Section 34 of the Indian Arbitration and Conciliation Act 1996 (1996 Act) enables the court to set aside an arbitral award on specified grounds. Section 34(b)(ii) provides that the award may be set aside if the court finds that "the award is in conflict with the public policy of India."

Section 48 of the Act enables the court to refuse the enforcement of foreign awards on specified grounds. Section 48(2)(b) provides that enforcement of a foreign arbitral award may be refused if the court finds that "the enforcement of the award would be contrary to the public policy of India."

Penn Racquet Sports, USA (the Petitioner) entered into two Trademark Licensing Agreements (Agreements) granting Mayor International Limited (the Respondent) the right to use the Petitioner's trademark in return for an annual royalty. The Agreements provided for disputes to be resolved by arbitration in Paris under the International Chamber of Commerce (ICC) Rules and specified Austrian law as the governing law. The Respondent failed to pay the royalties and the Petitioner instituted ICC arbitral proceedings. The Respondent failed to participate in the arbitration, and the arbitrator rendered an ex parte award in favour of the Petitioner.

The Petitioner filed an execution petition for the enforcement of the foreign arbitral award in the Delhi High Court. The Respondent challenged the execution petition on the ground that the award was contrary to the public policy of India and contrary to the principles of natural justice.

The Delhi High Court dismissed the Respondent's challenge to enforcement, holding that the award was not contrary to the public policy of India. In reaching its decision, the court held that "public policy" for the purposes of Section 48 of the Act, has a narrow meaning when compared to the same expression under Section 34 of the Act. The court observed that for recognition and enforcement of foreign awards to be denied, the respondent must demonstrate more than a mere contravention of Indian law. The award must be contrary to the fundamental policy of Indian law, or contrary to the interests of India, or justice or morality.

The court further held that, even if the grounds of challenge to the award and resisting enforcement were to be similarly treated, the award was not contrary to the public policy of India as the arbitrators' interpretation of the relevant term of the Agreements was a plausible interpretation and not contrary to the terms of the Agreements.

Furthermore, rejecting the contention that a reasonable opportunity of being heard was not provided to the Respondent, the court held that the ex parte award was rendered due to the Respondent's failure to comply with the procedures of arbitration (failure to submit a statement of defence on time, non-payment of costs) and therefore it could not be said to be contrary to the principles of natural justice. The court therefore rejected the challenge to the enforcement of the award.

The judgments in Venture Global Engineering v Satyam Computer Services Ltd. AIR 2008 SC 1061 and Oil and Natural Gas Corporation v Saw Pipes Ltd. AIR 2003 SC 2629 had heightened concerns that the ground of public policy may be resorted to more often. This judgment clarifies that, while a broad meaning may be assigned to public policy for the purposes of challenges to foreign awards (where Part I is not excluded), it will be more narrowly construed in connection with resisting enforcement of an award. Enforcement of foreign arbitral awards should not be refused unless the award seriously breaches or violates a fundamental principle of Indian law or manifestly violates the terms of the contract. In our view the term public policy as applicable in the context of enforcement of foreign awards has been correctly interpreted. Such an approach goes a long way to reinstating the comfort that enforcement of foreign awards in India will not be refused on frivolous grounds.