 1980 when the interim order passed by the Delhi High Court in the writ petition was operative was impermissible and against public policy; (xii) the amount awarded as costs is unconscionable and constitutes unjust enrichment inasmuch as it includes the amount which was admitted as part of the legal fees and expenses for proceedings in India and which was found to be inadmissible by the Arbitral Tribunal and the same amount was transposed into cost of the arbitration on the pretext that the material collected for litigation in India was also used in the arbitration proceedings; and (xiii) there has been violation of principles of natural justice inasmuch as the vouchers of costs regarding legal fees and expenses were never shown or given to Renusagar nor were its objections heard in this regard. 28. With regard to rate of exchange for conversion of the decretal amount in U.S. dollars to Indian rupees, the submission of Shri Venugopal is that the date with reference to which conversion of foreign currency is to be made is a matter of substance and is governed by lex contractus, i.e., the law of the contract, and not by lexfori, i.e., the law of the forum. It has been urged that the law of the State of New York is the law of the contract and that the said law provides the date of breach as the date of conversion and therefore, the amount awarded in U.S. dollars under the award of the Arbitral Tribunal must be converted into Indian currency on the basis of the rate prevalent on the date of the breach. It has been submitted that the decision of this Court in Forasol v. O.N.G.C.4 on which reliance has been placed by the Division Bench of the High Court, has no application to the present case because in that case the Court was not dealing with a foreign award but was dealing with an award made under the Indian Arbitration Act, 1940. 29. Shri Shanti Bhushan, has, on the other hand, submitted that : (i) the scope of enquiry in proceedings under Section 5 of the Foreign Awards Act is confined to questions relating to the enforcement of the award and does not comprehend a challenge to the merits and even if a question of law decided by 669 the Arbitrators is incorrect, it is not a ground of challenge under Section 7 of the Foreign Awards Act; (ii) Renusagar cannot have any grievance that they were unable to present its case because it had voluntarily refused to appear before the Arbitral Tribunal when it met on October 1, 1985 and further that in the sittings of the Arbitral Tribunal from February to March 1985 in which Renusagar had participated it had made oral submissions and had also produced documents before the Arbitral Tribunal, with regard to issues 22(g) to (p) and that in the sittings held from October 1, 1985 onwards, the Arbitral Tribunal had dealt with rest of the issues which related to the counter-claim of Renusagar as well as the claim made by General Electric against the counter-claim which claims have been rejected by the Arbitral Tribunal; (iii) public policy, comprehended in Section 7(1)(b)(ii) of the Foreign Awards Act is the public policy of India and does not cover the public policy of New York State; (iv) for the purpose of Section 7(1)(b)(ii) of the Foreign Awards Act the expression ‘public policy’ has a narrower connotation than in domestic law; (v) the regular interest was wrongfully withheld by Renusagar because as a result of the failure on the part of Renusagar to deposit the amount of tax with the Government of India. General Electric was not able to claim relief under the U.S. tax laws in respect of the amount payable as tax in India on the interest and that the interim order passed by the Delhi High Court in the writ petition filed by Renusagar did not preclude Renusagar from either depositing the tax amount with the Government or remitting the interest amount to General Electric at the rate of 6 per cent; (vi) for awarding compensatory damages for withholding of regular interest and on delinquent interest for delayed payment of instalments the tax payable in United States on the amount of regular interest and delinquent interest could not be deducted since tax would be payable in the United States by General Electric on the amount awarded as compensatory damages; (vii) the amount of compensatory damages awarded by the Arbitral Tribunal relates to the merits of the award and the same cannot be questioned in proceedings for enforcement of the award under Section 7 of the Foreign Awards Act; (viii) the challenge to the award on the basis of unjust enrichment, award of compound interest, award of damages on damages does not fall within the ambit of permissible objections on the ground of violation of public policy in Section 7(1)(b)(ii) of the Foreign Awards Act; (ix) there is no violation of the provisions of FERA because in view of the approval that had already been granted by the Government