The hon'ble Supreme Court, in a recent judgment of Vijay Karia and Ors. Vs. Prysmian Cavi E Sistemi SRL and Ors.(MANU/SC/0171/2020), upheld that a foreign award cannot be refused enforcement in India even if it is in violation of FEMA guidelines and that the refusal to a foreign award for being contrary to the public policy of India under Section 48 of the Arbitration and Conciliation Act, 1996 ("the Act") could be granted only in very exceptional circumstances.

The present appeal was filed under Article 136 of the Constitution of Indian against a judgment of a Single Judge of the Bombay High Court dated 07.01.2019, by which four final awards made by a sole arbitrator in London under the London Court of International Arbitration Rules (2014) (hereinafter referred to as the "LCIA Rules") were held to be enforceable against the appellants in India.

Before proceeding to the facts of the case, it is important to emphasize that, no challenge was made to the aforesaid award under the English Arbitration Law, though available. It was only when the award was brought to India for enforcement that objections were raised under Section 48 of the Act. Unlike Section 37 of the Act, which provides an appeal against either setting aside or refusing to set aside a 'domestic' arbitration award, the legislative policy so far as recognition and enforcement of foreign awards is concerned 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) under Section 50 of the Act. Therefore, the appellants have appealed against the said judgment under Article 136 of the Constitution of India.

FACTUAL BACKGROUND

The appellants, i.e. Appellant No. 1 Shri Vijay Karia, and Appellants No. 2 to 39 (who are represented by Appellant No. 1) are individual, non-corporate shareholders of Ravin Cables Limited (hereinafter referred to as "Ravin"). On 19.01.2010, the appellants and Ravin entered into a Joint Venture Agreement (hereinafter referred to as "JVA") with Respondent No. 1, i.e. Prysmian Cavi E Sistemi SRL - a company registered under the laws of Italy (hereinafter "Prysmian" or "Respondent no. 1"). By this JVA, Prysmian acquired a majority shareholding (51%) of Ravin's share. Consequently, multiple disputes arose between the parties relating to management of the company and Respondent no.1 invoked arbitration under Clause 27 of the JVA.

Clause 27 of the JVA provided for resolution of disputes between the parties by arbitration in London, as per the Rules of Arbitration of London Court of International Arbitration LCIA) by reference to a sole arbitrator appointed by LCIA.

ARBITRAL AWARD PASSED BY THE TRIBUNAL

The Tribunal passed the First Partial Award limited to interpretation of JVA clauses and jurisdiction and observed that the dispute relating to registration of Ravin trademark was beyond the jurisdiction of this arbitration and governed by the arbitration clause in trademark licenses.

The Second Partial Award dealt with the merits of the claims wherein the Tribunal held that the appellants were in material breach of the JVA terms on account of interference with the proper and effective functioning of the CEO, failure to attend management meetings, preventing passing of board resolutions, creating false records, and encouraging employees to go on strike, amongst other grounds. The Tribunal also addressed the counter claims filed by the appellants along with the statement of defence including the acquisition of ACPL, a competitive business of cables of Ravin by Prysmian in breach of the JVA, direct sales by Prysmian in India, breach of confidentiality by the CEO. The counter claims filed by the appellants were rejected by the Tribunal while observing that there was no credible evidence for any loss or diversion of business from Ravin after acquisition of ACPL. Further, expert evidence established that both Ravin and ACPL worked in very different spaces of cables. The counter claims for direct sales and breach of confidentiality were also rejected due to failure of the appellants to show any material breach of JVA on these grounds. The Tribunal further observed that the appellants did not oppose the appointment of the CEO, yet obstructed her at every turn after she was appointed.

Thereafter, by way of the Third Partial Award the Tribunal held the appellants to be the defaulting parties under the JVA and held that all rights conferred to the appellants, specifically Mr. Karia under the JVA ceased to be effective. Consequently, by way of the fourth and final award the Tribunal ordered the appellants to transfer the shares held by them at a discounted rate to the Respondent No. 1 (the Claimant) and also pay the total cost of arbitration.

