Supreme Court on the enforcement of foreign award: A move against the pro-enforcement trend?

[By Shreya Choudhary]

The author is a fifth-year student of ILS Law College, Pune.

Introduction

Section 48(2)(b) of the Arbitration and Conciliation Act, 1997 (“the Act”) provides that the enforcement of a foreign award may be refused if it is against the public policy of India. In the wake of various decisions of the Supreme Court and the High Courts, it is observed that the scope of interference in enforcement of foreign awards i very limited.

In Renusagar Power Co. Ltd. v. General Electric Co.[i] (“Renusagar”), the Apex Court narrowed the scope of public policy and held than a foreign award would be against public policy if its enforcement is contrary to “(i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality”[ii]. Though Renusagar interpreted public policy in realm of the erstwhile Foreign Awards (Recognition and Enforcement) Act, 1961 (“Foreign Awards Act”), it holds relevance till date as it finds its place under section 48(2)(b) of the Act. The pro-enforcement approach has been recognised by the Apex Court in Ssangyong Engineering & Construction Co. v. National Highways Authority of India[iii]. While dealing with a domestic award, the Court observed that the ground of “public policy” should not be exploited and widely construed to unduly interfere in both domestic and foreign awards. Following the trend, the Apex Court, recently in Vijay Karia v. Prysmian Cavi E Sistemi SRL[iv] (“Vijay Karia”), upheld the pro-enforcement bias to rule that the grounds provided to challenge enforcement are extremely limited to not include re-interpretation of the arbitration agreement between the parties. Further, it upheld Delhi High Court’s reasoning in Cruz City 1 Mauritius Holdings v Unitech Limited[v] and observed that mere contravention of an enactment would not mean contravention of the fundamental policy of Indian law. This clarified the judicial and the legislative intent in enforcing foreign awards and restricting the grounds on which their enforcement can be challenged.

Recently, the Supreme Court in National Agricultural Cooperative Marketing Federation of India (“NAFED”) v Alimenta S.A[vi] seemed to digress from the pro-enforcement trend to allow the challenge to the foreign award in favour of Alimenta on the ground of public policy.

Factual Background

NAFED entered into a contract with Alimenta for the supply of 5000 metric tonnes of Indian HPS groundnut (“commodity”) to be shipped in August-September 1980. Due to damage caused to crop by cyclone in Saurashtra region, only 1900 metric tonnes of commodity could be shipped. Clause 14 of the contract provided for force majeure and prohibition of export by law or executive order amounting to cancellation of the contract. Two addendums were added to the agreement, one of them stipulating that the shipment period for remaining 3100 metric tonnes of commodity shall be November-December 1980. To effect this change, NAFED sought permission of the Government but was refused on account of price escalation, restricted export policy and quota-ceiling. Hence, NAFED failed in executing the remaining part of the contract.

Aggrieved by NAFED’s default, Alimenta invoked arbitration before the Federation of Oil, Seeds and Fats Associations Ltd. (“FOSFA”) and got the award in its favour. Alimenta sought enforcement of the initial and the appellate award under the Foreign Awards Act before the Delhi High Court upon which it was held that it was enforceable. NAFED challenged the enforcement of the award before the Supreme Court.

Judgment of the Supreme Court

The Supreme Court found the case within section 32 of the Indian Contract Act, 1872 as the contract itself envisaged contingencies, the happening of which would render the contract cancelled. Appreciating Clause 14 of the contract, the Court noted that NAFED’s stance in not supplying the remaining commodity owing to Government’s restrictions and the Export Control Order was justified. Additionally, the Court relied upon the Renusagar test of the fundamental policy of Indian law. It observed that the performance of the contract upon express prohibition by the Government would contravene the public policy relating to export that mandated Government sanction. Therefore, the Court held that the award in favour of Alimenta was unenforceable.

Critical Analysis of the Judgment

The Apex Court, deflecting from the pro-enforcement trend, prima facie broadened the scope of public policy by allowing challenge to the foreign award and holding it unenforceable. The problem, however, does not rest with the change brought about by the judgment. The primary reservation lies in the way the Court has looked into the matter.

It is settled law that the arbitrator looks into the merits of the case, and the Court interferes limitedly only if such interpretation shocks the conscience of the court or if it suffers from procedural irregularities. The interference by Court, however, does not entail a review on the merits of the contested dispute. In the instant case, the Apex Court reviewed the award on merits and delved into the terms of the contract between NAFED and Alimenta to base its decision upon the liabilities of the parties under the contingent contract and against enforcement of the award.

Moreover, the Court did not follow the precedent set out in Vijay Karia wherein it was observed that merely breach of an enactment/principle will not amount to contravention of the fundamental policy, unless the law so breached is intrinsic/basic to Indian law. The Court rested its views based on an inarticulate premise that the Government’s permission for export is a fundamental public policy of India. It failed to clarify and reason out whether the permission was core to India’s public policy that could not be compromised or whether the permission amounted to a mere contravention of law.

The law in the instant case seems to raise suspicion because the Court’s response seems unclear and flawed with regard to certain facts. The arbitrator was appointed by FOSFA in gross violation of the High Court’s restraint order. Secondly, contrary to procedural rules and standards, the arbitrator of Alimenta defended the first award in its favour as an Advocate before the Board of Appeal. Additionally, the Board of Appeal enhanced the rate of interest even when there was no appeal by Alimenta. These facts suggest an influenced approach of the Apex Court while deciding on the enforcement of the award.

Conclusion

Conclusively, despite the reservations, it is hoped that the instant judgment pertains to the specific set of complex facts, and the Court continues to follow the pro-enforcement trend of foreign awards in consonance with the intent of the signatories of the New York Convention. It is hoped that the course of judgments on enforcement of foreign award in the future reiterate the Renusagar test in principle and bring clarity in its application.

End Notes

[i] Renusagar Power Co. Ltd. v General Electric Co., AIR 1994 SC 860.

[ii] Id., at ¶63.

[iii] Ssangyong Engineering & Construction Co. v. National Highways Authority of India, 2019 SCC OnLine SC 677.

[iv] Vijay Karia v. Prysmian Cavi E Sistemi SRL, 2020 SCC OnLine SC 177.

[v] Cruz City 1 Mauritius Holdings v Unitech Limited, 2017 SCC OnLine Del 7810.

[vi] National Agricultural Cooperative Marketing Federation of India v Alimenta S.A, Civil Appeal No. 667 of 2012, decision dated April 22, 2020.

 

 

 

 

 

 

 

 

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