Decided on 10 August 2021 | Hon’ble Supreme Court of India
A Division Bench of the Hon’ble Supreme Court (“the Court”) comprising of Justice R. F. Nariman and Justice B. R. Gavai held that a foreign arbitral award is enforceable against non-signatories to an arbitration agreement.
Integrated Sales Service Ltd. (“ISS”) (incorporated in Hong Kong), and DMC Management Consultants Ltd (“DMC”) (incorporated in India) had entered into a Representation Agreement on 18 September 2000. It was agreed that ISS would receive a commission for assisting DMC to sell its goods and services to prospective customers identified by ISS. The Agreement contained an arbitration clause which provided that any dispute between the parties would be referred to an arbitrator in Kansas City, Missouri, USA. Disputes arose between the parties which led to ISS serving a notice of arbitration to Mr. Arun Dev Upadhyay (the Chairman of DMC). Subsequently, a statement of claim was filed naming Mr. Arun Dev Upadhyay, DMC Global (a company incorporated in Mauritius), Gemini Bay Consulting Ltd. (“Gemini Bay”) and Gemini Bay Transcription Pvt. Ltd. (“GBT”) as Respondents.
ISS contended that DMC terminated contracts with two customers introduced by the former and caused new contracts to be executed with the same customers by Gemini Bay to divert funds from DMC and evade payment of commission to ISS. During the same time, Mr. Upadhyaya set up GBT to perform the assigned work for the customers, which the company continues to do till date. The employees of DMC and DMC Global became that of GBT, and worked in the same facilities, using the same equipment, and were managed by the same team. As a result, it was alleged that Mr. Upadhyay used Gemini Bay and GBT as alter egos of himself and ignored the corporate form of DMC and DMC Global to evade payment of the commission. After an arbitral award was rendered in its favor to the tune of USD 6,948,100/-, ISS approached a Single Judge of the Bombay High Court to enforce the foreign award. The Single Judge held that the award was enforceable only against DMC and not against Mr. Upadhyaya, Gemini Bay and GBT as they were not signatories to the arbitration agreement. On appeal, the Division Bench of the Bombay High Court reversed the decision holding that none of the grounds concerning refusal of enforcement of awards as contained in Section 48 of the Arbitration and Conciliation Act, 1996 (“the Act”) were proven to be applicable by Mr. Upadhyaya, Gemini Bay and GBT. Aggrieved by this judgment, Mr. Upadhyaya and GBT approached the Court.
Observations of the Supreme Court
While dealing with the question as to whether a foreign award is enforceable against non-signatories to the arbitration agreement, the Court made the following key observations–
- Section 47 of the Act only lays down the procedural requirements for determining whether the award in question is a foreign award or not. There is no burden of proof on the award holder to prove that a foreign award is enforceable against a non-signatory.
- A reading of Section 44 of the Act indicated six ingredients to an award being a foreign award –
- the award must be on differences between persons arising out of legal relationships;
- the differences may be in contract or outside of contract i.e., including tort;
- the legal relationship is considered “commercial” under Indian law;
- the award must be made on or after 11 October 1960;
- the award must be a New York Convention award i.e., it should be a written agreement to which the Convention applies; and
- the award must be made in a territory which the Central Government by notification has declared to be a territory to which the New York Convention applies.
- The condition for refusing enforcement under Section 48(1)(a) of the Act was very specific and spoke only of incapacity of the parties and invalidity of arbitration agreement under the agreed law. An attempt to bring non-parties within the provision’s ambit would be to ‘try and fit a square peg in a round hole’.
- Enforcement of a foreign award could be refused pursuant to Section 48(1)(b) of the Act only on grounds pertaining to notice of appointment of the arbitrator or of the arbitral proceedings, or that a party had not been able to present its case before the tribunal. Absence of reasons in an arbitral award did not come under the purview of Section 48(1)(b).
- Section 48(1)(c) of the Act dealt with a dispute outside the scope of an arbitration agreement between the parties and not as to whether a person who is outside the scope of the agreement is bound by the award.
- The ground of perversity did not fall within the purview of public policy after the amendment to the Act in 2015 and hence could not be raised as a ground to refuse enforcement of a foreign award under Section 48 of the Act.
- Section 44 recognized that a tort claim could be decided by the arbitrator provided they were disputes that arose in connection with the agreement.
- It was only in exceptional circumstances that the ground involving some basic violation of justice which shocked the conscience of the court would be entertained under Section 48(2). Damages awarded by an arbitrator based on ‘guesstimates’ could not even remotely be said to shock the conscience of the Court under Section 48(2).
In addition to making these observations, the Court found that the appellants could not establish any ground to refuse the enforcement of the award, and hence the appeals were dismissed.
Comment: The Court reemphasized the narrow grounds on which enforcement of a foreign award could be refused. The judgment also states that the Act, like the New York Convention it has adopted, has a pro-enforcement bias and that unless a party, including a non-signatory to an arbitration agreement, shows that its case comes within the ambit of the grounds enumerated in Section 48, a foreign award will be enforced.