Delhi High Court in its recent decision in Cruz City v Unitech rejected Unitech’s objections to enforcement of an arbitral award. The dispute related to the put option exercised by Cruz City obligating Unitech to cause payment of certain sums stipulated under the shareholders’ agreement, due to a delay in the construction project in question beyond the prescribed time period.
Unitech argued that enforcing the award would be contrary to the public policy of India as the payment involved would contravene the Foreign Exchange Management Act (FEMA) and the FEMA regulations, including the restriction on an exit with assured returns in optionality clauses.
On public policy as a ground for refusal of enforcement of a foreign award, the court held that contravention of a law, including FEMA, was insufficient, specifically in light of the 2015 amendment to the Arbitration and Conciliation Act. It held that “fundamental policy of Indian law” would only mean “fundamental and substratal legislative policy and not a provision of any enactment”.
The court distinguished the case of Renusagar v General Electric, in which the Supreme Court held that a violation of the Foreign Exchange Regulation Act (FERA) was contrary to the public policy of India, by drawing a distinction between FERA (which proscribed foreign exchange transactions) and FEMA (which permits all foreign account transactions subject to reasonable restrictions).
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Damini Bhalla is a partner and Gargi Bohra is an associate at Luthra & Luthra Law Offices. The views expressed here are personal. They are intended for general information purposes and are not a substitute for legal advice.
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