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2017 (4) TMI 729

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..... h 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 accept .....

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..... eepwell 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 inv .....

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..... - 3.1 Cruz City entered into a Shareholders Agreement (hereafter SHA ) dated 06.06.2008 with Arsanovia Ltd. (hereafter Arsanovia ), a company incorporated in Cyprus and Kerrush Investments Ltd. (hereafter Kerrush ), a company incorporated in Mauritius. In terms of the SHA, Cruz City and Arsanovia agreed to invest in Kerrush, which in turn was to invest, through downstream subsidiary(ies), into entities engaged in the establishment, development, construction, management and operation of real estate projects in India. Cruz City and Arsanovia agreed to jointly pursue a real estate project captioned as Santacruz Project through their joint venture company Kerrush. In terms of the SHA, Cruz City invested a sum of US $ 171,332,006.64 and was issued and allotted 50% of the share capital of Kerrush. The balance 50% of the issued share capital of Kerrush was subscribed by Arsanovia. 3.2 The SHA was to govern the inter se relationship between the shareholders of Kerrush. Burley and Unitech, although not parties to the SHA, signed the SHA in confirmation of certain obligations accepted by them. 3.3 Simultaneous to the execution of the SHA, Cruz City also entered into the Keepw .....

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..... Consequently, Cruz City exercised its put option by a notice dated 13.09.2010 calling upon Arsanovia and Burley to jointly and severally purchase the equity shares of Kerrush, issued and allotted to it. By the said notice, Cruz City also called upon Unitech to cause Burley to make the payments due, for purchase of the said shares. The said notice was not complied with and consequently, Cruz City filed two requests for arbitration: One, against Arsanovia and Burley in respect of the SHA (LCIA Arbitration Reference No. 111791); and Second, against Burley and Unitech in respect of the Keepwell Agreement (LCIA Arbitration Reference No. 111792). 3.8 Prior to Cruz City issuing the aforesaid notice, Arsanovia had issued a Buy Out Notice seeking to acquire Kerrush's shares held by Cruz City. The terms/price of purchase for the subject shares under the Buy Out Notice, was less favourable to Cruz City as compared to the price payable in terms of clause 3.9.2 of the SHA (the put option exercised by Cruz City). 3.9 Arsanovia also invoked the arbitration clause under the SHA against Cruz City claiming that it was entitled to purchase the shares held by Cruz City in Kerrush (LCIA Arbit .....

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..... ove commencing with the date of this Award at the rate of 8 per cent per annum, compounded quarterly, until and until such amounts are paid. 6.7 Unitech and Burley shall pay Cruz City any tax payable on the amounts received by Cruz City as provided in the SHA. In case of any dispute as to the amount of any such payment, any party shall have the right to seek a further Award from this Tribunal resolving that dispute. 6.8 All other claims and requests for relief by any party to this arbitration are dismissed. 5. A similar award was also made against Arsanovia and Burley pursuant to LCIA Reference No. 111791. 6. The third arbitration - the arbitration commenced pursuant to the request made by Arsanovia - resulted in an award in favour of Cruz City for 165,000 on account of costs of arbitration and USD 2,900,000 in respect of legal fees and other costs. 7. The arbitral awards rendered pursuant to the request made by Cruz City were subject matter of challenge before the High Court of Justice (Queen's Bench Division Commercial Court) on the ground that the Arbitral Tribunal did not have the substantive jurisdiction. In so far as the award pursuant to arbitration refe .....

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..... otice either from Cruz City or from the Arbitral Tribunal in respect of any claim calling upon Unitech to pay any amount to Cruz City against the purchase of shares. He also referred to clause 10 and clause 2(b)(ii) of the Keepwell Agreement and contended that in terms of the said agreement, no notice was issued to Unitech to the effect that Burley had failed to perform its obligations and therefore, he contended that no claim could be made against Unitech. 12. Fourth, he contended that the enforcement of the Award would be contrary to the public policy of India as it contravenes the provisions of FEMA. He contended that any award which was contrary to any statutory provision of Indian law would be unenforceable. He submitted that the obligation under the Keepwell Agreement was in the nature of a guarantee issued by Unitech on behalf of Burley and the same was not permissible under the Foreign Exchange Management (Guarantees) Regulations, 2000. He drew the attention of this court to Regulation 3 of the said regulations, which proscribe any person resident in India to give a guarantee or surety in respect of, or undertake a transaction, by whatever name called, which has the ef .....

