Gemini Bay Transcription Pvt. Ltd. vs Integrated Sales Service Ltd. & Anr.

ss. 44, 47, 48 – Foreign awards – Recognition and enforcement of, against non-signatories to the arbitration agreement – On facts, Hong Kong based company-respondent no. 1-ISS and Indian company-DMC entered into a Representation Agreement – In terms thereof, ISS had to assist DMC to sell its goods and services to the prospective customers and in consideration was to receive Commission – By amendment, the agreement was subject to laws of the State of Delaware, USA – Dispute between the parties – Initiation of arbitration by ISS, claiming that DMC allegedly terminated its contract with the customers introduced by ISS and executed new contracts with the appellant company-GBT, a company owned and controlled by the Chairman of DMC, thereby depriving ISS of its Commission – ISS claimed damages on the basis of accounting for lost Commissions – Chairman of DMC, DMC, DMCG, GBC and appellant company filed claim as respondents – Issuance of award by the arbitrator directing the DMC, DMCG, Chairman of DMC, GBC and the appellant company to jointly and severally pay the amount awarded to ISS – As regards, the enforcement of award, the Single Judge of the High Court held that the award would be enforceable against DMC as it was a party to the agreement, and not against non-signatories to the arbitration agreement – However, the Division Bench set aside the order of the Single Judge – Appeal by non-signatories – Held: Foreign award could be enforced against non-signatories to the arbitration agreement – s. 47(1)(c) being procedural in nature does not go to the extent of requiring substantive evidence to “prove” that a non-signatory to an arbitration agreement can be bound by a foreign award – s. 47(1)(c) speaks of only evidence as may be necessary to prove that the award is a foreign award – A non-party to the agreement, alleging that it cannot be bound by an award made under such agreement, is outside the literal construction of s. 48(1)(a) – Non-signatory’s objection cannot possibly fit into s. 48(1)(a) – Application of the alter ego doctrine under Delaware law would depend primarily upon the Arbitrator applying the oral and documentary evidence led before him to arrive at this conclusion on facts – Furthermore, perversity not a ground to set aside an award in an international commercial arbitration held in India –Expression ‘submission to arbitration’ u/s. 48(1)(c) only deals with disputes outside the scope of the arbitration agreement between the parties-and not to whether a person who is not a party to the agreement can be bound by the same – As regards, the plea that the Award should be set aside since no proper reasons given by the Arbitrator, being breach of natural justice, s. 48(1)(b) does not speak of absence of reasons in an arbitral award at all – Plea that since damages were given in tort, they would be outside the scope of the arbitration agreement cannot be accepted since u/s. 44, the tort claims may be decided by an arbitrator provided they are disputes that arise in connection with the agreement – Furthermore, s.46 does not speak of “parties” at all, but of “persons” who may, thus, be non-signatories to the arbitration agreement – Thus, on facts, actual loss can be said to have been occasioned to ISS, and the damages awarded cannot be said to shock the conscience of this Court – Damages – Doctrine of alter ego.

s. 44 – Foreign awards – Ingredients to an award being foreign award – Stated.

s. 47 – Pre-requisites for the enforcement of a foreign award – Stated.

s. 48(1)(a), (b) and (c) – Conditions for enforcement of foreign awards – Interpretation and scope of – Explained. Dismissing the appeals, the Court

HELD: 1.1 A reading of Section 44 of the Arbitration and Conciliation Act, 1996 would show that there are six ingredients to an award being a foreign award under the said Section. First, it must be an arbitral award on differences between persons arising out of legal relationships. Second, these differences may be in contract or outside of contract, for example, in tort. Third, the legal relationship so spoken of ought to be considered “commercial” under the law in India. Fourth, the award must be made on or after the 11th day of October, 1960. Fifth, the award must be a New York Convention award, it must be in pursuance of an agreement in writing to which the New York Convention applies and be in one of such territories. And Sixth, it must be made in one of such territories which the Central Government by notification declares to be territories to which the New York Convention applies. [Para 29][986-G-H; 987-A-B]

Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1; R.M. Investment and Trading Co. (P) Ltd. v. Boeing Co. (1994) 4 SCC 541 : [1994] 1 SCR 837 – referred to.

1.2 As the marginal note indicates, Section 47 provides that the pre-requisites for the enforcement of a foreign award are: (1) the original award or a copy thereof duly authenticated in the manner required by the law of the country in which it is made; (2) the original agreement for arbitration or a duly certified copy thereof, and; (3) such evidence as may be necessary to prove that the award is a foreign award. Section 47 is based on Article IV of the New York Convention which is contained in Schedule I to the Arbitration Act, 1996. [Para 34, 35][988-C-E]

International Commercial Arbitration by Gary B.Born (Wolters Kluwer, 2nd Edn., 2014) – referred to.

