VP Singh and Dushyant Manocha look at the recent High Court case that dealt with the enforcement of foreign awards in India and explore the implications that the decision will have on the international business community
The decision of the Delhi High Court in Penn Racquet Sports v Mayor International Ltd [2011] dealt with an important issue pertaining to the enforcement of a foreign award in India. The issue before the court was the implication and the interpretation of the term 'public policy' appearing under s48 of the Arbitration and Conciliation Act 1996 (the 1996 Act), as opposed to the term 'public policy' appearing under s34 of the 1996 Act.
After considering the rival submissions and the position of law as laid down by the Supreme Court, the Delhi High Court held that the term 'public policy' under s48 of the 1996 Act is narrower in scope than s34 of the 1996 Act and, consequently, the court declined to interfere with the foreign award in question.
This decision of the Delhi High Court represents an arbitration-friendly approach as the court declined to unnecessarily interfere with a foreign award. This is set to instil some confidence in the international arbitrating community in India as an arbitration-friendly jurisdiction.
Facts
The parties entered into a trade mark license agreement (TLA), wherein Penn Racquet Sports, a company based in Arizona, agreed to let Mayor International Ltd, an Indian-based company, utilise its trade mark on the payment of royalties. However, certain disputes arose between the parties that led to the invocation of arbitration. The arbitration clause contained that the arbitration would be referred to the International Chamber of Commerce in Paris and that the arbitration would be governed by Austrian law.
The crux of the dispute before the sole arbitrator was the interpretation of clause 2.2 of the agreement between the parties, that provided for restrictions on sub-licensing of the trade mark to third parties. The sole arbitrator, while refusing to entertain the Indian licensee's counterclaim on the grounds of non-payment of advance on costs, rendered the award in favour of the licensor. The Indian company filed objections under s48 of the 1996 Act, alleging that the impugned award was contrary to public policy, as it was contrary to the express terms of the agreement between the parties.
Contentions raised
The award was impugned primarily on the ground that the interpretation resorted to by the sole arbitrator was against the express terms of the contract between the parties, thereby making the award against public policy in India. It was argued that the decision of the Supreme Court in Venture Global Engineering v Satyam Computer Services Limited & anor [2008] held that even a foreign award can be challenged under s34 of the 1996 Act and therefore it was contended that the sole arbitrator went beyond their jurisdiction by ignoring the terms of the contract, which rendered the award against the public policy of India, as interpreted in ONGC v Saw Pipes Limited [2003]. Another basis for impugning the award was that the judgment debtor was unable to present its case before the arbitrator and hence the impugned award was in violation of the principles of natural justice.
To counter the submissions above, it was argued that the term 'public policy' in s48 of the 1996 Act was narrower as compared to s34 of the 1996 Act. It was further submitted that the proceedings under s48 were distinct from those under s34, as a challenge under s34 is to the validity of an award before it becomes a decree, ie before it becomes final and executable, while s48 is for the enforcement of an award only when the award is final. It was also argued that a foreign award could be challenged in the jurisdiction it is made under the laws of that jurisdiction. However, if it is not challenged or, if after such challenge, the same is upheld, it cannot be challenged in the Indian courts as a domestic award. The court is therefore precluded from going behind the foreign award, which is akin to a decree.
It was further submitted that the challenge raised in Penn was impermissible for the following reasons:
- Interpretation of agreement by the arbitrator was final. It is not subject to challenge, even under s34 of the 1996 Act and even if it is a domestic award. In Penn no challenge under s34 has been made, yet the judgment debtor is seeking to challenge the award and the interpretation of the contract by the arbitrator under s48 of the 1996 Act, which is impermissible in law.
- The governing law of the contract was Austrian law. The judgment debtor's contention, in effect, implies interpreting the contract as per Indian law, whereas the governing law was Austrian law. In any event, the judgment debtor did not produce any expert witness under Austrian law to sustain its objection on the point of interpretation of clause 2.2.2 in its favour. Therefore, the judgment debtor cannot be allowed to reopen the arbitration proceedings through the objections under s48 of the 1996 Act.
Decision
The High Court dismissed the objections raised by the Indian party seeking to stall the enforcement of the award under s48 of the 1996 Act. The court held that the expression 'Public Policy of India', as under in s48(2)(b), carries a narrow meaning when compared to the meaning assigned to the same expression in the context of s34(2)(b)(ii) of the 1996 Act. The court dismissed the contentions raised by the Indian party on the following grounds:
- The interpretation of the agreement solely vests with the arbitral tribunal and the courts are normally slow to interfere in cases where the allegation pertains to the misinterpretation of the agreement. However, in Penn the governing law is Austrian law and, consequently, the interpretation of the contract cannot be done by application of Indian law. Moreover, in Penn no evidence was led that would establish that the interpretation resorted to by the arbitrator was erroneous in the context of Austrian law.
- Even if the argument that Venture Global allows a foreign award to be impugned under s34 of the 1996 Act is accepted and even if the application preferred by the judgment debtor under s48 of the 1996 Act were to be treated as objections filed under s34, the award merits no interference. The court held that the interpretation resorted to by the arbitrator was a plausible interpretation of the agreement and there was nothing in the contract that prevented such an interpretation.
- The recognition and enforcement of a foreign award cannot be denied merely because the award is in contravention of Indian law. As has been held by the Supreme Court, the foreign award should be contrary to the fundamental policy of Indian law for the courts in India to deny recognition and enforcement of the same. The other grounds recognised by the Supreme Court to refuse recognition and enforcement of a foreign award are that the award is contrary to the interests of India, or justice or morality, and merely because a monetary award has been made against an Indian entity on account of its commercial dealings, would not make the award either contrary to the interests of India, or justice or morality.
- With respect to the objections relating to the violation of the principles of natural justice, the court observed that, on the basis of the documentation on record, it was more than evident that the arbitrator had granted several opportunities to the objector and it was only after granting such opportunities that the arbitrator closed their right to file their submissions. Therefore, the court found no violation of the principles of natural justice.
In view of these grounds, the court dismissed the objections filed to the enforcement of the award in question.
Comments
By affirming that the term 'public policy', in the context of s48 of the 1996 Act, needs to be interpreted narrowly, the Delhi High Court has adopted a non-interventionist and an arbitration-friendly approach. It is stated that, by not interfering with the award, the court has set a fine precedent to the enforcement and recognition of foreign awards.
However, while recognising that the term 'public policy', appearing under s48 of the 1996 Act requires a narrower interpretation, it was unnecessary for the court to have considered the same from the perspective of s34 of the 1996 Act.
In conclusion, the present decision represents the right step forward to instill some level of confidence in the international business community with respect to India's image as an arbitration-friendly jurisdiction.
(The views expressed are those of the authors and do not reflect the official policy or position of Amarchand Mangaldas.)
By VP Singh, partner, and Dushyant Manocha, associate, Amarchand & Mangaldas & Suresh A Shroff & Co.
E-mail: vp.singh@amarchand.com; dushyant.manocha@amarchand.com.
Penn Racquet Sports v Mayor International Ltd [2011] (1) ARBLR 244 (Delhi)
ONGC v Saw Pipes Limited [2003] 5 SCC 705
Venture Global Engineering v Satyam Computer Services Limited & anor [2008] AIR SC 1061