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..... he said provisions would invite penalties and thus, any agreement contrary to the said regulations was void. 12.4 He referred to the decision of the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co : 1994 Supp (1) SCC 644 and submitted that FEMA, being an enactment of Exchange Control Laws in replacement of the Foreign Exchange Regulation Act, 1973, would form a part of the Public Policy of India. He also referred to the decision of the Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. and Ors. : ( 1986) 1 SCC 264 in support of his contention that Exchange Control Laws would form a part of the Public Policy of India. Reference was also made to the decisions of the Supreme Court in Associate Builders v. Delhi Development Authority : ( 2015) 3 SCC 49 and Shri Lal Mahal Ltd. v. Progetto Grano SPA : (2014) 2 SCC 433 . 13. Mr Mukhopadhaya, learned Senior Counsel appearing for Cruz City countered the submissions made on behalf of Unitech. At the outset, he contended that the objection raised by Unitech regarding its inability to present its case in respect of the relief granted, was without any merit. He further submitted that Unitech .....

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..... ed the suggestion that no notice had been issued to Unitech calling upon it to comply with the obligations under the Keepwell Agreement. He contended that no such objection had been raised by Unitech before the Arbitral Tribunal and, therefore, Unitech was precluded from raising any such plea on the principles of res judicata . 16. Insofar as the contention that the enforcement of the Award would contravene the provisions of FEMA is concerned, Mr Mukhopadhaya countered the same by contending that (a) violation of FEMA would not amount to violation of Public Policy under Section 48(2)(b) of the Act; (b) there was no violation of FEMA in entering into the Keepwell Agreement; (c) the question whether any permissions from RBI are required for remitting of the money recovered from Unitech in enforcement of the Award, would be a question to be addressed after the amount awarded had been recovered; and (d) that Unitech was precluded from raising any such plea as it had expressly represented to the contrary. Reasoning and Conclusion 17. There is no dispute that the Award is a foreign award and Cruz City has provided the necessary evidence, as required under Section 47 of the Ac .....

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..... 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.-For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. (3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security. 20. It was contended by Mr Mukhopadhaya that Unitech was precluded from raising any plea that it was unable to present its case since no such challenge was pursued by Unitech to assail the Award before the High Court of Justice and, therefore, the said plea is barred by res judicata . 21. This Court does not find the aforesaid contention to be persuasive. The said pleas are not barred by res judicata principally for the reason that the cause for t .....

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..... ws that recognition of a foreign award is also a necessary pre-condition to apply the principles of res judicata . Clearly, a decision on an issue contained in a foreign award will not preclude the party resisting its recognition and enforcement, to re-agitate the issue unless that award is recognised as binding by the enforcing court. Given this position, it can hardly be contended that a challenge to recognition and enforcement of a foreign award must be rejected on the ground that the award also adjudicates the issue on the ground of which its enforcement is resisted. This would also be equally true of the decision of the reviewing court exercising jurisdiction in the state of the seat of the arbitration. 25. Thus, notwithstanding that Unitech had not raised or having raised not pursued any of its contentions before the Arbitral Tribunal or before the High Court of Justice, it is entitled to raise contentions to resist the recognition and enforcement of the Award, subject to the same being within the scope of the grounds set out in Section 48 of the Act. However, this Court is not bound to decline the enforcement of the Award. The court while considering such pleas - which w .....

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..... power given it by the word may , it becomes its duty to exercise that power . 30. In Official Liquidator v. Dharti Dhan (P) Ltd. : 1977 (2) SCC 166 the Supreme Court had explained that in certain cases where the legal and factual context in which the discretionary power is to be exercised is specified, it is also annexed with a duty to exercise it in that manner. Keeping the aforesaid in mind, there can be no cavil that since Section 48 of the Act enables the court to refuse enforcement of a foreign award on certain grounds, this court would be required to do so; however, if there are good reasons founded on settled principles of law, the court is not precluded from declining the same. The word may in Section 48(1) and (2) of the Act must be interpreted as used in a sense so as not to fetter the courts to refuse enforcement of a foreign award even if the grounds as set out in Section 48 are established, provided there is sufficient reason to do so. Viewed from this perspective, the considerations that this court may bear while examining grounds as set out under Section 48 (1) (enacted to give effect to Article V (1) of the New York convention) may be materially differen .....