of India to the original contract, there was no prohibition against remittance of regular interest on the instalments which had become due and payable and the refusal on the part of the Government to give approval to rescheduling of the payment of instalments did not in any way preclude the Government of India from granting necessary permission for remittance of the interest on the unpaid instalments under Section 9 of FERA; (x) in any event, the bar of Section 9 of FERA is not applicable to the proceedings for enforcement for the award in view of Section 47(3) of FERA and the enforcement of the award does not involve contravention of the provisions of FERA; (xi) the costs that have been awarded are reasonable and that three copies of the supporting vouchers except for the vouchers relating to fees of M/s Amarchand Mangaldas, a Bombay/Delhi firm of Solicitors, were sent to all the three arbitrators and that one set of billings of M/s Amarchand Mangaldas was sent to the Chairman but copies of the letter addressed to Chairman were sent to the other Arbitrators and that the 670 bills of M/s Amarchand Mangaldas were in respect of fees of Indian lawyers in Bombay High Court and Supreme Court which claim of costs has been disallowed by the Arbitral Tribunal; (xii) the rate of exchange for conversion of foreign currency in proceedings for enforcement of a foreign award is governed by lexfori, i.e., law of the forum in which the proceedings have been instituted and not by the proper law of contract or law of place of performance; (xiii) the relevant date for conversion of U.S. dollars into Indian rupees in proceedings for enforcement of a foreign award is the date of actual payment and not the date of judgment as held by the Division Bench of the High Court; (xiv) the decision of this Court in Forasol v. O.N.G.C.4 on which the reliance has been placed by the Division Bench has no application and in any event the said decision does not lay down the correct law and needs reconsideration; (xv) although under the award interest has been awarded at 8 per cent in respect of items 1, 3 and 5 only but in view of the interim order passed by this Court on February 21, 1990 interest at the rate of 10 per cent is payable on the entire amount; (xvi) since the permission was not granted to General Electric by the Reserve Bank of India to transfer the sum of Rs 10.92 crores deposited by Renusagar in pursuance to the orders of this Court dated February 21, 1990 and November 6, 1990 the said amount should be adjusted against the decree that is ultimately passed after converting the decretal amount in U.S. dollars to Indian rupees on the basis of the rate of exchange prevailing on the date of the judgment of this Court. 30.Having regard to the foregoing submissions of the learned counsel the questions that arise for consideration in these appeals can be thus formulated: (1) What is the scope of enquiry in proceedings for enforcement of a foreign award under Section 5 read with Section 7 of the Foreign Awards Act? (II) Were Renusagar unable to present their case before the Arbitral Tribunal and consequently the award cannot be enforced in view of Section 7(1)(a)(ii) of the Foreign Awards Act? (III) Does Section 7(1)(b)(ii) of the Foreign Awards Act preclude the enforcement of the award of the Arbitral Tribunal for the reason that the said award is contrary to the public policy of the State of New York? (IV) What is meant by ‘public policy’ in Section 7(1)(b)(ii) of the Foreign Awards Act? (V) Is the award of the Arbitral Tribunal unenforceable as contrary to public policy of India on the ground that- (a) it involves contravention of the provisions of FERA; (b) it penalises Renusagar for acting in accordance with the interim order passed by the Delhi High Court in the writ petition filed by Renusagar challenging the withdrawal of exemption from income tax on the interest paid to General Electric; (c) it results in charging of interest on interest which is compounded and also damages on damages; (d) it would lead to unjust enrichment for General Electric. 671 (VI) Which law would govern the rate of exchange for conversion of foreign currency in proceedings for enforcement of a foreign arbitral award? (VII) Does Forasol v. O.N.G.C4 need reconsideration? (VIII) Is General Electric entitled to interest pendente lite and future interest and if so, at what rate? (IX) What should be the rate for conversion into U.S. dollars of the amount of Rs 10.92 crores deposited by Renusagar in pursuance to the interim orders passed by this Court on February 21, 1990 and November 6, 1990 and which has been withdrawn by General Electric? 