Arbitration | Every Violation Of Statute Not Against Fundamental Public Policy Of India, Exception Has To Be Construed Narrowly: Bombay High Court

The brief facts of the case are as follows: the petitioner is a company, based in UAE engaged in the business of leasing and chartering aircraft and helicopters and the respondent is a company incorporated in India involved in the business of providing helicopter services to oil and gas industry of the Country.

Both parties entered into a lease agreement however, the the respondent failed to pay the applicable consideration. Both parties then entered into a settlement deed which essentially provided for settlement of outstanding sum, but the same also remained unpaid.

The petitioner then initiated arbitration proceedings and the respondents nominated an arbitrator. The arbitrators nominated by the parties came to be appointed by the President of the Court of Arbitration of Singapore International Arbitration Centre (SIAC). Chairman of the tribunal was appointed and after considering the submissions advanced by both the parties, an award was passed by the tribunal in January 2017 and there was no challenge to this award and thus, the High Court of the Republic of Singapore declared the award and the respective addendum to be final and binding on the parties.

The petitioner then sought an injunction against the respondent via a commercial arbitration petition under S.9 of the Arbitration and Conciliation Act, which was allowed. Since the petitioner had fulfilled the requirements under S.47 of Arbitration and Conciliation Act, 1996, and the tribunal had heard the respondent's contention in detail and only then an award was passed and when it was not contended in the Court within the prescribed time, it was declared final.

Thus, the petitioners argued that the award must be enforced. However, the respondents contended that because the petitioner was investigated by the US Bureau of Industry and Security and was placed on BIS Entity List, this prevented the respondents from performing their obligations under the settlement deed leading to its frustration. This contention had been rejected by the tribunal.

Petitioner's contentions

• Dr. Chandrachud, Counsel for the petitioner contended that if a mere misinterpretation of substantive law would constitute a violation of the fundamental public policy of India, then there would be no difference between substantive law violation and violation of the fundamental policy of Indian law. Thus, he submitted that the party terminating the contract can sue for specific performance or price of goods.
• Submitting that the tribunal might have erroneously applied the law (S.49 of Singapore Sale of Goods Act, 1999) when holding that once the property had passed to the buyer, the seller could sue for the price of the goods, the learned counsel argued that this did not result in violating the fundamental policy of Indian law.
• Further submitting that even if there are grounds for interfering/declining with a foreign award's enforcement, the Courts must consider whether overall justice has been done or not. And since in the present case, the helicopter is in the respondent's possession since 2012 and the respondent had earned USD 2.4 million but did not pay any part of the agreed amount to the petitioners, the award of the tribunal is justified as it's only equivalent to three years revenue earned by the respondent although the respondent had continued to retain the helicopter for over 9 years.
• The learned counsel further drew the court's attention to the fact that the amendment to the statement of claim had been made prior to the commencement of the trial and thus, the procedure that was followed was in accordance with Indian law and did not violate the fundamental policy of Indian law i.e. no amendment should be allowed to pleadings once a trial is commenced without good reasons. Submitting that the respondent was fully allowed and able to present its case, the learned counsel asserted that the award did not violate S.48(1)(b) of the Act.
• The learned counsel concluded that the amount in the contract was not a penalty but a genuine pre-estimate of loss and since the tribunal's decision would not cause any unjust enrichment to the petitioner because the petitioner was willing to transfer ownership of the helicopter to the respondent, and thus, tribunal's award must be enforced.
• In addition to this, the Counsel also drew the court's attention to S.49 of Singapore Contract Act and pointed to clause 2, "where under a contract of Sale, the price is payable to the buyer and the buyer wrongfully refuses or neglects to pay the price, the seller can maintain an action to recover the price although the property in the goods had not passed and goods had not been appropriated to the contract." And thus, he averred that the petitioner has adopted the present course of action in line with S.49(2) of the Singapore Contract Act and S.39(1) of the English Sale of Goods Act.

