INTRODUCTION
The Hon’ble Supreme Court of
India (“SC”) by its judgment dated
July 03, 2013 has dealt with the subject of "Enforcement of Foreign
Awards" and held as under:
While considering the extent to which foreign awards are enforceable, the court does not exercise appellate
jurisdiction over the foreign award nor does it en quire as to whether, while
rendering foreign award, some error has been committed.
Under Section 48(2)(b) of the
Arbitration and Conciliation Act, 1996 (“the 1996 act”) the enforcement of a
foreign award can only be refused if such enforcement is found to be contrary
to:
i)
fundamental policy of Indian law;
ii)
the interests of India; or
iii)
justice or morality.
BRIEF FACTS
A
contract for the supply of twenty thousand (20,000) metric tons of Durum Wheat
of Indian Origin at the price of $ One hundred and sixty two (162) per metric ton was
executed on May 12, 1994 between Shiv Nath Rai Harnarain (India) Company, New
Delhi (“sellers”) and Italgrani Spa,
Naples, Italy (“buyers”).
The
buyers nominated M.V. Haci Resit Kalkavan as the vessel for loading of the
goods. The ship completed loading on August 13, 1994 and the Bill of Lading was
dated August 08, 1994.
The
sellers faxed a copy of SGS India Certificate ("the certificate") of weight, quality and packing to
the buyers on August 16, 1994.
The
buyers passed a copy of the certificate to SGS, Geneva requesting them to issue
the necessary certificate under the sale contract which the buyers had entered
with Office Alegerien Inter-professional das cereals (“OAIC”).
After
the goods reached the destination, the buyers sent a fax to the sellers on August
23, 1994 informing that that analysis carried out by S.G.S. Geneva showed the
wheat to be soft common wheat and not durum wheat as required under the
contract.
The
buyers considered the sellers to be in breach of the contract for shipping un-contractual
goods and held sellers responsible for all losses / damages both direct and
indirect arising out of and the consequence of such breach.
The
sellers on August 31, 1994 responded and asserted that S.G.S. India inspected
the wheat at the time of procurement and also before loading the vessel and
confirmed that the wheat met typical characteristics of Indian Durum wheat as
per the specifications provided for in the contract.
The
buyers then served a notice of arbitration upon the sellers where the tribunal pronounced
the final award in favour of the buyers.
The sellers thereafter preferred an
appeal before the Board of Appeal which disposed off the appeals and awarded
damages and costs to the buyers.
The sellers challenged the appeal award in the
High Court of Justice at London. The appeal was dismissed on December 21, 1998
and both awards attained finality.
The buyers then instituted a suit in the High
Court at Delhi for enforcement of the awards where the sellers raised diverse
objections that the appeal awards passed by the Board of Appeal which are
sought to be enforced are contrary to the public policy of India in as much as
they are contrary to the express provisions of the contract entered into
between the parties as the Board of Appeal erred in accepting the test report
by S.G.S. Geneva whereas under the contract, it was the test report of S.G.S. India
that was material.
The High Court while dealing with the
submissions made on behalf of the parties observed that there is no serious
defense in opposing the enforcement of foreign awards as there is nothing contrary
to the terms of the contract or to the public policy of India in the awards and
held that they were enforceable under Part II of the 1996 Act.
RELEVANT CLAUSES OF THE AGREEMENT
Commodity
|
Durum Wheat Indian Origin New Crop
|
Test Weight
|
80 KG/HL.MIN
|
Moisture
|
12 PCT.MAX Vitrious 80 PCT
|
MIN Broken
|
3 PCT
|
MAX Proteine
|
12 PCT
|
MIN Foreign Matter
|
2 PCT
|
MAX Sprouted/Spotted
|
1 PCT
|
MAX Soft Wheat
|
1.5 PCT
|
MAX Quantity
|
20,000 MT With 5%+/- Sellers Option in 1 single
shipment
|
Shipment
|
1-30/June 1994 Quantity final at loading Quality
|
Conditions
|
All final at time and place of loading As per
first class Intl Company Cert. S.G.S. , nominated by the buyers certificate
and quality showed at the certificate will be the result of an average
samples taken jointly at port of loading by the representatives of the
sellers and the buyers
|
Price
|
USD 162,00 Per Metric Ton FOB stowed Kandla,
Buyers to give 10 days pre advise of vessels arrival
|
Payment
|
Against 100 PCT L/Credit irrevocable and
confirmed for 100 PCT payable at sight against Foll
|
Shipping docs Other conditions
|
All other terms and conditions not in
contradictions with the above to be as per G.A.F.T.A Rules, 64/125 and its
successive Amendments (In force at time and place of shipment date) which the
parties admit that they have knowledge and notice.
|
LEGAL ISSUES
While referring to and discussing
various precedents cited by the parties the SC answered the following question:
Whether
the appeal awards passed by the Board of Appeal of the Grain and Feed Trade
Association (“GAFTA”), London in
favour of the respondent is enforceable under Section 48 of the 1996 Act?
