A recent post on the Kluwer Arbitartion Blog whilst discussing the recent judgment of the Delhi High Court in Penn Racquet Sports v. Mayor International Limited has sought to argue that the Delhi High Court has taken a contrary approach (according to the post, rightly so) to that of the supreme Court in ONGC v. Saw Pipes Limited ((2003)5 SCC 705). The Kluwer post argues that in Penn Racquet the court has attempted to assign a narrow meaning to the term “Public Policy” as opposed to a wider meaning assigned to the same by the Supreme Court in Saw Pipes. In this post I shall attempt to demonstrate that the abovementioned interpretation of the ruling in Penn Racquet is incorrect.
Before discussing the ruling of the Delhi High Court on the term “public policy”, it would be appropriate to discuss the relevant facts and the contentions of the parties. Penn Racquet Sports (“decree holder”), a company incorporated in the United States had entered into a Trademark License Agreement (“TLA”) with Mayor International Limited (“judgment debtor”), a Company incorporated in India, whereunder the decree holder had granted the judgment debtor license to use the trademark “Penn” for use in certain territories and for certain products. In consideration of the license the judgment debtor agreed to pay an annual royalty to the decree holder. The dispute arose when the judgment debtor refused to pay the annual royalty on the ground that the decree holder had breached the contract by granting a similar license to Nebus Loyalty Limited (“Nebus”). Subsequently the dispute was referred to arbitration and thereafter the decree holder obtained an award in his favour. It is for the enforcement of this award that the decree holder preferred the present enforcement application u/s 47 of the Arbitration and Conciliation Act (“Act”). Needless to state, the judgment debtor challenged the enforcement of the award u/s 48 of the Act.
The judgment debtor contented before the Delhi High Court that the impugned award was against public policy as (i) the award was against the express terms of the contract which rendered it patently illegal and (ii) the arbitral tribunal refused to entertain the counter claim of the judgment debtor, denying it an opportunity to present its case. The judgment debtor relied on Venture Global Engineering v. Satyam Computer Services Limited (AIR 2008 SC 1061) to contend that the foreign award is subject to challenge u/s 34 of the Act, and then relied on Saw Pipes to contend that since the award was patently illegal it could not be enforced. Contrarily, the decree holder contented that while enforcing an award u/s 47-49 of the Act, the court is not mandated to adjudicate on the merits of the dispute. The decree holder further contended that the law laid down in Saw Pipes is only applicable to domestic awards and that the term “Public Policy” has a different connotation u/s 48(2)(b) to that in S. 34(2)(b)(ii) of the Act.
The Delhi High Court upholding the contention(s) of the decree holder, held that the term “public policy” in S. 48(2)(b) of the Act carries a narrower meaning when compared to the meaning assigned to the same term u/s 34(2)(b)(ii) of the Act. The court relied on the Supreme Court decision in Furest Day Lawson v. Jindal Exports (AIR 2001 SC 2293) and its own decision in Jindal Exports v. Furest Day Lawson to hold that a narrow meaning must be given to the term “public policy” u/s 48(2)(b) and only when the most “basic notions of morality and justice” are violated should the court refuse the enforcement of the foreign award. Having drawn a distinction between s. 48(2)(b) and s. 34(2)(b)(ii), as far the tem “public policy” is concerned, the court further seems to have agreed that the ratio of Venture Global was not applicable to the present case as the substantive law governing the contract was not Indian Law (arguably suggesting an implied exclusion of Part I of the Act).
On a close scrutiny the Delhi High Court’s judgment in Penn Racquet may arguably be in conflict with the ruling in Venture Global, wherein the Supreme Court had held that there is no distinction between s. 34 and s. 48. However, it is incorrect to argue that it tried to assign a narrow meaning to the term “public policy” u/s 34 (which would be the natural conclusion, if one was to argue that the Delhi High Court deviated from the ruling in Saw Pipes). In essence the Delhi High Court never went into scope and ambit of the term “Public Policy” u/s 34 and rightly so. On the contrary, the Court seems to have followed Saw Pipes. In Saw Pipes the appellant had argued that the narrow meaning assigned to the term “public policy” in Renusagar was in context to the fact that the question involved in that case was with regard to the execution of the award which had attained finality. It was further argued that the scheme of S. 34 which deals with setting aside of arbitral award and S. 48 which deals with enforcement of arbitral award are not identical (para. 20). The Supreme Court in Saw Pipes responded to the above argument in the following manner:
“The aforesaid submission of the learned senior counsel requires to be accepted. From the judgments discussed above, it can be held that the term 'public policy of India' is required to be interpreted in the context of the jurisdiction of the Court where the validity of award is challenged before it becomes final and executable. The concept of enforcement of the award after it becomes final is different and the jurisdiction of the Court at that stage could be limited. Similar is the position with regard to the execution of a decree. It is settled law as well as it is provided under Code of Civil Procedure that once the decree has attained finality, in an execution proceeding, it may be challenged only on limited grounds such as the decree being without jurisdiction or nullity. But in a case where the judgment and decree is challenged before the Appellate Court or the Court exercising revisional jurisdiction, the jurisdiction of such Court would be wider.” (para. 22)(emphasis mine)
In conclusion it is submitted that Penn Racquet does not in essence deviate from the trend that has been pursued by Indian Courts on previous occasions in relation to challenge or enforcement of awards in general and the term “public policy” in particular.