1.3 All the requirements of sub-section (1) of Section 47 are procedural in nature, the object being that the enforcing court must first be satisfied that it is indeed a foreign award, as defined, and that it is enforceable against persons who are bound by the award. The submission that to prove that a non- signatory to an arbitral agreement can only be roped in to the said agreement on evidence being adduced before the enforcing court as to whether the non-signatory is a person who claims under a party or is otherwise affected by the alter ego doctrine, is disingenuous to say the least. Section 47(1)(c) being procedural in nature does not go to the extent of requiring substantive evidence to “prove” that a non-signatory to an arbitration agreement can be bound by a foreign award. As a matter of fact, Section 47(1)(c) speaks of only evidence as may be necessary to prove that the award is a foreign award. This Section only has reference to the six ingredients of a foreign award that have been outlined, which are contained in the definition section, namely, Section 44. Ingredients 1 to 4 can easily be made out from the foreign award itself as the award would narrate facts which would show the legal relationship between the ‘persons’ bound by the award (who need not necessarily be parties to the arbitration agreement), and as to whether the award deals with matters that can be considered commercial under the law in force in India. Equally, the date of the foreign award would appear on the face of the foreign award itself. Thus, Section 47(1)(c) would apply to adduce evidence as to whether the arbitration agreement is a New York Convention agreement. Also, the requisite Central Government notification can be produced under Section 47(1)(c), so that Section 44(b) gets satisfied. The submission that the burden of proof is on the person enforcing the award and that this burden can only be discharged by such person leading evidence to affirmatively show that a non-signatory to an arbitration agreement can be bound by a foreign award is outside Section 47(1)(c), cannot be accepted. [Para 37][989-F-H; 990-A-D]

1.4 Section 48 deals with enforcement of a foreign award being refused. It is important to notice that when enforcement of a foreign award is resisted, the party who resists it must prove to the court that its case falls within any of the sub-clauses of subsection (1) or sub-section (2) of Section 48. Given that foreign awards in convention countries need to be enforced as speedily as possible, the same logic would apply to Section 48, as a result of which the expression “proof” in Section 48 would only mean “established on the basis of the record of the arbitral tribunal” and such other matters as are relevant to the grounds contained in Section 48. The New York Convention, which our Act has adopted, has a pro-enforcement bias, and unless a party is able to show that it’s case comes clearly within Sections 48(1) or 48(2), the foreign award must be enforced. Also, the grounds contained in Sections 48(1)(a) to (e) are not to be construed expansively but narrowly. [Para 38-40][990-E-F; 992-A-C]

Ssangyong Engg. & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131 : [2019] 7 SCR 522 – relied on.

Emkay Global Financial Services Ltd. v. Girdhar Sondhi (2018) 9 SCC 49 : [2018] 10 SCR 937; Vijay Karia v. Prysmian Cavi E Sistemi SRL (2020) 11 SCC 1 : [2020]

4 SCR 336 – referred to.

1.5 If read literally, Section 48(1)(a) speaks only of parties to the agreement being under some incapacity, or the agreement being invalid under the law to which parties have subjected it. There can be no doubt that a non-party to the agreement, alleging that it cannot be bound by an award made under such agreement, is outside the literal construction of Section 48(1)(a). Also, it must not be forgotten that whereas Section 44 speaks of an arbitral award on differences between “persons”, Section 48(1)(a) refers only to the “parties” to the agreement referred to in Section 44(a). Thus, to include non-parties to the agreement by introducing the word “person” would run contrary to the express language of Section 48(1)(a), when read with Section 44. Also, it must not be forgotten that these grounds cannot be expansively interpreted. The grounds are in themselves specific, and only speak of incapacity of parties and the agreement being invalid under the law to which the parties have subjected it. To attempt to bring non-parties within this ground is to try and fit a square peg in a round hole. Quite apart from the fact that Section 48(1)(a) was not put forward either before the Single Judge or the Division Bench of the High Court. [Para 42, 43][996-G-H; 997-A-C]

