Date of Judgment:
13 February 2020
Judges:
Justice R.F. Nariman
Justice Aniruddha Bose
Justice V. Ramasubramanian
Parties:
Appellants – Vijay Karia and Ors.
Respondents – Prysmian Cavi E Sistemi S.R.L and Ors.
Subject
In its decision, the Supreme Court of India clarified the issue of domestic enforcement of foreign arbitral awards in India.
Legal Provisions
Rule - 21(2)(b)(iii), the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 – Unless otherwise specified in these rules, the price of equity instruments of an Indian company transferred from a person resident in India to a person resident outside India shall not be less than the price of equity instruments valued on an arm's length basis. This valuation should be using any internationally accepted pricing methodology duly certified by a Chartered Accountant or a Merchant Banker.
Section – 48(1)(b), the Arbitration & Conciliation Act, 1996 –Only if the party against whom the award is invoked provides proof to the Court that the party against whom the award is invoked was not given proper notice of the arbitrator's appointment or the arbitral proceedings, or was otherwise unable to present his case, enforcement of a foreign award can be refused.
Section – 48(2)(b), the Arbitration & Conciliation Act, 1996 –An arbitral award's enforcement may also be refused if the Court determines that it would be against India's public policy to enforce such arbitral award.
Article 136, the Indian Constitution – The Supreme Court may grant special leave to appeal from any judgement, decree, determination, sentence, or order passed or made by any Court or Tribunal in the Indian territory, at its discretion. However, nothing in this section applies to any judgment, determination, sentence, or order made or passed by any Court or Tribunal established by or under any law relating to the Armed Forces.
Overview:
- The issue at hand was the enforcement of four partial final awards made in the London arbitration proceedings. The arbitration was initiated as part of a joint venture agreement between Prysmian, Mr. Vijay Karia, and others (the V.K. Group), and their joint venture company, Ravin Cables Limited. Prysmian initiated the proceedings.
- As a result of the V.K. Group's breach of the agreement, Prysmian demanded that the V.K. Group sell its shares at a 10 percent discount to fair market value to Prysmian. This requirement violated Rule 21(2)(b)(iii) of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (the "NDIR").
- The Arbitral Tribunal ruled in Prysmian's favour. When Prysmian sought to enforce the awards in the Bombay High Court, the V.K. Group did not raise any objection in London, but it raised several objections under S.48 of the A&C Act. These objections were dismissed by the Bombay High Court, which decided to enforce the awards.
- Under Article 136 of the Constitution, the V.K. Group filed an appeal with the Supreme Court. The V.K. Group presented the Supreme Court with a total of 12 objections that it attempted to classify under Sections 48(1)(b) and 48(2)(b) of the A&C Act.
- Most of the objections centred on the Arbitral Tribunal's failure to address specific counterclaims and its disregard for expert evidence, as well as its failure to draw an adverse inference despite the evidence being ignored. There were also concerns raised about the Arbitral Tribunal making erroneous determinations and decisions, as well as whether or not the awards violated NDIR Rule 21(2)(b)(iii).
Issues
(i) Is it possible to contest the merits of a foreign award under the ground of S. 48 of the A&C Act?
(ii) What does S.48(1)(b) of the A&C Act mean with the provision award-debtor was "unable to present his case"?
(iii) Whether a foreign award is in conflict with Indian public policy simply because an Indian law has been violated — and in particular, the NDIR and/or the FEMA?
(iv) Is the Court's discretion available to enforce a foreign award despite the existence of grounds under the S. 48 of the A&C Act?
Judgment Analysis
- The Supreme Court ruled that grounds under S. 48 of the A&C Act for challenging a foreign award's merits did not allow such a challenge. It also stated that objections based on a foreign award's alleged perversity or patent illegality could not be raised as grounds under Section 48 of the A&C Act because such objections required a review of the foreign award's merits.
- The Bench noted that the phrase "unable to present his case" could not be read broadly to cover all cases of natural justice violation and had to be read in the context of the words preceding it.
- It was determined that the phrase referred to a facet of natural justice that would be violated only if the arbitrator failed to provide the parties with a fair hearing. It would apply only during the hearing stage, not after the award had been delivered.It emphasised that a foreign award must always be read supportively, with an intention to uphold rather than destroy.
- The Court noted that if a foreign award fails to resolve a crucial issue or fails to decide a claim or counterclaim in its entirety, it may shock the Court's conscience. Its enforcement may be refused on the basis of a violation of Indian public policy. The Supreme Court ruled that a foreign award is not against Indian public policy because it violates Indian law. It held that a foreign award is against Indian public policy only if it is tainted by fraud, corruption, or violates fundamental principles of justice and morality.
- It then considered whether a foreign award that violates the NDIR or the FEMA is contrary to the public policy of India.On the contrary, the Supreme Court stated that the FEMA was based on managing foreign exchange rather than policing it. No provision in the FEMA voids any transaction in violation of it.
- The Supreme Court also defined the "fundamental policy of Indian law." It held that fundamental policy refers to a legal principle or legislation that is so fundamental to Indian law that it cannot be compromised. It also held that 'fundamental policy' referred to the nation's core values, which can be expressed in statutes as well as time-honoured, hallowed principles followed by courts.
- The Supreme Court also noted that grounds under S. 48 of the A&C Act were divided into three groups. These are grounds that affect the jurisdiction of the arbitration proceedings or affect party interest alone or the grounds that go to India's public policy. It held that in cases of grounds that affect the jurisdiction of the arbitration proceedings or go to the public policy of India, the Court lacked the authority to enforce foreign judgments.
- In other cases, where grounds exist that affect only a party's interest and are capable of waiver or abandonment, and no prejudice has resulted, courts could exercise such discretion after weighing competing concerns about fairness and enforcement.
- After reading all four of the sole arbitrator's awards, the Court concluded that it has thoroughly considered the evidence and reached detailed findings for each of the issues, claims, and counterclaims, and had finally accepted the Respondent's case while rejecting the Appellants'.
Conclusion
The Supreme Court finally stated that because their jurisdiction under Article 136 of the Constitution is limited, the Court's time has been unnecessarily taken on a case that has already been decided by four exhaustive merits awards and the Bombay High Court. The Court dismissed the appeals with costs of INR 50 lakhs, payable by Appellant to Respondent within 4 weeks of the judgment.
The Supreme Court's decision, in this case, brings clarity and finality. It protects arbitral awards from minor technical challenges and preserves their integrity. It protects foreign parties from being stranded even if they win. It is likely to boost foreign parties' confidence in India as a viable location for arbitration. However, it leaves a number of gaps and ambiguities, which will almost certainly lead to more litigation in the future.
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Questions
- What does Section 48 of the Arbitration and Conciliation Act, 1996 deal with?
- Which Article of the Indian Constitution has provisions for Special Leave to Appeal by the Supreme Court?