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..... ircumstances, which might on some recognisable legal principle affect the prima facie right to have an award set aside arising in the cases listed in s.103(2) . 34. The said principle has been stated in Russell On Arbitration, Twenty Third Edition (at page No. 462) in the following words: The onus of proving the existence of a ground rests upon the party opposing enforcement, but that may not be the end of the matter. The court also has a discretion to refuse enforcement where one or more of the grounds are made out. This discretion is not to be exercised arbitrarily however because the word may in s. 103 (2) is intended to refer to the corresponding word in the New York Convention. In any event the discretion is not open ended and should only be exercised where despite the original existence of one or more of the listed circumstances, the right to rely on them had been lost by, for example, another agreement or estoppel , or where there are circumstances which might on some recognisable legal principles affect the prima facie right to have an award set aside arising in cases listed in s. 103(2). 35. In Redfern And Hunter on International Arbitration, Sixth E .....

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..... ad terms. While in some cases, it may be imperative to refuse the enforcement of the award while in some other, it may be manifestly unjust to do so. Section 48 is enacted to give effect to Article V of the New York Convention, which enables member States to retain some sovereign control over enforcement of foreign awards in their territory. The ground that enforcement of an award opposed to the national public policy would be declined perhaps provides the strongest expression of a Sovereign s reservation that its executive power shall not be used to enforce a foreign award which is in conflict with its policy. The other grounds mainly relate to the structural integrity of the arbitral process with focus on inter party rights. 38. In terms of Sub-section (1) of Section 48 of the Act, the Court can refuse enforcement of a foreign award only if the party resisting the enforcement furnishes proof to establish the grounds as set out in Section 48(1) of the Act. However, the court may refuse enforcement of a foreign award notwithstanding that a party resisting the enforcement has not provided any/sufficient proof of contravention of public policy. In such cases, the Court is not pr .....

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..... ferent view. 42. In that case, Federal Directorate of Supply and Procurement of the Socialist Federal Republic of Yugoslavia (the Directorate) entered into a contract with Westacre Investments Inc, a Panamanian company, (Westacre) whereby the Directorate appointed Westacre as its consultant with respect to sale of military equipment in Kuwait. In terms of the contract, Westacre was to receive a substantial percentage of the value of the contracts entered into by the Directorate with the Kuwaiti Ministry of Defence. The Udruzena Beogradska Banka (Bank) also stood as a surety for such payments. Disputes arose between the parties as the Directorate refused to pay the contracted sums to Westacre after it had secured the contract with the Kuwaiti Ministry of Defence. The disputes were referred to an arbitral tribunal appointed by International Chamber of Commerce Court of International Arbitration, which rendered an award in favour of Westacre. The Directorate and the Bank appealed before the Swiss Federal Court which upheld the award. The principal allegation was that one Mr Al-Otaibi, who was the Secretary General of the Council of Ministers of Kuwait had engineered a scheme whereb .....

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..... re-litigate the same issue unless the party is able to establish certain special circumstances or indicate good reasons. 45. It is also relevant to mention that the UNCITRAL Model Law provides for almost identical grounds for setting aside an award as for refusing the enforcement of a foreign award; the only additional ground being that the foreign award has not become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the laws of which, that award was made (Article V(1)(e) of the New York Convention/Section 48(1)(e) of the Act). Plainly, it would be highly unsatisfactory if a party is permitted to once again invite the enforcing court to rule on questions that have been agitated before a court of competent jurisdiction where the seat of arbitration is located (the supervisory court). This does provide a substantial rationale for vesting the enforcing court with the discretion to consider whether to decline enforcement of a foreign award on certain principles akin to res judicata and issue of estoppel. 46. In the case of DSV Silo-und Verwaltungsgesellschaft mbH v. Owners of The Sennar (The Sennar) : [1985 .....

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..... roceedings before the Austrian Supreme Court for enforcement of the arbitral award, which was declined on the ground that under the Czech Law, a review of the arbitral tribunal's decision was permissible and such review was being undertaken. Before the English Commercial Court, the question arose whether the decision of the Austrian Supreme Court to refuse enforcement of the foreign award would serve as an estoppel. The Court accepted the said plea of estoppel and held that where issue between the two Courts was the same and the issue before the other Court had been considered and decided on merits, a plea of estoppel could be allowed. 50. It is, thus, seen that although stricto sensu principles of res judicata does not apply in proceedings to enforce an arbitral award, the courts have exercised their discretion in favour of not permitting the parties to relitigate the issue which had been considered by a Court of competent jurisdiction on merits or where the party raising the issue had the opportunity to raise the same in a Court of competent jurisdiction but had failed to do so. It is necessary to state that the aforesaid principles only provide objective reasons to en .....

