Drafting the Arbitration Clause in a Contract in Cross-Border Transactions
Careful drafting of arbitration clauses in cross-border contracts is paramount under Indian law. Parties must explicitly define the seat of arbitration, the venue (if different for hearings), and the governing law of the contract to avoid jurisdictional ambiguities. Indian courts uphold party autonomy in choosing these parameters – even two Indian parties may designate a foreign seat for their arbitration.
The Supreme Court in PASL Wind Solutions v. GE Power, AIR 2021 SC 2517 confirmed that nothing in Indian law prohibits Indian parties from selecting an overseas arbitral seat, and an award from such arbitration is considered a “foreign award” enforceable in India.
This decision cemented the principle that an arbitration clause in a cross-border transaction contract can validly opt for a foreign seat without offending Indian public policy (such choice is not contrary to Section 23 of the Indian Contract Act, 1872).
When drafting these clauses, parties should ensure clarity on the choice of substantive law governing the contract vis-à-vis the arbitral seat. In cross-border transactions involving India, it is common to have an Indian substantive law clause alongside a foreign arbitral seat.
The Supreme Court has observed that if parties do not explicitly exclude Indian substantive law, an arbitrator at a foreign seat will apply the conflict-of-law rules of the seat to determine the governing law, often leading to Indian law for contracts centered in India.
Thus, a well-drafted clause should harmonize the governing law clause and arbitration clause in cross-border contracts, expressly stipulating the law applicable to the underlying contract and acknowledging the procedural law of the chosen seat. Indian law also permits parties to select institutional arbitration rules (e.g. ICC, SIAC) and such choices will be respected under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”).
Distinguishing Seat, Venue, and Governing Law in Cross-Border Arbitration
Indian jurisprudence draws a clear distinction between the seat of arbitration (the juridical home of the arbitration), the venue of hearings, and the governing law of the contract. The seat of arbitration is of paramount importance: it not only determines the curial law (procedural law) governing the arbitration but also dictates which courts have supervisory jurisdiction.
The Supreme Court in Bharat Aluminium Co v. Kaiser Aluminium Technical Services, (2012) 9 SCC 552 and subsequent cases affirmed that once a seat is designated, courts of that country have exclusive jurisdiction over arbitral proceedings and related challenges, to the exclusion of courts of any other place.
In cross-border contracts, therefore, choosing the seat is a strategic decision. Indian parties often opt for reputed foreign seats (such as Singapore, London, or Paris) in their arbitration clauses to assure neutrality and international enforceability, while others choose India as the seat for convenience. Wherever the seat is, Indian courts will generally yield jurisdiction to the courts of the seat for matters of set-aside and tribunal supervision, in line with the principle of territorial competence in the Arbitration Act (Section 2(2)).
The term venue usually refers to the geographical place where arbitral hearings are conducted. Unless the agreement indicates otherwise, a mere reference to a city as the “venue” will not override an explicit designation of a different seat.
However, Indian case law has evolved tests to interpret ambiguous clauses: in BGS SGS SOMA JV v. NHPC Ltd., AIR Online 2019 SC 1720 the Supreme Court held that if the arbitration agreement names a venue and no seat is expressly designated, and if the venue is tied to institutional rules or other indicia of finality, then the chosen venue can indeed be treated as the seat.
The Court endorsed the Shashoua principle (from English law) that in the absence of any significant contrary factors, the designation of a “venue” in the arbitration clause, coupled with a supranational body of rules, implies that juridical seat. This resolved earlier divergences in approach and brought Indian law in line with international practice on seat-venue distinction.
The governing law (substantive law) of the contract is another independent choice. Indian conflict-of-law rules generally uphold the parties’ choice of governing law in cross-border agreements. It is not uncommon that a contract is governed by Indian substantive law while the arbitration is seated abroad (or vice versa). Indian courts will enforce such choices.
For instance, in Mankastu Impex v. Airvisual Ltd.,AIR 2020 SC 1297 the contract provided that it “shall be governed by Indian law” and conferred jurisdiction on New Delhi courts, but also stipulated arbitration in Hong Kong with the “place of arbitration” in Hong Kong. The Supreme Court read the clause as choosing Indian law for the contract but Hong Kong as the seat, meaning Hong Kong law governed the arbitration procedure.
