Public Policy

Public Policy: The Law’s Residual Guardian of Society

Some agreements and arrangements are so harmful to society that the law refuses to enforce them, even if both parties freely consented. Public policy is the legal expression of this refusal — the courts acting as guardians of the community’s interests against arrangements that harm those interests, regardless of private freedom of contract. But public policy must be used carefully: extending it beyond established grounds risks turning courts into arbiters of social policy.

Recognised Public Policy Grounds Under ICA

(a) Agreements in restraint of marriage: Agreements not to marry at all, or not to marry anyone other than a specific person — void (Section 26 ICA). (b) Agreements ousting court jurisdiction: Agreements providing that no dispute between parties shall be taken to court — void (Section 28 ICA). (c) Maintenance agreements with strangers: Maintenance (financial support of litigation by a person with no interest in the case) is contrary to public policy — champertous agreements void. (d) Trading with the enemy: Agreements with aliens who are enemies of India during hostilities — void on grounds of public policy. (e) Bribery and corruption: Agreements to obtain contracts or appointments by corrupt means — void.

Public Policy in Arbitration: ONGC v. SAW Pipes

In ONGC v. SAW Pipes Ltd (2003) 5 SCC 705, the Supreme Court broadly interpreted 'public policy of India' in the context of domestic arbitration — holding that an award could be set aside if it was 'patently illegal' or contrary to fundamental policy of Indian law. This broad interpretation was later narrowed for international arbitration in Shri Lal Mahal Ltd v. Progetto Grano Spa (2014) 2 SCC 433 — courts should not review the merits of international arbitral awards under the guise of public policy. The 2015 amendment to the Arbitration Act (Section 34 Explanation 1) defined public policy narrowly for international arbitration.

“Public policy is the law’s conscience — the set of principles so fundamental to the community’s functioning that courts will protect them even against the wishes of contracting parties. But it must be used sparingly: a court that applies public policy too freely becomes a censor of private arrangements, not a guardian of essential community values.”