Surmises and Consent: Public Policy’s New Work in Foreign Award Enforcement
Over the past decade, Indian courts have repeatedly affirmed a strong pro-enforcement stance towards foreign arbitral awards under Part II of the Arbitration and Conciliation Act, 1996 (“The Act”), with a focus on the narrow refusal grounds in Section 48. Against this backdrop, the Madras High Court’s decision in Olam International Ltd. v. Manickavel Edible Oils (P) Ltd. (“Olam”) presents an interesting position. While the Court recognized the settled law regarding powers of the enforcement courts to the extent that they cannot revisit the merits of foreign awards, it nevertheless refused enforcement by invoking the public policy exception under Section 48(2)(b), on the debated ground that the arbitral tribunal had assumed jurisdiction in the absence of a concluded contract and valid arbitration agreement. Central to the Court’s reasoning was its characterization of the tribunal’s finding on contract formation as resting on “surmises,” thus holding enforcement contrary to fundamental principles of Indian law. This piece argues that although the outcome in Olam may be defensible as a response to a genuine failure of consent, the Court’s response of deploying public policy to perform the work of consent-based inquiry marks a consequential shift in enforcement jurisprudence. By routing questions of contract formation through Section 48(2)(b), this decision brings back questions about the broad framing of the provision itself, and pursuant to that, expanding the public policy exception beyond its intended scope and unsettling the structure of refusal grounds under the New York Convention framework. It then proposes a two-pronged inquiry process to preserve the distinction between grounds for non-enforcement of arbitral awards in contractual disputes.
Section 48 and Limits of Enforcement Review
The enforcement of foreign arbitral awards in India is governed by Part II of the Act which gives effect to India’s obligations under the New York Convention. Sections 47 to 49 put into force a largely mechanical process where once the award-holder produces the requisite documents, the enforcing court is bound to recognize and enforce the award unless the resisting party establishes one of the grounds specified under Section 48. These grounds are exhaustive in nature and go hand in hand with enforcement jurisprudence where it is settled law that enforcement proceedings are not appellate in nature and do not permit a re-examination of the merits of the dispute. (see here, here, here, and here (Page 269, 3.2, ¶1))
Within this framework, Section 48 includes different grounds of appeal. These can be differentiated in two forms. First is a party-centric and consent-based mode of objection where the incapacity of parties or invalidity of the arbitration agreement is concerned. Second is more systemic in character, where cases of public policy and fundamental principles of law are concerned. The latter has been repeatedly upheld to remain narrow, with the intention of avoiding undermining the finality that the New York Convention seeks to promote.
At the same time, however, courts have recognized that enforcement courts are not completely devoid of scrutiny powers. A limited inquiry into jurisdictional pre-conditions, most notably, the existence of a valid arbitration agreement, remains permissible, since an arbitral tribunal’s authority is derived from party’s consent found within. However, this inquiry also has to be carried out in a superficial manner. Despite this being allowed, the Madras High Court decided to resolve a dispute over arbitral jurisdiction through the language of public policy rather than through the Convention’s consent-based refusal grounds.
Olam and the Jurisdictional Turn to Contract Formation
In Olam, Manickavel Edible Oils Pvt. Ltd. and Yentop Manickam Edible Oils Pvt. Ltd. (“Respondents”) framed their objection to enforcement as a threshold objection: the arbitral tribunal lacked jurisdiction because no concluded contract, and therefore no valid arbitration agreement, had ever come into existence between the parties. The Madras High Court accepted this framing and treated the issue as one of jurisdictional competence rather than merits. The Court emphasized that while it could not reassess the correctness of the award, it was entitled to examine whether the foundational pre-conditions for arbitration were satisfied, including whether there had been a clear meeting of minds on essential contractual terms.
Applying this inquiry, the Court focused on the negotiations preceding the alleged contracts. It identified price as a material term and found that the documentary record failed to demonstrate consensus ad idem. Although draft contract circulated at higher prices, the buyer subsequently indicated that the letter or credit would be opened only at a lower price. Crucially, the seller neither expressly accepted this revised price nor issued signed contracts reflecting it, despite an established course of prior dealings in which contracts were finalized through signed documentation. The Court held this to be dispositive of the contract formation itself.
The Court further scrutinized the arbitral tribunal’s reasoning on jurisdiction. It characterized the tribunal’s acceptance of the seller’s explanation as unsupported by the documentary record, noting that the damages calculation in the award itself appeared to proceed on the basis of the original, unaccepted contract price. From this, the Court concluded that the tribunal had assumed jurisdiction based on “surmises” rather than demonstrable consent.
On its own terms, this reasoning reflects a defensible insistence that arbitral jurisdiction had wrongly assumed jurisdiction. The difficulty, however, lies not in the Court’s willingness to examine contract formation at the enforcement stage, but in how it chose to characterize the consequence of its findings. Rather than taking the usual route of classifying this under absence of a concluded contract, the Court proceeded to treat this jurisdictional defect as a violation of India’s public policy under Section 48(2)(b). This raises deeper concerns for the coherence of enforcement jurisprudence.
Misapplication between Consent and Public Policy
The consequential aspect of the judgment lies not in the Court’s willingness to scrutinize contract formation at the enforcement stage, but in its choice to characterize the absence of a concluded contract as violation of public policy under Section 48(2)(b). This is a case of a question which is fundamentally grounded in consent being posed as one implicating the forum state’s most basic legal principles. While the result may be intuitive, the pathway through public policy is far from inevitable and carries risks for the structure of enforcement review.