Despite the mention of Indian law and New Delhi courts, the seat being Hong Kong deprived Indian courts of jurisdiction over appointment or challenges, as the parties had clearly agreed to arbitrate abroad.
This illustrates that the law of the seat (lex arbitri) can differ from the law governing the contract. In cross-border scenarios, a proper clause should thus delineate: (i) the seat of arbitration (determining the procedural law and court supervision), (ii) the venue (if merely logistical), and (iii) the substantive law of the underlying contract. Each plays a distinct role under Indian law, and the 2024 Expert Committee has even recommended amending the Arbitration Act to consistently use the term “seat” instead of “place” to reduce confusion.
Jurisdiction of Indian Courts in Foreign-Seated Arbitrations
Where the arbitral seat is outside India, the jurisdiction of Indian courts is circumscribed by the Arbitration Act. Part I of the Act (which includes provisions for court intervention in arbitrations) generally does not apply to foreign-seated arbitrations, except in certain circumstances expressly permitted.
Section 2(2) of the Act, post-2015 amendment, contains a proviso enabling limited Part I assistance even when the seat is abroad: for an international commercial arbitration seated outside India, parties may seek interim measures (Section 9), court assistance in evidence (Section 27), and certain appeals (Section 37) in Indian courts, unless the parties have agreed to exclude such assistance.
This proviso was designed to support arbitrations that have a foreign seat but need urgent relief or evidence in India (for example, to secure assets or testimony) without undermining the primacy of the foreign seat. Indian courts have interpreted this liberally to aid cross-border arbitrations.
Notably, the Supreme Court in PASL Wind Solutions v. GE Power observed that two Indian parties choosing a foreign seat constitutes an “international commercial arbitration” for the purpose of enforcement, and it affirmed that interim relief under Section 9 would be available to them in India. Thus, even purely domestic parties are not left remediless in India when arbitrating abroad, so long as they have not expressly opted out of Section 9 relief.
However, Indian courts cannot entertain substantive challenges to awards rendered in a foreign-seated arbitration. By virtue of the territorial principle affirmed in BALCO and embodied in Section 34, an arbitral award made in a foreign country can only be set aside (annulled) by the courts of that foreign seat. Indian courts lack jurisdiction to hear a petition to set aside a foreign award. The only recourse in India is to resist enforcement under Part II of the Act.
This was exemplified in PASL v. GE Power, where one party attempted to challenge a foreign award under Section 34 in India by contending that the seat was Mumbai; the Supreme Court categorically held the seat was Zurich and thus the Indian challenge was not maintainable.
Likewise, in Mankastu Impex, the Supreme Court dismissed a Section 11 appointment petition, ruling that it had no jurisdiction since the arbitration seat was Hong Kong, despite Indian connections. These rulings underscore that when parties choose a foreign seat, Indian courts will not perform supervisory functions like appointing arbitrators (Section 11) or entertaining objections (Section 34) – those are reserved for the courts at the seat.
Indian courts do retain supportive jurisdiction in other ways. Under Section 45 (Part II), an Indian court seised of a lawsuit in a matter subject to a foreign arbitration agreement must refer the parties to arbitration, unless the arbitration agreement is null and void, inoperative, or incapable of being performed. This provision ensures that a valid arbitration clause (with a foreign seat) is upheld by Indian courts by halting local judicial proceedings.
Additionally, Indian courts can issue anti-arbitration injunctions in exceptional cases (e.g. when the arbitration agreement is null or the proceedings are oppressive), though they exercise this power sparingly to avoid infringing on kompetenz-kompetenz and pro-arbitration policies.
Overall, the trend from 2020 onwards is that Indian courts are increasingly hands-off for foreign arbitrations, intervening only to facilitate interim relief or evidence or to refer parties to arbitration, but not to interfere with the arbitral process or outcome which lies in the domain of the seat’s courts. This jurisdictional stance boosts confidence that a foreign-seated arbitration involving Indian parties will not be derailed by parallel litigation in India.
