Recently, the Supreme Court of India has, in the case of Vijay Karia and Ors. v. Prysmain Cavi E Sistemi SRL & Ors.1, set the law in motion by narrowing the judicial interference in enforcement of foreign awards under Section 48 of Arbitration and Conciliation Act, 1996 ('the Act'). The jurisdiction of the Supreme Court was invoked under Article 136 of the Constitution of India, by filing a Special Leave Petition ("SLP") against the decision of the Bombay High Court, which held the award passed by the Arbitral Tribunal to be enforceable, as the objections did not fall within any of the "neat legal pigeonholes" contained in Section 48 of the Act.
I. Background of the dispute:
The Court was seized of a dispute between the shareholders arising out of a Joint Venture Agreement ('JVA') between the shareholders of Ravin Cables Limited ('Ravin') and Prysmian Cavi E Sistemi SRL ('Prysmian'), an Italy based company. The London seated Arbitral Tribunal governed by English law and consisting of the Sole Arbitrator appointed under the London Court of International Arbitration ('LCIA') Rules, 2014, passed its award in favour of Prysmian. The award was never challenged before the English courts, although England's Arbitration Act provided for a challenge procedure. Upon the Award holder approaching the Indian courts for enforcement, the action of enforcement was challenged under the grounds laid down in Section 48 of the Act.
The Appellants in this case, who are shareholders of Ravin represented by Mr. Vijay Karia entered into a JVA with Prysmian on 19th January 2010, under which, Prysmian acquired 51% shareholding in Ravin's share capital. Prysmian also paid Ravin's shareholders, a substantial consideration towards 'control premium' under a separate 'Control Premium Agreement' executed on the even date. As per the terms of the JVA, Ravin was to be jointly managed by the CEO & Managing Director until the expiry of the 'integration period' under the JVA, i.e. for a further period of six months after expiry of the interim period. However, during this integration period, the CEO was removed and substituted, at the instance of the Appellants. Thereafter, the Appellants' directors opposed the appointment of a CFO whose appointment was assented to by Prysmian. This interference in the management and control of Ravin led to disputes between the parties and Prysmian initiated arbitration proceedings under the JVA by issuing a notice alleging material breaches of the JVA. Appellants also raised several counter claims alleging material breaches by Prysmian. The Sole Arbitrator allowed all the reliefs sought by Prysmian and rejected all the counter claims. The final Award was never assailed by the Appellants before the English courts and thereafter when the Award came to be enforced before the Indian court, the Appellants raised various grounds under Section 48 of Arbitration Act, challenging the enforcement.
II. Issued raised:
The Appellants' contentions can be categorized broadly into the three 'pigeonhole' grounds viz. (1) that the party was unable to present its case before the Tribunal; (2) that the Tribunal failed to deal with the contentions raised by the Appellants (under Section 48(1)(b)); (3) that the foreign award is against the public policy of India (under Section 48(2)(b)) in two respects viz., (a) that it would be in contravention to the fundamental policy of Indian law; and (b) that it would violate the most basic notions of justice.
III. 'Public policy' under Section 48 vis-à-vis Section 34 of the Act:
The Supreme Court, while determining the issues at hand, referred to the celebrated judgment in Renusagar Power Plant Co. Ltd. v. General Electric Co.2 ('Renusagar case') where, after referring to the New York Convention on Recognition and Enforcement of Foreign Awards, 1985 ('New York Convention'), the Court observed that none of the grounds mentioned under Section 7 of Foreign Awards Act, 1961 (which is almost in the same terms as Sections 34 and 48 of the 1996 Act) would entail judicial review on merits of the foreign award. The Supreme Court observed that Renusagar's case was also lauded in the recent judgment of Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI)3 ('Ssangyong case').
