2024 (11) TMI 835 - HC - FEMA

Recognition and enforcement of a foreign award - Common petition filed by the Petitioner seeking recognition/enforcement and execution - HELD THAT - In the wake of the decision in the case of Vedanta Limited 2020 (9) TMI 1178 - SUPREME COURT where it is clearly pronounced that there is no need to take two separate proceedings i.e. one for deciding the enforceability (recognition) of the award as a deemed decree and then separate proceeding for execution of the deemed decree thereafter, and it is open for the award holder to apply for recognition and execution of a foreign award by common petition. In stage 1, the Court would decide the enforceability of the award as a deemed decree, on satisfying the requirement of Section 47 and 48. Once the Court decides that a foreign award is enforceable as a decree of that Court, it shall proceed to take effective steps for its execution as a deemed decree and then would take recourse to the provision of Order 21 of the Code of Civil Procedure. The reliefs sought in the present Petition has been bifurcated, as prayer clause (a), seek a declaration that the awards in favour of the petitioner are enforceable under part II of the Act of 1996 and a direction is sought to enforce and execute the awards as decree in its favour and against all the Respondents. Prayer clauses (c) and (d) are the reliefs sought under Order XXI of the Code and needless to state that while these reliefs are to be considered, it is open for the judgment debtors to raise the possible objections permissible, while executing the decree. In any case, the Execution Application which is filed will be decided subsequent to the declaration in the petition in terms of prayer clause (a) thereof, as prayers (b), (c) and (d) will be a part of the execution stage. In the wake of the above, Issue No.A is answered by holding that a common petition seeking enforcement and execution as a deemed decree is maintainable in the wake of the law laid down in case of Vedanta Limited (supra) and the issue is answered in favour of the Petitioner, by holding that a common petition can be entertained for enforcement and execution of the three awards. Scope of review u/s 48 of the Arbitration and Conciliation Act, 1996, and whether it is permissible to undertake the review on the merits of the Award - The pro-enforcement bias of the New York Convention, which has found its way in Section 48 has cast the burden on the party/parties objecting to the enforcement instead of party seeking enforcement and it is only when the proof is tendered to the effect, that the parties to the agreement being under some incapacity, or the agreement being invalid under the law to which the parties have subjected it, the enforcement can be refused. The question as to whether a non-parties to the agreement can raise such an objection is also well settled in Gemini Bay Transcription Private Limited (supra). By a bare look at Section 47, which speaks of an arbitral award on differences between persons and specifically, since Section 48 (1) (a) refers only to the parties to the agreement referred to in Section 44 (a), it is concluded that to include non-parties to the agreement, by introducing the word person would run contrary to the express language of Section 48 (1) (a). It is with this intention that the legislature has conferred the right to object to the enforcement of an award at the instance of the party against whom it is invoked and, since, the grounds on which the objection can be raised, are clearly stipulated by the legislature, and speak of incapacity of parties and the agreement to be invalid under the law to which the parties have subjected it, an attempt to bring non-parties within this ground has been described to be trying to fit a square peg in a round hole. It is thus well settled, that Section 48, is hedged with pro-enforcement bias and unless the Respondent No. 1 is able to show that its case falls within Section 48 (1) or 48 (2), the foreign award must be enforced. Arbitration Petition is filed beyond the period of limitation in the wake of the decision of the Apex Court in the case of Government of India Vs. Vedanta Limited 2020 (9) TMI 1178 - SUPREME COURT - Since the awards, which are sought to be enforced through the present petition are dated 5/04/2006, 24/08/2007 and 27/03/2008, and as per the law laid down in Vedanta Limited (supra) the limitation period to file the petition for enforcement of the foreign award is held to be governed by Article 137 of Schedule to the Limitation Act, the petition filed under Section 48 of the Act of 1996 in March/ April 2018 is hit by the bar of limitation. Since the period consumed from the day of passing of the last award on 27/03/2008, despite filing of petition under Section 34 of the Act of 1996 in India and since it did not amount to an automatic stay on the enforcement/ execution of the award, it was open to the petitioner to file the enforcement petition within time period of 3 years from the expiry of 28 days from each of the award, as under the English Arbitration Act, 1996, time period to challenge the award is 28 days, and the time to enforce the award began to run on expiry of 28 days from passing of the awards. As a sequel to the above, the present petition in my view is barred by limitation and the argument of Mr. Seksaria on behalf of Respondent No. 1, and entertaining the petition would also be hit by the public policy of India, being not to entertain the proceedings barred by the law of limitation. Whether the transaction contemplated under the Master Agreement is violative of public policy of India, making the Awards unenforceable under Section 48 (2) of the Arbitration and Conciliation Act, 1996? - When the admissions coming from the witness of E-City was not controverted by subjecting him to cross-examination, find that the Tribunal derived an inference contrary to what has been deposed by the witness, without affording a chance to explain or clarify the said statement, has definitely resulted into a loss of fair hearing as Mr. Chudasama had unequivocally stated that it was not possible for E-City to have made the remittances without prior approval of Reserve Bank of India, but without going for the cross-examination, the Tribunal has questioned this testimony, expressed doubt and derived at a finding that it was not a mandatory requirement and it was not refused, which