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The Viewpoint

The Viewpoint: Recognition and Enforcement of Foreign Awards in India

Ravi Singhania

Vikas Goel

The Indian legislature as well as Indian courts have repeatedly shown in their actions that they are alive to India’s commitment of making India conducive for resolution of disputes through effective and efficient arbitration process. Provisions of the Arbitration and Conciliation Act, 1996 (Act) have been aligned with the Model Laws from time to time to ensure that international business community views India as a matured jurisdiction having the will and the laws capable of affording quick and smooth dispute resolution mechanisms.

A recent judgment of the Hon’ble Supreme Court of India in the matter of Vijay Karia and Others Vs Prysmian Cavi E Sistemi SRL and Others will certainly guide the course of future litigation with regard to recognition and enforcement of foreign awards in India. The Supreme Court of India was dealing with a petition challenging the decision of Bombay High Court allowing petition for enforcement of foreign award passed in an arbitration proceedings held at London under the London Court of International Arbitration Rules. The Apex Court did not mince words while criticising the appellant’s efforts of challenging the foreign award and held that it was speculative litigation. Finally, the Apex Court upheld the judgment of the Bombay High Court allowing enforcement of the foreign award and imposed heavy cost of INR 50,00,000 (Rupees Five Million) on the Appellant-Karias.

FACTUAL MATRIX

In the cited case, a joint venture agreement dated 19.01.2010 (“JVA”) was executed between an Indian Company namely Ravin Cables Limited (Ravin) and its 38 shareholders (referred to as existing shareholders) lead by Mr. Vijay Karia on one hand with Prysmian Cavi E Sistemi SRL (Prysmian), an Italian company on the other hand. As per the joint venture, the Prysmian acquired majority shares (51%) in Ravin. By a separate ‘Control Premium Agreement’ of the same date, Prysmian paid € 5 Million to Ravin and the existing shareholders towards acquisition of the share capital of Ravin. Main terms of the JVA were as under:

  1. Mr. Vijay Karia was to remain as the Chairman and Managing Director of Ravin for a period of 7 years from the date of JVA or till such time the existing shareholders of Ravin hold in aggregate at least 10% share capital of Ravin, whichever was earlier. (Clause 12.6 of the JVA)

  2. During the Interim Period of six months, Managing Director (“MD”) was to remain responsible for conduct of day to day functioning of Ravin. The Interim Period was to expire with appointment of CEO of Ravin by Prysmian. (Clause 12.6 of the JVA)

  3. For the next six months, termed as Integration Period, powers were to be delegated to mangers of Ravin and the powers not delegated to any manager were to be delegated jointly to CEO and the MD. During the Integration Period, the CEO was to be responsible for day to day management of Ravin jointly with MD. (Clause 12.7 of the JVA)

  4. Fair Market Valuation, whenever required to be done as per the JVA, could be done by any of the four accounting firms, namely KPMG, E&Y, PWC and Deloitte. (Clause 17.1 of the JVA)

  5. Neither party could, either directly or through its affiliates, invest, acquire or participate in the Cable Business in India except through Ravin in accordance with the JVA. (Clause 21 of the JVA)

  6. JVA defined the events of defaults and the procedure to be followed by the parties for dealing with such events of default. It was provided that if Prysmian was a defaulting party then Mr. Karia (and not the existing shareholders) will be entitled to buy all (but not less than all) the shares held by Prysmian at a discounted price or Mr. Karia could sell to Prysmian all (but not less than all its own shares) and those of existing shareholders at a premium price. Similar provision was contained for dealing with an event where Mr. Karia or any of the existing shareholders were found to be responsible for an event of default. (Clause 23 of the JVA)

  7. JVA also provided for resolution of disputes arising out of the JVA through arbitration to be conducted under the rules of arbitration of London Court of International Arbitration, by a sole arbitrator. The seat of arbitration was London. The applicable law and the law governing arbitration agreement and in all respect including conduct of the proceeding was agreed to be the English Law. (Clause 27 of the JVA)

On 10.08.2010 Prysmian appointed Mr. Luigi Sarogni as CEO of Ravin. However, as he was thwarted in jointly managing the affairs of Ravin, the Board of Ravin appointed Ms. Cinzia Farise as CEO who was also conferred with the power to employ and lay off permanent staff. However, when Ms. Farise was not allowed to function, supposedly by the existing shareholders, things started becoming sour and reached a head when on 31.01.2012 employees of Ravin went on strike at its Akruti office.

