Supplementary Report of the Law Commission of India on Public Policy as a Ground for Setting Aside Arbitral Award

The Law Commission of India has taken exception to the recent developments in the Supreme Court of India in the ONGC v Western Geco (pdf)(3 Judge Bench) which was followed by DDA v Associated Builders (pdf) (2 Judge Bench) where the Supreme Court held that the sub-ground of fundamental policy law of India in the public policy ground under Section 34(2)(b)(ii) would include an award which was so unreasonable that it shocked the conscience of the court. 

The 246th Report of the Law Commission created an international public policy regime which restricted it to fraud or corruption or was in violation of Sections 75 or 81 of the 1996 Act. The domestic public policy regime allows a court to set aside arbitral awards on the ground that the award is patently illegal. Now, the Law Commission has come up with a Supplementary Report addressing these recent developments.

Para 10.6 of the Supplementary Report mentions the following as the effects of the aforesaid judgements:

• Further erosion of faith in Indian arbitral proceedings
• Reduction in popularity of India as a destination for international and domestic commercial arbitration
• Increased investor concerns about the speed and efficacy of dispute resolution in India
• Increase in judicial backlog

Hence, the Law Commission has proposed to add an Explanation to S. 34(2)(b)(ii): "For the avoidance of doubt the test as to whether there is a contravention with fundamental policy of Indian law shall not entail a review on the merits of the dispute."

I think this is an interesting and important development considering that Western Geco is a decision of a three judge Bench and it would probably take several years for a larger Bench of judges to reverse the same. Hence, the Supplementary Report is timely in adding the said Explanation. 

Law Commission's New Report Commercial Divisions Bill:

Another interesting development is the Law Commission's new Report on the Commercial Divisions Bill (pdf) which once again recommends setting up of Commercial Divisions and Commercial Appellate Divisions in High Courts but purportedly takes care of the criticisms of the previous Bill. Our post of the need for a Commercial Divisions Bill can be accessed from here.