definitely has resulted into perversity in its finding. Award which is in violation of principal of natural justice, on the ground of fairness , is contrary to the public policy and hence cannot be enforced. Whether the Petitioner can raise challenge to the de-merger scheme? - The Petitioner had a knowledge of the demerger of Respondent No. 1 when it approached the Supreme Court of New York as an authenticated true copy of the order passed by the Bombay High Court in Company Petition approving the scheme of demerger between Respondent Nos.1 and 3 was annexed alongwith the proceedings and the certified copy of the same was obtained by the Petitioner on 01/11/2007. Since the Petitioner continued to remain silent despite having knowledge of the demerger scheme from 2008, after a gross delay of 11 years, there cannot be an indirect challenge to the scheme of demerger as the orders have already attained finality. Necessity of impleading Respondent Nos. 2 to 4 in the petition seeking enforcement and execution of the Arbitral Awards - Since the Respondent Nos. 2 to 4 who are not signatory to the arbitration agreement are sought to be roped into the present proceedings, which is the post arbitration stage, the burden of establishing the necessity to implead them as parties, is on the petitioner and it is an onerous burden, as they are the parties being proceeded in execution and never had the opportunity to make out a case before the Arbitral Tribunal. They had no opportunity to plead/contradict the pleadings, lead evidence, advance arguments, and therefore, impleading them at this stage, on a broad premise that they have participated in the fraud, so as to divest the Respondent No. 1, a party to the award, of its assets, with an intention to avoid its liability under the awards, is very difficult proposition to be accepted. Respondent Nos. 2 to 4 were never party to the agreement, nor they were part of any transaction, nor they had any opportunity to meet the case against them during the arbitral proceedings. Merely alleging that they had played a fraud is insufficient, as fraud is not to be pleaded and in absence of any evidence tendered to that effect, the bare and unsubstantiated averment cannot be entertained and hence, according to me, no case is made out by the petitioner against the Respondent Nos. 2 to 4, in seeking the relief in the present petition. On the other hand, Chamber Summons taken out by Respondent Nos. 2 to 4 to delete them from the proceedings deserve to be made absolute. Objection of E-City that IMAX Ltd. had merged into IMAX Corporation in January 2002 and, hence, invocation of arbitration by IMAX Ltd. was invalid under the laws of Singapore - As the subject contract entered between the Petitioner and the Respondent No. 1, was a contract contingent upon the approval of Reserve Bank of India and IMAX had acknowledged this fact and agreed for any reasonable restructuring, as long as it did not negatively impact it in a material fashion. Admittedly, no prior approval of Reserve Bank of India was received and the transaction could not be completed. The ICC has awarded the damages on the premise that RBI s approval could have come, but the fact remains that it never came. Since, according to me, as held above, the necessity of RBI s approval was imperative and obtaining such an approval was in tune with the FEMA, in not adhering to its requirement and acting in violation of it s provision, is a matter of public policy, and since in the wake of the statutory provision u/s 48 (2)(b), the enforcement of the award, which is contrary to the public policy shall be refused by the Court, thus rejecting the relief sought in the Petition by the Petitioner, seeking enforcement of the awards. In addition, since there is also violation of fair hearing rule, which is also a part of the fundamental policy of Indian law and the process followed by the Tribunal in arriving at the awards, being in violation of the same, we also express that it is in contravention of the fundamental policy of Indian law. We must clarify that the test for contravention of fundamental policy of Indian law, which is applied by me, in no way has touched the review of the matter on merits of the dispute between the parties. Petition is barred by limitation, since in light of the law laid down by the Apex Court in Vedanta Ltd.(supra), the enforcement and execution of a foreign award shall be governed by Article 137 of the Limitation Act, 1963, and though it is permissible to condone the delay, but in absence of the Petitioner seeking condonation of delay, and rather assertively staking the claim that the Petition is within limitation, I am left with no option, but to dismiss the Petition. Similarly,also expressed that the impleadment of Respondent Nos. 2 to 4 in the Petition is unwarranted and specifically when Mr. Chinoy has set out his intention clear and loud, that the Respondent Nos. 2 to 4 are impleaded, based on an assumption that the assets of E-City are diverted through them. There could be definitely no challenge raised to the demerger schemes, which by this time are settled, with the sanction from the Company Court in the country and they cannot be re-opened. Though it is sought to be argued on behalf of Respondent No. 1 that there was no valid invocation for the reference to the Arbitral Tribunal and an objection is also raised to the composition of the Tribunal, coupled with non-compliance of ICC rules and the ground that proper authority to file claim was not determined is also pressed into service on behalf of E-City, as some of the points on which, the enforcement of the awards is opposed by it, in the wake of the finding rendered above, I have already formed an opinion that the awards do not deserve enforcement and execution in light of the scheme contained in Part II, Chapter I of the Act of 1996 under the New York Convention awards, I have refrained myself from considering the said issues. From the awards passed against Respondent No. 1 and in favour of IMAX, a foreign party, who has not even supplied the goods under the agreement, but which is held entitled for a huge sum of money under the awards and the money will be taken out of this country, without the stipulation of the agreement being complied with and since, this shock the conscious of the Court, the enforcement and execution of awards, as prayed by the Petitioner in the Petition, is declined.

