Foreign arbitral award: Recognized but not executed
Bombay High Court:
The Bombay High Court (“Court”) in the case of Armada (Singapore) Pte Ltd (“Petitioner”) v Ashapura Minechem Ltd1 (“Respondent”) has partially allowed a Petition for recognition and enforcement of a foreign arbitral award, whilst proceedings before the BIFR are pending. The Court has held that Section 22 of SICA does not impose a bar on declaring a foreign arbitral award enforceable as a decree of a Court. However, if the party against whom the award is to be enforced has filed proceedings before the BIFR then no steps can be allowed in furtherance of execution of the award without permission of the BIFR.
The Petitioner entered into a two separate contracts of affreightment with the Respondent. The Respondent sought to terminate the contracts citing instances of frustration and/or force majeure. The Petitioner disputed the termination and invoked the respective arbitration agreements in the contracts. Thereafter, although the Petitioner had appointed an Arbitrator, the Respondent had failed to do so within the stipulated period of seven days resulting in the Petitioner’s Arbitrator being appointed as the Sole Arbitrator in the arbitration proceedings in terms of Section 17 of the English Arbitration Act, 1996. The Respondent also failed to file a defense submission in the arbitral proceedings. Subsequently, the Arbitrator by two separate awards dated February 16, 2010 had directed the Respondent to pay the Petitioner a sum of US$ 28,196,000 and US$ 37,353,524. The Petitioner sought to recognize and enforce the two arbitral awards through the present petitions.
The Court, inter alia, held that the parties had impliedly excluded the applicability of Part I of the Act; therefore Section 42 of the Act was not applicable. The Court also referred to the petition filed under Section 34 of the Act in the Gujarat Court to set aside the foreign arbitral award, which was held not maintainable and therefore there was no bar on the Petitioner to prefer the present petitions.
Implications of reference before BIFR
The Court observed that the Petitioner had prayed for (a) an order and/or a declaration that the foreign awards in both the petitions were enforceable as a decree of the Court under Section 48(2) of the Act; and (b) to enforce and to execute the said awards.
Relying on Tropic Shipping, the Court held that there was no bar under Section 22 of SICA to declare that foreign awards are enforceable as decrees of a Court. The Court went on to hold that if the Petitioner prefers an application for execution of the award or to take some coercive steps regarding execution, then the embargo contained in Section 22 of SICA would become applicable. The Court concluded by stating that since the Respondent had preferred a reference before the BIFR and the Petitioner had subsequently applied to the BIFR for appropriate direction, therefore the Court could not pass any coercive orders in execution of the foreign award as a decree of the Court at the current stage.
Narrower interpretation of Public Policy of India
Relying on Pol India Projects the Court held that simpliciter violation of the provisions of Indian Law would not tantamount to breach of the fundamental policy of Indian law. Following Shri Lal Mahal Ltd., the Court held that under Section 48(2)(b) of the Act, enforcement of a foreign arbitral award would be refused only if such enforcement is found contrary to (1) fundamental policy of Indian Law; or (2) the interests of India; or (3) justice or morality.
The Court also referred to the judgment of the Delhi High Court in Penn Racquet Sports v Mayor International Limited8, which stated that under Section 48 of the Act, the scope of objection to the enforcement of a foreign arbitral award is very limited.
Considering the above, the Court was of the view that the Respondent had failed to furnish any proof basis which the enforcement of the foreign arbitral award could be refused. Consequently, the Court held the award to be enforceable as a decree of the Court under the provisions of the Arbitration & Conciliation Act, 1996.
It is evident that the Court has tried to harmoniously interpret the provisions of the Act with SICA, in the spirit of non-intervention with a foreign arbitral award. Section 22 of SICA provides that no proceedings for execution, distress or the like against any of the properties of the industrial company and no suit for the recovery of money or for the enforcement of any security against the sick industrial company shall lie or be proceeded with further, except with the consent of the BIFR, pending a reference before the BIFR or AAIFR. The rationale behind this section is that the status quo of an industrial undertaking is maintained while the BIFR is contemplating possible ways to rehabilitate the undertaking in the most efficient manner.
In such a situation, if creditors of the undertaking are allowed to continue with their recovery proceedings, then there would not be any progress with the process of rehabilitation as, amongst other things, the financial position of the undertaking would keep changing. Keeping this position in sight, the Court has held that while nothing bars an arbitral award from being recognized and thus deemed to be enforceable as a decree of a Court, the same cannot be executed without the prior approval of the BIFR.
1 Arbitration Petition No. 1359 of 2010 and 1360 of 2010
2 Section 42- Jurisdiction
Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.
3 Section 22- Suspension of legal proceedings, contracts, etc-
(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding, anything contained in the Companies Act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof 2[ and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.
4 2002 (2) Bom CR 93
5 AIR 1994 SC 860
6 (2014) 2 SCC 433
7 Arbitration Petition No. 76 of 2012
8 ILR (2011) Delhi 181