1. Scope of enquiry in proceedings for recognition and enforcement of a foreign award under the Foreign Awards Act 31. During the course of his submissions, Shri Venugopal has assailed the award of the Arbitral Tribunal on grounds touching on the merits of the said award insofar as it relates to the award of compensatory damages on regular interest (item No. 2), delinquent interest (item No. 3), compensatory damages on delinquent interest (item No. 4) and compensatory damages on the price of spare parts (item No. 6). This gives rise to the question whether in proceedings for enforcement of a foreign award under the Foreign Awards Act it is permissible to impeach the award on merits. 32. With regard to enforcement of foreign judgments, the position at common law is that a foreign judgment which is final and conclusive cannot be impeached for any error either of fact or of law and is impeachable on limited grounds, namely, the court of the foreign country did not, in the circumstances of case, have jurisdiction to give that judgment in the view of English law; the judgment is vitiated by fraud on part of the party in whose favour the judgment is given or fraud on the part of the court which pronounced the judgment; the enforcement or recognition of the judgment would be contrary to public policy; the proceedings in which the judgment was obtained were opposed to natural justice. (See : Dicey & Morris, The Conflict of Laws, 11th Edn., Rules 42 to 46, pp. 464 to 476; Cheshire & North, Private International Law, 12th Edn., pp. 368 to 392.) 33. Similarly in the matter of enforcement of foreign arbitral awards at common law a foreign award is enforceable if the award is in accordance with the agreement to arbitrate which is valid by its proper law and the award is valid and final according to the arbitration law governing the proceedings. The award would not be recognised or enforced if, under the submission agreement and the law applicable thereto, the arbitrators have no justification to make it, or it was obtained by fraud or its recognition or enforcement would be contrary to public policy or the proceedings in which it was obtained were opposed to natural justice (See: Dicey & Morris, The Conflict of Laws, 11th Edn., Rules 62-64, pp. 558 & 559 and 571 & 572; Cheshire & North, Private International Law, 12th Edn., pp. 446-447). The English courts would not refuse to recognise or enforce a foreign award merely because the arbitrators (in its view) applied the wrong law to the dispute or misapplied the right law. (See : Dicey & Morris, The Conflict of Laws, 11th Edn., Vol. II, p. 565.) 34. Under the Geneva Convention of 1927, in order to obtain recognition or enforcement of a foreign arbitral award, the requirements of clauses (a) to (e) of 672 Article I had to be fulfilled and in Article 11, it was prescribed that even if the conditions laid down in Article I were fulfilled recognition and enforcement of the award would be refused if the Court was satisfied in respect of matters mentioned in clauses (a), (b) and (c). The principles which apply to recognition and enforcement of foreign awards are in substance, similar to those adopted by the English courts at common law. (See : Dicey & Morris, The Conflict of Laws, 11th Edn., Vol. I, p. 578). It was, however, felt that the Geneva Convention suffered from certain defects which hampered the speedy settlement of disputes through arbitration. The New York Convention seeks to remedy the said defects by providing for a much more simple and effective method of obtaining recognition and enforcement of foreign awards. Under the New York Convention the party against whom the award is sought to be enforced can object to recognition and enforcement of the foreign award on grounds set out in sub-clauses (a) to (e) of clause (1) of Article V and the court can, on its own motion, refuse recognition and enforcement of a foreign award for two additional reasons set out in sub-clauses (a) and (b) of clause (2) of Article V. None of the grounds set out in sub-clauses (a) to (e) of clause (1) and subclauses (a) and (b) of clause (2) of Article V postulates a challenge to the award on merits. 35. Albert Jan van den Berg in his treatise The New York Arbitration Convention of 1958 : Towards a Uniform Judicial Interpretation, has expressed the view: “It is a generally accepted interpretation of the Convention that the court before which the enforcement of the foreign award is sought ma y not review the merits of the award. The main reason is that the exhaustive list of grounds for refusal of enforcement enumerated in Article V does not include a mistake in fact or law by the arbitrator. Furthermore, under the Convention the task of the enforcement judge is a limited one. The control exercised by him is limited to verifying whether an objection of a respondent on the basis of the grounds for refusal of Article V(1) is justified and whether the enforcement of the award would violate the public policy of the law of his country. This limitation must be seen in the light of the principle of international commercial arbitration that a national court should not interfere with the substance of the arbitration.” (p. 269) 36. Similarly Alan Redfern and Martin Hunter have said: “The New York Convention does not permit any review on the merits of an award to which the Convention applies and in this respect, therefore, differs from the provisions of some systems of national law governing the challenge of an award, where an appeal to the courts on points of law may be permitted.” (Redfern & Hunter, Law and Practice of International Commercial Arbitration, 2nd Edn., p. 46 1.) 