Chhattisgarh High Court Rules Foreign Award Cannot Be Refused Under Section 48 Of Arbitration Act Unless Against Public Policy Of India

Chhattisgarh High Court Rules Foreign Award Cannot Be Refused Under Section 48 of Arbitration Act Unless Against Public Policy of India

The Chhattisgarh High Court, in a ruling by Justice Deepak Kumar Tiwari, has affirmed that foreign arbitration awards cannot be refused enforcement under Section 48 of the Arbitration and Conciliation Act, 1996, unless it is clearly demonstrated that the award is against India's public policy. The court also highlighted that, despite the disruptions caused by the COVID- 19 pandemic, the banking sector in India continued to function as an essential service, exempted from lockdown restrictions, making the enforcement of the award not contrary to public policy.

The two arbitral applications were filed under Sections 47, 48, and 49 of the Arbitration Act, seeking enforcement of an English arbitral award dated August 11, 2021, and a cost award dated March 27, 2023. The dispute arose from a contract signed on March 6, 2020, for the sale of 50,000 MT of coal. According to the agreement, the respondent was obligated to open a letter of credit (LC) by March 31, 2020. However, the respondent failed to do so, which led to the termination of the contract and a subsequent arbitration award in favor of the applicant.

The respondent challenged the enforcement of the foreign awards, claiming they were against the public policy of India, particularly due to the challenges posed by the COVID-19 pandemic. The respondent argued that, as per the notifications issued under the Disaster Management Act, the pandemic prevented them from obtaining the LC due to government restrictions.

The court referred to Section 48 of the Arbitration Act, which outlines the grounds for refusing the enforcement of a foreign award, and cited the Supreme Court's decision in Shri Lal Mahal Ltd. v. Progetto Grano Spa (2014). In this case, the Supreme Court held that the enforcement stage does not allow a "second look" at the merits of the award, and procedural issues in foreign arbitration do not necessarily prevent enforcement unless they violate public policy.

The court noted that the relevant notification issued during the pandemic exempted the banking sector and other essential services from lockdown restrictions, allowing banks to continue their operations. Furthermore, the court observed that the respondent had not provided any evidence to substantiate claims of force majeure or frustration due to the pandemic, which could have justified non-compliance with the contract.

The court concluded that the arbitration tribunal had already considered the respondent's objections and found that the banking sector was not subject to the lockdown restrictions. The tribunal had also noted that the failure to open the LC was not due to any governmental restrictions. Therefore, the court ruled that the foreign award was not contrary to public policy, and the objection raised by the respondent was not valid. 

The Chhattisgarh High Court ruled in favor of the applicant, declaring that the foreign arbitral awards were valid and enforceable as decrees of the court. The applications for enforcement were allowed, reinforcing the principle that foreign arbitration awards should be enforced unless they clearly violate public policy.