[Arbitration Act] Enforcement Of Foreign Awards Should Not Be Declined On Composition Of Tribunal If Not Raised Before Tribunal Or Seat Court: Delhi High Court

The bench held that:

“This argument is quite evidently an afterthought, intended only as speculative litigation with the fond hope that by flinging mud on a foreign arbitral award, some of the mud so flung would stick.”

Brief Facts:

The matter pertained to arbitral awards stemmed concerning three charter party agreements regarding dredgers Triloki Prem, Banwari (Darshani) Prem, and Bhagwati Prem, respectively, owned by Mercator Ltd. The judgment debtor, Dredging Corporation of India Ltd., hired these dredgers.

Initially, there was a dispute regarding the applicability of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), whether under Part I for India-seated arbitral proceedings or Part II for foreign-seated ones. This matter was resolved earlier by the Delhi High Court (“High Court”), confirming that the arbitral proceedings' seat was in London. Consequently, the enforcement proceedings proceeded on the premise that the arbitration seat was in London. During these proceedings, the judgment debtor was directed to deposit certain amounts into court, partially complying by depositing Rs.21 crores out of the total awarded sum. However, it failed to deposit the additional Rs.8 crores as agreed upon, instead filing applications for deferring further deposits pending the disposal of objections. Therefore, the award holder approached the High Court for enforcement of three awards.

The judgment debtor primarily raised objections related to the composition of the arbitral tribunal, alleging non-compliance with the arbitration agreement, and violations of substantive provisions of Indian law, particularly the Merchant Shipping Act, of 1958. Additionally, the judgment debtor contended that the award exceeded the claims asserted by Mercator Ltd., which, if enforced, would contravene the public policy of India.

Observations by the High Court:

The High Court referred to Section 48 of the Arbitration Act. The High Court held that the authority to set aside an award resides solely with the Courts at the seat of arbitration, which possesses primary jurisdiction over the award. The jurisdiction of the Court where enforcement is sought is secondary and is limited to determining the enforceability of the award in that jurisdiction.

Moreover, while a judgment of the seat Court rejecting a challenge to the award isn't binding under Section 48, it can be taken into account in deciding whether to permit relitigation of the issue before the enforcement court. It held that public policy grounds for resisting enforcement are constrained to narrow international standards, and the Court must adhere to these standards when considering objections. Similarly, the Court can only consider internationally recognized narrow standards of public policy when addressing questions of bias.

Furthermore, the High Court held that the Court has the discretion to refuse enforcement even when the grounds under Section 48 are met, and it's crucial to note that a review on the merits of the dispute falls outside the Court's jurisdiction under this section.

The judgment debtor contended that the arbitration clause specified arbitration in London according to the LMAA Terms, which allegedly required arbitrators to be members of the LMAA. However, the tribunal comprised retired judges and a lawyer, not LMAA members.

The High Court noted that the grounds weren't raised during arbitration or in applications to set aside the award before the seat Court. The judgment debtor's failure to raise this issue before indicated a lack of merit in its objections. It noted that the composition of the tribunal was known to both parties since the beginning of the arbitral proceedings, and the judgment debtor's delay in challenging it until after the conclusion of proceedings suggested an opportunistic attempt to impugn the award.

Consequently, the High Court held that enforcement shouldn't be declined based on objections related to the composition of the tribunal. It held that the judgment debtor had ample opportunity to raise these objections earlier but failed to do so.

As a result, the objection regarding the constitution of the tribunal was rejected, and enforcement of the foreign awards was upheld. Additionally, the High Court directed the judgment debtor to deposit the sum of Rs. 8 crores within four weeks.

Case Title: Mercator Ltd. Vs Dredging Corporation Of India Ltd And Connected Matters

Citation: 2024 LiveLaw (Del) 598

Case Number: O.M.P.(EFA)(COMM.) 2/2019, EX.APPL.(OS) 27/2020, EX.APPL.(OS) 182/2020, EX.APPL.(OS) 346/2022, EX.APPL.(OS) 2985/2022 & EX.APPL.(OS) 1620/2023 and Connected Matters

Mr. Amitava Majumdar, Mr. Arvind Kumar Gupta, Mr. Suraj Sonwal, Advocates for decree holder.

Mr. Adhish Rajvanshi, Mr. V. Seshagiri, Advocates for judgment debtor.

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