Vijay Karia & Ors. vs Prysmian Cavi E Sistemi Srl & Ors.

Arbitration and Conciliation Act, 1996: s.48 – Recognition and enforcement of foreign awards – Scope of interference under Art.136 – The legislative policy so far as recognition and enforcement of foreign awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award but not the other way around (i.e. an order recognising and enforcing an award) – This is because the policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in s.48 of the Act and which have been rejected – This is in consonance with the fact that India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”) and intends - through this legislation - to ensure that a person who belongs to a Convention country, and who, in most cases, has gone through a challenge procedure to the said award in the country of its origin, must then be able to get such award recognised and enforced in India as soon as possible – Bearing this in mind, the Supreme Court’s jurisdiction under Art.136 should not be used to circumvent the legislative policy so contained – Constitution of India – Art.136 – Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

Dismissing the appeals, the Court

HELD: 1. Unlike Section 37 of the Arbitration Act, which is contained in Part I of the said Act, and which provides an appeal against either setting aside or refusing to set aside a ‘domestic’ arbitration award, the legislative policy so far as recognition and enforcement of foreign awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award but not the other way around (i.e. an order recognising and enforcing an award). This is because the policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Act and which have been rejected. This is in consonance with the fact that India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”) and intends - through this legislation - to ensure that a person who belongs to a Convention country, and who, in most cases, has gone through a challenge procedure to the said award in the country of its origin, must then be able to get such award recognised and enforced in India as soon as possible. This is so that such person may enjoy the fruits of an award which has been challenged and which challenge has been turned down in the country of its origin, subject to grounds to resist enforcement being made out under Section 48 of the Arbitration Act. Bearing this in mind, the Supreme Court’s jurisdiction under Article 136 should not be used to circumvent the legislative policy so contained. This is so because this matter has been argued for several days before this court as if it was a first appeal from a judgment recognising and enforcing a foreign award. Given the restricted parameters of Article 136, in cases like the present where no appeal is granted against a judgment which recognises and enforces a foreign award - this Court should be very slow in interfering with such judgments, and should entertain an appeal only with a view to settle the law if some new or unique point is raised which has not been answered by the Supreme Court before, so that the Supreme Court judgment may then be used to guide the course of future litigation in this regard. Also, it would only be in a very exceptional case of a blatant disregard of Section 48 of the Arbitration Act that the Supreme Court would interfere with a judgment which recognises and enforces a foreign award however inelegantly drafted the judgment may be. [Para 24][375F-H; 376-A-E]

2. Enforcement of Foreign Awards under Section 48 Amendments were made by the Arbitration and Conciliation (Amendment) Act, 2015. Section 48 was amended to delete the ground of “contrary to the interest of India”. In the context of challenge to domestic awards, Section 34 of the Arbitration Act differentiates between international commercial arbitrations held in India and other arbitrations held in India. So far as “the public policy of India” ground is concerned, both Sections 34 and 48 are now identical, so that in an international commercial arbitration conducted in India, the ground of challenge relating to “public policy of India” would be the same as the ground of resisting enforcement of a foreign award in India. This feature of the 2015 Amendment Act states that all grounds relating to patent illegality appearing on the face of the award are outside the scope of interference with international commercial arbitration awards made in India and foreign awards whose enforcement is resisted in India. [Paras 37, 38][390-F, H; 391-A-B]

3. General approach to enforcement and recognition of Foreign Awards

The US cases show that given the “pro-enforcement bias” of the New York Convention, which has been adopted in Section

48 of the Arbitration Act, 1996 - the burden of proof on parties seeking enforcement has now been placed on parties objecting to enforcement and not the other way around; in the guise of public policy of the country involved, foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties; the challenge procedure in the primary jurisdiction gives more leeway to Courts to interfere with an award than the narrow restrictive grounds contained in the New York Convention when a foreign award’s enforcement is resisted. [Para 45][397-C-D]