Commencement of Arbitration Proceedings

In February 2012, Prysmian issued a notice of arbitration alleging material breach of JVA by the existing shareholders i.e. Mr Vijay Karia and his group. The existing shareholders replied to arbitration notice on 26.03.2012 and raised counter claims. In essence, each party claimed that the other had committed material breach as a result whereof the successful party would be entitled to buy out the other at premium or the discounted price, as the case may be.

On 06.06.2012, the LCIA appointed Mr. David Joseph QC as the Sole Arbitrator. Initially, the existing shareholders challenged the appointment of the Sole Arbitrator, which challenge was not pursued later.

Arbitral Awards

The Ld. Sole Arbitrator decided the disputes between the parties by publishing following four awards:

  1. First partial final award dated 15.2.2013

  2. Second partial final award dated 19.12.2013

  3. Third partial final award dated 14.1.2015

  4. Final award dated 11.4.2017

In the first partial final award, following was held:

  1. The arbitrator construed clause 21 of the JVA and held that the said clause did not prohibit Claimant-Prysmian from selling cables directly in India. The arbitrator held that such direct sales cannot be equated with an investment acquisition or participation in cable business in India which was a prohibited activity under clause 21 of the JVA. The arbitrator further held that conclusion of such series of contracts of direct sales might result in breach of clause 8 or 20 of the JVA but was not a breach of clause 21.

  2. As regards the issue of the parent company of Prysmian making a global acquisition of Draka Group in March 2011, which included one of the 60 company belonging to Draka Group namely Associated Cable Pvt. Ltd., an Indian Company doing business in India, the Learned Arbitrator was of the view that wider acquisition by Prysmian Spa of Draka which in turn hold 60% shareholding in ACPL is capable of amounting to an acquisition in cable business in India through an affiliate of the Claimant in circumstances where it is not disputed that Prysmian SPA is another person which controls the Claimant.

  3. The arbitrator also construed clause 23, which speaks of ‘material breach’ by the parties. Primarily the Arbitrator held as to what was the procedure to be followed by the non-defaulting and defaulting party respectively and what were the remedies of non-defaulting party.

  4. Arbitrator held that dispute regarding the right to register the “Ravin’ trademark, was outside the scope of the arbitration clause under the JVA.

In so far as the second partial final award is concerned, the Ld. Arbitrator dealt with the issue as to whether there was any material breach of the terms and conditions of the JVA by either of the parties. In short, findings of the arbitrator were as under:

  1. Respondent committed material breaches inter alia by interfering with functioning of the CEO, refusing to pass resolution for appointment of Claimant’s nominee as CFO, creating false record with regard to appointing Ms. Mathure, denying HR director and CEO access to the HR and payroll data, refusing to participate in the management meeting convened by CEO, inciting staff to surround, humiliate and threaten Mr. Esposito and Mr. Kamdar on 12th and 13th January 2012 and 04.02.2012 etc.

  2. Respondent failed to rectify its material breaches within the rectification period or the extended period.

  3. In so far as counter claims of Respondent-Karias were concerned, the arbitrator found that Respondent had failed to adduce any credible evidence of actual serious adverse impact on Ravin due to global acquisition of Draka including ACPL by parent company of Prysmian. The arbitrator noticed that despite knowledge of the said acquisition Mr. Vijay Karia did not make any complain of any material breach under clause 21 of the JVA. The arbitrator held that Mr. Vijay Karia who was fully aware of the acquisition since November 2010 changed his tone only in February 2012 to prevent Ms. Farsie from carrying on her function as CEO of Ravin.

  4. Though there were evidence (albite dating back to 2008-09) of occasional instances of both the companies tendering for the same business, there was no evidence that Ravin lost any business to ACPL post Draka acquisition.

  5. Ravin and ACPL operate in very different space. ACPL’s business of instrumentation cable was only equal to 10% of the turnover of Ravin which deals with power and control cables.

  6. Even the expert witnesses produced by both the side, and more particularly the Respondent’s evidence, could not demonstrate evidence of serious adverse effect either on Ravin today or likely in the future.

  7. Tribunal completely rejected the allegation of Respondent-Karias that ACPL has been acquired by the Claimant – Prysmian, in bad faith.