37. In our opinion, therefore, in proceedings for enforcement of a foreign award under the Foreign Awards Act, 1961, the scope of enquiry before the court in which award is sought to be enforced is limited to grounds mentioned in Section 7 of the Act and does not enable a party to the said proceedings to impeach the award on merits. II. Bar to the enforcement of the award under Section 7(1)(a)(ii) of the Act 38. As indicated earlier, the grievance of Renusagar is that the Arbitral Tribunal on October 1, 1985 decided the preliminary objection raised by 673 Renusagar that the Arbitrators had become functus officio and were not entitled to proceed with the arbitration proceedings on merits and that the Arbitral Tribunal thereafter proceeded to deal with the merits of the claim of General Electric without any further notice to Renusagar and as a result Renusagar was unable to present its case before the Arbitral Tribunal. This objection was not raised by Renusagar either before the learned Single Judge or before the Division Bench of the High Court. We have, however, considered the same and we do not find any substance in it. After the Terms of Reference had been drawn before the Arbitral Tribunal on February 8, 1984, the parties had appeared before the Arbitral Tribunal at Paris for hearing which lasted for ten days between February 25 to March 8, 1985 and during the course of the said hearing Renusagar presented typed submissions and legal authorities before the Arbitral Tribunal. In these hearings, the Arbitral Tribunal concluded hearing on issues 22(g) to (p) and the matter was thereafter adjourned by the Arbitral Tribunal to June 10 but on account of sudden illness of Dr Dixit, one of the arbitrators, the matter had to be adjourned and it was ultimately fixed for October 1, 1985. On June 26, 1988, the Chairman of the Arbitral Tribunal sent a notice to the parties wherein it was stated that the adjourned hearing would take place in London on Tuesday from October 1 to 4 and to continue if necessary during the following week from October 7 to 11. In the said communication, it was further stated: “5. At the beginning of the hearing, the Tribunal will be prepared to hear submissions if necessary on the adequacy of the evidence before us on the relevant issues of U.S. foreign tax credit. But the main purpose of the meeting is to deal with the respondent’s counter-claims together with the claimant’s claims for 119,053 U.S. dollars (unpaid purchase price of spare parts) and 103,500 U.S. dollars (unpaid repairs on 75 M.V.A. Transformers). 6. All the above counter-claims and claims are old, so before going into details as to merit, the Tribunal will wish to consider submissions on the raised issues of limitation, laches, estoppel, abandonment and whether the right party is being sued.” 39. On July 23, 1985, M/s Khaitan & Partners, on behalf of Renusagar, sent a communication to the Arbitrators giving notice that Renusagar was abandoning and withdrawing items (ii) to (vi) and (viii) of its claim set forth in para 19(g) of the Terms of Reference as amended by Paris hearings. On August 10, 1985, M/s Khaitan & Partners, on behalf of Renusagar, sent a communication to the Arbitrators wherein a reference was made to the notice issued by Renusagar to the effect that the ICC Arbitration Tribunal had become functus officio and neither the ICC Arbitration Tribunal could proceed with the arbitration nor Renusagar could participate in the same on the ground that the application submitted by General Electric under Section 3 of the Foreign Awards Act had been rejected by Mirzapur Civil Court and the said order of the court had not yet been set aside or stayed by the Allahabad High Court in the revision petition filed by General Electric. Renusagar, through their advocates (M/s Khaitan & Partners) also sent petition dated August 23, 1985 to the Secretary-General, ICC as well as Secretariat, ICC of Arbitration reiterating their objection that the arbitrators had become flinctus officio and could not proceed and/or function. In his communication to M/s Khaitan & Partners dated 674 September 2, 1985 the Chairman of the Arbitral Tribunal intimated that the question as to the effect of the suit filed in the Mirzapur Court on the arbitration would be considered as a preliminary issue at the