4. Discretion of the Court to Enforce Foreign Awards

Enforcement of a foreign award may under Section 48 of the Arbitration Act be refused only if the party resisting enforcement furnishes to the Court proof that any of the stated grounds has been made out to resist enforcement. The said grounds are watertight – no ground outside Section 48 can be looked at. Also, the expression used in Section 48 is “may”. When the grounds for resisting enforcement of a foreign award under Section 48 are seen, they may be classified into three groups – grounds which affect the jurisdiction of the arbitration proceedings; grounds which affect party interest alone; and grounds which go to the public policy of India, as explained by Explanation 1 to Section 48(2). Where a ground to resist enforcement is made out, by which the very jurisdiction of the tribunal is questioned - such as the arbitration agreement itself not being valid under the law to which the parties have subjected it, or where the subject matter of difference is not capable of settlement by arbitration under the law of India, it is obvious that there can be no discretion in these matters. Enforcement of a foreign award made without jurisdiction cannot possibly be weighed in the scales for a discretion to be exercised to enforce such award if the scales are tilted in its favour. On the other hand, where the grounds taken to resist enforcement can be said to be linked to party interest alone, for example, that a party has been unable to present its case before the arbitrator, and which ground is capable of waiver or abandonment, or, the ground being made out, no prejudice has been caused to the party on such ground being made out, a Court may well enforce a foreign award, even if such ground is made out. When it comes to the “public policy of India” ground, again, there would be no discretion in enforcing an award which is induced by fraud or corruption, or which violates the fundamental policy of Indian law, or is in conflict with the most basic notions of morality or justice. It can thus be seen that the expression “may” in Section 48 can, depending upon the context, mean “shall” or as connoting that a residual discretion remains in the Court to enforce a foreign award, despite grounds for its resistance having been made out. What is clear is that the width of this discretion is limited in which case a balancing act may be performed by the Court enforcing a foreign award. [Paras 46, 53, 54][397-E-F; 407-E-G; 408-A-C]

Shri Lal Mahal Ltd. v. Progetto Grano SPA (2014) 2 SCC 433; Phulchand Exports Ltd. v. O.O.O Patriot (2011) 10 SCC 300 : [2011] 15 SCR 1129; LMJ

International Ltd. v. Sleepwell Industries (2019) 5 SCC

302 : [2019] 4 SCR 617; Sohan Lal Gupta v. Asha Devi Gupta (2003) 7 SCC 492 : [2003] 3 Suppl. SCR 249; Glencore International AG v. Dalmia Cement (Bharat) Limited (2017) SCC OnLine Del 8932 – referred to Sui Southern Gas Co. Ltd. v. Habibullah Coastal Power Co. (2010) SGHC 62; Parsons & Whittemore Overseas Co. v. Societe Generale De L’Industrie Du Papier 508 F.2d 969 (1974); Compagnie des Bauxites de Guinee v. Hammermills Inc. (1992) WL 122712; Certain

Underwriters at Lloyd’s London v. BCS Ins. Co. 239 F. Supp.2d 812 (2003); Karaha Bodas Co., L.L.C v. Perusahaan Pertambagan Minyak 364 F.3d 274

(2004); Admart AG v. Stephen and Mary Birch

Foundation Inc. 457 F.3d 302 (2006); Dallah Real Estate and Tourism Holding Co. v. The Ministry of Religious Affairs, Government of Pakistan (2010) UKSC 46 – referred to

5. The Natural Justice Ground under Section 48

5.1 Given the fact that the object of Section 48 is to enforce foreign awards subject to certain well-defined narrow exceptions, the expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase. In short, this expression would be a facet of natural justice, which would be breached only if a fair hearing was not given by the arbitrator to the parties. Read along with the first part of Section 48(1)(b), it is clear that this expression would apply at the hearing stage and not after the award has been delivered, as has been held in Ssangyong. A good working test for determining whether a party has been unable to present his case is to see whether factors outside the party’s control have combined to deny the party a fair hearing. Thus, where no opportunity was given to deal with an argument which goes to the root of the case or findings based on evidence which go behind the back of the party and which results in a denial of justice to the prejudice of the party; or additional or new evidence is taken which forms the basis of the award on which a party has been given no opportunity of rebuttal, would, on the facts of a given case, render a foreign award liable to be set aside on the ground that a party has been unable to present his case. This must, of course, be with the caveat that such breach be clearly made out on the facts of a given case, and that awards must always be read supportively with an inclination to uphold rather than destroy, given the minimal interference possible with foreign awards under Section 48. [Para 76][433-E-H; 434-A] Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of Indi (NHAI) Civil Appeal No. 4779 of 2019 – relied on