The Supreme Court referred to the decision in Shri Lal Mahal Ltd. v. Progetto Grano SPA.4 ('Shri Lal Mahal case'), wherein it was made clear that the Renusagar case would continue to apply to cases which arose under Section 48(2)(b) of the Act, whilst overruling the case of Phulchand Exports Ltd. v. O.O.O Patriot5 in which the Court gave broader interpretation to the phrase 'public policy of India' occurring in Section 34 and 48(2)(b) of the Act by placing reliance on the judgment of ONGC v. Saw Pipes6.
In the recent judgment of LMJ International Ltd. v. Sleepwell Industries7, the Supreme Court rejected the challenge to enforcement on the ground that the maintainability of execution could not have been considered in isolation and dehors the issue of enforceability of the foreign award. This judgment was based on the reasoning that the scope of judicial interference has been "consciously constricted". It was further observed that the party assailing the execution, could have approached the English courts for setting aside of the Award. This scenario is similar to the present case, where the Supreme Court took note of the fact that the foreign award was never challenged before the English courts.
In fact, following the principle in Renusagar case, the Act was amended by Arbitration and Conciliation (Amendment) Act, 2015 ('2015 Amendment'), by which the explanation to Section 48(2)(b) was substituted to the effect that, fundamental policy of Indian law shall not entail a review on merits of the dispute. However, while doing so, the 2015 Amendment also introduced pari materia Explanation 1 defining the scope of 'public policy' under Section 34 and 48 of the Act, placing them on the same pedestal. This is in slight derogation to the Supreme Court's decision in Shri Lal Mahal's case where it was held that the parameters laid down in the phrase 'public policy' under Section 34 shall not apply to Section 48(2)(b). However, the 2015 Amendment also inserted Section 34-2A in the Act which have placed the international commercial arbitrations and enforcement of a foreign award on the same pedestal since both cannot be challenged on the ground of patent illegality.
The Supreme Court also applied the decision in the Ssanyong case to the present case where misinterpretation of contract by the arbitrator was guised in the form of jurisdictional errors and the same were not interfered with by observing that narrow interpretation ought to be adopted under Section 34(2)(a)(iv). The Supreme Court thereby effectively applied the aforesaid principle laid down under Section 34(2)(a)(iv) to the cases falling under Section 48(2)(b) of the Act.
A similar approach is taken by the courts in Singapore8 that the 'public policy' exception for denying enforcement of foreign award, should be narrowly construed. Merely because an award was perverse or irrational, it would not elevate to meet the threshold of being against the 'public policy'. The Supreme Court also analysed the provisions of New York Convention and evolution of jurisprudence pertaining to recognition and enforcement of foreign awards by courts in US9. It was observed that the US courts have taken a "pro-enforcement" bias with paradigm shift in 'burden of proof' from parties seeking enforcement to parties objecting enforcement of foreign award. The same 'pro-enforcement' approach has been taken by the legislature in Section 48 of the Act, as also held by the Supreme Court time and again.
The Supreme Court, while addressing the challenge of enforcement on the grounds of misinterpretation of the contract, violation of provisions of FEMA Act, critical evidence or admissions of parties not being taken into account, irregularities in valuation of shares, held that the same would fall outside the purview of Section 48(1)(b) for challenging enforcement of the foreign award. Lastly, the Appellants also took a ground that the arbitrator was biased for having shared the 2nd partial award to the Prysmian prior to sharing it with the Appellants. In this regard, the Supreme Court observed that this is merely an after-thought as no such ground was raised earlier, by the Appellants.
IV. Refusal to enforce foreign award: Discretionary or mandatory?
The Supreme Court has interestingly taken note of the expression "may" used in Section 48 of the Act, as opposed to the expression "shall" in other provisions of Chapter - 1 of Part - II. The Supreme Court took into consideration that similar usage is envisaged even in the New York Convention under Article V(1) and V(2).10 It was observed that this usage of the word "may" in Section 48 of the Act exemplifies the view, that even if the grounds under Section 48 of the Act are met, the Court has the discretion to deny the enforcement of foreign award and that it is not incumbent to do so. The UK Supreme Court in the case of Dallah Real Estate and Tourism Holding Co. v. The Ministry of Religious Affairs, Government of Pakistan11 held that both under Section 103(2) of the 1996 Act (UK Act) and Article V(1) of the New York Convention, the power to deny enforcement of foreign award is discretionary in nature. Pertinently, the UK Court also observed that, not challenging the award should not be a ground for exercising such discretion to deny enforcement of foreign award passed without jurisdiction.
