ENFORCEMENT OF FOREIGN AWARDS IN INDIA

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.

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.