Supreme Court: Refusal Of Foreign Award Enforcement Should Be Rare, Bias Determination Should Be On International Standards

Supreme Court: Refusal Of Foreign Award Enforcement Should Be Rare, Bias Determination Should Be On International Standards

In a significant ruling, the Supreme Court has allowed the enforcement of a foreign arbitral award. The Court emphasized that in assessing arbitral bias, it is imperative for the Court to adhere to international standards rather than domestic ones. The Court stressed that the refusal of enforcement of a foreign award on grounds of bias should only occur under exceptional circumstances.

Justices Hrishikesh Roy and Prashant Kumar Mishra observed that "embracing international standards in arbitration would foster trust, certainty, and effectiveness in the resolution of disputes on a global scale. The above discussion would persuade us to say that in India, we must adopt an internationally recognized narrow standard of public policy when dealing with the aspect of bias."

The case revolves around a share subscription agreement between HSBC PI Holdings (respondent) and Avitel Post Studioz Limited (Appellant No. 1). This agreement included an arbitration clause stipulating that disputes would be resolved at the Singapore International Arbitration Centre (SIAC). Subsequently, the respondent initiated arbitration, alleging fraudulent misrepresentations by the appellants. Eventually, a final award was issued, ordering the appellants to pay damages totalling $60 million. After multiple rounds of legal proceedings, the current appeal was lodged against the enforcement of the award. Notably, the enforcement was contested on grounds of arbitral bias and violation of public policy.

The Supreme Court emphasized the principle of limited judicial interference in foreign awards right from the outset. It referenced the precedent set in the case of Vijay Karia v. Prysmian Cavi E. Sistemi, where the Court observed that Section 50 of the Indian Arbitration Act does not permit an appeal against a foreign award upheld by a High Court's single judge's judgment. Therefore, the Supreme Court's consideration of such appeals is primarily aimed at establishing legal principles.

Subsequently, the Court addressed the issue of public policy. Citing the precedent set in Shri Lal Mahal Ltd. v. Progetto Grano SpA, the Court emphasized the limited grounds available to oppose the enforcement of a foreign award. In this context, the Court further explored the recommendation put forth by the International Law Association (ILA) in 2002, advocating for the adoption of precise and universally applicable criteria for defining "public policy" in international commercial arbitration.

The ILA also defined international public policy as follows:

i. “Fundamental principles pertaining to justice or morality that the state wishes to protect even when it is not directly concerned;

ii. rules designed to serve the essential political, social, or economic interests of the state, these being known as 'lois de police' or 'public policy rules'; and

iii. It is the duty of the state to respect its obligations towards other states or international organizations.”

The Court also observed that, globally, the standards for identifying bias in preventing the enforcement of awards are more stringent compared to those applied in regular judicial reviews.

Regarding the case's factual background, the Court highlighted that the award in question was rendered in Singapore, a country that is part of the New York Convention, and India has recognized it as a reciprocating territory.

The Court emphasized that the parties had explicitly selected Singapore as the seat of arbitration. It further highlighted that the seat court holds exclusive supervisory jurisdiction to adjudicate claims regarding the arbitrator's jurisdiction or allegations of bias. Deviating from this approach would contradict the framework of the New York Convention, which India has adopted. The selection of jurisdiction was thus based on the parties' perception of neutrality, in line with the principle of party autonomy.

The Court further highlighted that the appellants had not raised a challenge to the award based on bias before the Singapore Courts. In support of this, the Court referenced the case of Shipowner (Netherlands) v. Cattle and Meat Dealer (Germany), where it was held that any objection to bias must initially be raised in the country of origin of the award. Only if the objection was rejected or if it was impossible to raise it there could it be raised at the time of enforcement.

The Court emphasized the importance of raising bona fide challenges to arbitral appointments promptly and cautioned against using them as strategic tactics to prolong the enforcement process.

Considering these factors, the Court declined to provide any relief in the current appeal. Importantly, the Court highlighted the necessity of promptly enforcing the foreign award, particularly as the enforcement process had been drawn out for a decade.

"This long list of events points to a saga of the award holder's protracted and arduous struggle to gather the fruits of the award. The award debtors raised multiple challenges and also defied the court's order. They had to serve jail time for such contemptuous actions.” The Court added before dismissing the instant appeal against the enforcement of an arbitral award.