Enforcement Of Foreign Award Cannot Be Refused U/S 48 Of Arbitration Act Unless It Is Against Public Policy: Chhattisgarh HC

Brief Facts

These two Arbitral Applications have been filed under Sections 47, 48 and 49, Chapter 1, Part-II of the Arbitration and Conciliation Act, 1996 read with Order XXI and Section 151 of the CPC for enforcement of the English Arbitral Award dated 11.8.2021 and Cost Award dated 27.3.2023.

On 6.3.2020, a contract for sale of 50,000 MT of Coal (Contract) was entered into by and between the parties via exchange of e-mails, which incorporated the Standard Coal Trading Agreement Version 8, General Terms and Conditions (ScoTA).

Further, the respondent/judgment debtor was obliged to open a letter of credit (LC) 10 days before the commencement of the delivery period i.e. by no later than 31.3.2020. The respondent/judgment-debtor failed to open the LC by the said date. Such a failure amounted to an event of default entitling the award-holder/applicant to terminate the contract.

Subsequently, a dispute was referred and an arbitral award and cost award were passed in favour of the applicant. The respondent/decree-holder challenged the aforesaid awards by way of an appeal under the English Arbitration Award, 1996 and both the awards have attained finality.The merits award and cost award are published in the United Kingdom and as such, governed by the Notification dated 25.10.1976 issued by the Ministry of Commerce.

Since the property of the respondent/judgment-debtor is located in the territory of the State of Chhattisgarh, both these applications have been filed to recognize the said foreign award(s)

Contentions

The respondents submitted that enforcement of the said foreign award may be refused in view of Section 48 of the Arbitration and Conciliation Act, 1996 (in short “the Act, 1996”) as the said award would be contrary to the public policy of India.

That due to outbreak of Covid-19 Pandemic, various Notifications/Circulars have been issued under Section 10(2)(l) of the the Disaster Management Act, 2005 (in short “the Act, 2005”) and that due to such epidemic; the respondent could not obtain the LC during the subject period as it was complying with the directions/guidelines issued by the Government under the Act 2005 in the territory of India. However, this aspect has not been taken into consideration by the learned Arbitrators.

Per contra, the applicants submitted that in the subject Notification itself there is an exception to the Banks and the said ground has been taken by the respondent/judgment debtor before the learned Arbitrators.If there was some kind of force majeure or frustration event due to Covid-19 pandemic, evidence to the contrary would have to be adduced by the buyer and they have not done so.

That if the Court is satisfied that the foreign award is enforceable, the award(s) shall be deemed to be a decree of that Court and the Court has to proceed further to execute the foreign award as the decree of that Court

Court's Analysis

The court, at the outset, referred to section 48 of the Arbitration Act which set out the grounds on which the foreign award is refused.

The court noted that the Supreme Court in Shri Lal Mahal Limited Vs. Progetto Grano Spa (2014) has held that Section 48 of the 1996 Act does not give an opportunity to have a “second look” at the foreign award in the award enforcement stage. The scope of inquiry under Section 48 does not permit review of the foreign award on merits. Procedural defects (like taking into consideration inadmissible evidence or ignoring/rejecting the evidence which may be of binding nature) in the course of foreign arbitration do not lead necessarily to excuse an award from enforcement on the ground of public policy.

The court further noted that after the enactment of the Arbitration Act and consequent repeal of the Foreign Awards Act, the appropriate construction of the expression “public policy of India” as contained in the Arbitration Act was decided in Shri Lal Mahal Limited (supra). In the said judgment, the Honb'le Supreme Court concluded that it is the narrow construction of public policy which should apply to the interpretation of Section 48 of the Arbitration Act.

In the said Notification itself, there is an exception to the Banks and other organisations and the said objection has been raised before the learned Arbitrators. The learned Arbitrators have carefully dealt with the said issue extensively and observed that the banks and shipping are the excepted industries and they are not subject to the lock-down rules, the court noted.

The court further noted that during the relevant period, the person concerned could have approached the Bank after obtaining permission/permit of the competent authorities. The Banking Sector continued to provide essential services to meet out the requirements of every citizen in such extra ordinary situations so as to avoid any financial hardship.

Based on the above, the court came to the conclusion that the awards on such score would not be contrary to or in the teeth of public policy of India and the said objection raised by learned counsel for the respondent/judgment debtor is not sustainable.

The court concluded that the Applicant is entitled to an order declaring that the Foreign Award(s) is recognized and is, consequently, enforceable as a decree of this Court. Accordingly, the present applications were allowed.

Case Title: Bulk Trading S.A. Having versus Mahendra Sponge And Power Ltd.

Case Reference: ARBAP No. 9 of 2023 and ARBAP No. 10 of 2023

Judgment Date: 7/11/2024

Click Here To Read/Download The Order