Minmetals Germany GmbH v. Ferco Steel Ltd. (1999) C.L.C. 647; Ajay Kanoria v. Tony Guinness (2006) EWCA Civ 222; Jorf Lasfar Energy Co. v. AMCI Export Corp. 2008 WL 1228930; Dongwoo Mann+Hummel

Co. Ltd. v. Mann+Hummel GmbH (2008) SGHC 275; Gbangbola v. Smith and Sheriff 1998 3 All ER 730; Bahman Irvani v. Ali Irvani 1999 WL 1142456; Van Der Giessen-De-Noord Shipbuilding Division B.V. v. Imtech Marine & Offshore B.V. (2008) EWHC 2904 (Comm); Malicorp Limited v. Government of Arab Republic of Egypt (2015) EWHC 361 (Comm); Soh Beng Tee & Co. v. Fairmount Development Pte Ltd. (2007) SGCA 28; JVL Agro Industries Ltd v. Agritrade International Pte Ltd. (2016) SGHC 126; G.D. Midea Air Conditioning Equipment Co. v. Tornado Consumer Goods Ltd. (2017) SGHC 193; Hebei Import & Export Corporation v. Polytek Engineering Company Ltd. (1992) 2 HKC 205; Ascot Commodities NV v. Olam International Ltd. 2001 WL 1560709; Zebra Industries v. Wah Tong Paper Products Group Ltd. (2012) HKCU 1308; Front Row Investment Holdings v. Daimler South East Asia (2010) SGHC 80; TMM Division Maritime SA v. Pacific Richfield Marine Pte Ltd. (2013) SGHC 186; AKN & Anr. v. ALC & Ors. (2015) SGCA 18; BAZ v. BBA & Ors. (2018) SGHC 275 – referred to.

5.2 It is not possible to hold that failure to consider a material issue would fall within the rubric of Section 48(1)(b). However, if a foreign award fails to determine a material issue which goes to the root of the matter or fails to decide a claim or counter-claim in its entirety, the award may shock the conscience of the Court and may be set aside, as was done by the Delhi High Court in Campos on the ground of violation of the public policy of India, in that it would then offend a most basic notion of justice in this country. It must always be remembered that poor reasoning, by which a material issue or claim is rejected, can never fall in this class of cases. Also, issues that the tribunal considered essential and has addressed must be given their due weight – it often happens that the tribunal considers a particular issue as essential and answers it, which by implication would mean that the other issue or issues raised have been implicitly rejected. [Paras 77, 78][434-C-F]

Campos Brothers Farms v. Matru Bhumi Supply Chain Pvt. Ltd. (2019) 261 DLT 201 – affirmed

6. Violation of FEMA Rules

If a particular act violates any provision of FEMA or the Rules framed thereunder, permission of the Reserve Bank of India may be obtained post-facto if such violation can be condoned. Neither the award, nor the agreement being enforced by the award, can, therefore, be held to be of no effect in law. This being the case, a rectifiable breach under FEMA can never be held to be a violation of the fundamental policy of Indian law. Even assuming that Rule 21 of the Non-Debt Instrument Rules requires that shares be sold by a resident of India to a non-resident at a sum which shall not be less than the market value of the shares, and a foreign award directs that such shares be sold at a sum less than the market value, the Reserve Bank of India may choose to step in and direct that the aforesaid shares be sold only at the market value and not at the discounted value, or may choose to condone such breach. Further, even if the Reserve Bank of India were to take action under FEMA, the non-enforcement of a foreign award on the ground of violation of a FEMA Regulation or Rule would not arise as the award does not become void on that count. The fundamental policy of Indian law, as has been held in Renusagar must amount to a breach of some legal principle or legislation which is so basic to Indian law that it is not susceptible of being compromised. “Fundamental Policy” refers to the core values of India’s public policy as a nation, which may find expression not only in statutes but also time-honoured, hallowed principles which are followed by the Courts. Judged from this point of view, it is clear that resistance to the enforcement of a foreign award cannot be made on this ground. [Para 83][439-C-G]

Renusagar Power Plant Co. Ltd. v. General Electric Co. (1994) Supp (1) SCC 644 : [1993] 3 Suppl. SCR 22 – relied on.