Enforcement of Awards: Part I vs Part II Regime
India’s dual regime for arbitral awards distinguishes between domestic awards (including international awards rendered in India) under Part I of the Act and foreign awards under Part II. A domestic award is enforced in India as a decree of the court, but only after the time for filing a set-aside application under Section 34 has expired or any filed application is rejected (Section 36).
The award-debtor can challenge a domestic award under Section 34 on limited grounds, and if successful, the award is set aside (rendered null in India). In contrast, a foreign arbitral award (from a New York Convention country, per Section 44) cannot be set aside by Indian courts; the only way to resist a foreign award in India is to oppose its enforcement under Section 48.
Thus, a foreign award is not automatically treated as a decree; it requires a court order of enforcement under Section 49, which the court will grant unless the award-debtor proves one of the narrow refusal grounds in Section 48 (which mirror Article V of the New York Convention).
The grounds for setting aside domestic awards (Section 34) were significantly narrowed by the 2015 amendments. An award can be set aside for patent illegality apparent on the face of the award (a ground applicable only for awards arising out of domestic arbitrations involving Indian parties – not for international commercial awards or foreign awards) and for being contrary to the public policy of India.
Explanation 1 to Section 34(2)(b) now clarifies that an award conflicts with public policy only if it involves fraud or corruption, or violates (i) the fundamental policy of Indian law, or (ii) the most basic notions of morality or justice. Crucially, “incorrect application of law” or “reappreciation of evidence” is not a ground to interfere with awards post-2015.
The Supreme Court’s judgment in Ssangyong Engineering & Construction Co. v. NHAI, AIR 2019 SC 5041 exemplified the post-amendment approach: the Court set aside an award that altered the fundamental terms of a contract, terming it patently illegal and as against basic justice, but it emphasized that review on merits is impermissible and “perversity” is no longer an independent ground under public policy.
In Delhi Airport Metro Express Pvt. Ltd. v. DMRC,[2024] 4 S.C.R. 473 the Supreme Court (in a rare curative petition) even nullified an award for perversity and patent illegality, highlighting that awards dripping with egregious error or shocking injustice will not be spared. Nonetheless, such judicial intervention in domestic awards remains the exception, not the norm, given the statute’s pro-enforcement tilt.
The enforcement of foreign awards (Section 48) is even more constrained by design. Indian courts, when asked to enforce a foreign award, do not sit in appeal or review on merits.
They may refuse enforcement only if the award-debtor establishes one of the specific grounds in Section 48(1) (party incapacity, invalid agreement, lack of notice, award exceeding scope, improper composition of tribunal or procedure) or if enforcement would violate Section 48(2) (the award is on a non-arbitrable subject-matter under Indian law, or enforcement would contravene the public policy of India).
Explanation 1 to Section 48(2) mirrors the narrowed public policy definition from Section 34, and Explanation 2 explicitly bars refusal of enforcement for any ground other than those in Section 48. The Supreme Court has strictly enforced these limits. In Vijay Karia v. Prysmian Cavi, AIR 2020 SC 1807 the Court upheld enforcement of foreign awards even though the transaction arguably contravened India’s foreign exchange regulations.
It held that a mere violation of FEMA rules did not amount to a breach of the “fundamental policy of Indian law,” especially since such regulatory breaches were curable by authorities. The Court reiterated that fundamental policy refers to core principles or indispensable legal tenets, not every mandate of statute. Thus, an award not exhibiting grave illegality or moral turpitude should be enforced.
Indian courts have generally adopted a pro-enforcement bias for foreign awards. In Government of India v. Vedanta Ltd., AIR 2020 SC 4550, the Supreme Court enforced a foreign award arising from a contractual dispute despite the Government’s objections on grounds of Indian public policy, underscoring that Section 48 cannot be a backdoor appeal on merits.
Conversely, in a few cases enforcement has been refused, illustrating the outer limits of public policy. In National Agricultural Coop. Marketing Fed. (NAFED) v. Alimenta S.A.,AIR 2020 SC 2681, the Supreme Court declined enforcement of a London arbitral award because the underlying contract’s performance (export of commodities) had been rendered illegal by a government order in India, and thus damages for not performing it were held to contravene India’s fundamental policy of lawful conduct.
