Enforcing foreign awards in India and public policy

By Vivek Vashi and Prakritee Yonzon, Bharucha & Partners
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The recent judgment of the Supreme Court in Shri Lal Mahal Ltd v Progetto Grano Spa elucidates the law in India on public policy as a condition precedent to enforcement of foreign awards. Part II of the Arbitration and Conciliation Act, 1996, deals with foreign awards in India. Section V of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, is replicated in section 48 of the act, which provides the conditions for enforcing foreign awards in India. Section 48(2) leaves scope for the domestic courts to interpret the validity of the award of a foreign court in the light of arbitrability and public policy in India.

Facts

The case arose out of a breach of contract by an Indian company, Shiv Nath Rai Harnarain, which had contracted to sell “durum wheat of Indian origin” to an Italian company, Italgrani. An inspection done by SGS Geneva, at the instance of the seller, revealed that the wheat was “soft wheat”. Alleging that the seller had sold uncontractual goods, the buyer invoked arbitration in 1994. The arbitral tribunal – the Grain and Feed Trade Association – by an order in 1997, held that the seller was in breach of the contract and was liable to pay the buyer damages. An appeal by the seller to a board of appeal was subsequently dismissed.

Vivek Vashi
Vivek Vashi

The arbitral tribunal also determined its jurisdiction and the propriety of the arbitral claim. In response to a separate claim made by the seller, the tribunal further held that the buyer was in breach of the arbitration agreement not to bring legal proceedings in India.

The buyer instituted a suit in Delhi High Court for enforcement of the award. The court held that the award was not in violation of public policy of India. The appeal to the Supreme Court arose out of the high court’s decision to enforce the award.

Arguments

The seller contended that the award could not be enforced in India as it was contrary to public policy in that the decision of the board of appeal was contrary to the provisions of the contract, and the board had adjudicated on issues which were not raised before it. The buyer contended that if a ground was not good enough to set aside the award by the court competent to do so, such ground cannot be a ground for refusing the grant of the award.

Decision

The Supreme Court considered its previous judgments Oil and Natural Gas Corporation Limited v Saw Pipes Limited and Renusagar Power Limited v General Electric Company. The court held that the former was in reference to jurisdiction and for that purpose public policy of India was to be given a wider meaning, in contradistinction to Renusagar, which dealt with the enforcement of an award before it becomes final.

Prakritee Yonzon
Prakritee Yonzon

The court held that the application of public policy in India for the purpose of foreign awards is more limited than the application in respect of domestic arbitral awards, reiterating that section 7(1)(b)(ii) of the Foreign Awards (Recognition and Enforcement) Act, 1961, must equally apply to the scope and ambit of section 48(2)(b) of the Arbitration and Conciliation Act, therefore narrowing the definition of “public policy” to “public policy of India”.

The court elucidated that while considering the enforceability of foreign awards, the court does not exercise appellate jurisdiction by enquiring into the merits of the matter. The court further held that to establish violation of public law, the award must invoke something more than a violation of law in India.

The court upheld Renusagar and reiterated that enforcement of a foreign award under section 48(2) can be refused only if such enforcement is found to be contrary to fundamental policy of Indian law, the interests of India, justice or morality. Since the objections raised by the appellant did not fall in any of the categories the foreign award could not be held to be contrary to public policy of India as contemplated under section 48(2)(b), and the appeal was dismissed.

Analysis

Public policy is one of the determining factors while enforcing an award in a foreign country. It is up to a country’s courts to enforce awards that are in consonance with the rationale of the judiciary and in particular the ethos of the nation. While the interpretation of public policy in section 48(2)(b) being that of India is restrictive and conservative, it is permissible under the convention. By holding that there was no violation of the public policy of India in the instant case, the Supreme Court has demonstrated the Indian judiciary’s deep understanding of the international arbitration system and its keenness to embrace it.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Prakritee Yonzon is an associate.

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