Cruz City 1 Mauritius Holdings v. Unitech Limited (2017) 239 DLT 649; Dropti Devi v. Union of India (2012) 7 SCC 499 : [2012] 6 SCR 307 – relied on.

7. Challenge to Enforcement of the Foreign Award in this case on facts

7.1 The Tribunal failed to deal with the Appellants’ counterclaim pertaining to the incorporation of Jaguar Communication Consultancy Services Private Limited.

According to the Appellants, this ground of objection – i.e. the incorporation of Jaguar - was pleaded by them as a “concealed breach”, which became known to them only at a much later stage of the arbitral proceedings. Despite the tribunal specifically ruling in the First Partial Final Award that a non-defaulting party could rely on a “concealed breach” and treat the same as an unrectified event of default under clause 23.4 of the JVA, the submission made by the Appellant in this behalf was ignored in its entirety. The First Partial Final Award was made only on 15.02.2013. When the Respondent No.1 made its oral submissions and filed written closing submissions on 19.07.2013, the Appellants did not plead any case of breach due to Jaguar. It was only at the fag end, i.e. in the Appellants’ Responsive Closing Submissions, filed on 20.08.2013, that the tribunal was invited to rule on this breach. Obviously, by this time, the Respondent did not have any opportunity to controvert this case put up for the first time by the Appellants. Since this case had been put up for the first time at the fag end of the proceedings, before passing of the Second Partial Final Award dated 19.12.2013, the arbitrator cannot be faulted for not dealing with this case. In the Second Partial Final Award, the tribunal also recorded that the Appellants’ case on clause 21.1 was limited to the acquisition of ACPL and direct sales into India. The argument of the Appellant, made at the fag end of the proceedings, that since the Respondent held 99.99 % shares of Jaguar, which is in a similar cable business as Ravin, as evidenced by the Memorandum and Articles of Association of Jaguar, is a case that has never been pleaded. This being the case, it is obvious that the arbitrator was within his jurisdiction not to deal with this so-called counter-claim at all. This objection, therefore, does not fall within any of the grounds mentioned in Section 48 and must, therefore, be rejected. [Paras 86, 87][441E-G; 442-C-F]

7.2 The Tribunal failed to make a determination on the Appellants’ counter-claim concerning ouster of the Appellants

It would be wholly incorrect to state that the tribunal has failed to make a determination on the Appellants’ counter-claim that the Respondent’s efforts to oust Appellant No. 1 and his family amounted to a breach of the JVA. While considering the case of the Appellants and the cross-case of the Respondent, the tribunal has adverted to pleadings, evidence and has given detailed findings as to why the Appellants are in material breach of the JVA, as a result of which the Respondent cannot be said to be in material breach of the JVA. This being the case, it cannot be said that this material issue has not been answered by the Second Partial Final Award. This ground, therefore, also does not fall within any of the stated pigeon-holes under Section 48. [Para 89][445-A-C]

7.3 The Tribunal failed to make a determination on the Appellants’ counter-claim concerning registration of the Ravin Trademark

It is clear from the perusal of the First Partial Final Award that what was argued before the arbitrator, and therefore answered by the arbitrator, was whether the tribunal had jurisdiction to go into the Trademark License Agreement. A perusal of the transcript of the hearings on both 12th and 13th December, 2012 before the arbitrator clearly showed that no argument was ever made by the Appellants before the tribunal that the Respondent had surreptitiously attempted to register the Ravin Trademark in its own name, and therefore was in breach of the competition clauses of the JVA. Thus, this argument again appears to be an afterthought which has no foundation in the submissions made before the arbitrator. [Paras 90, 91][445-E; 447-D-E]