The Court found the award “ex facie illegal” as it effectively required acting against an export prohibition, engaging the public policy bar. This decision drew some criticism for appearing to scrutinize the merits and the contract rather than deferring to the foreign tribunal.
Nonetheless, it represents an application of the fundamental policy exception: compliance with Indian export control laws was deemed so essential that enforcing an award ignoring it would undermine the country’s legal order. Importantly, Indian courts did not purport to set aside the award (they cannot, since it’s foreign); they only denied its enforcement domestically.
Confidentiality in Arbitration Proceedings under Section 42A
One notable innovation of the Arbitration and Conciliation (Amendment) Act, 2019 was the introduction of Section 42A, which statutorily mandates confidentiality of arbitral proceedings. Section 42A provides: “the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except the award where its disclosure is necessary for the purpose of implementation and enforcement of the award.”
This sweeping confidentiality obligation covers all aspects of the proceedings – filings, evidence, oral hearings – and binds the parties and even the tribunal. The only exception carved out is for disclosure of the final award when needed to enforce or challenge it in court. Thus, if a party needs to cite the award in enforcement or set-aside proceedings (which are public court processes), that would not violate Section 42A.
Indian law thereby aligns with the global trend of recognizing confidentiality as a key feature of arbitration, although previously Indian law had no express provision on this. Now, by operation of law, parties in arbitrations seated in India are assured that the proceedings will not be divulged to outsiders.
This is particularly significant in cross-border transactions involving sensitive commercial information or trade secrets, where parties might have been wary of arbitration in India for lack of a confidentiality guarantee. With Section 42A in force, such concerns are mitigated. Arbitral institutions and tribunals seated in India also incorporate this obligation into procedural orders to remind participants of their duties.
It should be noted that Section 42A does not prescribe a specific penalty or consequence for breach of confidentiality (leading some commentators to dub it a “toothless” provision). In practice, a breach could potentially be addressed by courts through contractual remedies or contempt if the breach occurred under court supervision.
Nonetheless, the presence of Section 42A is a strong declarative statement: it entrenches confidentiality as the default rule in Indian arbitrations. The only permissible disclosures are those sanctioned by law – for instance, a party may disclose necessary information from the arbitration if required in a related legal proceeding or if obliged by a regulatory authority, as such disclosure could be argued as “necessary to protect or enforce a legal right.”
While jurisprudence on Section 42A is still nascent (few reported cases as of 2025 have dealt with it), parties would be well-advised to explicitly agree on any confidentiality expectations in their arbitration clause, in addition to the statutory mandate.
Overall, Section 42A strengthens the privacy of arbitral proceedings, enhancing India’s appeal as a seat for international arbitration by assuring parties that their disputes will remain out of the public eye barring the narrow enforcement-related exception.
Emergency Arbitration and Interim Measures under Sections 9 and 17
Indian arbitration law permits parties to seek interim measures both from courts (Section 9 of the Act) and from the arbitral tribunal (Section 17). The 2015 amendments bolstered the efficacy of tribunal-ordered interim relief and also encouraged greater reliance on arbitrators for urgent relief.
Section 17 was amended to empower tribunals with the same scope of interim measure powers as a court, and crucially, Section 17(2) provides that a tribunal’s interim order is enforceable as if it were an order of the court. This means that once an arbitral tribunal (including any emergency arbitrator, as discussed below) issues an interim injunction or other protective order, the successful party can directly approach an Indian court to have it executed like a court order, without needing a separate suit.
Conversely, Section 9 was amended with subsection (3) to restrict court intervention: if an arbitral tribunal is already constituted, courts should generally decline to grant interim measures unless the remedy from the tribunal would be inefficacious. The combined effect is to channel parties towards the arbitral tribunal for interim relief when possible, thereby reducing court interference and expediting proceedings.
A game-changing development in this area has been the recognition of Emergency Arbitration (EA) awards in India. Many arbitral institutions (SIAC, ICC, etc.) allow appointment of an emergency arbitrator pre-tribunal to grant urgent relief.