  8. With respect to the counter claim of the Respondent alleging that Claimant’s direct sales in India under agency/distribution agreement competes with the business of Ravin, the Arbitrator held that no such agency/distribution agreement was produced on record which could establish that such arrangement between Claimant and the Indian agent involved injection or exchange of capital or know how on the part of the investor, acquirer or participator. Such sales were conducted on commission basis. Respondent’s assertion that such sales amounted to breach of clause 8&20 was rejected by the arbitrator as no such plea was raised by the Respondent in determination notice.

  9. Therefore all the counter claim of the Respondent were rejected with reasons.

The third partial final award declared as follows:

Respondent-Karia were the defaulting party under clause 23.7 of the JVA. All the rights of whatsoever nature conferred on the Respondents and specifically Mr. Vijay Karia under the JVA would cease to be effective. The Respondent were prohibited from exercising or attempting to exercise any rights under the JVA. The date for the assessment of the discounted price was held to be 30.09.2014.

As regards the final award dated 11.4.2017, the Ld. Arbitrator came to a conclusion that Mr. Vijay Karia group was to transfer to Prysmian 10,252,275 shares held by them in Ravin at a discounted price of INR 63.9 per share aggregating to INR 655,200,000. The Tribunal also gave consequential directions to Mr. Vijay Karia and existing shareholders for giving effect to the transfer of shares and for their complete exit from Ravin.

Petition for enforcement of foreign award

The awards so passed by the Ld. Sole Arbitrator was not subjected to any challenge by either of the parties though as per English Arbitration Law such an opportunity was available. Thereafter, Prysmian filed petition for enforcement of foreign award before the Bombay High Court. It is at that stage that Mr. Vijay Karia and others in the Karia group objected to recognition and enforcement of the foreign award. The Ld. Single Judge finally found that the foreign award must be recognized and enforced as objections did not fall within any of the neat legal pigeonholes contained in Section 48 of the Arbitration Act.

Petition before the Supreme Court of India

Thereafter, Mr. Vijay Karia and his group (Appellant before Supreme Court and Respondent in Arbitration) filed a petition before the Hon’ble Supreme Court of India invoking jurisdiction under Article 136 (Special Leave Petition) of the Constitution of India.

Supreme Court allowed enforcement of foreign award, and dealt with each of the contentions raised on behalf of the parties, with detailed reasoning. The first argument raised by counsel for Karias was to the effect that the court should refuse the execution of the foreign award because Karias were unable to present its case and there was violation of principle of natural justice. Reliance in this regard was placed on Section 48(1)(b) of the Act. The Court rejected this contention and held that the expression ‘was otherwise unable to present its case’ occurring in section 48(1) (b) of the Act would apply at the hearing stage and not after the award has been delivered. Court held that a good working test for determining whether a party has been unable to present his case is to see whether the factors outside party’s control had combined to deny the party a fair hearing. Where no opportunity was given to deal with an argument which goes to the root of the case or a finding is based on evidence which go behind the back of the party and which results in denial of justice to the prejudice of the party or additional or new evidence is taken which forms the basis of the award on which party had been given no opportunity of rebuttal, would on the facts of the given case render a foreign award liable to be set aside on the ground that party has been unable to present its case. It was further held that poor reasoning by which a material issue or claim is rejected, can never be a ground for refusal to enforce a foreign award.

Another contention raised by Karia’s counsel was that the transfer of the shares in Ravin by Karias to Prysmian at discounted price, as directed by the arbitrator, is in violation of FEMA Rules (non-debt Instrument Rules) and would amount to a violation of fundamental policy of Indian Law. In this regards, reliance was placed on Rule 21 of FEMA Rules where it is provided that transfer of equity shares in an Indian company by a person resident in India to a person resident outside India is not permissible if such a transfer is taking place at price less than the valuation of equity shares done by internationally accepted pricing policy/method as certified by a Chartered Accountant. The Court held that even this ground is not sufficient to deny enforcement of the foreign award. The court held that even assuming that the directions in the foreign award for selling of shares at discounted price is not in line with aforesaid Rule 21, the Reserve Bank of India may choose to steps in and direct that the aforesaid shares be sold only at the market value and not at the discounted value, or may choose to condone such breach. Court held that the award does not become void and for attracting the ground of fundamental policy of Indian law, as has been held in Renusagar’s case, violation must amount to a breach of some legal principles or legislation which is so basic to Indian law that it is not susceptible of being compromised. “Fundamental policy” refers to core value of India’s public policy as a notion which may find expression not only in the statutes but also time honoured, hallowed principles which are followed by the courts. Just from that point of view, the court held that, it is clear that resistance to enforcement of a foreign award cannot be made on this ground.