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..... ach the award on merits. 54. Thus, the question whether Unitech ought to be permitted to raise the grounds urged must be considered in the light of the aforesaid principles. Re : challenge to the enforcement of the Award under Sections 48(1)(b)and 48(1)(c)of the Act. 55. There is no dispute that Unitech had proper notice of the appointment of the Arbitral Tribunal and the arbitral proceedings. Thus, the questions to be addressed are: (i) whether there is any merit in Unitech's claim that it was unable to present its case; (ii) whether the Award is beyond the scope of reference; and (iii) whether Unitech should be permitted to raise these grounds. 56. Admittedly, in terms of Clause 2(a) and (b) of the Keepwell Agreement, Unitech had undertaken to cause Burley to make timely payments as specified under the SHA and to make sufficient funds available to Burley to meet its payment obligations. In terms of Clause 4 of the Keepwell Agreement, Cruz City was expressly entitled to take any action available in law or in contract, against the Unitech without having to first enforce the obligations of Burley. 57. Clause 2(a) and (b) of the Keepwell Agreement are set .....

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..... to its bank account, the details of which were provided in the said notice. 0. Admittedly, the said notice was not complied with and consequently, Cruz City filed a request for arbitration, inter alia, indicating that it was seeking the following reliefs:- 31. Accordingly, in this arbitration, Cruz City seeks: (a) a declaration that no Bankruptcy/Dissolution Event has occurred in relation to Cruz City under the Shareholders' Agreement; (b) an award ordering Burley to purchase all of Cruz City's Equity Shares in Kerrush and to pay the Put Option Amount, calculated as at the date of payment, to Cruz City; (c) an award ordering Unitech Limited to make sufficient funds available to Burley to enable Burley to pay the Put Option Amount to Cruz City pursuant to Clauses 3.9.2, 15.3.3 and 15.3.4(ii) of the Shareholders' Agreement; (d) an award ordering Unitech Limited to take all steps necessary to cause Burley to pay the Put Options Amount to Cruz City pursuant to Clauses 3.9.2, 15.3.3 and 15.3.4 (ii) of the Shareholders' Agreement; (e) alternatively, an award for damages against Burley and Unitech Limited for breach of their obligations under the K .....

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..... the SHA had become due and Burley had failed to honour such obligation. It was contended that since Burley was disputing its obligation under the SHA, there was no occasion for Unitech s obligation to be due . In response to the specific pleadings regarding Unitech s breach of the obligations under the Keepwell Agreement and the claim of damages, the main defence taken was (i) that the Put Option sought to be exercised by Cruz City, was invalid on account of a prior event of default and (ii) that the initial or extended period for commencement of construction had not expired on account of force majeure events. 65. It is apparent from the above that the issue whether Burley and Unitech had breached the obligations under the Keepwell Agreement and whether Unitech was obliged to make payment equivalent to the put option price was squarely the subject matter of arbitration. 66. The Arbitral Tribunal examined the merits of the disputes as well as objection as to the maintainability of the arbitration. The contention that unless a decision regarding Burley s obligation had been rendered, no amount could be considered as due and payable by Unitech, was rejected. The Arbitral Trib .....

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..... $2,900,000. In addition, the Arbitral Tribunal awarded post award interest at 8% p.a. compounded quarterly. It was also directed that Unitech and Burley would pay any tax payable on the amount received by Cruz City. 71. In view of the aforesaid, it is apparent that Unitech was not only aware and had notice of Cruz City s claim for the Put Option Amount against it but had also contested the said demand. Unitech s contention that its obligations were not concurrent with Burley, was advanced and was rejected by the Arbitral Tribunal. The Award directing delivery of share certificates to match with payment of put option price was made at the insistence of Unitech. 72. Cruz City s claim was founded on breach of obligations on the part of Burley and Unitech and the relief for payment of the put option price was also premised on the aforesaid basis. In the aforesaid circumstances, the contentions that Unitech did not have an opportunity to meet the case set up against it and that the Award is beyond the scope of reference, are unmerited. 73. Unitech s contention that it had no opportunity to meet the relief awarded or that the Award is beyond the reference, is premised on the bas .....

