SC’s struggles with ‘unruly horse’ of public policy in foreign awards

Jannie Delucca

The Supreme Court docket, in its recent judgment in the situation of Nafed vs Alimenta SA, refused to enforce a overseas arbitral award in a situation working with groundnut export in the nineteen eighties. In working with an outdated situation when India was a closed overall economy, it appears to have unintentionally pushed our legislation back by a few decades, given that it goes from the grain of settled rules earlier enunciated by the Supreme Court docket on enforcement of Overseas Arbitral Awards. The details of each of the circumstances dealt with by the apex court would differ, but the authorized rules appear to be at variance with each other.

The scope of refusing enforcement of a overseas arbitral award is really constrained, according to the statute. One particular narrow ground for refusal is that the award violates a nation’s main values. This is an onerous “public policy” ground of refusing enforcement, besides becoming subjective. Even so, according to the Supreme Court’s personal precedent, it is not brought on by a mere violation of govt orders or Indian statutory provisions. The waters have now been muddied by the Nafed ruling, a mere two months later.

When the situation unfolded over lots of a long time, the main details are simple. Countrywide Agriculture Cooperative Advertising Federation of India (Nafed) was in a position to ship only 1,900 out of 5,000 metric tonnes of groundnut to Alimenta SA, a Swiss organization in 1979-eighty due to destruction of the crop. Beneath a later addendum to the Arrangement, Nafed agreed to ship these shortfall in 1980-81, oblivious of the actuality that beneath the relevant Export Handle Purchase, it experienced permission to export concerning 1977 and 1980, and could not carry this ahead to 1980-81. The overseas arbitration award went from Nafed, which was directed to pay back a sum of $four,681,000 (with curiosity). This award was improved in an enchantment right before the Board of Attraction (ie, the selected appellate entire body in circumstances the place arbitration is executed right before Federation of Oils, Seeds and Fat Associations or “Fosfa”).

Alimenta moved the Delhi Large Court docket considerably back in 1993 to enforce the arbitral award, a prerequisite beneath the statute. Nafed missing multiple sets of proceedings right before the superior court, and in the end filed an enchantment right before the Supreme Court docket in 2010. Maintain in thoughts, hence, that the closing final result of Alimenta’s enforcement proceedings has fructified immediately after 27 a long time of to start with submitting for enforcement in India. Delays in Indian judicial proceedings have been a recurrent hammering topic in the worldwide small business fraternity. Just take for occasion the award in a Bit arbitration in the White Industries situation, beneath the India-Australia Bit, the place the tribunal held that delay in the Indian authorized system violated India’s obligation to offer the trader with an “effective means” of enforcing its legal rights, which brought judicial delays in India squarely into worldwide emphasis.

The time taken in arriving at a end result in the Nafed situation is unlucky and injures India’s reputation, specially because it is aspiring to be a pro-arbitration jurisdiction. Far more regrettable will be the method in which the worldwide small business fraternity will perspective the recent verdict as unsettling set up rules (in the Alimenta situation), hence avoiding enforcement.

Very first, the judgment of the Supreme Court docket delves deep into the merits of the situation and sifts as a result of the proof, which is decidedly from the “pro-enforcement” ethos of the New York Convention. The New York Convention sorts the bedrock of an enforcement provision in our recent arbitration statute ie, the Arbitration and Conciliation Act, 1996. Even so, this Convention is also the foundation underlying the Overseas Awards (Recognition and Enforcement) Act, 1961, which was relevant in this situation (because the enforcement proceedings have been initiated in 1993, 3 a long time right before the enactment of the present statute). Moving into into the merits of a dispute at the appellate or enforcement stage is impermissible in the situation of domestic awards, let by yourself overseas awards (the place the conventional is a lot more stringent). This is distinct from a judgment handed down very last calendar year by the Supreme Court docket in Ssangyong Engineering (2019) situation.

2nd, and considerably a lot more egregious, is the Supreme Court’s being familiar with of what constitutes “public policy” grounds for refusing enforcement of a overseas arbitral award. Earlier, in two circumstances – the Ssangyong selection and Shri Lal Mahal Ltd (2014) – the Supreme Court docket experienced held that general public coverage grounds for refusing enforcement of overseas awards have been narrower than the grounds offered for interfering with domestic awards. The Court docket, in these two choices, experienced also obviously laid down that something a lot more than a mere contravention of Indian legislation would be expected for a overseas award to violate India’s general public coverage. As recognised by the Supreme Court docket in February this calendar year, in Vijay Karia (2020) situation, this is rational, because overseas arbitral awards typically include an software of the legal guidelines of a overseas jurisdiction, which get-togethers have agreed to in advance. Inevitably, hence, overseas legislation used to a specific situation and the legislation in the jurisdiction the place enforcement is sought may possibly operate up from each other.

In the Vijay Karia situation, the Court docket refused to interfere the place a overseas award was challenged on the purported basis that it ran opposite to specified Exchange Handle norms in the Non-Personal debt Devices Regulations beneath Fema, on the rationale that the provisions in question did not stand for a main value recognised in India. Two months later, the Supreme Court docket has diluted the conventional, with minor explanation, holding that the award in the Nafed situation violated general public coverage, on the basis that Nafed did not have govt permission to export groundnut at the pertinent time beneath an relevant export regulate purchase. Substantially, no energy was built to examine as to how these archaic trade regulation, when India was a closed overall economy, could have violated a ‘core value’ right now (at the time of enforcement), even if it was element of the nation’s general public coverage in nineteen eighties. In actuality, the Court docket explicitly remarked “[t]he export without having permission would have violated the legislation, hence, enforcement of these award would be violative of the general public coverage of India”. These rules fundamentally elevate govt steps, notwithstanding the selection-building hierarchy to the degree of general public coverage norms, and operates opposite to the Supreme Court’s personal pronouncements, which have refused to accord these standing even to statutes handed by Parliament. Presumably, a more substantial bench of the Supreme Court docket will have to explain the correct placement. In the meantime, this selection will develop uncertainty in the minds of traders and worldwide corporations hunting in the direction of India for trade, aside from hampering all strides India has built from a legislative standpoint by way of improvements to the Arbitration Act to enhance its believability in the sphere of arbitration in normal, and with regard to enforceability of overseas awards in specific. Probably, this could be an opportune minute for Parliament to intervene and explain the notion of general public coverage in the context of overseas arbitral awards, building it distinct that mere statutory violations do not contravene general public coverage.


Mukesh Butani is Running Partner at BMR Lawful. Karan Lahiri is an Advocate practising right before the Supreme Court docket of India.

Disclaimer: Sights expressed are own. They do not reflect the perspective/s of Business Standard.

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