9911796707
TMI Blog2021 (11) TMI 549X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddendum of 26th October, 2020, passed in ICC Arbitration case no. 23705/HTG initiated by the petitioner EIG (Mauritius) against the respondent and its wholly owned subsidiary, McNally Sayaji Engineering Limited (MSEL). McNally Bharat Engineering Company Limited (MBECL) is the Award Debtor in the present case. 2. The issue which arises for consideration is the 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. In essence, the 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. Brief Facts : The transaction: 3. The transaction which forms the nub of the dispute consists of several Agreements entered into between the parties including a Shareholder s Agreement and an Agreement related to EIG s (the petitioner before this court and the claimant before the Arbitral Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and MSEL that it was exercising its Put Right by a Notice dated 14th July, 2017 and requested the respondent to engage, a merchant banker for valuation of the Put Shares within seven days. On 21st July, 2017, the respondent informed EIG that it would not recognize the Put Notice as it was contrary to Indian law. 5. The dispute before the Arbitral Tribunal was that the Shareholder s Agreement falls foul of the Indian law and is, therefore, unenforceable. Findings of the Arbitral Tribunal: 6. By a majority comprising of Dr. Pryles and Dr. Secomb, the Arbitral Tribunal directed the respondent to make payment of an amount of INR 1,14,01,90,000/-, as damages, which is equivalent to the Put Price and upon payment, transfer of shares held by the petitioner in favour of the respondent. A dissenting opinion was given by Justice (Retd.) Ashok Ganguly holding that the Put Option runs contrary to the FEMA and the SCRA and is not hence enforceable. 7. The Arbitral Tribunal found that the petitioner s exercise of the Put Option under Clause 11.2 of the Shareholder s Agreement did not contravene either FEMA or SCRA. The reasoning in brief for arriving at this conclusion was that Put Op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The determination as to whether enforcement of the Arbitral Award dated 19th June, 2020 together with the addendum dated 26th October, 2020 should be allowed would involve the following issues: (i) The extent of inquiry permitted under Section 48(2)(b) of The Arbitration and Conciliation Act, 1996; and (ii) Alternatively, if the Award is considered on merits, whether the Award violates The Securities Contracts (Regulation) Act, 1956 (SCRA) and The Foreign Exchange Management Act, 1999 (FEMA). The issues are being dealt with in sequence. (i) The extent of inquiry permitted under Section 48(2)(b) of The Arbitration and Conciliation Act, 1996. 12. Section 48 is placed in Part II of the Act which deals with enforcement of certain foreign awards. The term Foreign Award has been defined in Section 44 to mean an Arbitral Award on differences between persons arising out of legal or contractual relationships and considered as commercial under the law in force in India and made on or after 11th October, 1960 in pursuance of an agreement in writing for arbitration governed by the First Schedule to the Act and in one of the territories having reciprocal provisions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltiple pitfalls. The threshold for breach of the fundamental policy of Indian law: 15. In Renusagar Power Co. Ltd. vs. General Electric Co.; 1994 Supp (1) SCC 644, the Supreme Court was of the view that the defence of public policy which is available under Section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961 should be narrowly construed and that something more than contravention of law is required to attract the bar of public policy. Although Renusagar was decided in the context of Section 7(1)(b)(ii) of the 1961 Act, which was subsequently repealed, the aforesaid view of the Supreme Court in Renusagar has been accorded statutory recognition under 48(2)(b). Renusagar was reiterated in Cruz City 1 Mauritius Holdings vs. Unitech Limited; 2017 SCC Online Del 7810 where a Single Bench of the Delhi High Court held that any contravention of a provision of an enactment is not synonymous with contravention of the fundamental policy of Indian law. Cruz City was approved by the Supreme Court in Vijay Karia vs. Prysmian Cavi E Sistemi SRL; (2020) 11 SCC 1 holding that violation of public policy of India should amount to breach of the most bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other hand, the present case enquires into an illegality under the Indian law expressed in 48(2)(b) of the 1996 Act. The Supreme Court in National Agricultural Co-operative Marketing Federation of India embarked on an inquiry by examining the merits of the dispute and the Foreign Award on the particular findings in that case. The mandate of Section 48(2)(b) makes it clear that the statutory intent is to curtail the inquiry on the violation of the fundamental policy of Indian law within the periphery of the obvious without delving into the merits of the dispute. 19. The above decisions do not assist the case of the respondent in engaging with the merits of the dispute. (ii) If considered on merits, whether the Award violates the Securities Contracts (Regulation) Act, 1956 (SCRA) and the Foreign Exchange Management Act, 1999 (FEMA)? The argument of the respondent award-debtor before the Tribunal on the SCRA: 20. The award-debtor had argued that the Put Option was not a Spot Delivery Contract under the SCRA and hence was illegal since there was a delay between the date the Put Option was exercised, the date of the delivery of the Shares and payment of the Put Opt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent or a legally able non-resident third party is in violation of FEMA. The Arbitral Tribunal s findings on the FEMA: 24. The Tribunal interpreted the Put Option and noted that the primary difference between the interpretations given by the parties to the Put Option arose from different approaches to the term legally able contained in Clause 11.2 of the Shareholder s Agreement and whether the award-debtors were obliged to procure a non-resident third party to purchase the shares. The Arbitral Tribunal found that the term legally able referred to a legal ability to complete the transaction and concluded that the third party requirement under Clause 11.2 of the Shareholder s Agreement must include a non-resident third party. The aforesaid finding of the Arbitral Tribunal was based on the intention of the parties and the centrality of the exit mechanism given to the petitioner under the Shareholder s Agreement. The Tribunal also relied on NTT Docomo Inc. vs. Tata Sons Ltd. (2017) SCC Online Del 8078 for the similarities between Docomo and the case before the Tribunal. Docomo held that the promoter could have lawfully performed its obligation to provide an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MA does not form part of the fundamental policy of Indian law and a violation of FEMA, even if assumed to be correct, would not render the Award unenforceable. It must also be said that the findings of the Arbitral Tribunal with regard to the legality of the Put Option against the SCRA was based on Edelweiss which has recently been affirmed in Banyan Tree. Second, the Tribunal s conclusion that the Put Option did not violate FEMA is also in consonance with Docomo and finds accord with the view taken in Cruz City and Vijay Karia. The view also stands reinforced by the decision of the Bombay High Court in Banyan Tree. Notably, the appeal from Banyan Tree was dismissed by the Supreme Court with exemplary costs. The Arbitral Tribunal s findings are therefore consistent with the law as it stands today. 29. Although, learned counsel appearing for the respondent has attempted to differentiate between the present transaction and those in the cases which are construed against the respondent by the Tribunal and in Banyan Tree, this court is unable to agree that the difference would render the enforcement of the present Award vulnerable on the public policy ground. The interdict contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. 32. 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. Seen in this light, the Award does not enforce the Put Option but simply awards damages to the petitioner for the breach on the part of the award-debtor. The Tribunal rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