While the Arbitration Act does not explicitly mention emergency arbitrators, the Supreme Court filled that gap in the landmark case of Amazon.com NV Investment Holdings LLC v. Future Retail Ltd., AIR 2021 SC 3723. In that dispute (arising from a Singapore-seated arbitration with Indian parties, but notably the seat was India as per contract, applying SIAC Rules), an emergency arbitrator appointed under SIAC Rules granted an award injuncting a corporate transaction. The enforceability of this EA award in India was contested.
On 6 August 2021, the Supreme Court upheld the EA’s award, holding that an emergency arbitrator’s orders are covered by Section 17(1) and thus enforceable under Section 17(2). The Court reasoned that the term “arbitral tribunal” in the Act, read in light of party autonomy and institutional rules, is broad enough to include an emergency arbitrator appointed by agreement of the parties under institutional rules.
It found no express or implied bar in the Act to recognizing emergency awards. Therefore, an emergency arbitrator’s award in an arbitration seated in India “is an order under Section 17(1)” and can be enforced through court as a decree. This decision in Amazon v. Future is a watershed moment – India became one of the few jurisdictions where emergency awards are given direct legal sanctity.
Parties in India-seated arbitrations can confidently resort to the emergency arbitration mechanism, knowing that any urgent order (for example, to freeze assets or halt a deal) will be effective and binding, with Indian courts standing by to enforce compliance. It also dissuades recalcitrant parties from defying emergency orders on the excuse that they lack legal force.
At the same time, Section 9 continues to play an important role, especially pre-arbitration or in foreign-seated cases. Before the arbitral tribunal is constituted, parties can approach Indian courts for interim measures under Section 9. Indian courts are receptive to such requests in cross-border scenarios – for instance, to secure assets located in India, even if the arbitration will take place abroad.
The proviso to Section 2(2) (inserted in 2015) ensures that for international arbitrations seated outside India, Section 9 is available unless expressly excluded. Many foreign investors have availed Section 9 in Indian courts to safeguard their interests pendente lite (e.g., obtaining injunctions or attachment orders) when the counterparty’s assets or evidence lie in India.
The PASL v. GE Power ruling confirmed that even when both parties are Indian but arbitrate abroad, interim relief from Indian courts is not off-limits. Moreover, Section 9(2) allows a party to seek post-award interim relief (before the award is enforced) – an option often used to obtain security for the award amount. Courts have interpreted that once an award is available, ordinarily enforcement (Section 36/48) should be pursued, but if needed, Section 9 can be invoked to secure the amount during the interim period.
The interplay between court and tribunal is carefully balanced. If a party obtains an emergency arbitral award and the tribunal is in place, it would enforce that via Section 17(2) rather than seeking duplicate relief under Section 9. Indian High Courts have also occasionally granted interim relief in aid of foreign arbitrations (prior to tribunal formation) by exercising inherent powers, though now the statutory framework largely governs this.
It is also settled that orders granting or refusing interim measures by a court (Section 9) are appealable under Section 37, but no appeal lies from a court’s enforcement of a tribunal’s interim order under Section 17(2) – this was clarified in the Amazon case, where the Supreme Court held that the Act’s legal fiction for enforcement does not extend to treating such enforcement orders as decrees for appeal purposes.
Binding Non-Signatories: Group of Companies Doctrine in India
Arbitration in principle is founded on consent – typically only the signatories to the arbitration agreement are bound by it. However, international commercial dealings often involve groups of affiliated companies, and disputes may implicate parent companies or subsidiaries who did not literally sign the arbitration clause. Indian law, following global trends, has developed the Group of Companies Doctrine to sometimes bind non-signatory affiliates to an arbitration agreement, provided there was an intention to do so and a tight group structure.
This doctrine was first substantially recognized by the Supreme Court in Chloro Controls v. Severn Trent Water, Civil Appeal No. 7134 of 2012 and subsequently applied in cases like Ameet Lalchand Shah v. Rishabh Enterprises, AIR 2018 SC 3041, enabling a holistic resolution of disputes involving multiple entities. Yet some uncertainty remained about its precise contours and legal basis.