The issue of discretionary nature of Section 48 of Act was first adverted by the Delhi High Court in the case of Cruz City 1 Mauritius Holdings v. Unitech Limited12, wherein the Single Judge, after analysing the judicial interpretation of the word "may" and "shall" and the intention of legislature of adopting similar language from Article V of the New York Convention, held that whilst there is no absolute or open discretion to reject the request for declining to enforce a foreign award, it cannot be accepted that it is totally absent. It was held that the width of the discretion is narrow and limited, but if sufficient grounds are established, the court is not precluded from rejecting the request for declining enforcement of a foreign award.
The Supreme Court in the present case, elaborated the findings of the Delhi High Court by determining which of the grounds mentioned in Section 48 of the Act are discretionary in nature. The Supreme Court categorised the grounds under Section 48 of the Act for resisting enforcement of a foreign award –
- Invalidity or illegality of the arbitration agreement, affecting jurisdiction of the arbitration proceedings;
- Inability of a party to present its case before the tribunal; and
- Violation of 'public policy' of India as provided in Explanation 1 of Section 48(2) (b) of the Act.
The Supreme Court observed that if the case is made out in the grounds falling under the first category affecting the jurisdiction of the Tribunal which passed the arbitral award, the Court does not have the discretion to enforce an award; whereas if the grounds under (b) and (c) are attracted, then the Court has discretion to deny enforcement of the foreign award under Section 48 of the Act.
V. Scope of Fair hearing: Principles of Natural Justice
The Supreme Court, in the present case, while dealing with the concept of fair hearing has relied on the Ssangyong case and the judgment of Sohan Lal Gupta v. Asha Devi Gupta13, which laid down the basic ingredients of a fair hearing. The Supreme Court also relied on the judgment of Glencore International AG v. Dalmia Cement (Bharat) Limited14, which provided a clear distinction between the cases where the party is unable to present its case rendering the Award susceptible to challenge as falling foul of the minimum standards of due process/natural justice and cases where the arbitral tribunal does not accept the case sought to be set up by a party. It was held in the said case that the latter scenario does not fall within the ambit of Section 48(1)(b) of the Act.
The Supreme Court placed reliance on judicial pronouncements of various other jurisdictions which have elaborated on the concept of fair hearing in the context of enforcement of foreign awards. The Supreme Court observed that the English Courts15 have applied the test of whether the enforcee party was precluded by "matters outside his control", while presenting the case, in determining the enforcement of foreign award. Likewise, it was observed by US Courts16 that if a party fails to obey procedural orders given by the arbitrators, it shall be precluded from setting up a challenge on enforcement on the ground of violation of principles of natural justice. Similar practice was followed by the Singapore High Court17 in determining the question of fair hearing in enforcement proceeding.
The Supreme Court gave a restricted interpretation of the expression "unable to present his case" and held that the said expression shall be read along with the first part of Section 48(1)(b) i.e., party not being given a proper notice of appointment or of the arbitration proceedings. By harmoniously reading the said provision, the Supreme Court concluded that the ground shall only apply at the time of hearing stage and not after the award has been delivered, as also held in the case of Ssanyong case. Therefore, it is pertinent to the party challenging the enforcement of the award to have raised this issue of being unable to present the case, in order to assail the enforcement of the award.
