Enforcement Of Foreign Award Must Be Refused Only Rarely, International Standards To Be Applied To Determine Bias : Supreme Court
In a crucial judgment, while allowing the enforcement of a foreign arbitral award, the Supreme Court (on March 04), held that to determine the factor of arbitral bias, Court must endeavour to follow international standards than domestic ones. It is only in exceptional circumstances that enforcement of a foreign should be refused on the ground of bias., the Court said."Embracing...
In a crucial judgment, while allowing the enforcement of a foreign arbitral award, the Supreme Court (on March 04), held that to determine the factor of arbitral bias, Court must endeavour to follow international standards than domestic ones. It is only in exceptional circumstances that enforcement of a foreign should be refused on the ground of bias., the Court said.
"Embracing international standards in arbitration would foster trust, certainty, and effectiveness in the resolution of disputes on a global scale. The above discussion would persuade us to say that in India, we must adopt an internationally recognized narrow standard of public policy, when dealing with the aspect of bias"
"...there can be no difficulty in holding that the most basic notions of morality and justice under the concept of 'public policy' would include bias. However, Courts must endeavor to adopt international best practices instead of domestic standards, while determining bias. It is only in exceptional circumstances that enforcement should be refused on the ground of bias"
"This sort of challenge where arbitral bias is raised at the enforcement stage, must be discouraged by our Courts to send out a clear message to the stakeholders that Indian Courts would ensure enforcement of a foreign Award unless it is demonstrable that there is a clear violation of morality and justice. The determination of bias should only be done by applying international standards. Refusal of enforcement of foreign award should only be in a rare case where, non- adherence to International Standards is clearly demonstrable."
The matter was decided the Division bench of Justices Hrishikesh Roy and Prashant Kumar Mishra.
The brief facts of the case are that a share subscription agreement was entered between HSBC PI Holdings/ Respondent and Avitel Post Studioz Limited/ appellant no.1. This agreement contained an arbitration clause which provided that the disputes shall be finally resolved at the Singapore International Arbitration Centre (SIAC). Following this, the respondent invoked arbitration, alleging fraudulent misrepresentations on the part of the appellants. Subsequently, a final award was passed directing the appellants to pay US$ 60 million as damages. After several rounds of litigation, the present appeal was filed against enforcing the award. Pertinently, the enforcement was challenged on the grounds of arbitral bias and violation of public policy.
The Top Court, at the outset, underscored the norm of minimal judicial intervention in a foreign award. The precedent of Vijay Karia v. Prysmian Cavi E. Sistemi SRL., (2020) 11 SCC 1 was cited to strengthen this. Therein, the Top Court had noted that Section 50 (appealable orders) of the Indian Arbitration Act does not provide an appeal against a foreign award enforced by a judgment of a learned Single Judge of a High Court and therefore the Supreme Court should only entertain the appeal with a view to settle the law.
Thereafter, the Court adverted to the aspect of public policy. After relying on the ratio decendi of Shri Lal Mahal Ltd. v Progetto Grano SpA, the Court noted that there are fewer grounds to resist the enforcement of a foreign award. Against this backdrop, the Court also discussed how, in 2002, the International Law Association suggested using narrow and global standards for "public policy" in international commercial arbitration. These were as follows:
“(i) fundamental principles, pertaining to justice or morality, that the State wishes to protect even when it is not directly concerned; (ii) rules designed to serve the essential political, social or economic interests of the State, these being known as 'lois de police' or 'public policy rules'; and (iii.) the duty of the State to respect its obligations towards other States or international organizations.”
The Court also noted that worldwide, bias standards for preventing Award enforcement are stricter compared to the standards set for ordinary judicial review.
Coming to the facts of the case, the Court noted that the Award in this matter was passed in Singapore, a New York Convention Country, and India notified it as a reciprocating territory.
“The parties had expressly chosen Singapore as the seat of Arbitration. It is the seat court that has exclusive supervisory jurisdiction to determine claims for a remedy relating to the existence or scope of the arbitrator's jurisdiction or the allegation of bias. A contrary approach would go against the scheme of the New York Convention which has been incorporated in India. The jurisdiction was therefore chosen based on the perceived neutrality by the parties aligning with the principle of party autonomy.,” the judgment stated.
The Court also pointed out that the appellants didn't raise a challenge to the award based on bias before the Singapore Courts. For this, the Court also cited the case of Shipowner (Netherlands) v Cattle and Meat Dealer(Germany), where it was held that the objection of bias must be first raised in the Country of origin of the Award and only if the objection was rejected or was impossible to raise, could it be raised at the time of enforcement.
It needs to be emphasized that bona fide challenges to arbitral appointments have to be made in a timely fashion and should not be used strategically to delay the enforcement process, the Court said.
In view of this, the Court also refused to grant any relief in the present appeal. Notably, while doing so, the Court also underscored the need for early enforcement of the foreign award. This was because the enforcement of the award was prolonged for as long as ten years.
“This long list of events points to a saga of the award holder's protracted and arduous struggle to gather the fruits of the Award. The Award Debtors raised multiple challenges and also defied the Court's order. They had to serve jail time for such contemptuous actions.,” the Court added before dismissing the instant appeal against the enforcement of an arbitral award.
Case Title: AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI HOLDINGS (MAURITIUS) LIMITED.,
Citation : 2024 LiveLaw (SC )267
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