7.4 The Tribunal acted contrary to the Parties’ expert witnesses and ignored critical evidence with regard to the acquisition of ACPL

The tribunal went into the acquisition of ACPL in the Second Partial Final Award, and held that Mr. Karia’s contemporaneous reaction to the acquisition of Draka, which led to an indirect acquisition of 60 subsidiaries, one of which was ACPL, was that he was very happy that Respondent No. 1 had so expanded its business. Several congratulatory emails were referred to by the arbitrator. Further, the arbitrator found that Mr. Karia’s statements in cross-examination showed that he had knowledge of this acquisition way back in November 2010 but never complained of material breach of the JVA. The arbitrator also examined evidence as to serious actual loss or harm, finding no such credible evidence, except occasional instances of both companies tendering for the same business. It was held that there was no reliable evidence that the Ravin’s business had been lost post the ‘Draka acquisition’ or that there had been any diversion of business from Ravin to ACPL or vice versa. The arbitrator then held that ACPL is a small specialist cable business and operates principally in the area of instrumentation cables, which is not the area in which Ravin operates. The learned arbitrator also adverted to the evidence of the expert witnesses in arriving at this conclusion. It also made a reference to Mr. Karia’s crossexamination, stating that Mr. Karia himself considered ACPL to be the 50 th or 60 th competitor given its small business. The finding, therefore, was that the acquisition of ACPL did not in any manner amount to a serious material breach of the JVA. Insofar as the failure to produce documents by Respondent No.1 with regard to its subsidiary ACPL is concerned, ACPL is not a direct subsidiary of Respondent No. 1, being an indirect subsidiary of Respondent No.1’s parent company consequent upon the acquisition of Draka. It has an independent Board of Directors. Above all, ACPL was not a party to these arbitral proceedings. The tribunal therefore made Procedural Order No. 5 dated 27.11.2012 in which it specifically recorded that if the Appellants wish to pursue their request for disclosure of further documents qua ACPL, they must approach the Courts to do so, as it was not within the arbitrator’s power to direct a person who is not party to the proceedings to produce documents. At no stage did the Appellants act in compliance of this Procedural Order and approach an English Court to direct ACPL to produce documents within its possession. This being so, a party cannot complain of breach of natural justice when it was within the control of such party to approach a U.K Court for production of such documents. This not having been done, it is clear that no adverse inference, could have been drawn by the arbitrator. This ground also, therefore, does not fall within any of the grounds under Section

48. [Paras 94, 95][448-D-H; 449-A-D]

7.5 Perverse Interpretation of the JVA.

The interpretation of an agreement by an arbitrator being perverse is not a ground that can be made out under any of the grounds contained in Section 48(1)(b). Without therefore getting into whether the tribunal’s interpretation is balanced, correct or even plausible, this ground is rejected. [Para 96][449-F]

7.6 The Tribunal ignored critical evidence with regard to the issue of agency agreements and Direct Sales Having perused the Award in this behalf, it cannot be said that the tribunal has in any manner ignored admissions or other critical evidence with regard to the issue of direct sales. In any case, if at all, this ground goes to alleged perversity of the award, which is outside the ken of Section 48. [Para 98][450-F-G]

7.7 The Tribunal adopted disparate thresholds in determining material breach

All the allegations made under this ground go to perversity of the award, which is outside the ken of Section 48. That apart, the tribunal indicates in paragraphs 104 to 106 of the Second Partial Final Award, that no disparate thresholds in determining material breach was adopted. [Para 99][451-A]

7.8 The Tribunal’s

contemporaneous evidence

selective

consideration

of

This argument must be rejected out of hand, as not falling within the parameters of Section 48. Equally, the tribunal’s consideration of evidence of key witnesses being selective and perverse, must be rejected on the same ground. [Para 100] [451-G-H; 455-A]

