Civil Appeal No. 1544 of 2020 (decided on 13/02/2020).
Facts of the case:
The appellant and Ravin Cables Limited entered into a joint ventures agreement with the respondent, i.e., Prysmian Cavi E Sistemi SRL (a company registered under the laws of Italy). Prysmian acquired 51% of shares in Ravin’s capital and paid a good consideration towards “control premium.” Ravin was adhered to be jointly managed by the CEO, and MD until the expiration of 6 months, after an interim period has ended. Prysmian removed the CEO and appointed a CFO at their discretion. This ungovernable mismanagement and control over Ravin led to disputes between the parties. The dispute between the shareholders arising out of Joint Venture Agreement (JVA) was referred to arbitration in London presided by Arbitral Tribunal governed by English law and a sole arbitrator was appointed. The award was passed in the favor of Prysmian rejecting all the counterclaims and this was not challenged before the court even though England’s Arbitration Act provided for one. The foreign award directed the transfer of securities by the Appellant from India to the Respondent based in Italy at a discount of 10%. As foreign exchange regulations (FEMA) require that such transfer be made at the prevailing fair market value, and no lesser, the Appellant resisting enforcement of the awards contended, the awards were in contravention of FEMA and as such, against the public policy of India thus being unenforceable in India. The award was never appreciated by the appellants before the English law. The award holder approached the Indian court for enforcement of the award and this was challenged under Section 48 of the act.
The claims of appellants that can be compartmentalized into three, “pigeonhole grounds”-
- Whether the party was unable to present its case before the tribunal?
- Whether the tribunal failed to deal with contentions raised by the appellants under Section 48(1) (b) of the Arbitration and Conciliation Act?
- Whether the foreign award is against the public policy of India in contravention to the fundamental rule of Indian law?
The Hon’ble court noted the fact that the award holder for the execution of the award should have approached the English courts, but the foreign award was never challenged. The Supreme Court rejected the enforcement on the basis that the enforceability of a foreign award cannot be taken in isolation. The inability to present one’s case the court explicitly said that the issue must be raised while the hearing proceeding is in continuation and not after the award has been presented by the arbitrator to defer the enforcement of the award, providing it a narrow interpretation.
The public policy obstructs in a foreign award should be meticulously constructed. Mere an irrationality of an award does not perverse it to public policy. The Supreme Court applied another judgment stating “the arbitrator was guided in the form of jurisdictional errors, and the same was 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.” The challenge on the enforcement of the foreign award on grounds of misrepresentation of contract, violation of the provisions of the FERA Act, and ungovernable mismanagement and control over the company will fall outside the purview of Section 48(1)(b).
Under Section 48 of the act, the word, “may” be used that emphasizes the fact that the court has the discretion to deny and not mandate the enforcement of the foreign award. This distinction in verbatim was established in the case Cruz City Mauritius Holdings V. Unitech Limited held, “the word “may” and “shall” and the intention of the 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 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 Hon’ble Supreme Court catered three grounds on which the foreign award enforcement can be rejected,
- An invalid arbitration agreement that will affect the jurisdiction of the proceeding;
- Incapacity of parties to present itself
- It is in violation of ‘public policy’ under Section 48(2)(b).
The court may not enforce the award in the first case but in the latter two grounds, the court has the discretion to deny the award.
The Supreme Court with the help of various judgments established a consensus between the Indian statute and foreign regulations concerning enforcement of the foreign award. The court respected the New York convention which laid the foundation of the Arbitration and Conciliation Act and protected the reasoning of the statute.