Renusagar Power Co. Ltd. v. General Electric Co. (AIR 1994 SC 860)

Facts of the Case

The case required the Supreme Court to interpret the term "public policy" under Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 (which enforced the New York Convention in India).

• The Court faced the crucial question of whether this term should be interpreted in the narrower sense (as seen in public international law concerning foreign awards) or the broader sense (as generally applied in domestic/municipal law).

• Specifically, the Court had to determine if a mere contravention of Indian law was sufficient to refuse the enforcement of a foreign arbitral award, or if a more fundamental breach was required.

Issue

Whether the term "public policy" in the context of enforcing foreign arbitral awards in India should adopt the narrower concept of public international law or the wider concept of municipal law, and what constitutes a violation of the public policy of India.

Rule

The enforcement of a foreign award can be refused under Section 7(1)(b)(ii) of the Foreign Awards Act if it is contrary to the Public Policy of India. This ground is restricted to breaches of:

1. The fundamental policy of Indian law.

2. The interests of India.

3. Justice or morality.

Held

The Supreme Court:

• Narrow Interpretation: Concluded that the term "Public Policy" in Section 7(1)(b)(ii) of the Foreign Awards Act (and Article V(2)(b) of the New York Convention) must be interpreted in a narrower sense. It is similar to its usage in the Geneva Convention regime and requires more than just a simple violation of Indian law to refuse enforcement.

• Scope of Public Policy: Held that "Public Policy of India" refers specifically to the:

  • Fundamental Policy of Indian Law: This means a violation of the most basic and fundamental policy of Indian law, not every single enactment.

  • Interests of India: Refers to the national, economic, or security interests of the country.

  • Justice or Morality: Pertains to awards that shock the conscience of the Court.

• FERA Violation: The Court specifically held that the provisions of the Foreign Exchange Regulation Act (FERA) were designed to protect India's economic interests. Therefore, any violation of FERA would indeed be contrary to the public policy of India as defined under Section 7(1)(b)(ii).

The ruling significantly restricted the scope of the "public policy" ground, making it harder for Indian courts to deny the enforcement of foreign awards.

Commentary

The Evolution from FERA to FEMA

The interpretation of "public policy" has undergone a significant evolution following India's economic liberalization and the subsequent replacement of FERA (a strict, enforcement-centric regime) with FEMA (Foreign Exchange Management Act, 1999).

The Supreme Court revisited the Renusagar principle in Vijay Karia v. Prysmian Cavi E Sistemi Srl (2020):

• The Court reaffirmed the narrow Renusagar test but distinguished FERA from FEMA.

• FERA: Operated under a closed economy, where violations were considered serious offenses with criminal implications, hence a FERA violation was a breach of the fundamental policy of Indian law.

• FEMA: Enacted in a liberalized economy, focusing on management and civil penalty. The Court held that a violation of FEMA rules does not automatically render a foreign award unenforceable in India.

• Rectifiability: Since FEMA violations can often be rectified post-facto with the Reserve Bank of India, a breach of FEMA does not equate to a breach of the fundamental policy of Indian law.

This distinction showcases how the "fundamental policy of Indian law" is a dynamic concept that changes with India's legislative and economic philosophy. [Image illustrating the conceptual difference between the strict (policing) regime of FERA and the liberal (management) regime of FEMA, and their corresponding impact on the 'fundamental policy of Indian law']