1.6 Given the conclusion on Section 48(1)(a) when read with Section 44 of the Arbitration Act 1996, it cannot be followed what is stated to be “international practice” in trying to fit a nonsignatory’s objection to a foreign award being binding upon it under Section 48(1)(a). A non-signatory’s objection cannot possibly fit into Section 48(1)(a). Without delving deep into this problem, it may perhaps be open in an appropriate case for a non-signatory to bring its case within Section 48(2) read with Explanation 1(iii). [Para 49][999-E-F]

Ssangyong Engg. & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131 : [2019] 7 SCR 522 – relied on. Dallah Real Estate and Tourism Co. v. Ministry of Religious Affairs of the Government of Pakistan [2010]

3 WLR 1472; IMC Aviation Solutions Pty Ltd. v. Altain Khuder LLC [2011] VSCA 248; Aloe Vera of America, Inc v. Asianic Food (S) Pte Ltd & Anr. [2006] SGHC 78 – referred to.

1.7 In the facts of the instant case, what this Court is being asked to do, in the guise of applying Section 48(1)(a), is really to undertake a review on the merits. The application of the alter ego doctrine under Delaware law would depend primarily upon the Arbitrator applying the oral and documentary evidence led before him to arrive at this conclusion on facts. This he has done by not only adverting to the documentary evidence, but also adverting to the oral evidence of ISS, MD of DMC and Chairman of DMC. Given the fact that the foreign award gives reasons on facts in this case to apply the alter ego doctrine, it would not be possible to re-appreciate these facts especially when the burden lies on the appellants to establish the grounds made out in Section 48(1), none of which go to the merits of the case. [Para 57][1005C-E]

1.8 Perversity as a ground to set aside an award in an international commercial arbitration held in India no longer obtains after the 2015 amendment to the Arbitration Act, 1996. Section

48 of the Act has also been amended in the same manner as Section 34 of the Act. The ground of “patent illegality appearing on the face of the award” is an independent ground of challenge which applies only to awards made under Part I which do not involve international commercial arbitrations. Thus, the “public policy of India” ground after the 2015 amendment does not take within its scope, “perversity of an award” as a ground to set aside an award in an international commercial arbitration under Section 34, and concomitantly as a ground to refuse enforcement of a foreign award under Section 48, being a pari materia provision which appears in Part II of the Act. [Para 58, 59][1005-E-F; 1006C-E] Ssangyong Engg. & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131 : [2019] 7 SCR 522 – relied on.

1.9 Section 48(1)(c) relates to an award which deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submissions to arbitration. Given the fact that the expression ‘submission to arbitration’ would refer primarily to the arbitration agreement, sub-clause (c) only deals with disputes that could be said to be outside the scope of the arbitration agreement between the parties – and not to whether a person who is not a party to the agreement can be bound by the same. In fact, the proviso to Section 48(1)(c) makes this even clearer, in that it states that an award may be partially enforced, provided that matters which are outside the submission to arbitration can be segregated, thereby again showing that the thrust of the provision is whether the dispute between parties are qua excepted matters for example, or are otherwise outside the scope of the arbitration agreement. [Para 60][1006-E-H]

Ssangyong Engg. & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131 : [2019] 7 SCR 522; Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan (1999)

5 SCC 651 : [1999] 3 SCR 490 – referred to.

Aloe Vera of America, Inc v. Asianic Food (S) Pte Ltd & Anr. [2006] SGHC 78 – referred to.

1.10 It was submitted that since the Award contained reasoning which was perfunctory in nature, it would not pass muster and it would be a breach of natural justice, ‘reasons’ being a part of natural justice as understood in this country, referring to Section 48(1)(b). Section 48(1)(b) does not speak of absence of reasons in an arbitral award at all. The only grounds on which a foreign award cannot be enforced u/s. 48(1)(b) are natural justice grounds relatable to notice of appointment of the arbitrator or of the arbitral proceedings, or that a party was otherwise unable to present its case before the arbitral tribunal, all of which are events anterior to the making of the award. [Para 63][1011-E-G]

Vijay Karia v. Prysmian Cavi E Sistemi SRL (2020) 11 SCC 1 : [2020] 4 SCR 336 – referred to.

1.11 Section 44 recognises the fact that tort claims may be decided by an arbitrator provided they are disputes that arise in connection with the agreement. The submission that since damages were given in tort in the instant case, they would be outside the scope of the arbitration, agreement cannot be accepted. [Para 66, 67, 70][1013-B-E; 1018-C] Renusagar Power Co. Ltd. v. General Electric Co. (1984) 4 SCC 679 : [1985] 1 SCR 432; Tarapore & Co. v. Cochin Shipyard Ltd. (1984) 2 SCC 680 : [1984]

3 SCR 118 – referred to.

Astro Vencedor Compania Naviera S.A. of Panama v. Mabanaft GmbH [(1971) 2 QB 588 – referred to.

