RENUSAGAR POWER CO. LIMITED V. GENERAL ELECTRIC CO.

SUBMITTED BY

KOUSINI GUPTA

PRN: 15010324253

DIVISION: C

CLASS: BBA. LLB

In

SEPTEMBER, 2019

UNDER THE GUIDANCE OF

Dr. SANU RANI PAUL

Symbiosis Law School, Hyderabad

Symbiosis International University, Pune

Facts of the Case / Procedural History

 Renusagar Power Co. Ltd., is a company incorporated under the Indian Companies Act,
1956 engaged in the production and sale of electric power and General Electric,
engaged in the business of manufacturing, selling and servicing electrical products and
various ancillary activities is a is a company incorporated under the laws of the State of
New York in United States of America. Both the companies entered into an
arrangement by the virtue of which General Electric was to supply to Renusagar the
equipment and power services for setting up a thermal power plant, having a capacity
of 135,800 K.W and to be known as 'Renusagar Power Station' at Renukoot. Thus on
November 27, 1963, Renusagar moved the Government of India for its approval. The
Government of India gave its approval and thereafter a formal contract was executed
by the parties on August 24, 1964.
 As per the contract all the items were to be delivered in 15 months from the effective
date and the completion of the plant was to be done within 30 months. The contract
provided for payment in instalments and also required execution of unconditional
negotiable promissory notes for all the instalments. The contract contained an
arbitration clause which provides that any disagreement arising out of or related to the
contract which the parties are unable to resolve by sincere negotiation shall be finally
settled in accordance with the Arbitration Rules of the International Chamber of
Commerce (for short 'ICC').
 It appears that there was some delay on the part of the General Electric in adhering to
the time schedule for the supply of equipment and keeping the same in view General
Electric by their letter dated January 5, 1967 agreed to defer the payment of the first
instalment payable on June 30, 1967 by six months. A series of conversation through
letter thus followed. Further during the course of supply of equipment and erection of
the plant, some disputes arose between the parties and Renusagar made certain claims
against General Electric.
 Renusagar moved the Government of India for approval of the revised schedules
regarding the payments of the instalments to General Electric. The said request of
Renusagar was, however, not accepted by the Government of India and by their letter
dated August 1, 1969, the Government of India expressed their inability to agree to the
revised proposals.
  On March 1, 1982, General Electric served a notice on Renusagar indicating its
intention to arbitrate pursuant to cl. XVII of the Contract. On March 2, 1982, General
Electric made a request to the Court of Arbitration of ICC for arbitration of the disputes
between General Electric and Renusagar. ICC, after taking cognizance of the said
request for arbitration made by General Electric, called upon Renusagar to nominate
their arbitrator.
 The arbitral award was passed against Renusagar. Aggrieved by the arbitral award
Renusagar filed a suit against General Electric in the court.

Relevant Issues

The issues with respect to arbitration are as follows:

1. What is the scope of enquiry in proceedings for enforcement of a foreign award u/s. 5
read with S. 7 of the Foreign Awards Act?
2. Were Renusagar unable to present their case before the Arbitral Tribunal and
consequently the award cannot be enforced in view of S. 7(1)(a)(ii) of the Foreign
Awards Act?
3. Does S. 7(1)(b)(ii) of the Foreign Awards Act preclude the enforcement of the award
of the Arbitral Tribunal for the reason that the said award is contrary to the public policy
of the State of New York?
4. What is meant by 'public policy' in S. 7(1)(b)(ii) of the Foreign Awards Act?
5. Is the award of the Arbitral Tribunal unenforceable as contrary to public policy of
India?

