2021 (11) TMI 549 - HC - Indian Laws

Enforcement of a foreign Arbitral Award - Scope of inquiry for resisting the enforcement of a foreign award under Section 48 (2)(b) in Part II of The Arbitration and Conciliation Act, 1996 - respondent Award debtor opposes the prayer in the execution case on the ground that the enforcement would be contrary to the public policy of India, specifically the fundamental policy of Indian law, since enforcing a Put Option available to the petitioner violates The Foreign Exchange Management Act, 1999 and the Securities Contracts (Regulation) Act, 1956 - HELD THAT - The Arbitral Tribunal has not only construed the Clauses in the Shareholder s Agreement in the context of the submissions made by the respondents but has also considered the relevant decisions on each of the issues raised by the parties. On a reading of the Award, it is found that the points raised by counsel for the respondent were argued threadbare before the Tribunal. The decisions cited in support of such submissions were also extensively relied on and considered and distinguished by the Tribunal. This court was unable to find any issue which was raised on behalf of the respondent before the Tribunal but was not considered or analyzed by the Tribunal. For an Arbitral Award as complete and comprehensive as the one under consideration, any further inquiry into the transaction documents or the construction of the relevant clauses therein or the events culminating in the dispute or even the provisions of the SCRA or the FEMA would amount to an exercise which has precisely been taken out of the present statutory framework - The subtle distinction between the enforcement of an award being put to the test in Section 48 as opposed to the Award itself having to pass muster under Section 34 further reins in all possible enquiries on the relevant factual matters on the aspect of contravention of fundamental policy of Indian law. Shorn of any statutory framework the crux of the matter is that the parties had intended, through the agreed terms of the transaction documents, to provide multiple modes of exit to the petitioner in the form of a cascading set of alternatives and to secure the exit by commensurate monetary returns. The exit options were central to the agreement as intended and understood by the parties at the time of execution of the Shareholder s Agreement and the investment made by the petitioner in the wholly-owned subsidiary of the respondent. The respondent however sought to plug the exit routes when the conditions precedent for the petitioner to exercise its option fructified. The respondent took recourse to SCRA and FEMA to obstruct the petitioner and repeats such objections even now before this court. This is the basic premise of the dispute. Contrary to the grounds for resisting enforcement of the Foreign Award, this court is of the considered view that the Award in essence is an Award for breach of the obligations of the respondent and its wholly-owned subsidiary. The Arbitral Tribunal found that the failure on the part of the respondent and MSEL to procure a third party purchaser constituted a breach of such obligations with clear consequences as to damages. The Tribunal, accordingly, held that loss of the bargain and the measurement of damages was readily apparent by reference to the value of the Agreements themselves - The Award can therefore also be seen as a money Award simpliciter without having any bearing on the public policy of India in the context of either SCRA or FEMA. This court is unable to accept the contention of the respondent that the enforcement of the Award should be refused on the grounds urged. In successfully surmounting the grounds for refusing enforcement, the Award is held to be a binding Award and the court is satisfied that the Foreign Award is enforceable under Sections 46, 47 and 49 of the Act. The Award should hence be enforced in accordance with the enabling provisions under Part II of the Act - Petition allowed.

Summary

Issues Involved:
1. Scope of inquiry for resisting the enforcement of a foreign award under Section 48(2)(b) of The Arbitration and Conciliation Act, 1996.
2. Whether the Award violates The Securities Contracts (Regulation) Act, 1956 (SCRA) and The Foreign Exchange Management Act, 1999 (FEMA).

Detailed Analysis:

(i) Scope of Inquiry Under Section 48(2)(b) of The Arbitration and Conciliation Act, 1996:

Legal Framework:
Section 48 is part of the Act dealing with enforcement of foreign awards, defining "Foreign Award" and listing grounds for refusal of enforcement. Section 48(2)(b) specifically allows refusal if enforcement is contrary to the public policy of India, with Explanations 1 and 2 narrowing this to include contravention of fundamental policy of Indian law.

Judicial Precedents:
The Supreme Court in Renusagar Power Co. Ltd. vs. General Electric Co. and subsequent cases like Cruz City 1 Mauritius Holdings vs. Unitech Limited and Vijay Karia vs. Prysmian Cavi E Sistemi SRL emphasized that public policy should be narrowly construed, requiring more than mere contravention of law to refuse enforcement. The threshold for breach must be a breach of the most basic principles of Indian law.

Merits Review:
Section 48 does not permit a review on the merits of the dispute. Explanation 2 to Section 48(2)(b) restricts the public policy test to avoid delving into the merits. Cases like Soleimany vs. Soleimany and National Agricultural Co-operative Marketing Federation of India vs. Alimenta S.A. were distinguished as not applicable to commercial transactions between private parties under Indian law.

(ii) Whether the Award Violates SCRA and FEMA:

SCRA Argument:
The respondent argued that the Put Option was not a Spot Delivery Contract under the SCRA due to a delay between exercising the option and the transaction completion. The Arbitral Tribunal found that the performance of the Put Option was on a Spot Delivery Contract basis, relying on the Edelweiss Financial Services Ltd. case, which defined a Spot Delivery Contract as involving a near-simultaneous exchange of shares and payment.

FEMA Argument:
The respondent contended that the Put Option provided assured returns to a non-resident, violating FEMA. The Tribunal interpreted the Put Option as requiring a non-resident third party to purchase the shares if the respondent was legally unable to do so, thereby not contravening FEMA. The Tribunal's interpretation was supported by the NTT Docomo Inc. vs. Tata Sons Ltd. case, which allowed for lawful performance through a non-resident buyer.

Court's Conclusion:
The court agreed with the Tribunal's findings, noting that FEMA does not constitute the fundamental policy of Indian law. The Supreme Court in Vijay Karia and the Bombay High Court in Banyan Tree Growth Capital LLC vs. Axiom Cordages Limited reinforced that a violation of FEMA does not render an award unenforceable. The Award was seen as a money Award for breach of obligations rather than enforcing the Put Option itself.

Enforcement and Execution:
Section 49 mandates that once a foreign Award is enforceable, it should be treated as a decree of the court. The Supreme Court in Fuerst Day Lawson Ltd. vs. Jindal Exports Ltd. and LMJ International Limited. vs. Sleepwell Industries Company Limited clarified that enforcement and execution should be considered simultaneously.

Final Decision:
The court held the Award enforceable under Sections 46, 47, and 49 of the Act. The respondent was restrained from dealing with its assets, and the Directors were directed to disclose all assets. The petitioner was granted the reliefs claimed in the Tabular Statement.

Conclusion:
The enforcement of the foreign Arbitral Award was upheld, and the respondent's objections based on SCRA and FEMA were dismissed. The Award was enforced as a decree of the court, with specific directions for asset disclosure and restraint on asset dealings.