1.12 It was submitted that a comparison between Sections

35 and 46 of the Arbitration Act, 1996 would show that the legislature circumscribed the power of the enforcing court under Section 46 to persons who are bound by a foreign award as opposed to persons which would include ‘persons claiming under them’ and that, therefore, a foreign award would be binding on parties alone and not on others. First and foremost, Section 46 does not speak of “parties” at all, but of “persons” who may, therefore, be non-signatories to the arbitration agreement. Also, Section 35 of the Act speaks of “persons” in the context of an arbitral award being final and binding on the “parties” and “persons claiming under them”, respectively. Section 35 would, therefore, refer to only persons claiming under parties and is, therefore, more restrictive in its application than Section 46 which speaks of “persons” without any restriction. Quite apart from this, another important conundrum arises from the Division Bench judgment in the instant case. The Division Bench judgment applied Delaware law to satisfy itself that such law had indeed been followed to apply the alter ego doctrine correctly, as a result of which the foreign award would have to be upheld. This approach is completely erroneous. First and foremost, Section 48 does not contain any ground for resisting enforcement of a foreign award based upon the foreign award being contrary to the substantive law agreed to by the parties and which it is to apply in reaching its conclusion. As a matter of fact, whether the award is correct in law (applying Delaware law), would be relevant if at all such award were to be set aside in the State in which it was made and that too if such law permitted interference on the ground that the arbitral award had infracted the substantive law of the agreement. The arbitral award in this case was not challenged in the State of Missouri. Hence, the Division Bench’s foray into this line of reasoning is wholly incorrect. [Para 71] [1018-D-H; 1019-A-B]

Indowind Energy Ltd. v. Wescare (India) Ltd. (2010) 5 SCC 306 : [2010] 5 SCR 284; Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc. (2013)

1 SCC 641 : [2012] 13 SCR 402; Cheran Properties Ltd. v. Kasturi & Sons Ltd. (2018) 16 SCC 413 : [2018]

4 SCR 1063 – referred to.

1.13 As a matter of fact, if an international commercial arbitration were to be held in India, Section 28(1)(b) recognises that an arbitral tribunal can decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute which, in turn, has a direct nexus to the substantive law of the country whose laws are said to apply. There is no ground in the pari materia provisions of Section 34 to set aside such award on the ground that the substantive law of that country has been infracted. Indeed, the only ground on which such award could possibly be interfered with is if such award, valid under the law which it applied, could be held to be contrary to the public policy of India. [Para 72][1019-B-D]

International Commercial Arbitration by Gary B.Born (Wolters Kluwer, 2nd Edn., 2014) – referred to.

1.14 The final argument that the damages that have been awarded on no basis whatsoever would again not fall within any of the exceptions contained in Section 48(1). In order to attract Section 48(2) read with Explanation 1(iii), it is only in exceptional cases which involve some basic infraction of justice which shocks the conscience of the court that such a plea can be entertained. The Arbitrator correctly held that as nothing was forthcoming from any of the appellants, he would have to make a best judgment assessment for damages. In making that assessment, he took into account the commission that was being earned by GBT from the two clients of DMC and arrived at a figure of 100,000 USD per month and then found, on a reasonable estimate, that they would continue to be clients for a period of four years, as a result of which the figure of 6,948,100 USD was reached. That such ‘guesstimates’ are not a stranger to the law of damages in the U.S. and other common law tradition nations. [Para 74-76][1021B-C; 1021-F-H] Ssangyong Engg. & Construction Co. Ltd. v. NHAI (2019) 15 SCC 131 : [2019] 7 SCR 522 – relied on.

Frederick Thomas Kingsley v. The Secretary of State for India AIR 1923 Cal 49 – referred to.

1.15 There can be no doubt whatsoever that as a result of the machinations of the Chairman and MD of DMC, as found by the arbitral tribunal, ISS was deprived of commission legitimately due to it under the representation agreement. This being so, there can be no doubt that actual loss can be said to have been occasioned to ISS. In any case, the damages so awarded in the facts of this case cannot even remotely be said to shock the conscience of this Court so as to clutch at “the basic notion of justice” ground contained in Section 48(2) Explanation (1)(iii). [Para 79, 80][1023-C-D]

Agritrade International (P) Ltd. v. National Agricultural Coop. Mktg. Federation of India Ltd., (2012) SCC OnLine Del 896 – referred to.