In a landmark recent ruling, a Constitution Bench of the Supreme Court unanimously upheld the applicability of the group of companies doctrine in Indian arbitration. In Cox & Kings Ltd. v. SAP India Pvt. Ltd. & Anr., 2024 INSC 670, the Court ruled that in appropriate circumstances a non-signatory company that is a member of the same group as a signatory can be held to be a party to the arbitration.
The judges analyzed the doctrine afresh and confirmed it as part of Indian law, emphasizing that it remains a consent-based doctrine rather than a carte blanche to bind any affiliate.
The doctrine will apply only if a clear intention of the parties (including the non-signatory) to bind the non-signatory to the arbitration agreement can be gleaned from the facts and dealings.
Key factors identified include: the tight integration of the non-signatory in the contractual performance, its role in negotiations or execution of the agreement, representations made that the contract was with the collective corporate group, and the conduct of the non-signatory during the contract (for example, direct benefits derived or decisive control over the signatory).
If the evidence shows that the non-signatory was, in substance, an integral party to the deal and the arbitration agreement, then the courts or tribunal may treat it as bound by the clause – this prevents multiplicity of proceedings and avoids the arbitration being rendered inefficacious by keeping necessary parties out.
The Cox & Kings judgment delineated the contours of the doctrine clearly. It affirmed that the doctrine does not violate the principle of separate legal personality in an arbitrary manner, because it hinges on the consent and conduct of the parties.
In other words, it is not an exception to consent but a construction of the parties’ implied consent in a relational contract setting. The Court noted that group structures are “a modern reality of business” and sometimes contracts are performed by multiple entities interchangeably.
Thus, if the facts demonstrate a mutual intention to bind a non-signatory (e.g., the parent company’s active involvement in a subsidiary’s contract), the law can give effect to that intent. The Constitution Bench overruled any prior inconsistent views and settled that Indian law does permit arbitration agreements to bind non-signatory affiliates in appropriate cases.
Public Policy Constraints in Award Challenges and Enforcement
Public policy of India remains a ground on which Indian courts may refuse to enforce an arbitral award or may set it aside (if domestic), but the judiciary in recent years has strived to interpret this ground narrowly and objectively. The phrase “public policy” had caused concern in the past due to overly broad judicial interpretations. The 2015 amendment to the Act, along with authoritative judgments, has reined in this concept for both setting aside (Section 34) and enforcement refusal (Section 48).
For domestic awards, the inclusion of “patent illegality” as a separate ground in Section 34(2A) (for purely domestic arbitration cases) means that challenges based on erroneous application of law or evidence are channeled (if at all) through that limited window, and “public policy” is reserved for more serious faults. Indian courts now distinguish clearly: a domestic award can be set aside for patent illegality (which excludes mere interpretation errors unless they contravene the contract or statute in a perverse way) or if it contravenes fundamental public policy.
In Ssangyong Engineering (2019), the Supreme Court exemplified a narrow approach – it set aside the award because the tribunal gave a completely new contract term (beyond parties’ agreement), which was seen as per se illegal and against fundamental contractual law.
But the Court also underscored that it was not sitting in appeal; it was targeting an extreme irregularity that went to the root of public policy (no adjudicator can rewrite a contract at whim). Similarly, in Delhi Airport Metro v. DMRC, the issue was an award that the Court eventually found to be based on no evidence for certain critical findings (hence “perverse”).
Even then, the case went through multiple layers of scrutiny, reflecting reluctance to interfere. Only in the curative stage (2024) did the Supreme Court nullify the award, explicitly citing perversity and patent illegality as grounds to do justice. This rare instance aside, the message is that unless an award crosses the high threshold of violating fundamental legal principles or justice, it will stand. Routine errors or dissatisfaction with an arbitrator’s interpretation will not amount to a public policy violation after 2015.
For foreign awards, Indian courts are even more constrained. The public policy exception in refusing enforcement (Section 48(2)(b)) is intended to be applied in only the clearest cases of injustice or illegality that offend India’s core values.
