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2017 (4) TMI 729

Head Note:
Enforcement of a foreign award - express representations were made that the transactions were in compliance with the applicable laws, it is now contended that the SHA was only a device to circumvent the provisions of FEMA - Held that:- The conduct and the stand of Unitech can most charitably be described as plainly dishonest. This court is of the view that permitting Unitech to prevail on such contentions to resist the enforcement of Award would plainly amount to rewarding dishonesty and would be manifestly unjust.

Curiously, no such contentions were advanced by Unitech before the Arbitral Tribunal. Further, Unitech has also failed to indicate any credible explanation for not urging the same before the Arbitral Tribunal. Thus, Unitech cannot be permitted to raise such contentions at this stage. It is also necessary to bear in mind that the present proceedings are for enforcement of inter se rights between Cruz City and Unitech and Cruz City cannot be precluded from enforcing its rights which fall within the ambit of private international law.

The contentions advanced by Unitech are plainly an afterthought as no such contentions were advanced before the Arbitral Tribunal. Indisputably, the Arbitral Tribunal was the forum of choice and had jurisdiction to decide all disputes between the parties. The Keepwell Agreement was subject to Indian laws and Unitech had full opportunity to challenge the validity of the Keepwell Agreement before the Arbitral Tribunal. However, Unitech having failed to do so, this court finds no reason to entertain such contentions to resist enforcement of the Award. There is also much merit in Mr Mukopadhaya’s contention that Unitech had deliberately refrained from taking any such plea before the Arbitral Tribunal as that may have entitled Cruz City to claim further damages. It is apparent that Unitech has also not provided any reason why such defences were not raised before the Arbitral Tribunal. In the circumstances, this court has little hesitation in finding that the contentions now raised are an abuse of the process of this court and, therefore, must be rejected. This is a fit case where principles of issue estoppel ought to be applied notwithstanding the grounds available under Section 48(1) of the Act.

Even if it is accepted that Burley's business was not bonafide, Unitech would be liable to suffer the consequences that would follow under FEMA, but Unitech cannot escape its liability to Cruz City. Insofar as the public policy of India is concerned, the same can be adequately addressed while considering the question of regulatory compliances at the time of remitting the funds recovered from Unitech. When considered in the context of public policy, it would be more pernicious and destructive of the rule of law to permit Unitech to escape its obligations and avoid the Award in comparison to enforcing it.

Unitech’s contention that structure contemplated under the Keepwell Agreement read with the SHA provided an assured return at a predetermined rate to Cruz City and this was a flagrant violation of FEMA and Regulations made thereunder, is also bereft of merit. The Put Option provided to Cruz City under the Keepwell Agreement could be exercised only within a specified time and was contingent on the Santacruz project not being commenced within the prescribed period. This was not an open ended assured exit option as is sought to be contended by Unitech. Cruz City had made its investment on a representation that the construction of the Santacruz Project would commence within a specified period. Plainly, if the construction of the Santacruz project had commenced within the specified period - that is, by 17.07.2010 - Cruz City would not be entitled to exercise the Put Option for exiting the investment. Further, the Put Option could only be exercised within a fixed time period of 180 days and the said option would be lost thereafter.

The reliance placed by Unitech on the RBI circulars dated 09.01.2014 and 14.07.2014 is also misplaced. In terms of RBI’s circular dated 09.01.2014 optionality clauses granting assured returns on FDI are proscribed. However, it is doubtful whether the said circular would be applicable to cases where a foreign investor founds its claim in breach of contract. Plainly, if an investment is made on representations which are breached, the investor would be entitled to its remedies including in damages. The aforesaid circulars proscribe assured return instruments brought in India under the guise of equity. However, in the present case, Cruz City is only seeking to enforce its obligations against Burley, an overseas entity.

Even if it is accepted that the Keepwell Agreement was designed to induce Cruz City to make investments by offering assured returns, Unitech cannot escape its liability to Cruz City. Cruz City had invested in Kerrush on the assurances held out by Unitech and notwithstanding that Unitech may be liable to be proceeded against for violation of provisions of FEMA, the enforcement of the Award cannot be declined.

As argued the Keepwell Agreement and the SHA were only a device to overcome the provisions of FEMA is not entitled to raise this plea for the reasons as stated hereinbefore. No such plea was raised before the Arbitral Tribunal. It is plainly an afterthought and an abuse of the process of this court. Secondly, the contention is premised on an erroneous assumption that the Keepwell Agreement provides for an assured return in violation of FEMA. As stated above, the Put Option was relevant only if the construction of the Santacruz Project was not commenced within the specified period of two years. Cruz City had no assurance of exit at a pre-determined return under the Keepwell Agreement in the event the execution of the project was commenced on schedule. And thirdly, if Cruz City has been induced to make an investment on a false assurance of the Keepwell Agreement being legal and valid, Unitech must bear the consequences of violating the provisions of Law, but cannot be permitted to escape their liability under the Award.

In view of the above, the objections raised by Unitech under Section 48 of the Act against enforcement of the Award are rejected.


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