Supreme Court of India: Order Enforcing A Foreign Award Cannot Be Pigeonholed In The Extremely Narrow Grounds For Resisting The Foreign Award in India

Supreme-Court-of-India-1_85138_730x419

In India, the legislative policy so far as recognition and enforcement of foreign awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award but not the other way around (i.e. an order recognising and enforcing an award). This is because the policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) and which have been rejected. This is in consonance with the fact that India is a signatory to the New York Convention and intends – through this legislation – to ensure that a person who belongs to a Convention country, and who, in most cases, has gone through a challenge procedure to the said award in the country of its origin, must then be able to get such award recognised and enforced in India as soon as possible. This is so that such person may enjoy the fruits of an award which has been challenged and which challenge has been turned down in the country of its origin, subject to grounds to resist enforcement being made out under Section 48 of the Arbitration Act.

Such foreign award can always be circumvented under the wider ambit of Special Leave Petition under Article 136 of the Constitution of India before the Supreme Court. However, it is important to remember that the Supreme Court’s jurisdiction while deciding a Special Leave Petition under Article 136 of the Constitution against a judgement/order which is otherwise not appealable under Section 50 of the Arbitration Act should not be used to circumvent the legislative policy so contained.

Given the restricted parameters of Article 136, it is important to note that in cases, where no appeal is granted against a judgment which recognises and enforces a foreign award, the Supreme Court should be very slow in interfering with such judgments, and should entertain an appeal only 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. Also, it would only be in a very exceptional case of a blatant disregard of Section 48 of the Arbitration Act that the Supreme Court would interfere with a judgment which recognises and enforces a foreign award however inelegantly drafted the judgment may be.

One such foreign award was assailed under Article 136 of the Constitution before the Supreme Court in Vijay Karia vs Prysmian Cavi E Sistemi Srl Civil Appeal no. 1544 of 2020 decided on 13 February 2020. In that case, as per the Award Debtor, the Arbitral Tribunal failed to make several important determinations in the award which it was otherwise dutybound to make which made such foreign award directly in conflict with the public policy of India. In addition, the Award Debtor also challenged some of the alleged perverse findings of the Arbitral Tribunal. Counsel for the Award Debtor inter alia argued that the pigeonhole contained in Section 48(1)(b) of the Arbitration Act, and that the foreign award would be contrary to the ‘public policy of India’ as under Section 48(2)(b) of the Arbitration Act in two respects: (1) that it would be in contravention of the fundamental policy of Indian law; and (2) that in several respects it would violate the most basic notions of justice.

In addition, it was also argued that a foreign award which fails to deal with or make any determination on the claim of a party ought to be set aside on the ground contained in Section 48(2)(b) of the Arbitration Act, as it would be in breach of the audi alteram partem principle, and also on the ground that it would shock the conscience of the court, being contrary to a basic notion of justice in India.

Per contra, the Award Creditor backed the arbitral award arguing that each and every aspect of the matter that was argued on both sides was considered in detail in the award. This being the case, none of the grounds mentioned in Section 48 of the Arbitration Act would be available in the form of objections to such well-reasoned and balanced awards. It was further argued that the parameters contained in Section 48 of the Arbitration Act for resisting enforcement of foreign awards are extremely narrow, and the Court can in no circumstance go into the merits of a foreign award.

As per the settled position of law in India, in proceedings for enforcement of a foreign award, the scope of enquiry before the court in which award is sought to be enforced is limited, the defence of public policy should be construed narrowly and it does not enable a party to the said proceedings to impeach the award on merits.[1]

Further, the scheme of Section 48 of the Arbitration Act does not envisage piecemeal consideration of the issue of maintainability of the execution case concerning the foreign awards, in the first place; and then the issue of enforceability thereof.[2]

As per the “pro-enforcement bias” of the New York Convention, which has been adopted in Section 48 of the Arbitration Act, the burden of proof on parties seeking enforcement has now been placed on parties objecting to enforcement and not the other way around; in the guise of public policy of the country involved, foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties; the challenge procedure in the primary jurisdiction gives more leeway to Courts to interfere with an award than the narrow restrictive grounds contained in the New York Convention when a foreign award’s enforcement is resisted.

