India – Supreme Court Denounces Speculative Litigation Seeking To Resist Enforcement Of Foreign Awards.

Introduction 

 

Over the years, Indian Courts have increasingly limited their interference with arbitral awards. This approach of non-interference is more so when it comes to enforcement of foreign awards under Section 48 of the Arbitration and Conciliation Act, 1996 (“Act”) as has been reaffirmed in a recent judgment of the Supreme Court in Vijay Karia (“Appellants”) and Ors. v. Prysmain Cavi E Sistemi SRL & Ors[1](“Respondents”). 

 

In this case, the Supreme Court had occasion to consider an appeal against the order of a single judge of the Bombay High Court, allowing enforcement of a London seated foreign award (“Foreign Award’). In doing so, the Supreme Court dismissed the appeal and came down heavily on the Appellants for engaging in speculative litigation and attempting to invoke the limited powers of the Supreme Court under Article 136[2]only to resist enforcement of the Foreign Award.

 

The limited scope of Section 48 – Jurisprudential backdrop 

 

In Renusagar Power Plant v General Electric Co.,[3] the Supreme Court laid stress on the fact that interference on the merits of the decision of the arbitral tribunal would be outside the ken of Section 48 of the Act[4]. Renusagar had narrowed the scope of the grounds under Section 48 significantly, especially that of the fundamental policy of Indian law to say that breach of the same should amount to breach of some legal principles or legislations, which is so basic to Indian law that it is not susceptible to being compromised. In Shri Lal Mahal Ltd. v Progetto Grano SpA,[5] the Supreme Court further emphasised that the wider meaning given to ‘public policy of India’ in the domestic sphere would not apply to Section 48(2)(b) of the Act. 

 

In 2017, the Delhi High Court in Cruz City I Mauritius Holdings v Unitech Limited[6], while considering objections to enforcement of a foreign award inter alia on the grounds of the award being in contravention of provisions of the Foreign Exchange and Management Act, 1999 (“FEMA”) held that mere contravention of a provision of Indian law is not sufficient and that for such a ground to hold, the award would have to be in breach of the ‘basic and substratal rationale, values and principles which form the bedrock of laws in our country’. 

 

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”), of which India is a signatory, recognises that the country in which the award has been passed has the primary jurisdiction over that award and only that country shall have the power to annul such an award. A country with secondary jurisdiction may only determine enforcement of such award. Section 48 of the Act gives effect to Article V of the New York Convention, which sets forth the limited and exhaustive grounds on which recognition and enforcement of an arbitral award may be refused by a competent authority in the Contracting State where recognition and enforcement is sought. The Indian judiciary, over the years, has repeatedly emphasised that the grounds for resisting enforcement of a foreign award under Section 48 are extremely limited and cannot be read in the same manner as the grounds available for challenging an award under Section 34 of the Act. 

 

Brief Facts of the Present Case 

 

The parties had entered into a joint venture agreement in 2010, wherein the arbitration clause provided for a London seated arbitration under the rules of the London Court of International Arbitration (“LCIA”).When disputes arose between the parties, the same were referred to arbitration under the LCIA rules, subsequently resulting in the Foreign Award being passed in favour of the Respondent. The Appellant did not challenge the Foreign Award before the English courts. It was only when the Respondent came before the Bombay High Court, seeking enforcement of the Foreign Award, that the Appellant sought to challenge the same under Section 48 of the Act, raising several grounds inter aliathat of the arbitrator’s findings being perverse and the Foreign Award being in contravention of Indian law. The Bombay High Court rejected all the grounds raised by the Appellant under Section 48 and allowed the enforcement of the Foreign Award. Accordingly, the Appellant appealed to the Supreme Court under Article 136 against the decision of the Bombay High Court, which had rejected its grounds under Section 48 of the Act.

 

Judgment & Analysis 

 

The Supreme Court, having referred to several judgments, both domestic and international, on the issue of enforcement of foreign awards under the New York Convention, reiterated that Section 48 of the Act does not envisage challenge to a foreign award on merits, and that the grounds of ‘public policy’ must be construed in an extremely narrow manner.[7] It held that the provisions of Section 48 of the Act are watertight and there may be no deviation from the same. 

 

It observed that the grounds for challenging the enforcement of a foreign award may be categorised into three broad categories, viz., grounds affecting party interest, grounds affecting the jurisdiction of the arbitration proceedings and grounds against India’s public policy. In doing so, it held that in cases affecting party interest, even if grounds under Section 48 are made out, the Court may still choose to allow the enforcement of a foreign award. It is only when grounds are successfully made out on issues of jurisdiction of the arbitration proceedings or breach of India’s public policy where courts may have to reject enforcement of a foreign award. However, even in such cases, such grounds would have to be construed very narrowly.  

 

The Supreme Court reiterated the principles propounded in Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India[8] that if a challenge based on the misinterpretation of the agreement by the tribunal is merely disguised as a jurisdictional challenge, the same cannot be interfered with. Such a challenge may hold under Section 34 of the Act, but not under Section 48, it observed. It reiterated the findings in Shri Lal Mahal to hold that the interpretation of an agreement by the arbitrator being perverse is not a ground that can be taken under Section 48.  

 

Rejecting the Appellant’s ground that the Foreign Award was in contravention of FEMA provisions, the Supreme Court observed that for a foreign award to be in violation of India’s public policy, the breach should be such that it “must amount to a breach of some legal principle or legislation which is so basic to Indian law that it is not susceptible of being compromised”.

 

Accordingly, it rejected this ground to hold that enforcement of a foreign award cannot be resisted on the grounds that it violates a provision of a statute as the same would be insufficient to contravene India’s public policy. 

 

Conclusion

 

In this case, the Supreme Court, has laid emphasis on the fact that the grounds for resisting enforcement of a foreign award under Section 48 must be read in the strictest possible manner. It dismissed all contentions raised by the Appellants, and also commented that “we cannot help but be left with a feeling that the Appellants are indulging in a speculative litigation with the fond hope that by flinging mud on a foreign arbitral award, some of the mud so flung would stick.” It emphasised on the fact that the powers of the Supreme Court under Section 136 are limited and should not be used to circumvent the legislative policy and should only be invoked if there is a new question of law not yet settled by the Supreme Court. 

 

While the judiciary has increasingly been adopting a pro-arbitration approach over the years, the Supreme Court, in this case has gone so far as to make an example out of the Appellants by imposing heavy costs of Rs 50 lakhs to ensure that future litigants are deterred from resisting foreign awards just as a matter of course and wasting precious time of the courts. This judgment should encourage parties at the receiving end of foreign awards to honour the same rather than attempting to resist the same as much as possible with the hope that they can escape their commitments. The Supreme Court has made it clear that such practices of speculative litigation only to delay enforcement of foreign awards may longer hold water and may instead invite the wrath of the courts.