ARGUMENTS ADVANCED
The sellers vehemently contended
that in light of the decision of the SC in ONGC v. Saw Pipes Ltd. and Phulchand
Exports v. OO. Patriot, that the Court can refuse to enforce a foreign award if it
is contrary to the contract between the parties and / or is patently illegal as
the expression public policy of India in Section 48(2)(b) is an expression of
wider import than the expression public policy in Section 7(1)(b)(ii) of the
Foreign Awards (Recognition and Enforcement) Act, 1961 and the expansive
construction given by the SC to the term public policy of India in Saw Pipes
must also apply to the use of the same term public policy of India in Section
48(2)(b).
The buyers placed heavy reliance
upon the decision of the SC in Renusagar Power Company limited v. General
Electric Company and submitted that what has been stated by the SC while
interpreting section 7(1)(b)(ii) of the Foreign Awards Act is equally
applicable to section 48(2)(b) of the 1996 act and the expression public policy
of India in Section 48(2)(b) must receive narrow meaning than Section 34 as the
decision in saw pipes never meant to give wider meaning to the expression,
public policy of India in so far as section 48 of the 1996 was concerned.
ANALYSIS OF PAST PRECEDENT
Renusagar Power Company Limited v. General electric Company [1994 Supp (1) SCC 644]
A clear and fine distinction was
drawn by the SC while applying the rule of public policy between a matter
governed by domestic laws and a matter involving conflict of laws. It has been
held in unambiguous terms that the application of the doctrine of public policy
in the field of conflict of laws is more limited in domestic law
and the courts are slower to invoke public policy in cases involving a foreign
element than when purely municipal legal issues are involved.
The SC held that the words public
policy used in Section 7(1)(b)(ii) of the Foreign Awards Act should be
construed narrowly and contravention of law alone will not attract the bar of
public policy and held that the enforcement of a foreign award would be refused
on the ground that it is contrary to public policy if such enforcement would be
contrary to:
a) fundamental policy of Indian law;
b) the
interests of India; or
c) justice or morality.
c) justice or morality.
Oil and Natural Gas Corporation Limited v. Saw Pipes [2003 (5) SCC 705]
The SC while considered the
meaning that could be assigned to the phrase "public policy of India" occurring
in Section 34(2)(b)(ii) held that the term public policy of India in Section 34
was required to be interpreted in the context of the jurisdiction of the court
where the validity of the award is challenged before it becomes final and
executable in contradistinction to the enforcement of an award after it becomes
final.
Having that distinction in view,
with regard to Section 34 the SC said that the expression public policy of
India was required to be given a wider meaning.
Phulchand Exports Limited v. O. OO. Patriot [2011 (10) SCC 300]
A two Judge Bench of the SC
accepted the submission that the meaning given to the expression public policy
of India in Section 34 in Saw Pipes must be applied to the same expression
occurring in Section 48(2)(b) of the
1996 Act.
Note: The SC has over ruled its earlier conclusion by saying - “the expression public policy of India used
in Section 48(2)(b) has to be given a wider meaning and the award could be set
aside, if it is patently illegal does not lay down correct law and is overruled”.
DECISION OF THE COURT
The three judge bench of the SC
comprising of Justice Kurian Joseph, Justice Madan B. Lokur and Justice R.M.
Lodha discussed the submissions of the parties and held as under:
The grounds enumerated in Section
48 of the 1996 Act are meant to be construed narrowly and does not permit a
review of the foreign award on merits.
Section 48 of the 1996 Act does
not give the SC a second opportunity to look into a foreign award at the
enforcement stage as the SC does not exercise appellate jurisdiction over
foreign awards and cannot be called upon to re-determine the questions of fact.
Procedural defects (like taking
into consideration inadmissible evidence or ignoring / rejecting the evidence
which may be of binding nature) in the course of foreign arbitration do not
lead necessarily to excuse an award from enforcement on the ground of public
policy.
Moreover, if a ground supported
by decisions of that country was not considered to be good enough to set aside
the award by the competent court, a fortiori, such ground can hardly be a good
ground for refusing enforcement of the award.
CONCLUSION
The SC seems to have put an end
to the hostility surrounding the enforcement of foreign arbitral awards in
India by according narrow interpretation to the words “public policy” as used
in Section 48 of the 1996 act and affirming that the Section does not give the
courts a second opportunity to determine the question of fact in foreign awards
at the enforcement stage.
This decision has surely ushered positive confidence among parties seeking enforcement of foreign awards in India and would go a long way in strengthening the confidence of the
international business community in the Indian Judicial system.