scheduled meeting on October 1, 1985. On September 23, 1985, M/s Khaitan & Partners, on behalf of Renusagar, addressed a communication to Mr Roberto Power in the ICC (copies of the same were sent to the Arbitrators as well as to General Electric) wherein it was stated: “Our plea is totally different. It is that the Arbitrators have become functus officio in the facts and law stated by us in the 23rd August, 1985 document and our telexes to the Arbitrators copies of which have been sent to ICC. Therefore, the question of our appearing before the Arbitrators or their determining the plea raised by us cannot and does not arise.” In the communication dated September 28, 1985 from M/s Khaitan & Partners, it is stated: “We have been repeatedly informing you that the Arbitrators have become functus officio. Therefore, be so kind as not to communicate with us any further regarding the arbitration which has become infructuous.” From these documents, it would appear that the stand of Renusagar was that the Arbitrators had become functus officio and they could not proceed with the arbitration and there was, therefore, no question of Renusagar appearing before the Arbitral Tribunal on the dates fixed for hearing. In these circumstances, it is not open to Renusagar to say that the Arbitral Tribunal, after having rejected, (by majority) the said objection raised by Renusagar, by order dated October 1, 1985 should have given a further notice to Renusagar asking them to appear to make their submission before the Arbitral Tribunal on the merits on issues 22(q) to 22(bb). In this context, it may also be stated that issues 22(q) and 22(r) relate to the claim of US $ 119,053.91 for purchase price of spare parts which is not disputed by Renusagar and issue 22(s) relates to claim for compensatory damages on the said amount which has been allowed on the same basis as the claim for compensatory damages on regular interest (Item No. 2) under issue 22(k). Rest of the matters covered by issues 22(t) to 22(bb) related to counter-claims of Renusagar and claims by General Electric against counter-claims which have been disallowed by the Arbitral Tribunal. 40. We are, therefore, of the opinion that the enforcement of the arbitral award is not barred by Section 7(1)(a)(ii) of the Foreign Awards Act on the ground that Renusagar was unable to present its case before the Arbitral Tribunal. III. Objection to the enforceability of the award on the ground that it is contrary to the public policy of the State of New York 41. Shri Venugopal has urged that although under sub-clause (b) of clause (2) of Article V of the New York Convention the recognition and enforcement of an arbitral award can be refused if the competent authority in the country where recognition and enforcement is sought finds that the recognition or enforcement of the award would be contrary to the public policy of that country, i.e., the country where the award is sought to be enforced, a departure has been made in Section 7(1)(b)(ii) of the Foreign Awards Act which prescribes that the foreign award may not be enforced under the said Act if the court dealing with the case is satisfied that the enforcement of the award would be contrary to public policy. The submission of Shri Venugopal is that in Section 7(1)(b)(ii) of the Act, the Parliament has deliberately refrained from using the words “public policy of India” which implies that the words “public policy” are not restricted 675 to the public policy of India but would cover the public policy of the country whose law governs the contract or of the country of the place of arbitration and the enforcement of an award would be refused if it is contrary to such public policy. In this context Shri Venugopal has invited our attention to the provisions of Section 7(1) of the Arbitration (Protocol & Convention) Act, 1937 wherein the words used are “and enforcement thereof must not be contrary to the public policy or law of India”. According to Shri Venugopal while under the 1937 Act, objections to enforcement are limited to the public policy of India or law of India, there is no such limitation in Section 7(1)(b)(ii) of the Foreign Awards Act. Shri Venugopal has also placed reliance on the decision of this Court in V/0 Tractoroexport, Moscow v. Tarapore & Co.5 wherein this Court has held that there was clear deviation from the rigid and strict rule that the courts must stay a suit whenever an international commercial arbitration as contemplated by the Protocol and the Conventions, was to take place and that it was open to the legislature to deviate from the terms of the Protocol and the Convention and that it appears to have given only a limited effect to the provisions of the 1958 Convention. We find it difficult to accept this contention. It cannot be held that by not using the words “public policy of India” and only using the words “public