The Supreme Court, while addressing the contention that the foreign award did not deal with the counter-claim raised by the Appellants, held that the foreign award shall be read as a whole, fairly and without nit-picking and upon such reading, if the same is found to be addressing the basic issues raised by the parties and has, in substance, determined the claims and counter-claims, then enforcement must follow from such an award. Having said that, the Supreme Court also held that a foreign award which did not determine a material issue which goes to the root of the matter or is ambiguous on a claim or counter-claim in its entirety, the same may be set aside.18
VI. Supreme Court's powers under Article 136 of the Constitution of India:
The Supreme Court, while dismissing the Appeals against the Single Judge's judgment, also dealt with the issue of its own jurisdiction under Article 136 of the Constitution of India and held that the same shall not be used to circumvent the legislative policy. It was held that, in cases where no provision for appeal lies, the Supreme Court shall carefully decide while interfering in such matters and should only entertain an appeal with a view to settle the law if some new or unique point is raised which has not been answered by the Supreme Court before, so that the Supreme Court judgment may then be used to guide the course of future litigation in this regard.
VII. Conclusion
The Supreme Court has tightened the knot for challenging the enforcement of a foreign award by elucidating each of the grounds raised under Section 48 of the Act. The Supreme Court took a holistic view by not just limiting its scope of enquiry to the Indian judgments but has also relied on judgments of various other jurisdictions to arrive at global consensus on various issues involved in challenging enforcement of foreign award.
The Supreme Court rightly placed reliance on the intent of the legislature and the New York Convention which is the hallmark of Chapter I of Part – II of the Act. By this judgment, the Supreme Court demonstrated 'a balancing act' played by the courts while determining the enforceability of a foreign award. The judgment further clarified and set the threshold of Article 136 of the Constitution for challenging enforcement of a foreign award under Section 48 of the Act.
In our view, the judgment has been passed, keeping up the true spirit of the principles of the Act as well as the New York Convention, to which India is a signatory.
Footnotes
1. Civil Appeal No. 1544 of 2020, arising out of SLP (Civil) No. 8304 of 2019
2. (1994) Supp (1) SCC 644
3. Civil Appeal No. 4779 of 2019
4. (2014) 2 SCC 433
5. (2011) 10 SCC 300
6. (2003) 5 SCC 705
7. (2019) 5 SCC 302
8. Sui Southern Gas Co. Ltd. v. Habibullah Coastal Power Co., (2010) SGHC 62
9. Parsons & Whittemore Overseas Co. v. Societe Generale De L'Industrie Du Papier, 508 F.2d 969 (1974); Compagnie des Bauxites de Guinee v. Hammermills Inc. (1992) WL 122712; Certain Underwriters at Lloyd's London v. BCS Ins. Co. 239 F.Supp.2d 812 (2003); Karaha Bodas Co., L.L.C v. Perusahaan Pertambagan Minyak 364 F.3d 274 (2004); Admart AG v. Stephen and Mary Birch Foundation Inc. 457 F.3d 302 (2006)
10. Gary Born in International Commercial Arbitration, Vol. II (2009); Redfern and Hunter on International Arbitration, 6th Edn. (2015); Albert Jan van den Berg's The New York Arbitration Convention of 1958 (1981); Russel on Arbitration, Sweet & Maxwell (24th Edn., 2015)
11. (2010) UKSC 46
12. (2017) 239 DLT 649
13. (2003) 7 SCC 492. Paragraph 23 of the Judgement lays down the ingredients of a fair hearing
14. 2017 SCC OnLine Del 8932
15. Minmetals Germany GmbH v. Ferco Steel Ltd., (1999) C.L.C. 647; Ajay Kanoria v. Tony Guinness, (2006) EWCA Civ 222
16. Jorf Lasfar Energy Co. v. AMCI Export Corp., 2008 WL 1228930
17. Dongwoo Mann+Hummel Co. Ltd. v. Mann+Hummel GmbH, (2008) SGHC 275
18. Campos Brothers Farms v. Matru Bhumi Supply Chain Pvt. Ltd., (2019) 261 DLT 201
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