Mohit RohatgiPartner
Ashwini TakAssociate
Karan TrehanAssociate
Key Developments
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Supreme Court clarifies that the standard of ‘public policy’ in the context of enforcement of foreign arbitral awards would be synonymous with international best practices
The Supreme Court of India has held that the standards of ‘public policy of India’ while construing objections to a foreign award under Section 48(2) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) are to be the “internationally recognised narrow standard of public policy”.1
The petitioner had challenged an arbitral award before the Supreme Court on the basis of arbitrator’s bias. The Supreme Court, while holding that objections concerning bias would be covered within the concept of ‘public policy’, went on to hold that determination of possible bias is to be done based on “international best practices” instead of domestic standards and that “it is only in exceptional circumstances that enforcement should be refused on the ground of bias”.
While laying down that the determination of bias should be based on international standards, this judgment strongly reaffirms the law on the point that refusal of enforcement of foreign awards must only be in a rare case where non-adherence to international standards is demonstrable.
This judgment significantly strengthens India's pro-arbitration regime by aligning it with international best practices. It emphasises the need to limit the refusal of enforcement of foreign awards only to ‘rare’ cases and the application of international standards to determine these exceptional circumstances.
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Supreme Court overrules its earlier decision to hold that there would be no automatic vacation of stay orders granted in civil or criminal trials
A five-judge Constitution Bench of the Supreme Court2 overruled its earlier three-judge bench decision3, holding that stay orders issued under civil or criminal trials would not automatically expire only because of lapse of time.
In its earlier three-judge bench decision, the Supreme Court had held that where a stay of proceedings in a pending trial is operating, such stay will automatically lapse after six months (in case of already operating stay orders – from the date of this judgment and in case of future stay orders – from the date of the stay order) unless it is extended by a speaking order. In the current five-judge Constitution Bench decision, this automatic vacation or lapsing of a stay upon the expiry of six months was struck down.
In its five-judge bench decision, the Supreme Court also clarified that directions to high courts under Article 142 of the Constitution for the time-bound disposal of cases must be issued only in exceptional circumstances, and such decisions should ordinarily be left to the discretion of the high courts.
This decision by the Supreme Court is significant and would ensure that the interim stay orders, which are vital for protecting the rights of parties pending ongoing proceedings (especially in criminal proceedings), are not vacated automatically without due consideration and proper application of mind.
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Punjab and Haryana High Court holds that a ‘stay’ on an FIR is not a bar to the registration of an enforcement case information report with the enforcement directorate
In a recent decision, the Punjab and Haryana High Court has held that an order staying investigation in relation to a First Information Report (FIR) would not bar the Enforcement Directorate (ED) from registering an Enforcement Case Information Report (ECIR) predicated on the said FIR.
The high court relied upon the landmark decision of the Supreme Court in Vijay Madanlal v Union of India (Vijay Madanlal) where the Supreme Court differentiated between an offence of money laundering under the Prevention of Money Laundering Act, 2002 (PMLA Act) and a scheduled offence based on which an offence under the PMLA Act is registered (the predicate offence). The Supreme Court held that an offence under the PMLA Act is an independent offence and does not have any connection to the actual criminal activity relating to the predicate offence – except for the proceeds of crime derived or obtained as a result of the said predicate offence.
In a decision rendered in 2022, the Karnataka High Court had stayed the ECIR based on a stay granted on the investigation in the FIR while holding that “proceedings under the PMLA should not be permitted to continue, [..] where there is an interim order of stay operating”. This decision was also rendered based on the Supreme Court’s finding in Vijay Madanlal that the existence of a predicate offence is a prerequisite for an offence under the PMLA Act to survive. As such, the two high courts have provided conflicting views on the continuation of proceedings under the PMLA Act, where there is a stay on proceedings of the predicate offence.
The decision of the Punjab and Haryana High Court has been challenged before the Supreme Court. However, no notice has been issued yet. The Supreme Court’s decision is expected to bring finality to this conflicted point of law.
[1] Avitel Post Studioz Limited v HSBC PI Holdings (Mauritius) Limited
[2] High Court Bar Association Allahabad v State Of Uttar Pradesh & Ors.
[3] Asian Resurfacing of Road Agency Pvt. Ltd. & Anr. v Central Bureau of Investigation