policy” in Section 7(1)(b)(ii) of the Foreign Awards Act, Parliament intended to deviate from the provisions of the New York Convention contained in Article V(2)(b) which uses the words “public policy of that country” implying public policy of the country where recognition and enforcement is sought. That Parliament did not intend to deviate from the terms of the New York Convention is borne out by the amendment which was introduced in the Act by Act 47 of 1973 after the decision of this Court in Tractoroexport case5 whereby Section 3 was substituted to bring it in accord with the provisions of the New York Convention. The Foreign Awards Act has been enacted to give effect to the New York Convention which seeks to remedy the defects in the Geneva Convention of 1927 that hampered the speedy settlement of disputes through arbitration. The Foreign Awards Act is, therefore, intended to reduce the time taken in recognition and enforcement of foreign arbitral awards. The New York Convention seeks to achieve this objective by dispensing with the requirement of the leave to enforce the award by the courts where the award is made and thereby avoid the problem of “double exequatue’. It also restricts the scope of enquiry before the court enforcing the award by eliminating the requirement that the award should not be contrary to the principles of the law of the country in which it is sought to be relied upon. Enlarging the field of enquiry to include public policy of the courts whose law governs the contract or of the country of place of arbitration, would run counter to the expressed intent of the legislation. 42. With regard to the provisions of the Arbitration (Protocol & Convention) Act, 1937, it may be stated that Section 7(1) of the said Act, as originally enacted, read as under: “7. Conditions for enforcement of foreign awards.- (1) In order that a foreign award may be enforceable under this Act it must have- (a) been made in pursuance of an agreement for arbitration which was valid under the law by which it was governed, 5 (1969) 3 SCC 562: (1970) 3 SCR 53 676 (b) been made by the Tribunal provided for in the agreement or constituted in manner agreed upon by the parties, (c) been made in conformity with the law governing the arbitration procedure, (d) become final in the country in which it was made, (e) been in respect of a matter which may lawfully be referred to arbitration under the law of British India, and the enforcement thereof must not be contrary to the public policy or the law of British India. (2) A foreign award shall not be enforceable under this Act if the Court dealing with the case is satisfied that- (a) the award has been annulled in the country in which it was made, or (b) the party against whom it is sought to enforce the award was not given notice of the arbitration proceedings in sufficient time to enable him to present his case, or was under some legal incapacity and was not properly represented or, (c) the award does not deal with all the questions referred or contains decisions on matters beyond the scope of the agreement for arbitration: Provided that if the award does not deal with all questions referred the Court may, if it thinks fit, either postpone the enforcement of the award or order its enforcement subject to the giving of such security by the person seeking to enforce it as the Court may think fit. (3) If a party seeking to resist the enforcement of a foreign award proves that there is any ground other than the non- existence of the conditions specified in clauses (a), (b) and (c) of sub-section (1), or the existence of the conditions specified in clauses (b) and (c) of sub-section (2), entitling him to contest the validity of the award, the Court may, if it thinks fit, either refuse to enforce the award or adjourn the hearing until after the expiration of such period as appears to the Court to be reasonably sufficient to enable that party to take the necessary steps to have the award annulled by the competent tribunal.” 43. By Indian Independence (Adaptation of Central Acts and Ordinances) Order, 1948 the words “British India” were substituted by the words “the Provinces”, which words were substituted by the words “the States” by the Adaptation of Laws Order, 1950. By Part B States (Laws) Act, 1951, the words “the States” were substituted by the word “India”. The aforesaid amendments introduced from time to time indicate that the words “public policy” and “the law of India” are independent of each other and the words “public policy” are not qualified by the words “of India” which follow the word “law” because there was no separate public policy for each Province or State in India. This means that even in the Protocol and Convention Act of 1937 the legislature had used the words “Public Policy” only and by the said words it was intended to mean “the public policy of India”. The New