When the grounds for resisting enforcement of a foreign award under Section 48 are seen, they may be classified into three groups –

  1. grounds which affect the jurisdiction of the arbitration proceedings;
  2. grounds which affect party interest alone; and
  3. grounds which go to the public policy of India, as explained by Explanation 1 to Section 48(2).

Where a ground to resist enforcement is made out, by which the very jurisdiction of the tribunal is questioned – such as the arbitration agreement itself not being valid under the law to which the parties have subjected it, or where the subject matter of difference is not capable of settlement by arbitration under the law of India, it is obvious that there can be no discretion in these matters. Enforcement of a foreign award made without jurisdiction cannot possibly be weighed in the scales for a discretion to be exercised to enforce such award if the scales are tilted in its favour.

On the other hand, where the grounds taken to resist enforcement can be said to be linked to party interest alone, for example, that a party has been unable to present its case before the arbitrator, and which ground is capable of waiver or abandonment, or, the ground being made out, no prejudice has been caused to the party on such ground being made out, a Court may well enforce a foreign award, even if such ground is made out.

When it comes to the “public policy of India” ground, again, there would be no discretion in enforcing an award which is induced by fraud or corruption, or which violates the fundamental policy of Indian law, or is in conflict with the most basic notions of morality or justice.

It can thus be seen that the expression “may” in Section 48 can, depending upon the context, mean “shall” or as connoting that a residual discretion remains in the Court to enforce a foreign award, despite grounds for its resistance having been made out. What is clear is that the width of this discretion is limited to the circumstances pointed out hereinabove, in which case a balancing act may be performed by the Court enforcing a foreign award.

Given the fact that the object of Section 48 is to enforce foreign awards subject to certain well-defined narrow exceptions, the expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase. In short, this expression would be a facet of natural justice, which would be breached only if a fair hearing was not given by the arbitrator to the parties. Read along with the first part of Section 48(1)(b), it is clear that this expression would apply at the hearing stage and not after the award has been delivered.

A good working test for determining whether a party has been unable to present his case is to see whether factors outside the party’s control have combined to deny the party a fair hearing. Thus, where no opportunity was given to deal with an argument which goes to the root of the case or findings based on evidence which go behind the back of the party and which results in a denial of justice to the prejudice of the party; or additional or new evidence is taken which forms the basis of the award on which a party has been given no opportunity of rebuttal, would, on the facts of a given case, render a foreign award liable to be set aside on the ground that a party has been unable to present his case. This must, of course, be with the caveat that such breach be clearly made out on the facts of a given case, and that awards must always be read supportively with an inclination to uphold rather than destroy, given the minimal interference possible with foreign awards under Section 48. Thus, it is not possible to hold that failure to consider a material issue would fall within the rubric of Section 48(1)(b).

Having said this, however, if a foreign award fails to determine a material issue which goes to the root of the matter or fails to decide a claim or counter-claim in its entirety, the award may shock the conscience of the Court and may be set aside. It must always be remembered that poor reasoning, by which a material issue or claim is rejected, can never fall in this class of cases. Also, issues that the tribunal considered essential and has addressed must be given their due weight – it often happens that the tribunal considers a particular issue as essential and answers it, which by implication would mean that the other issue or issues raised have been implicitly rejected. For example, two parties may both allege that the other is in breach. A finding that one party is in breach, without expressly stating that the other party is not in breach, would amount to a decision on both a claim and a counterclaim, as to which party is in breach. Similarly, after hearing the parties, a certain sum may be awarded as damages and an issue as to interest may not be answered at all. This again may, on the facts of a given case, amount to an implied rejection of the claim for interest.

The important point to be considered is that the foreign award must be read as a whole, fairly, and without nit-picking. If read as a whole, the said award has addressed the basic issues raised by the parties and has, in substance, decided the claims and counter-claims of the parties, enforcement must follow.

After setting out the above position of law, the Court in the instant case found that the objection raised the Award Debtor, therefore, does not fall within any of the grounds mentioned in Section 48 and must, therefore, be rejected.

[1] Renusagar Power Plant Co. Ltd. v. General Electric Co. (1994) Supp (1) SCC 644 at [37], [65] while interpreting pari materia provisions in the Foreign Awards Act, 1961 approved in Shri Lal Mahal Ltd. v. Progetto Grano SPA (2014) 2 SCC 433

[2] LMJ International Ltd. v. Sleepwell Industries (2019) 5 SCC 302

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s