[Arbitration Act] Public Policy While Considering Enforcement Of Foreign Awards Has To Be Construed Narrowly, In Consonance With International Notions: Delhi High Court

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 contended that the vessels subject to the charter party agreements were loaded in contravention of Section 313 of the Merchant Shipping Act, which prohibits an Indian ship from being loaded in a manner that submerges its load lines. The judgment debtor argued that this violation conflicted with the public policy of India, as the Merchant Shipping Act aims to ensure the safety and security of Indian ships. However, the award holder argued that this objection has already been addressed in both the arbitral award and the judgment of the seat Court. It argued that considering this issue again in the enforcement proceedings would amount to a review of the merits of the disputes, which is inconsistent with Section 48(2) of the Arbitration Act.

Observations by the High Court:

The High Court noted that the arbitral tribunal held that despite any alleged violation of Section 313, the judgment debtor was still liable for the invoiced hire charges. The tribunal reasoned that relief would only be denied if the parties were involved in illegality or fraud, or if the contract itself was against public policy. The Seat Court upheld this decision.

In evaluating this objection, the High Court considered the narrow definition of public policy under Section 48 of the Arbitration Act. It emphasized that not all violations of statutes constitute grounds for refusal of enforcement; rather, only violations of fundamental policies that shock the conscience of the Court qualify. The High Court held that breaches of statutes alone do not render contracts illegal to the extent of justifying the denial of hire charges. (referred to Shri Lal Mahal Ltd. v. Progetto Grano SpA; Renusagar Power Co. Ltd. v. General Electric Co.; Avitel Post Studioz Limited & Ors. v. HSBC PI Holdings (Mauritius) Limited; Associate Builders v. DDA; Ssangyong Engg. & Construction Co. Ltd. v. NHAI and Vijay Karia v. Prysmian Cavi E Sistemi SRL).

The High Court found no provision in the Merchant Shipping Act indicating that a breach of the load line would render the charter party agreements void. The Act itself outlines consequences for such violations, which, as determined in the awards, do not render the contracts illegal to the extent of denying hire charges to the award holder.

Therefore, the High Court held that there was no merit in the judgment debtor's argument for declining enforcement of the awards based on the violation of the Merchant Shipping Act. The judgment debtor was directed 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) 591

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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