York Convention has further curtailed the scope of enquiry by excluding contravention of law of the court in which the award is sought to be enforced as a ground for refusing recognition and enforcement of a foreign award. The words “law of India” have, therefore, been omitted in Section 7(1)(b)(ii) of the Foreign Awards Act. It cannot, 677 therefore, be said that by using the words “Public Policy” only Section 7(1)(b)(ii) of the Foreign Awards Act seeks to make a departure from the provisions contained in the Protocol and Convention Act of 1937 and, by using the words “Public Policy” without any qualification, Parliament intended to broaden the scope of enquiry so as to cover public policy of other countries, i.e., the country whose law governs the contract or the country of the place of arbitration. In the U.K., the Arbitration Act, 1975 has been enacted to give effect to the provisions of the New York Convention. Section 5(3) of the said Act provides as under: “Enforcement of a Convention award may also be refused if the award is in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to enforce the award.” 44. Although the words “public policy” only are used without indicating whether they refer to public policy of England, authors of authoritative textbooks have expressed the view that they only mean “English public policy”. In Russel on Arbitration, 12th Edn. at p. 384 it is stated: “The New York Convention is to the same effect. Accordingly, though the 1975 Act does not so specify, it must be taken that reference is intended to English public policy which indeed is the only public policy into which the English courts can sensibly inquire.” The same view is expressed in Dicey & Morris on The Conflict of Laws, 11th Edn., Vol. I at pp. 586-7. 45. We are, therefore, of the view that the words “public policy” used in Section 7(1)(b)(ii) of the Foreign Awards Act refer to the public policy of India and the recognition and enforcement of the award of the Arbitral Tribunal cannot be questioned on the ground that it is contrary to the public policy of the State of New York. IV. Meaning of ‘public policy’ in Section 7(1)(b)(ii) of the Act 46. While observing that “from the very nature of things, the expressions ‘public policy’, ‘opposed to public policy’ or ‘contrary to public policy’ are incapable of precise definition” this Court has laid down: (SCC p. 217, para 92) “Public policy … connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time.” (See : Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly6.) 47. The need for applying the touchstone of public policy has been thus explained by Sir William Holdsworth: “In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them.” (History of English Law, Vol. III, p. 55) 48. Since the doctrine of public policy is somewhat open-textured and flexible, Judges in England have shown certain degree of reluctance to invoke it in domestic law. There are two conflicting positions which are referred as the 6(1986)3SCC 156, 217: 1986 SCC (L&S) 429: (1986) 1 ATC 103: (1986)2 SCR 278 ,372 678 ,narrow view’ and the ‘broad view’. According to the narrow view courts cannot create new heads of public policy whereas the broad view countenances judicial law making in this areas. (See : Chitly on Contracts, 26th Edn., Vol. I, para 1133, pp. 685-686). Similar is the trend of the decision in India. In Gherulal Parakh v. Mahadeodas Maiya7 this Court favoured the narrow view when it said: “… though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is admissible in the interest of stability of society not to make any attempt to discover new heads in these days” (p. 440) 49. In later decisions this Court has, however, leaned towards the broad view. [See : Murlidhar Agarwal v. State of U.P.8; Central Inland Water Transport Corpn. v. Brojo Nath Ganguly6 at p. 373; Rattan Chand Hira Chand v. Askar Nawaz Jung9.] 50. In the field of private international law, courts refuse to apply a rule of foreign law or recognise a foreign judgment or a foreign arbitral award if it is found that the same is contrary to the public policy of the country in which it is sought to be invoked or enforced. The English courts follow the following principles: “Exceptionally, the English court will not enforce or recognise a right conferred or a duty imposed by a foreign law where, on the facts of the particular case, enforcement or, as the case may be, recognition, would be contrary to a fundamental policy of English law. The court has, therefore, refused in certain cases to apply foreign law where to do so would in the particular circumstances be contrary to the interests of the United Kingdom or contrary to justice or morality.” (See : Halsbury’s Laws of England, 4th Edn., Vol. 8, para 418.) 