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..... project in Santa Cruz Mumbai shall stand Increased proportionately thereby creating a substantial asset for the Company with an immense development potential. 77. Further, in its reply to the rejoinder filed by Cruz City, Unitech has affirmed as under:- 14. In reply to para 6(d)........ i) It is submitted that for the purpose of satisfying the Second Award, the Respondent requires to provide funds to Burley for the purpose of purchasing the Kerrush shares held by Cruz City by way of investing into Burley or by providing loans to Burley, or alternatively, by making direct payment to Cruz City for the Kerrush shares held by Cruz City. In all three of the aforementioned scenarios, the Respondent is required to make a direct investment outside India in terms of Regulation 2(e) of the Foreign Security Regulations 78. This also indicates that Unitech had rightly construed the Award as requiring it to provide funds for purchase of Kerrush s shares held by Cruz City. 79. Mr Chidambaram, contended that the said notes to accounts were not relevant as the Annual Report for the subsequent year (the year ended 31st March, 2015) had corrected the same. 80. In view of this .....

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..... only be made at the fair market value of those shares. And, the fourth is that the SHA contemplates an assured exit at a pre-determined rate to Cruz City in respect of its investment in the Santacruz Project and this, according to Unitech, violates the mandatory circulars issued by RBI. Another facet of this argument is that the SHA is a device to circumvent the provisions of FEMA and the Regulations issued thereunder, which proscribe an assured exit from a foreign direct investment (FDI) at a pre-determined rate. Unitech claims that the SHA was structured in a manner so as to provide an assured exit to Cruz City from its investment in an overseas company (Kerrush) which had the effect of providing an exit option to Cruz City's FDI in the Santacruz Project. 85. The first and foremost question to be addressed is whether violation of any regulation or any provision of FEMA would ipso jure offend the public policy of India. The question whether enforcement of a foreign award violates the public policy of India must be considered in the context that India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 and therefore, it is I .....

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..... and Section 7 (1)(b)(ii) of the Foreign Awards Act is not used in the same sense in which it was used in Article 1(c) of the Geneva Convention of 1927 and Section 7(1) of the Protocol and Convention Act of 1937. This would mean that public policy in Section 7 (1)(b) (ii) has been used in a narrower sense and in order to attract the bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression public policy in Section 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality. 89. In Shri Lal Mahal Ltd. v. Progetto Grano SPA ( supra ), the Supreme Court on .....

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..... roject was not justified and entered an award in favour of Rakta. An action for enforcement of this foreign award was filed in United States of America. In the aforesaid context, the court noted that the public policy defence must be construed narrowly and enforcement of a foreign award may be denied only where enforcement would violate the State s most basic notions of morality and justice. While dismissing the objection to enforcement, the court observed as under:- [1] [2] We conclude, therefore, that the Convention s public policy defense should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforcement would violate the forum state s most basic notions of morality and justice. Cf. 1 Restatement Second of the Conflict of Laws 117, comment c, at 340 (1971); Loucks v. Standard oil Co., 224 N.Y. 99, 111, 120 N.E. 198 (1918). (3) (4) Under this view of the public policy provision in the Convention, Overseas' public policy defense may easily be dismissed. Overseas argues that various actions by United States officials subsequent to the severance of American-Egyptian relations- most particularly, AID's withdrawal o .....

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..... s British India were replaced by the words the Provinces . These words were, by virtue of the Adaption of Laws Order, 1950, substituted by the words the States . And, by Part B States (Laws) Act, 1951, the words the States were replaced by of India . In Renusagar s case, the Supreme Court considered the above and held that: This means that even in the Protocol and Convention Act of 1937 the legislature had used the words Public Policy only and by the said words it was intended to mean the public policy of India . The New York Convention has further curtailed the scope of enquiry by excluding contravention of law of the court in which the award is sought to be enforced as a ground for refusing recognition and enforcement of a foreign award. The words law of India have, therefore, been omitted in Section 7(1)(b)(ii) of the Foreign Awards Act 95. The Supreme Court further observed as under:- 65...In this context, it would also be of relevance to mention that under Article I(e) of the Geneva Convention Act of 1927, it is permissible to raise objection to the enforcement of arbitral award on the ground that the recognition or enforcement of the award is contr .....

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..... ng words: the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country . The court further indicated three fundamental juristic principles that must necessarily be understood as a part and parcel of the fundamental policy of Indian law: (i) judicial approach, (ii) principles of natural justice and (iii) reasonableness on the touchstone of Wednesbury principle. 99. The explanations to Section 48(2)(b) of the Act as amended/ introduced by the Arbitration and Conciliation (Amendment) Act, 2015 have brought about a material change and further narrowed the scope of the public policy defence: first, Explanation 1 has sought to replace the inclusive scope of the pre-amendment provision by an exhaustive one; second, interest of India is no longer included in the scope of public policy; and third, it has been expressly provided - although the same was authoritatively settled by the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co . ( supra ) - that examination of whether the arbitral award offends the Fundamental Policy of Indian law, does not entail a review .....