7.9 The Tribunal appointed a conflicted valuer

The arbitrator has considered this point in some detail and dismissed it. This objection again does not fall under any of the grounds of Section 48. [Para 101][452-B; 453-H]

7.10 Valuation ignores Ravin’s stake in Power Plus

The appellant argued that the valuation made by Deloitte ignored a stake of 49% of Ravin in a company called Power Plus, which stake has been valued by the Appellants’ valuer (one BDO) at INR 563 crores. Considering that this aspect was not taken into account by Deloitte, the valuation report ought not to have been accepted by the arbitrator, also being contrary to the position taken by both parties. This submission was dealt with by the arbitrator in great detail in Final Award. Among other things, the arbitrator referred to clause 17 of the JVA and stated that the said clause together with the formula prescribed therein was followed by Deloitte. Since this was done, Deloitte cannot possibly be faulted and cannot further be asked to take into account the stake of Ravin in Power Plus, as that would go outside the JVA. This again is a matter for the arbitrator to determine. This again is a ground wholly outside grounds that can attract challenge to foreign awards under Section 48. [Para 102][454-A-D]

7.11 Valuation Date

The appellant argued that the tribunal acted contrary to the parties’ submissions in arriving at a valuation date of 30.09.2014, much later on the date of the Final Award which is 11.04.2017, as the parties had agreed that this date ought to be the date closest to the date of actual sale of share and would be valid only until 31.12.2014. The arbitrator dealt with this objection in the Final Award dated 11.04.2017. Having found that the delay in the valuation report was attributable largely to the Appellants and that therefore the agreed date of 30.09.2014 is the correct date, there is nothing in the award which can be said to even remotely shock conscience of this Court. This ground is also therefore rejected. The plea to exercise power under Article 142 of the Constitution of India, so as to shift the valuation date from 30.09.2014 to the date of judgment is also rejected given the arbitrator’s finding. Quite apart from this, nothing in Section 48 of the Arbitration Act would permit an enforcing court to add to or subtract from a foreign award that must either be enforced or rejected by reason of any of the grounds under Section 48 being made out to resist enforcement of such foreign award. This Court’s power under Article 142 ought not to be used to circumvent the legislative policy contained in Section 48 of the Arbitration Act. [Para 103][454-E; 455-F-H; 456-A]

7.12 Violation of FEMA and the Rules thereunder

The arbitrator awarded INR 63.90 per share as per the Deloitte valuation, which was contractually binding under clause

17 of the JVA. The lower valuation of INR 16.88 per share as in the M/s Kalyaniwalla & Mistry valuation report dated 04.03.2016 was not accepted. [Para 105][456-E]

7.13 Bias of the Tribunal

The appellant argued that the arbitrator was clearly biased in that the outcome of the Second Partial Final Award was clear to Respondent No.1, inasmuch as its agent, one M/s Gilbert Tweed Associates, sent out an advertisement for recruiting employees for Ravin, two months before the Second Partial Final Award, thereby showing that this agent was clear as to the outcome of the proceedings. This was strongly refuted by the Respondent, stating that at no time had Gilbert Tweed Associates been retained by them. As a matter of fact, an agency called M/s Key2People was engaged by Respondent No.1 to identify potential candidates who could be recruited for the company in due course. M/s Key2People, in turn, appointed M/s Gilbert Tweed Associates. In any case, the Respondent undertook to terminate the engagement of M/s Key2People by its email of 28.10.2013. The allegation of bias thus made was clearly a desperate afterthought. The contention that the arbitrator was otherwise biased was dealt with in the Final Award. [Para 106] [456-F-H; 457-A]

8. The sole arbitrator exhaustively discussed the evidence and arrived at detailed findings for each of the issues, claims and counter-claims, and finally accepted the Respondent’s case and rejected the Appellants’. Given the fact that jurisdiction under Article 136 of the Constitution is itself limited, and given the fact that this Court’s time has unnecessarily been taken by a case which has already been dealt with by four exhaustive awards on merits and also by the impugned judgment, these appeals are dismissed with costs of INR 50 lakhs, to be paid by the Appellant to Respondent No.1. [Para 107][458-B-C]