51. A distinction is drawn while applying the said rule of public policy between a matter governed by domestic law and a matter involving conflict of laws. The application of the doctrine of public policy in the field of conflict of laws is more limited than that in the domestic law and the courts are slower to invoke public policy in cases involving a foreign element than when a purely municipal legal issue is involved. (See : Vervaeka v. Smith10; Dicey & Morris, The Conflict of Laws, 11 th Edn., Vol. I p. 92; Cheshire & North, Private International Law, 12th Edn., pp. 128-129). The reason for this approach is thus explained by Professor Graveson: “This concern of law in the protection of social institutions is reflected in its rules of both municipal and conflict of laws. Although the concept of public policy is the same in nature in these two spheres of law, its application differs in degree and occasion, corresponding to the fact that transactions containing a foreign element may constitute a less serious threat to municipal institutions than would purely local transactions.” (R.H. Graveson : Conflict of Laws, 7th Edn., p. 165) 7 1959 Supp 2 SCR 406: AIR 1959 SC 781 8 (1974) 2 SCC 472, 482: (1975) 1 SCR 575, 584 9 (1991) 3 SCC 67, 76-77 10 (1983) 1 AC 145,164: (1982) 2 All ER 144,158 679 52. In Louchs v. Standard Oil Co. of New York’ I Cordozo, J. has said: “The courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness. They do not close their doors unless help would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal.” (p. 111) 53. The particular rule of public policy that the defendant invokes may be of this overriding nature and therefore enforceable in all actions, or it may be local in the sense that it represents some feature of internal policy. If so it must be confined to cases governed by the domestic law and it should not be extended to a case governed by foreign law. In order to ascertain whether the rule is allpervading or merely local, it must be examined in the light of its history, the purpose of its adoption, the object to be accomplished by it and the local conditions. (See : Cheshire and North, Private International Law, 12th Edn., p. 129.) 54. The cases in which the English courts refuse to enforce a foreign acquired right on the ground that its enforcement would affront some moral principle the maintenance of which admits of no possible compromise, have been classified as under: “(i) Where the fundamental conceptions of English justice are disregarded; (ii) Where the English conceptions of morality are infringed; (iii) Where a transaction prejudices the interests of the United Kingdom or its good relations with foreign powers; (iv) Where a foreign law or status offends the English conceptions of human liberty and freedom of action;” (See : Cheshire and North, Private International Law, 12th Edn.,pp. 131-133.) 55. As observed by Lord Simon of Glaisdale “an English Court will exercise such a jurisdiction with extreme reserve”. (Vervaeka v. Smith10) 56. In Dalmia Dairy Industries Ltd. v. National Bank of Pakistan12 the Court of Appeal refused to extend the doctrine of public policy to embrace the principle that the English courts should refuse to enforce an award arising out of a contract between persons who are nationals of foreign States which were at war with each other but each of which was in friendly relationship with England. In support of the applicability of the doctrine, it was argued that it would be harmful to international relations of the United Kingdom with friendly countries if it were to allow the machinery of its courts to be used to enforce a judgment, or an arbitral award in favour of a national of one foreign State friendly to the United Kingdom, against the national of another foreign State, also friendly to the United Kingdom, when the two foreign States are enemies of one another. Negativing the said contention, the Court of Appeal (Megaw, L.J.) has held: ” If there is no authority binding on us which specifically adopts that supposed doctrine, or principle, we should unhesitatingly decline to make 11 224 NY 99 (1918) 12 (1978) 2 Lloyd’s LR 223 680 new law to that effect in this case. We should regard it, on balance, as being contrary to public policy for such a principle to apply.” (p. 300) 57. In Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v. Ras Al Khaima h National Oil Co.13 decided by the Court of Appeal, Sir John Donaldson M.R. has said: “Consideration of public policy can never be exhaustively defined, but they should be approached with extreme caution. As Burrough J. remarked in Richardson v. Mellish14: ‘It

PETITIONER: RENUSAGAR POWER CO. LTD. Vs. RESPONDENT: GENERAL ELECTRIC CO. DATE OF JUDGMENT07/10/1993 BENCH: AGRAWAL, S.C. (J) BENCH: AGRAWAL, S.C. (J) VENKATACHALLIAH, M.N.(CJ) ANAND, A.S. (J) CITATION: 1994 AIR 860 1994 SCC Supl. (1) 644 JT 1993 Supl. 211 1993 SCALE (4)44 ACT:   HEADNOTE:   JUDGMENT: The Judgment of the Court was delivered by … Continue reading →