Introduction
In the judgment passed by the Supreme Court on July 3, 2013 in the case of Shril Lal Mehra v/s Progetto Grano SPA, it has been held that enforcement of foreign award (award given in in an arbitration whose seat is outside India) would be refused only it would be contrary to (i) fundamental policy of Indian Law, or (ii) the interests of India, or (iii) justice or morality.
In the said judgment, the apex court has overruled its own decision in the case of Phulchand Exports Limited v. OOO Patriot, in which the Supreme Court giving a wider meaning to the expression ―public policy of India, it had held that the Court can refuse a foreign award if it was ―patently illegal‖, as the same would be against the public policy of India.
Applicable Law
As per clause 2 (b) of section 48 of Arbitration and Conciliation Act, 1996 (―said Act‖), a court can refuse to enforce a foreign award if the enforcement the award would be contrary to the public policy of India. The explanation to the said section states as follows:
“Without prejudice to the generality of clause (b), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption.”
As per section 34 (2) (b) (ii) of the said Act, a domestic award could be set aside if the same is inter alia in conflict with the public policy of India.
Issue
i. In the said case, the issue arose regarding the scope and interpretation of the expression ‘public policy’ which is a ground to refuse enforcement of a foreign award under section 48(2)(b) of the said Act and whether ‘public policy’ as appearing in the said section was wide enough to covered foreign awards which were ‘patently illegal’; and
ii. Whether the expression ‘public policy’ shall have the same meaning and purport under section 34(2)(b)(ii) and section 48(2)(b) of the said Act?
Ruling
Supreme Court held that there was a difference between the scope of the term ―public policy‖ as a ground for objection to the enforceability of a foreign award under Section 48 of the said Act and a domestic award under section 34 of the Act.
The court held that a wider meaning given to the expression “public policy of India” occurring in Section 34(2)(b)(ii) as a ground to set aside arbitration award is not applicable where an objection is raised to the enforcement of the foreign award under Section 48(2)(b). Hence, unlike domestic award, a foreign award could not be set aside on the ground that it was ‘patently illegal’.
The Court further held that enforcement of foreign award would be refused only it would be contrary to (i) fundamental policy of Indian Law, or (ii) the interests of India, or (iii) justice or morality.
Analysis
The decision of Supreme Court will now give confidence to parties to an agreement to opt for foreign seated arbitration, as prior to this judgment, the party who did not want the foreign award to be enforced, had an opportunity to challenge the same on the ground that the same was patently illegal and hence against public policy of India. However, this tactic in delaying and preventing the enforceability of foreign award cannot be taken now.
About Bulwark Solicitors
Bulwark Solicitors is a law firm pioneered by Solicitor Chirag Sancheti and Advocate Deep Shridharani. The firm has expertise in the areas of both Litigation and non-Litigation. Under the non-litigation Law practice, the firm practices in the areas of Corporate Law, Intellectual Property Law, Bankruptcy & Insolvency Law, Competition Law, Real Estate and Conveyancing and DTAA Advisory. Further, under Corporate Law area, we practice Company Law, Securities Law, Mergers and Amalgamations, Private Equity and Venture Capital Investment Transactions, Legal Due Diligence and Foreign Exchange Management Law.