Respondent's submissions

• Counsel for respondents argued that since the award granted the payment of purchase price of the helicopter under a terminated agreement, such award's enforcement would be contrary to the fundamental public policy of India. In addition to this, since the award grants certain other amounts contemplated under the terminated settlement deed, these should not be enforced.
• He further submitted that although the helicopter was physically in respondent's possession, since the 2012 lease agreement, the helicopter remains at Juhu airport for which the respondent had been incurring regular costs. It was also submitted by the learned counsel that the petitioner, at best, could only be entitled to damages for breach of contract because of wrongful repudiation of the contract by the buyer, however, award purchasing price results in unjust enrichment of petitioner which would be contrary to the public policy of India.
• Further referring to judgments from the Indian Apex Court and Singapore Court of the Appeal, the learned counsel asserted that once a party had accepted repudiatory breach of the contract by the other party and had terminated the contract, then specific performance could not be claimed by the same party.
• Learned Counsel for Respondents further submitted that the tribunal was not only incorrect in applying the law and it had also misinterpreted the law since the tribunal had completely disregarded some binding judgments.
• By referring to the judgments in Ssangyong Engineering & Construction Co. Ltd. v/s NHAI, it was also contended that the public policy of India encapsulated in S.34 and/or S.48 would now mean a fundamental policy of Indian law as explained by the apex court in Associate Builders v. Delhi Developmental Authority and Renusagar v. General Electric.

Court's observations and Judgment

This High Court at the outset declared that the award was neither illegal nor against public policy because there had been no application made by the respondents to set aside the award when they were given months to contend it.

The Court further noted that since it was indisputable that the helicopter was used by respondents till July 2015 and that income had been generated and appropriate and no payment had been made to the petitioner by the respondent, the respondents had gained benefit out of it and it still continued to be in respondent's proposition.

Regarding the question of violation of the public policy of India, the Court stated that "the ground of patent illegality appearing on the face of the award are outside the scope of interference in International Commercial Arbitration Awards which are made in India as well as Foreign Awards whose enforcement is sought to be resisted in India."

The Court also averred that discretion may be exercised but only in cases where a structural/fundamental defect is revealed, however, since in the present case there are no structural/fundamental defects, the court while referring to the Apex Court's judgment in Vijay Karia, Campos Bros. Farms case, held that foreign award must be read as a whole and must be enforced without nitpicking.

"If an award addresses basic issues and decides claims and counterclaims of the parties, it must be enforced."

Holding that the foreign award in question passes the above-mentioned test, the High Court further observed that "poor reasoning while rejecting a claim does not attract the public policy ground unless it offends the most basic notion of justice."

Observing that the public policy exception must be construed narrowly, the Court held that to declare a violation of the fundamental policy of Indian law, a very high threshold of 'egregious circumstances' like bribery, corruption or fraud must be established.

Referring to the contentions submitted by the parties, the court while clarifying the difference between incorrect invocation of law and inaccurate application of the law, stated that in case a law is invoked correctly but applied erroneously, then it cannot be challenged but if the law is incorrectly invoked while ignoring a binding supreme court precedent, then a challenge would lie, as was asserted in Associate Builders v. Delhi Development Authority and Renusagar Power Company Limited v. General Electric.

The Court further noted that even according to the respondent's submissions, till the purchase price was paid, the property in the helicopter would not pass and thus, the court stated that payment of the purchased property would be the obvious first step in that direction. Besides, even if the respondent's condition that the tribunal misapplied the law, is considered, then the respondent had plenty of time to challenge it but did not do so. Thus, the court upheld the enforcement of the award and granted the respondent four weeks' time to deposit the amount awarded.

Case: Aircon Beibars FZE v. Heligo Charters Private Limited

Citation: 2022 LiveLaw (Bom) 40

Coram: Justice AK Menon

Counsel for Petitioners: Dr. Abhinav Chandachud, a/w Mr. Aman Vaccher, Mr. Sajid Mohammad, Mr. Dhiraj, Mr. A. Mukherjee and Mr. Darshil Thakkar

Counsel for Respondents: Mr. Darius Khambata, Senior Advocate, a/w Mr. Pheroze Mehta, Mr. Nishant Shah, Mr. Abhileen Chaturvedi, Ms. Virangana Wadhawan, Mr. Samarth Saxena, Ms. Sharmin Kapadia