Limited challenge to foreign arbitral award enforcement

By Karthik Somasundram and Bhavi Vora, Bharucha & Partners
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In Gemini Bay Transcription Pvt Ltd v Integrated Sales Service Ltd & Anr, the Supreme Court considered whether a person who was not a signatory to an arbitration agreement could challenge a foreign arbitral award. Under a contract governed by the laws of Delaware, Integrated was to provide representation services to DMC Management Consultants, who shared common ownership with Gemini, on a commission basis. DMC secured two significant customers through Integrated, for which it was to pay 20% of gross revenues as commission.

Limited challenge to foreign arbitral award enforcement Karthik Somasundram
Karthik Somasundram
Partner
Bharucha & Partners

DMC terminated its contract with Integrated. Gemini entered into similar contracts with the two customers. Integrated invoked arbitration under the contract with DMC and claimed damages from DMC, Gemini and their common promoter. The arbitrator determined that DMC and Gemini were fronts for the promoter, that Gemini had subrogated DMC and was liable for its breaches. DMC, Gemini and the common promoter were jointly and severally liable for damages awarded. They did not challenge the award in Delaware.

A single judge of the Bombay High Court refused to enforce the award against Gemini as a non-signatory to the arbitration agreement. An appellate bench disagreed as there existed none of the grounds to resist enforcement of a foreign award under section 48 of the Arbitration & Conciliation Act, 1996 (act).

On appeal to the Supreme Court, Gemini argued that, under section 47 of the act, the award holder had to prove the enforceability of a foreign award, and no evidence had been led showing the non-signatory was bound by the award. However, the court held that section 47 of the act merely sets out the procedure for enforcement to ensure that jurisdiction exists.

The party resisting enforcement must prove that its defence falls within section 48 of the act. The court relied on its ruling in Emkay Global Financial Services Ltd v Girdhar Sondhi that, in domestic awards, proof for setting aside an award must be found in the records of the arbitral proceedings. The court applied the same logic to proceedings resisting foreign awards. The act has a pro-enforcement bias and grounds to refuse enforcement of foreign awards must be construed narrowly.

If section 48 of the act is applied strictly, enforcement of foreign awards is only open to a party to the arbitral agreement. Allowing a non-signatory to object to the award under section 48 would be against the express language of the act. While internationally, the UK Supreme Court in Dallah Real Estate and Tourism Co v Ministry of Religious Affairs of the Government of Pakistan allowed a non-signatory to resist enforcement of a foreign award, this cannot apply in India in light of the language of section 48.

The court also refused to consider the evidence in the matter as none of the grounds prescribed by the act for the refusal of enforcement of a foreign award includes the merits of the dispute. Relying on its ruling in Vijay Karia v Prysmian Cavi E Sistemi Srl, the court held that the limited grounds set out in the New York Convention ought to be strictly construed. Under the convention, parties have the right to challenge an award in the seat of arbitration and therefore have limited rights to challenge the merits of the award at the time of an application to enforce the award in a foreign jurisdiction.

Citing the Singapore High Court decision in Aloe Vera of America, Inc v Asianic Food (S) Pte Ltd & Anr, the court rejected Gemini’s argument under section 48 of the act that the foreign award was beyond the scope of the arbitration agreement. The court ruled that the essence of the provision was to keep excepted matters, and not ostensibly excepted parties, from arbitration. The appellate bench of the high court had held that the challenge founded on the argument that it was outside the scope of the arbitration agreement would require evidence that there had been a breach of Delaware law. Gemini’s challenge before the Supreme Court had failed as it had led no such evidence.

This was one of the last in a long line of important judgments delivered by Justice R. F. Nariman. His contribution to the development of arbitration jurisprudence has been immense, providing legal backing to the promotion of India as an arbitration hub.

Karthik Somasundram is a partner and Bhavi Vora is an associate at Bharucha & Partners.

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