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Foreign Awards: SC Reduces Scope Of Court Interference

Published on Thu, Jul 25,2013 | 19:02, Updated at Thu, Jul 25 at 19:13Source : 

 A recent judgment of the Supreme Court of India (Supreme Court) in the case of Shri Lal Mahal Ltd v Progetto Granpo Spa (Civil Appeal No. 5085 of 2013 dated 3 July 2013) (Lal Mahal Case) has overruled the Supreme Court’s earlier judgment in Phulchand Exports Limited v OOO Patriot (2011 10 SCC 300) (Phulchand Case), to hold that the expression "public policy of India", when used in context of Section 48(2)(b) of the Arbitration and Conciliation Act, 1996 (Act), which sets out the ground on which the enforcement of foreign awards may be refused, cannot be given a wider meaning to include patent illegality in an award, as is done in context of the same expression used in Section 34 of the Act, relating to enforcement of domestic awards. This judgement re-emphasises the recent arbitration friendly inclination of Indian courts to adopt an approach of minimal interference in implementation of arbitration awards.

The case at hand involved an agreement for sale of durum wheat between an Indian seller and an Italian buyer. Disputes arose between the parties when the buyer alleged that the wheat supplied by the seller did not meet the specifications under the agreement and was infact soft common wheat. Further, disputes also arose as to whether the inspection was to be conducted by the inspection agency based in Geneva or in India and which agency’s report was to be considered as determinative. The buyer invoked arbitration under Grain and Feed Trade Association, London (GAFTA) and the award was rendered in favour of the buyer. A further award was also rendered in favour of the buyer for the seller’s alleged breach of the arbitration agreement in bringing legal proceedings in India concerning the first dispute, before the same was determined under the GAFTA rules. The sellers in turn filed two appeals before the Board of Appeals of GAFTA (Board of Appeals), both of which were dismissed in favour of the buyer. Subsequently, the seller also failed in its challenge to one of the orders of the Board of Appeals before the High Court of Justice at London. Accordingly, both the awards of the Board of Appeals became final.

Thereafter, the buyer instituted a suit in the Delhi High Court for enforcement of the awards and the seller raised various objections to the enforcement of the above awards including, inter alia, that the awards in question are contrary to the public policy of India inasmuch as they are contrary to the express provisions of the contract entered into between the parties. The seller submitted before the Delhi High Court that there had been an error in accepting the inspection/ test report by the investigation agency based in Geneva whereas under the contract, it was the inspection/test report of the investigation agency based in India that was material. On the other hand, it was submitted on behalf of the buyer that such ground taken by the seller was in fact a matter of appreciation of evidence and determination of question of fact which was beyond the scope of the proceedings under Section 48 of the Act. The buyer submitted that the seller could not be permitted to reopen questions of fact. Seeking enforcement of the awards, the buyer submitted that there was nothing in the awards which could be said to be against the public policy of India.

The Supreme Court in deciding the said issue, made a distinction between the ambit of the expression “public policy” when used in context of enforcement of a domestic award and a foreign award, holding that in case of the latter a restricted meaning must be applied.

Previously, in the case of Renusagar Power Plant Co. Ltd v General Electric Co (AIR 1994 SC 860) (Renusagar Case), the Supreme Court while construing the term “public policy” in Section 7(1)(b)(ii) of Foreign Awards (Recognition and Enforcement) Act, 1961 (Foreign Awards Act), applied the principles of private international law and held that an award would be contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality and cannot be set aside on merits. However, the expression “public policy” became a cause of concern when it was interpreted by the Supreme Court in the case of ONGC v. SAW Pipes Ltd (AIR 2003 SC 2629) (SAW Pipes Case). The Supreme Court in this judgment expanded the concept of public policy, to add that the award would be contrary to public policy if it was “patently illegal”. The Supreme Court distinguished SAW Pipes Case from the Renusagar Case on the ground that the judgement pronounced by the Supreme Court in the Renusagar Case was in context of a foreign award, while the ratio of the SAW Pipes Case would be confined to domestic awards only. However, in the Phulchand Case, the Supreme Court had held that the meaning given to the expression "public policy of India" in Section 34 of the Act in the SAW Pipes Case must be applied to the same expression occurring in Section 48(2)(b) of the Act. Thus, if the award was patently illegal, it would be deemed to be against public policy and therefore serve as a ground on which an Indian court could refuse to enforce a foreign award.

 In the Lal Mahal case, the Supreme Court discussed the law laid down in the Renusagar Case, SAW Pipes Case and Phul Chand Case and while overruling the judgement in the  Phul Chand Case, the Supreme Court observed that the ratio, that an award could be set aside if it is “patently illegal" does not lay down correct position of law. The Supreme Court observed that the law laid down in the Renusagar Case with reference to Section 7(1)(b)(ii) of the Foreign Awards Act must equally apply to the ambit and scope of Section 48(2)(b) of the Act and thus the enforcement of foreign award would be refused on the ground that it is contrary to public policy of India only if it is covered by one of the three categories enumerated in the Renusagar Case. Although, the same expression “public policy of India” is used both in Section 34(2)(b)(ii) and Section 48(2)(b) and the concept of “public policy in India” is same in nature in both the sections, but, its application would differ in degree insofar as these two sections are concerned. The application of the expression “public policy of India” for the purposes of Section 48(2)(b) of the Act is more limited than the application of the same expre ssion in respect of the domestic arbitral award.

 KCO Comment:

The judgement of the Supreme Court in the Lal Mahal Case is a welcome step and consistent with the recent trend of judgments rendered by the Supreme Court which have consciously sought to reduce judicial intervention in enforcement of foreign awards and endeavoured to make the process swifter and less time consuming. The Supreme Court has further rightfully affirmed that while considering the enforceability of foreign awards, the court does not exercise appellate jurisdiction over the foreign award nor does it enquire as to whether, while rendering foreign award, some error has been committed.

Attachments : Globalising20India20inc_J.pdf

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