ARGUMENTS UNDER ARTICLE 136 IN THE SUPREME COURT AGAINST IMPUGNED ORDER DATED 07.01.2019

The counsels on behalf of the appellants challenged the enforceability of the award under Section 48 of the Act by contending that the Tribunal failed to adjudicate upon the counter claims of the appellants relating to material breaches of JVA such as incorporation of a competitive company of cables in India , efforts to oust the appellant from the JVA, attempt to register the Ravin trademark in their own name, ignorance of material evidence and admissions, etc. and that the award was in contravention of the Foreign Exchange Management Act, 1999, by directing sale of shares at a discount. It was further contended that if any dispute was not adjudicated upon, or parties not treated equally, the award was liable to be set aside.

The respondents argued that any interference in the merits of the case are outside the scope of Section 48 and that the award has already dealt with all the issues and disputes raised between the parties.

SCOPE OF REFUSING ENFORCEMENT OF FOREIGN AWARDS UNDER SECTION 48

The apex court considered multiple judgments relating to the scope of Section 48 and non consideration of material issues and violation of public policy as a ground to set aside foreign awards and observed that the expression "unable to present his case" under Section 48 (1) (b) cannot be given an expansive meaning and would be breached only if a fair hearing has not been given to the party and no opportunity given to deal with an argument. Further, poor reasoning by which a claim or material issue is rejected does not fall into the class of non consideration of material issues. While considering the case of the appellants and the cross-case of the respondent, the Tribunal had adverted to pleadings, evidence and has given detailed findings as to why the appellants were in material breach of the JVA. This being the case, it cannot be said that this material issue has not been answered by the Second Partial Final Award. This ground, therefore, does not fall within any of the stated pigeon-holes under Section 48 of the Act.

THE SCOPE OF "PUBLIC POLICY" ARGUMENT

It was argued by the counsels of the appellant that by ordering the sale of shares at a 10% discount of the fair market value arrived at by Deloitte, FEMA and the Rules made thereunder would be breached, resulting in the award being contrary to the public policy of India. While adjudicating upon this argument, the apex court relied upon the judgment in Renusagar Power Plant Co. Ltd. v. General Electric Co. MANU/SC/0195/1994 : (1994) Supp (1) SCC 644, which states that contravention of a provision of law is insufficient to invoke the defence of public policy when it comes to enforcement of a foreign award. Contravention of any provision of an enactment is not synonymous to contravention of fundamental policy of Indian law. The expression Fundamental Policy of Indian law refers to the principles and the legislative policy on which Indian statutes and laws are founded. Further, it is necessary to bear in mind that a foreign award may be based on foreign law, which may be at variance with a corresponding Indian statute. And, if the expression "fundamental policy of Indian law" is considered as a reference to a provision of the Indian statue, the basic purpose of the New York Convention to enforce foreign awards would stand frustrated.

The apex court further observed that if a particular act violates any provision of FEMA or the rules framed thereunder, permission of the Reserve Bank of India may be obtained post-facto if such violation can be condoned. Neither the award, nor the agreement being enforced by the award, can, therefore, be held to be of no effect in law. This being the case, a rectifiable breach under FEMA can never be held to be a violation of the fundamental policy of Indian law. For these reasons the argument of award being in violation of FEMA and contrary to public policy of India was held to be bereft of any merit.

JUDGMENT

The court held that given that the jurisdiction under Article 136 of the Constitution is itself limited, and given the fact that the apex court's time was unnecessarily taken by a case which had already been dealt with by four exhaustive awards on merits and also by the impugned judgment of the Bombay High Court, the appeal shall be dismissed with costs of INR 50 lakhs.

CONCLUSION

The judgment signifies a progressive step towards the enforcement of foreign awards in India. The heavy cost imposed by the court on the appellants for "flinging mud on a foreign award" establishes a warning against frivolous litigations to avoid enforcement of foreign awards, especially without having challenged the award in the seat of arbitration. The judgment also reiterates the principle of minimal interference of courts in the merit of arbitral awards.

Originally published on May 2020. Vol. XIII, Issue V

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