Party Entering Settlement Agreement, Agreeing To Consent Award Cannot Later Object To Its Enforcement On Grounds Of Lack Of Knowledge: Delhi HC
The Delhi High Court bench of Justice Anish Dayal has rejected an objection raised by the Award Debtor against the enforcement of an Award on the ground that it was contrary to public policy since it was not informed by the Award Holder about a previous settlement with the Judgment Debtor's subsidiary.
The Court deprecated the stance taken by the Award Debtor, as in view of the facts of the case, it found the objections to be unjust, unfair and nothing but an attempt to obstruct the enforcement of the Award.
Background Facts
Minda Corporation Limited [“Award Debtor”], a company incorporated under the laws of India supplied automotive parts to Mercedes-Benz Group AG [“Award Holder”] through its subsidiary Minda Schenk Plastic Solutions GmbH [“Minda Germany”]. In order to guarantee the liabilities of Minda Germany, Minda India provided a Letter of Comfort dated 12th June/21st August, 2013 [“LoC”]. Clause 2.4 of the LoC provided that all disputes under the LoC would be settled under ICC Rules by three arbitrators and the place of arbitration would be Stuttgart, Germany.
Disputes arose between the Award Holder and Minda Germany, Minda Germany went into insolvency and was administered by the Liquidator, Mr. Wolfgang Bilger. A settlement was arrived between the Award Holder and Mr. Bilgery [“Bilgery Settlement”] and the Liquidator agreed to pay EUR 11 million.
The Award Holder then sought to commence arbitral proceedings as per Section 2.4 of the LoC and in the claim it sought damages to the amount of EUR 39,361,111 amounting to INR 266,74,24,609 approximately along with interest. The Tribunal was constituted on 27th March, 2027.
On 15th May, 2017 the counsels for the parties informed the Tribunal that parties had entered into a standstill agreement to suspend the arbitral proceedings in an effort to engage into settlement discussions. On 30th August, 2021, the Settlement Agreement was executed between the Award Holder and the Award Debtor and accordingly the Tribunal passed a Consent Award on 29th November, 2021. As per the Consent Award, the Award Debtor was to pay the Award Holder an amount of EUR 5.5 million amounting to INR 48,94,95,996 approximately and the deadline for payment was 195 days from the date of notification of the Consent Award.
Contentions
The Senior Counsel for the Award Debtor argued that the Award Holder had infact recovered the amount under the award from the subsidiary of Minda Corporation in Germany. This recovery had been done through the Liquidator Mr. Wolfgang Bilgery and therefore, the Award Holder would not be eligible for a 'double dip' on the said payments/dues.
The Senior Counsel for the Award Debtor resisted the enforcement of award on the ground that the Award Holder had not disclosed when they applied to the Liquidator of Minda Germany for payment and if it was accepted then what was the extent of the settlement and whether there was any waiver of the rest of the claims which were now sought to be foisted on the Award Debtor. It was further submitted that the agreement should have been requisitioned and therefore for lack of such disclosure, the Award Debtor had a right to object under Section 48(2)(b) of the Arbitration and Conciliation Act, 1996 as the enforcement would be contrary to the public policy of India.
Another issue which was raised was relating to the permission by RBI to compound the offence under Foreign Exchange Management Regulations, 2004 [“FEMA”] alleged of the Award Debtor having issued an open LoC for their subsidiary abroad, without prior permission.
The Senior Counsel for the Award Holder pointed to various extracts from the Arbitral Award to demonstrate that the Award Debtor was quite aware of the previous settlement with the Liquidator for EUR 11 million, the Award Holder had agreed to take 'haircut' and consented to a settlement of EUR 11 million. In fact the preamble to the Settlement Agreement also stated that the Award Holder had confirmed that it would not benefit from any 'double dip' by virtue of the payments agreed by the Minda Corporation under the Settlement Agreement.
With respect to the issue of RBI's approval, the Senior Counsel for the Award Holder placed on record communication from RBI which states that firstly, RBI had no objection for remittance of EUR 5.5 million by the Award Debtor to the Award Holder and secondly, RBI granted their post facto approval for the transaction subject to compounding of the said contravention. Therefore, it was contended that neither any regulatory issue subsisted nor the objection relating to a 'double dip' was tenable.
Observations
The Court observed that the Award Debtor had objected to the enforcement of the Award under Section 48(2) of the Arbitration and Conciliation Act, 1996 which permits a court, even suo moto to refuse the enforcement if the subject matter of the dispute is not capable of settlement by arbitration in India or if the enforcement of the Award would be contrary to the public policy of India. Explanation 1 to Section 48 (2)(b) of the A&C Act clarifies that the Award will be in conflict with public policy, inter alia if it is in contravention with fundamental policy of the Indian law. Explanation 2 however, further clarifies that this assessment shall not entail a review on the merits of the dispute.
The Court placed reliance on the its previous decision in Cruz City 1 Mauritius Holdings v. Unitech Limited 2017 SCC Del 7810 and the decision of the Apex Court in Vijay Karia v. Prysmian Cavi E Sistemi 2020 11 SCC 1 wherein various aspects of the 'fundamental policy' exception under Section 48 of the Arbitration and Conciliation Act, 1996 were discussed and the Court had observed that Section 48(2)(b) cannot be given an expansive meaning.
The Court observed that the limited point for consideration was whether fundamental policy of law would cover the principal objection of the Award Debtor that they did not have visibility of the Bilgery Settlement and therefore could not ascertain whether there was a double dip by the Award Holder. The Court noted that in view of the material available on record, this had become a non-issue as the Consent Award was passed with the Award Debtor having full knowledge of what was before them.
The Court noted that the objections being pressed by the Award Debtor to enforcement were not bona fide, unjust, unreasonable and a clear attempt to obstruct the enforcement deploying one or the other. The Court deprecated the stand taken by the Award Debtor. Accordingly, it directed that the said award be enforced as a decree of the court as per Section 49, Arbitration and Conciliation Act, 1996.
Case Title: Mercedes Benz Group AG v. Minda Corporation Limited
Case Number: O.M.P.(EFA)(COMM.) 3/2023, EX.APPL.(OS) 408/2023, EX.APPL.(OS) 409/2023, EX.APPL.(OS) 410/2023 EX.APPL.(OS) 630/2023 EX.APPL.(OS) 1685/2023 EX.APPL.(OS) 142/2024
Appearance:
For Award Holder – Mr. Rajshekhar Rao, Senior Advocate; with Mr. Pallav Shukla, Mr. Aayush Chandra; Ms. Raashika Kapoor; and Mr. Arsh Rampal, Advs
For Award Debtor - Mr. Sandeep Sethi, Sr Adv.; Mr. Manu Krishnan, Adv.; and Ms. Shruti Arora, Adv.
Date: 12.03.2025