Under the New York Convention framework, issues concerning the existence or validity of the arbitration agreement are conventionally addressed through consent-based refusal grounds. Article V of the New York Convention outlines situations wherein judicial authorities can reject the enforcement of arbitral awards. Section 48(1)(a) of the Act embodies this ground by giving the power to refuse enforcement if the arbitration agreement is invalid under the applicable law. The Court’s finding that no concluded contract ever came into existence, and that the parties never agreed to arbitrate, fits squarely within this category. Such a finding does not require appeal to public policy but is a simple recognition of the absence of consent and pursuant to that, absence of arbitral authority.
By contrast, public policy under Section 48(2)(b) is reserved for exceptional cases where enforcement would offend fundamental principles of law or justice. The 246th Report underscores this exceptionality by suggesting restricting the scope of ‘public policy’ more than what it currently is. If and when courts use this provision to address failures of contract formation, the distinction between systemic incompability and ordinary private-law defects collapses. In Olam, the Court’s conclusion that the tribunal proceeded on “surmises” effectively transforms a dispute about consent into a question of public policy. This matters to the extent that once lack of agreement is framed as a public policy violation, Section 48(2)(b) becomes a blanket provision for a court whenever it is dissatisfied with how an arbitral tribunal inferred consent from the record.
As was iterated above, enforcement courts have the power to conduct jurisdictional inquiries to assess whether a valid arbitration agreement exists under Section 48(1)(a). The scope of this power is limited to conducting investigation on whether, on an objective documentary record, the award-holder has discharged the burden of showing a binding arbitration agreement. The Court, in Olam, repeatedly emphasizes that the tribunal “assumed jurisdiction” in the absence of a concluded contract. The language in the judgment subtly shifts the focus away from invalidity of agreement under 48(1)(a) towards illegitimate exercise of adjudicatory power. Once framed this way, the problem becomes not just lack of consent, but a tribunal acting without authority, which the Court can treat as offensive to “fundamental principles of Indian law.” There is a clear anxiety throughout the judgment about not crossing into merits review. Section 48(1) requires detailed factual examination of the record. By contrast, Section 48(2)(b) allows the Court to say, “whatever the evidentiary debate, enforcing an award based on “surmises” offends fundamental legal principles.” Additionally, statements like “A foreign award, which upholds the existence of an agreement based on surmises is, obviously, opposed to public policy…” blur the line even more. In these cases, public policy becomes a shortcut to refuse enforcement without openly engaging in what looks like a full-blown contract-law analysis.
This approach also creates pressure on the prohibition against merits review. Although the Court repeatedly disclaimed any intention to revisit the merits, its critique of the tribunal’s reasoning being inadequately reasoned moves closer to an evaluation of the quality of the tribunal’s jurisdictional analysis. When public policy is used as the applicable provision in these cases, the line between examining the existence of consent and assessing the correctness of the tribunal’s reasoning becomes increasingly difficult to police. Future courts may find it easier to characterize contested interpretive issues which would conventionally be out of the enforcement court’s power as matters of “fundamental policy,” and thereby expanding judicial intervention while on paper remaining within the ambit of Section 48.
A Disciplined Role for Section 48(1)
If enforcement courts are to scrutinize contract formation without affecting the exceptionality of the public policy invocation, the inquiry must be asserted to proceed on two clear limits. First, the objection must genuinely concern the existence of concern to arbitration, rather than disagreements over interpretation. Where the resisting party alleges that no concluded contract was ever formed, particularly due to lack of agreement on an essential term, the objection goes to the very source of the arbitral jurisdiction. Such cases are distinct from challenges to how an arbitral tribunal construed an existing agreement.
Second, the court’s examination must be confined to the objective documentary record. The question is not whether the tribunal was right or wrong in drawing inferences, but whether the award-holder can demonstrate through documents or conduct, that the parties crossed the threshold from negotiation to agreement. Where this objective record discloses no acceptance of an essential term or no manifestation of consent with the parties’ established mode of contracting, the Court may legitimately conclude that the arbitration agreement never came into existence. This conclusion does not require an encroachment into the merits, it is a mere jurisdictional determination grounded in consent.
Locating this two-pronged inquiry within Section 48(1) would not only preserve the internal logic of the enforcement regime but also ensure that consent-based defects are treated as such, while public policy is reserved for systemic concerns such as violations of basic notions of justice that are out of the parties’ private dispute. By contrast, when failure of contract formation are routed through public policy, Courts risk transforming Section 48(2)(b) into a de facto category for dissatisfaction with arbitral reasoning. In this sense, a Section 48(1)-centered approach better aligns with both the structure of the Act and India’s pro-enforcement commitments under the New York Convention.
Conclusion
Olam is a modern-day illustration of how easily questions of consent can be transferred into the language of public policy at the enforcement stage. While the Madras High Court’s refusal to enforce an award that is rendered without demonstrable agreement may be right on its own as a jurisdictional ground, its decision to partake this inquiry through Section 48(2)(b) shows a significant shift in how Court’s treat such matters. When public policy does the work of consent, the carefully curated distinct grounds of Section 48 become blurry, thus leading to broader judicial intervention under the guise of public policy and fundamental principles. This case calls for not only a disciplined approach and a threshold test for picking which ground to characterize a contractual dispute under but also a more specific definition as to what would entail a jurisdictional inquiry without encroaching onto merits in the context of contractual disputes and the existence of an arbitration agreement. Introducing and preserving a proper distinction is essential to maintaining both obligations and coherence undertaken by India’s pro-enforcement stance under the New York Convention.
*Aditya is a 2nd year student from Jindal Global Law School.