The recent judgment of the Supreme Court in Shri Lal Mahal Ltd v Progetto Grano Spa elucidates the law in India on public policy as a condition precedent to enforcement of foreign awards. Part II of the Arbitration and Conciliation Act, 1996, deals with foreign awards in India. Section V of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, is replicated in section 48 of the act, which provides the conditions for enforcing foreign awards in India. Section 48(2) leaves scope for the domestic courts to interpret the validity of the award of a foreign court in the light of arbitrability and public policy in India.
The case arose out of a breach of contract by an Indian company, Shiv Nath Rai Harnarain, which had contracted to sell “durum wheat of Indian origin” to an Italian company, Italgrani. An inspection done by SGS Geneva, at the instance of the seller, revealed that the wheat was “soft wheat”. Alleging that the seller had sold uncontractual goods, the buyer invoked arbitration in 1994. The arbitral tribunal – the Grain and Feed Trade Association – by an order in 1997, held that the seller was in breach of the contract and was liable to pay the buyer damages. An appeal by the seller to a board of appeal was subsequently dismissed.
The arbitral tribunal also determined its jurisdiction and the propriety of the arbitral claim. In response to a separate claim made by the seller, the tribunal further held that the buyer was in breach of the arbitration agreement not to bring legal proceedings in India.
The buyer instituted a suit in Delhi High Court for enforcement of the award. The court held that the award was not in violation of public policy of India. The appeal to the Supreme Court arose out of the high court’s decision to enforce the award.
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