The Supreme Court in Shri Lal Mahal Ltd. v. Progetto Grano, AIR Online 2013 SC 191 had already separated the domestic and foreign award standards, and post-2015 this distinction was codified. In Vijay Karia (2020), as discussed, the Court refused to invoke public policy to deny enforcement even though one argument was that the contract violated certain Indian laws (FEMA); the Court held that such regulatory infractions did not touch fundamental policy since no immutable statutory prohibition was breached – RBI could always condone the violation.
The award was enforced, reinforcing the pro-enforcement bias. The Court famously quoted that the fundamental policy refers to “core values of India’s public policy as a nation” – a high bar. Similarly, in Penn Racquet Sports v. Mayor International (2022, Del HC), a foreign award was enforced despite allegations of errors, with the court observing that mistakes of fact or law by the arbitrator are not open for review under the guise of public policy.
The only time in recent memory a foreign award hit the public policy wall was NAFED v. Alimenta (2020) where enforcing the award would have meant ignoring an Indian law prohibiting the export without government approval. The Supreme Court found that allowing the award (which granted damages for not exporting) would violate India’s fundamental public policy of adhering to its export control regime.
This can be seen as fitting within the “fundamental policy of Indian law” prong – the principle that no one can be mandated or penalized for failing to perform an illegal act (export without permit) is a fundamental legal tenet. Yet, the NAFED judgment has been carefully confined to its facts. Subsequent judgments and commentary point out that NAFED should not signal a return to broad public policy review, but rather an application of a specific statutory illegality scenario.
In setting aside proceedings, an additional facet of public policy is the “most basic notions of justice or morality.” This covers awards that may not violate a law per se but are shockingly unfair or unethical.
Indian courts have rarely invoked this, but one example is an award that might be tainted by fraud or corruption – that would be against morality and thus against public policy (and now explicitly a ground under Explanation 1). No case from 2020–2025 saw a setting aside purely on “morality” grounds, though allegations of fraud in contracts have been addressed under arbitrability rather than enforcement.
Overall, the public policy doctrine in India has been pruned and disciplined. Courts are cautious: they intervene only when an award fundamentally offends the nation’s legal order or justice system. The 2021 Supreme Court decision in South East Asia Marine Engineering v. Oil India Ltd., (Civil Appeal No. 673 of 2012 reiterated that an award can be set aside for patent illegality only if it goes to the root of the matter and is apparent on the face of the award, not for trivial procedural violations or mere disagreement with the outcome.
In enforcement, Quantum of Damages errors or Factual Inferences will not be revisited as that would amount to a merits review, which is impermissible. This calibrated approach provides reassurance that arbitral awards – whether domestic or foreign – will generally be upheld in India.
Parties can no longer rely on wide-ranging public policy arguments as a strategy to delay or derail awards; they must meet the strict tests laid down in the Act and interpreted by the Supreme Court. Such consistency in enforcing arbitral awards in line with international norms significantly boosts confidence in India’s arbitration regime, completing its transition into a modern, arbitration-friendly jurisdiction suitable for resolving complex cross-border transactions disputes.
Conclusion
Going forward, this means in complex cross-border transactions involving Indian conglomerates or multinational corporate families, the arbitral tribunal (or courts at referral stage) can bring all relevant entities to the arbitral table, even if not all signed the arbitration agreement, to ensure a comprehensive resolution. Of course, the threshold for doing so is high – mere parent-subsidiary relationship is not enough. There must be a functional linking of the companies in the contract or a representation of a collective intention.
Parties who wish to avoid any unintended binding of affiliates should draft their contracts explicitly to either include or exclude certain group entities from the arbitration clause. Conversely, parties seeking to invoke the doctrine will need to show evidence of implied consent (participation in contract negotiations, direct benefits, integrated corporate structure, etc.).
The Supreme Court’s confirmation that the group of companies doctrine is an “intrinsic part” of Indian arbitration law is significant for international investors: it indicates that Indian courts and tribunals have the flexibility to prevent misuse of the corporate form to evade arbitration, thereby furthering the efficacy of arbitral proceedings.
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