Relevant Rule(s)
In the present case, the relevant rule applicable is Section 7, of the The Foreign Awards
(Recognition Andenforcement) Act, 1961. Clause of which provides as follows:

A foreign award may not be enforced under this Act-

a) if the party against whom it is sought to enforce the award proves to the court dealing
with the case that-
i) the parties to the agreement were under the law applicable to them, under some
incapacity, or the said agreement is not valid under the law to which the parties have
subjected it, or failing any indication thereon, under the law of the country where
the award was made; or
 ii) that party was not given proper notice of the appointment of the arbitrator or of the
arbitration proceedings or was otherwise unable to present his case; or
iii) the award deals with questions not referred or contains decisions on matters beyond
the scope of the agreement: Provided that if the decisions on matters submitted to
arbitration can be separated from those not submitted, that part of the award which
contains decisions on matters submitted to arbitration may be enforced; or
iv) the composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties or failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or
v) the award has not yet become binding on the parties or has been set aside or
suspended by a competent authority of the country in which, or under the law of
which, that award was made; or
b) if the Court dealing with the case is satisfied that-
i) the subject-matter of the difference is not capable of settlement by arbitration
under the law in India; or
ii) the enforcement of the award will be contrary to public policy;

Clause 2 provides as follows

If the Court before which a foreign award is sought to be relied upon is satisfied that an
application for the setting aside or suspension of the award has been made to a competent
authority referred to in sub-cl. (v) of cl. (a) of sub-section (1), the Court may, if it deems
proper, adjourn the decision on the enforcement of the award and may also, on the application
of the party claiming enforcement of the award, order the other party to furnish suitable
security.

Analysis

The Supreme Court dismissed Renusagar’s appeal and affirmed the lower court's decision.
The Court rejected Renusagar’s contention that it had been unable to present its case in
violation of Section 7(1)(a)(ii) of the 1961 Act because Renusagar voluntarily refused to
appear before the arbitral tribunal. Therefore, it could not complain of the alleged effects this
had on presentation of its case at this stage in the proceedings. The Court also rejected
Renusagar’s public policy argument. First, it held that the term “public policy” in Section
7(1)(b)(ii) of the 1961 Act referred to the public policy of India and not the public policy of
New York. It based this conclusion on Article V (2) (b) NYC, which it found to clearly refer
to the public policy of the country enforcing the award. Second, it held that the award was
not contrary to the public policy of India. The Court determined that under Section 7(1)(b)(ii)
of the 1961 Act, the enforcement an award violates the public policy of India if enforcement
would be contrary to (i) a fundamental policy of Indian law; (ii) the interests of India; or, (iii)
justice or morality. The Court found that no aspect of the award or interest was excessive or
unjust, and therefore enforcing the award would not be contrary to India's public policy.

The Court held, “there is nothing to indicate that the expression "public policy" in Art. V(2)(b)
of the New York Convention and S. 7(1)(b)(ii) of the Foreign Awards Act is not used in the
same sense" and that "[t]his would imply that the defence of public policy which is permissible
u/s. 7(1)(b)(ii) should be construed narrowly." TheCourt construed the expression 'public
policy' to mean: (i) fundamental policy of Indian law; (ii) the interests of India; or (iii) justice
or morality. The Court categorically held that contravention of law alone will not attract the
bar of public policy and something more than contravention of law is required.”

Conclusion

The holdings of the Supreme Court was majorly two folds. It dealt with the position of arbitral
awards in India and its implications if there is a violation of fundamental policy of Indian law.
The court also indulged into the fundamental policy of Indian Law and what it includes and
what not. It observed various conditions in which the arbitral awards were in violation of
fundamental policy of Indian law and were thus held to be void. However in the present cases
it was not the situation and thus the of arbitral awards was held valid. n 2011, the Supreme
Court in P Associate Builders v. Delhi Development Authority, (2014 SCC OnLine SC 937)
while deciding the meaning of 'public policy' under Section 48 of the 1996 Act held that the
test laid down in Saw Pipes must be followed in case of foreign awards as well, thereby
allowing Indian Courts to deny enforcement of a foreign award on additional grounds of "patent
illegality".

The Supreme Court observed in matters regarding judicial approach the Tribunal or court
should not act in an arbitrary, capricious or whimsical manner. Principles of natural justice to
be followed and reasoned decisions to be made. No decision should be perverse such that no
reasonable person would arrive at it. If the above principles are not followed by an arbitral
tribunal, the award passed would be open to challenge under Section 34(2)(b)(ii) of the
Arbitration and Conciliation Act, 1996.