Court Cannot Go Into Merits While Enforcing Foreign Award U/S 48 Of Arbitration Act: Bombay High Court

Brief Facts

This petition has been filed seeking enforcement of an award under part II of the Arbitration Act. This award was passed by an International Court Arbitration, London by which the petitioner was awarded a sum of Euro 2.45 million and costs.

A consortium agreement was entered into between the petitioner and the respondent on January 30, 2006 by which the responsibilities for construction of power plants in Sudan were undertaken.

NEC and the respondent executed two contracts on May 9, 2006 for the design, construction, and commissioning of two thermal power plants, one located in El-Fasher, Sudan and the other in El-Genena, Sudan. The said contracts contained arbitration clause by which the arbitration was to be held in London and law of sudan was to be applicable.

On 5th December 2007, NEC and the Petitioner executed an addendum by and under which NEC inter alia assigned to the Petitioner all matters concerning the advance payment made by NEC to the Respondent. NEC was dissolved and STGP was established.

On 24th December 2012 STGP and the Petitioner executed a Deed of Assignment whereby STGP assigned in favour of the Petitioner the debt of Euro 2.7 million i.e. the down payment made by NEC to the Respondent and STGP's right against the Respondent arising out of the breaches and/or wrongful repudiation of the said contracts.

Arbitration proceedings commenced before the ICC in which a partial award was passed on 21 April, 2015 holding that in fact there existed an arbitration agreement between the parties which conferred jurisdiction on the ICC. A final award came also to be passed by the ICC which was not challenged before the london courts. However it was challenged under section 34 of the Arbitration Act before the Karnataka Court but the petition was withdrawn during the pendency of the present petition.

Contentions

The petitioner submitted that the Petitioner was the Assignee of the said Contracts and thus stood in the shoes of NEC. He pointed out that vide the Partial Award, the Tribunal had specifically upheld the validity of the said assignment as per the applicable law i.e. Sudanese Law. The partial award was not challenged by the respondent therefore it had attained finality. Reliance was placed on the Supreme Court judgment in McDermott International Inc. vs. Burn Standard Company Ltd. And Others, 2006.

That the jurisdiction of the enforcement court is very limited and it cannot go into the merits of the award while enforcing the foreign award.

Per contra, the respondent submitted that the enforcement of partial award and final award is being challenged on the ground that it is against public policy of India. It does not matter whether partial or final was challenged or not.

Reliance was placed on the Supreme Court judgment in Vijay Karia vs Prysmian Cavi E. Sistemi SRL, 2020 and others wherein it was held that when enforcement of foreign award is opposed on the ground of violation of public policy, the court would have no discretion but to refuse the enforcement.

That it was held in partial award that the deed of assignment of was valid as per sudanese law and indian law was not taken into consideration while deciding the issue. The enforcement court is not bound by the opinion of the tribunal instead it has to independently assess whether the tribunal would have jurisdiction to decide the underlying disputes.

That the Petitioner's reliance upon the judgement of the Hon'ble Supreme Court in the case of McDermott International Inc. was entirely misconceived as Section 48(2)(b) of the Arbitration Act made it clear that the Court may refuse enforcement of a Foreign Award if the Court finds that the enforcement of the Foreign Award would be contrary to the Public Policy of India.

That the unilateral assignment by NEC which resulted in the Respondent being forced to arbitrate with a non-party was thus contrary to the public policy of India.Even assuming the Deed of Assignment was valid, it did not result in an automatic assignment of the arbitration clause in the said contracts.

Court's Analysis

The court outrightly dismissed the submissions of the respondent on the ground that it had failed to make out a case to refuse the enforcement of the foreign award.

The court noted that the tribunal had considered in detail the arguments advanced by the parties and come to the conclusion that an arbitration agreement existed between the parties. This finding had not been challenged by the respondent. Since this award had attained finality for not having challenged, the respondent cannot be allowed to contest the enforcement of the award purely on merits which course is impermissible under section 48 as per judgment of the Supreme Court in McDermott International Inc.

The court also rejected the argument of the respondent that the assignment was invalid as the consent of the respondent was not taken before the assignment. The court noted that “in view of Explanation 2 to Section 48 (1) of the Arbitration Act which expressly provides that the test as to whether there is a contravention of the fundamental policy of Indian Law shall not entail a review on the merits of the dispute.”

The respondent cannot be allowed to seek a revision of the partial award in the guise of objections to the enforcement of the award under section 48.

The court further observed that “Insofar as a challenge based on Section 48 (2)(iii) of the Arbitration Act, the Hon'ble Supreme Court has in the case of Ssangyong held that it is only in exceptional cases, which shocks the conscience of the Court, that such plea can be entertained. In the facts of the present case, there is nothing which even remotely shock the conscience of the Court.”

It was argued by the respondent that arbitration clause contained in the said contracts would not automatically imported into assignment deed executed by NEC with the petitioner.

The court rejected this argument as well and observed that in Chloro Controls India (P) Ltd. vs Severn Trent Water Purification Inc, 2013 the Supreme Court has held that “when a third party, i.e. non-signatory party, is claiming or is sued as being directly affected through a party to the arbitration agreement and there are principal and subsidiary agreements, and such third party is signatory to a subsidiary agreement and not to the mother or principal agreement which contains the arbitration clause, then depending upon the facts and circumstances of the given case, it may be possible to say that even such third party can be referred to arbitration.”

The court noted that the word “in connection with” was interpreted by the Supreme Court to cover even the subsidiary agreements executed under or in connection with the principal agreement. Relevant clause were perused of the principal agreement which clearly contained a clause by which the contracts could be assigned to a third party and arbitration clause contained in the said contracts covered the principal agreement.

Based on the above, the court observed that it cannot be said that the assignment was invalid therefore was against the fundamental policy of Indian law.

The court also noted that the respondent was not a stranger to the said contracts in fact they were signed by the respondent. It shows that clearly the Respondent had consented to submit any disputes and differences to arbitration not only arising out of said contracts but also in connection with said contracts.The Respondent admittedly being a signatory to the said Contracts, no prejudice could be caused to the Respondent by invocation of Arbitration.

No ground to refuse the enforcement of the award was made out. Accordingly, the present petition was allowed.

Case Title: Neilan International Co Ltd vs Powerica Ltd

Case Reference:COMMERCIAL ARBITRATION PETITION NO. 416 OF 2019

Judgment Date: 27/11/2024

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