Summary

Issues Involved:

1. Whether a common petition filed by the Petitioner seeking recognition/enforcement and execution can be entertained.
2. The scope of review under Section 48 of the Arbitration and Conciliation Act, 1996, and whether it is permissible to undertake the review on the merits of the Award.
3. Whether the petition filed by E-City Corporation for enforcement, recognition, and execution is filed beyond the prescribed period of limitation as contemplated under the Limitation Act, 1963.
4. Whether the enforcement of the foreign awards shall be refused on the ground that it is contrary to the public policy of India, as the transaction envisaged in the LOI could not have been legally executed and performed under the Indian law, without obtaining prior approval of Reserve Bank of India.
5. Whether it is permissible for the Petitioner to raise a challenge to the demerger scheme as a collateral challenge, particularly when the scheme of demerger was approved by a competent Company Court.
6. The necessity and validity for impleadment of Respondent Nos. 2 to 4 in the present Petition, seeking enforcement and execution of the foreign awards.
7. Whether the invocation of arbitration by IMAX Limited, which has merged into IMAX Corporation, was invalid.

Detailed Analysis:

Issue No. A:

The court held that a common petition seeking recognition and enforcement of a foreign award is maintainable. The scheme of Section 47 to 49 of Part II of the Arbitration and Conciliation Act, 1996, envisages a two-step process: recognition and enforcement followed by execution. Once the court decides that a foreign award is enforceable, it shall be deemed to be a decree of that court, and effective steps for its execution can be taken. This is in line with the decision in Vedanta Limited, where it was held that there is no need to take two separate proceedings for enforcement and execution, avoiding multiplicity of litigation.

Issue No. B:

The scope of Section 48 of the Arbitration and Conciliation Act, 1996, is limited to the grounds specified therein, and it does not permit a review on the merits of the award. The court emphasized the pro-enforcement bias of the New York Convention, which has been adopted in Section 48, meaning that unless a party can show that its case falls within Section 48(1) or (2), the foreign award must be enforced. The grounds under Section 48 are exhaustive and must be narrowly construed.

Issue No. C:

The court determined that the petition is barred by limitation. According to the decision in Vedanta Limited, the period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49 is governed by Article 137 of the Limitation Act, 1963, which prescribes a period of three years. The petition filed in March/April 2018 is beyond this period, and without an application for condonation of delay, the petition cannot be entertained.

Issue No. D:

The court found that the enforcement of the awards would be contrary to the public policy of India as the transaction under the Master Agreement required prior approval from the Reserve Bank of India, which was not obtained. The agreement was contingent upon such approval, and its absence rendered the contract unenforceable under Indian law. This is in line with the decision in National Agricultural Co-Operative Marketing Federation of India, where enforcement was refused due to non-compliance with statutory requirements.

Issue No. E:

The court held that it is not permissible for the Petitioner to challenge the demerger scheme as a collateral challenge, particularly when the scheme was approved by a competent Company Court. The demerger orders operate as a judgment in rem, binding on all parties including third parties and strangers, and cannot be reopened in these proceedings.

Issue No. F:

The court concluded that there is no necessity to implead Respondent Nos. 2 to 4 in the petition seeking enforcement and execution of the awards. The awards are only enforceable against parties to the arbitration agreement and proceedings, and not against non-signatories or entities that were not parties to the arbitration. The doctrine of piercing the corporate veil cannot be applied in this context to hold Respondent Nos. 2 to 4 liable.

Issue No. G:

The court did not find merit in the objection that the invocation of arbitration by IMAX Limited, which had merged into IMAX Corporation, was invalid. The Tribunal had addressed this issue and concluded that the change in the name from IMAX Limited to IMAX Corporation was a matter of form, not substance, and did not affect the validity of the proceedings. The court did not interfere with this finding.