Counsel for Prysmian contended that use of ‘may’ in Section 48 of the Act vests a discretion in the court of enforcing a foreign award despite the fact that one or more ground may have been made out to resist its enforcement. The court held that the grounds for resisting enforcement of a foreign award under Section 48 of the Act may broadly be classified into three groups namely grounds which effect the jurisdiction of the arbitration proceedings; grounds which effect the party interest alone and grounds go to the public policy of India as explained in Explanation 1 to Section 48 (2). Where the ground to resist enforcement is made out by which very jurisdiction of tribunal is questioned (such as arbitration agreement itself not being valid under law to which the parties have subjected it or where the subject matter of the difference is not capable of settlement by arbitration under the laws of India), it is obvious that there can be no discretion in these matters. The court further held that where the grounds taken for to resist enforcement can be said to be linked to the party interest only (i.e. a party has been unable to present his case before the arbitrator and which ground is capable of waiver or abandonment or the ground being made out no prejudice has been caused to the party on such ground being made out), the court may well enforce the award even if such ground is made out. When it comes to public policy of India ground again there would be no discretion in enforcing an award which is induced by fraud or corruption or which violates the fundamental policy of Indian law or is in conflict with the most basic notion of morality and justice. The Court concluded that the expression ‘may’ in Section 48 can depending upon the context mean shall or as connoting that a residual discretion remains in the court to enforce the foreign award despite under section 48 are established.

The Court also considered a number of contentions raised on behalf of the Appellant/Karias touching upon facts of the case. It is well known fact that under Section 48 of the Act, the scope is very narrow and if at all any of the grounds stated therein is made out, the court can only refuse to enforce an award but cannot set aside the same. Accordingly, it was not at all essential for the court to consider the grounds touching on the merits/factual aspects. Nonetheless, the court has dealt with each of the contentions of the Appellant ranging from non-consideration of counter claim, non-consideration evidence by the tribunal, tribunal’s approach being disparate in determining the material breach, perverse interpretation of JVA, ignorance of critical evidence etc. After rejecting all those contentions with reasoned findings, the court dismissed the petition. Following concluding observations of the court, would certainly deter any adventurous litigation for objecting enforcement of foreign awards:

“Having answered each of the submissions of Dr. Singhvi on behalf of the Appellants, we cannot help but be left with a feeling that the Appellants are indulging in a speculative litigation with the fond hope that by flinging mud on a foreign arbitral award, some of the mud so flung would stick. We have no doubt whatsoever that all the pleas taken by the Appellants are, in reality, pleas going to the unfairness of the conclusions reached by the award, which is plainly a foray into the merits of the matter, and which is plainly proscribed by Section 48 of the Arbitration Act read with the New York Convention. We have read, in detail, the four awards passed by the learned sole arbitrator and are satisfied that he has exhaustively discussed the evidence and arrived at detailed findings for each of the issues, claims and counter-claims, and finally accepted the Respondent’s case and rejected the Appellants’. Given the fact that our jurisdiction under Article 136 of the Constitution is itself limited, and given the fact that this Court’s time has unnecessarily been taken by a case which has already been dealt with by four exhaustive awards on merits and also by the impugned judgment of the Bombay High Court, we dismiss these appeals with costs of INR 50 lakhs, to be paid by the Appellant to Respondent No.1 within 4 weeks from today.”

Conclusion

The Act does not make any provision for setting aside of a foreign award. Court in India (that too High Court of competent jurisdiction) can only refuse to enforce a foreign award, if at all an award holder seeks to enforce the same in India, only if any of the grounds mentioned in Section 48 is made out. In the judgment of Vijay Karia the Apex Court has repeatedly emphasized that the policy of Indian legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Act. The court held that the foreign award must always be read supportively with an inclination to uphold rather than destroy the same. Based on this judgement it can be summarised that refusal to enforcement of foreign award is an exception and not the norm.

Ravi Singhania, Vikas Goel
Ravi Singhania, Vikas GoelSinghania & Partners

1 (2020) SCC online SC 177

2 Renusagar Power Co. Ltd. Vs. General Electric Co.; 1994 Supp (1) SCC 644

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