Foreign arbitral awards can't be challenged on merits at enforcement stage: Supreme Court

The Supreme Court on Wednesday reiterated that foreign arbitral awards can be resisted in India only on limited public policy grounds and that courts cannot re-examine such awards on merits at the enforcement stage [Nagaraj V. Mylandla v. PI Opportunities Fund-I and others]..A Bench of Justices Sanjay Kumar and Vinod Chandran emphasised,"One must remember that it is the sovereign commitment of India to honour foreign awards, except on the exhaustive grounds provided under Article V of the New York Convention.".The legal battle began with a 2014 share acquisition and share holders agreement between FSSPL, its promoters Nagaraj and Sharada Mylandla and several institutional investors, including PI Opportunities Fund-I and Millenna FVCI. The investors provided substantial capital in exchange for a 51.76% stake, with the agreement stipulating that FSSPL and its promoters must ensure a qualified initial public offering (QIPO) by March 31, 2016.When the QIPO failed to occur, the "exit waterfall" clause in the agreement was triggered to protect the investors’ capital. This included options for a secondary sale of shares, a company buy-back, or a strategic sale. Despite several formal notices from the investors over several years, the promoters failed to provide a viable exit path, which the agreement explicitly defined as a "material breach"..The dispute moved to the Singapore International Arbitration Centre (SIAC) in 2022. In July 2024, a three-member tribunal issued a unanimous award, ordering the Mylandlas and FSSPL to pay damages based on the "exit price" of the shares as of September 2020. The tribunal also ruled that if these damages remained unpaid after 90 days, the investors could proceed with a "strategic sale" of the entire company to satisfy the debt. In all, SIAC directed Mylandlas to pay over ₹1,400 crore plus interest. The Mylandlas unsuccessfully challenged the award in the High Court of Singapore. When the investors sought to enforce the award as a decree in India, the promoters raised similar objections before the Madras High Court, all of which were rejected as "untenable"..The Supreme Court dismissed the promoters' final appeal, primarily relying on the doctrine of "transnational issue estoppel". This legal principle prevents a party from re-litigating the same factual or legal issues in an Indian enforcement court that were already decided by the foreign court at the seat of arbitration. It held,"It is not open to a party to the foreign award to seek to bring it within the ambit of Section 48(2)(b) of the Arbitration Act by raising a’ public policy’ ground. The doctrine of ‘transnational issue estoppel’ would bar the same. Once the seat court held that there was no buy-back of shares and only a surrender of shares by the Investors, that issue stood settled once and for all and it is not open to the Mylandlas to seek to reopen the same on the anvil of Section 48(2)(b) of the Arbitration Act.".The Court held that the "public policy" exception cannot be used as a backdoor to reopen the merits of a case settled by a foreign seat court."Such a 'merits-based' evaluation is beyond the scope of the enforcement court's jurisdiction under Section 48 of the Arbitration Act and would be barred by application of the doctrine of 'transnational issue estoppel'.".It also rejected the claim that ordering a strategic sale as a debt-recovery mechanism was an illegal form of "specific performance"..The Court concluded that the promoters were merely attempting to delay the inevitable through repetitive litigation.It dismissed the petitions and ordered the Mylandlas to pay an additional ₹25 lakh in costs to each of the four investor groups..The Mylandlas were represented by Senior Advocate Gopal Subramanian with Advocates Anirudh Krishnan, Mahesh Agarwal, Ashish Kabra, Nishant Kadur, Ansh Desai, Madhavi Agrawal, Gauri Subramanium, Uday Aditya Jetley Pocha, Jayavardhan Singh, Pavan Bhushan, Adnan Yousef, Adarsh Subramanian, Anuraag Rajagopalan, Nivethithaa S and EC Agrawala..Millenna FVCI Limited, Mauritius was represented by Senior Advocate Shyam Divan with Advocates Suhrith Parthasarathy, Rhia Marshall, Amritha Sathyajith, Yashmita Pandey, Ankur Singhal, Rongon Choudhary and Rashmi Nandakumar..PI Opportunities Fund-1 was represented by Senior Advocates Abhishek Manu Singhvi and Ritin Rai with Advocates Anuj Berry, Shalaka Patil, Anusha Ramesh, Utkarsh Srivastava, Shilpa Sengar, Gauri Pasricha, Harsh Khanchandani, Daksh Kadian and Amit Bhandari from Trilegal..Other respondents were represented by Advocates Balaji Srinivasan, Vishwaditya Sharma, Kanishka Singh, Harsha Tripathi, Subornadeep Bhattacharjee, Suganya TS, Parikshit Pitale, K Shiva, Rohan Dewan, Aakriti Priya, Garima Jain, Lakshmi Rao, S Eshwar and Aanchal M Niching..[Read Judgment]