“Equity thus depending, essentially, upon the particular circumstances of each individual case, there can be no established rules and fixed precepts of equity laid down, without destroying its very essence, and reducing it to a positive law. And, on the other hand, the liberty of considering all cases in an equitable light must not be indulged too far, lest thereby we destroy all law, and leave the decision of every question entirely in the breast of the judge. And law, without equity, tho’hard and disagreeable is much more desirable for the public good, than equity without laws; which would make every judge a legislator, and introduce most infinite confusion; as there would then be almost as many different rules of action laid down in our courts, as there are differences of capacity and sentiment in the human mind.”
This quote from Blackstone’s Laws of England, seems almost prescient and a word of caution to all Courts across the world. However, the Indian courts do not seem to have paid any heed to this advice from Blackstone as they have indulged too far in considering cases in an equitable light and thereby have destroyed the law. The definition of “Public Policy” under Section 34 of the Arbitration and Conciliation Act, 1996 (“The Act”) is a case study of how the Indian Courts have indulged too far and destroyed the law. I will be first dealing with the evolving definition of Public Policy as without understanding the same, the Supreme Court’s judgement in Ssangyong cannot be understood.
Evolving definition of Public Policy:
If an award is in conflict with the public policy of India, the same can be set aside under Section 34. However, the 1996 Act, prior to the 2015 Amendment, had omitted to define the term, “public policy” leaving it to the wisdom of the judiciary to interpret the term appropriately. The definition has seen numerous additions and a few deletions since the 23 years it has been in existence.
The first instance when the Supreme Court (“SC”) interpreted “public policy” was in the case of Renusagar Power Co. Ltd., v. General Electronic Co., 1994 Supp (1) SCC 644. It held “public policy” to include:
- Fundamental policy of Indian law.
- Interest of India
- Justice or morality.
However, the SC in Renusagar was interpreting “Public Policy” in the context of foreign awards. Public Policy as defined under Section 34 was interpreted by the SC in ONGC v. Saw Pipes 2003 (5) SCC 705, wherein an additional ground of “patent illegality” was added to Renusagar’s definition.
The definition laid down in ONGC v. Saw Pipes was followed consistently albeit with minor additions by the SC till the judgement of ONGC v. Wester Geco International Ltd., 2014 (9) SCC 263 wherein the SC enlarged the scope of “Public Policy” by adding three sub-grounds to Fundamental policy of Indian law. Thus, under the ground of fundamental policy of Indian law the following additions were made to include:
- Duty to adopt a judicial approach
- Principles of natural justice/application of mind
- Perverse or irrational award /Wednesbury principles of reasonableness.
As is evident, the SC has been widening the scope of review available to the Courts under Section 34 making a mockery of the intent with which the 1996 Act was enacted. In fact, the additions made by the SC has allowed Courts to sit in appeal over the awards of the arbitrators. It is pertinent to mention here that the jurisdiction envisaged under Section 34 was supervisory but the SC by indiscriminately adding one ground after the other has granted Appellate jurisdiction to courts under Section 34 and thereby, has allowed Courts to sit in appeal over arbitral awards contrary to the intent of the Parliament.
Law Commission’s Supplementary Report, 2015:
The judgement of the SC in Western Geco was the final nail in the coffin compelling the Law Commission and the Parliament to rein in this abrasive tendency of the SC to endlessly expand the ambit of review under Section 34. The Supplementary Report specifically observed that the expansion made by Western Geco was not only contrary to the object of the Act but also, to arbitration practices in vogue internationally. Hence, the 2015 Amendment incorporated changes suggested in the Report restoring the law as stated in ONGC v. Saw Pipes with an additional caveat that review of an award under the ground of public policy of India will not include “review on the merits of the dispute”. The Amendment rectified and clarified the incorrect interpretation adopted by the SC in Western Geco. Thus, the applicability of the amendment to awards challenged before the Amendment would immensely benefit the “Award holders” as the scope of review is substantially narrowed after the Amendment. Hence, the question of the Amendment being applicable to awards challenged before the Amendment was introduced was a fiercely contested issue in the courts until it was put to rest by the Apex Court in Ssangyong.
Ssangyong Engineering & Construction Co. Ltd v. National Highways Authority of India
As pointed out in my previous post, the SC had refused to consider the issue of 2015 Amendment being applicable to Section 34 proceedings initiated before the amendment was enacted. While the SC held the Amendment to be prospective in BCCI v. Kochi Cricket, it nevertheless made the amended Section 36 applicable to proceedings initiated before the amendment was enacted on the ground that the Amendment was procedural in nature and did not affect any vested right.
In stark contrast, the Supreme Court in Ssangyong held the amendments to Section 34 to be substantive in nature as it did away with the “expansions” made by the Supreme Court in Western Geco. It further held that even though a part of the amendment is clarificatory and procedural, the same could not be made retrospective as it had changed the earlier law substantively.
ON RETROSPECTIVE OPERATION OF STATUTES:
Now before analyzing the reasoning of the SC, some cannons of statutory interpretation has to be discussed. It is a settled position of law that all statutes have to be prima facie construed prospectively unless it is expressly/impliedly stipulated to be retrospective. However, one of the exceptions to this canon of statutory interpretation is that declaratory statutes can be made retrospective as they are remedial in nature and are generally passed to set aside “judicial errors”. The Supreme Court while discussing declaratory statutes in Central Bank of India v. Their Workmen (AIR 1960 SC 12) quoted with approval the following observation from Craies on Statute Law, Fifth. edition:
” For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes.”
Thus, there are a plethora of judgements which have relied upon the aforementioned principle and held a declaratory statute to be retrospective. However, the Supreme Court in Ssangyong has not at all taken into consideration the aforementioned principle. It has completely ignored the fact that the Parliament, as recommended by the Law Commission, was trying to remedy the error that had crept into the definition of Section 34 by judicial interpretation post Western Geco. Instead of admitting its judicial errors, the Supreme Court has deemed the parliament’s attempt to rectify the error as making substantial changes to the law. Thus, the SC has grossly erred in making the amendments to Section 34 inapplicable to pending court proceedings.
P.S: Apart from what has been discussed hereinabove, there are other glaring inconsistencies in the judgement including the factual aspects of the case necessitating a separate and detailed analysis which will be attempted in the next blog post titled, ‘Part-II’ .