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..... r, any foreign exchange without the general or special permission of the Reserve Bank of India. All persons were prohibited from entering into any transaction which provided for conversion of Indian currency into foreign currency or vice versa . In terms of Section 26 of FERA, no person was permitted to give guarantee in respect of any debt or other obligation or liability (i) of any person resident in India and due or owing to a person resident outside India, or (ii) of a person resident outside India. FERA provided severe penalties and prosecution for contravention of provisions of FERA. It is material to note that FERA was also placed in the Ninth Schedule to the Constitution of India. 103. With the liberalization of our economy, it was felt that FERA must be repealed and new legislation must be enacted. The Statement of Objects and Reasons of FEMA indicate that FEMA was enacted in view of significant developments that had taken place since 1993: there was substantial increase in the foreign exchange reserves, growth in foreign trade, rationalisation of tariffs, current account convertibility, liberalisation of Indian Investments abroad, increased access to external commerci .....

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..... ent to not void the transaction even if in violation of the said Act. Thus we are of the opinion that the plea of the appellant Company in this regard is without any force. 105. The Bombay High Court in the case of POL India Projects Limited and Ors. v. Aurelia Reederei Eugen Friederich GmbH Schiffahrtsgesellschaft Company KG and Ors. : ( 2015) SCCOnline Bom 1109 held that no prior permission was required to be taken before the execution of a letter of guarantee. The court further held that even if such permission was required, the execution of letter of guarantee would not be contrary to the fundamental policy of Indian law. The relevant extract is provided as under: 164. In my view since no prior permission of the Reserve Bank or any other authority was required under the provisions of Foreign Exchange Management (Guarantees) Regulation, 2000 or there was no prohibition from issuing such letter of guarantee under the said regulation and the petitioner not having raised any such issue prior to the date of filing their objections before the arbitral tribunal from the date of execution of such letter of guarantee, the recognition and enforcement of foreign award in que .....

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..... MA and regulations made thereunder without any further permissions; other transactions may require express permission from the RBI. However, these considerations can be addressed by ensuring that no funds are remitted outside the country in enforcement of a foreign award, without the necessary permissions from the Reserve Bank of India. This would adequately address the issue of public interest and the concerns relating to foreign exchange management, which FEMA seeks to address. 108. As discussed hereinbefore, this Court while considering the question whether to decline enforcement of a foreign award on the ground of public policy, is also required to consider the nature of the policy that is alleged to have been contravened. The approach that this Court would bear is one that favours enforcement of a foreign award and if the public policy considerations can be addressed without declining recognition of the foreign award, the Court would lean towards such a course. 109. The contention that enforcement of the Award against Unitech must be refused on the ground that it violates any one or the other provision of FEMA, cannot be accepted; but, any remittance of the money recover .....

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..... ons and Warranties . The Unitech Entities [Unitech and Burley] hereby represent and warrant to LBREP [Cruz City] that, as of the date hereof;..... (b) Authorization. The execution, delivery and performance of this Keepwell Agreement and the transactions contemplated hereby (i) are within the respective corporate authority of the Unitech Entities [Unitech and Burley], (ii) have been duly authorized by all necessary corporate proceedings by the respective Unitech Entities [Unitech and Burley], (iii) do not conflict with or result in any breach or contravention of any provision of any Law to which the Unitech Entities [Unitech and Burley] are subject, and (iv) do not conflict with any provision of the respective corporate charter or bylaws of, or any agreement or other material instrument binding upon, the Unitech Entities [Unitech and Burley]. This Keepwell Agreement has been duly executed and delivered by the Unitech Entities [Unitech and Burley]. (c) Enforceability. The execution and delivery of this Keepwell Agreement will result in valid and legally binding obligations of the Unitech Entities [Unitech and Burley] enforceable against them in accordance with the terms and pro .....

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..... ower to obtain or make such authorization, filing, consent, approval, permit or license and furnish LBREP [Cruz City] with evidence thereof. (l) Potential Liability. To the extent that any applicable Law imposes limits on the liabilities or obligations which Unitech Ltd. [Unitech] is permitted to incur, Unitech Ltd. [Unitech] will not undertake any liabilities or obligations which would cause the potential liability under this Keepwell Agreement, when taken together with all other liabilities and obligations of Unitech Ltd. [Unitech] which are to be taken into account for the purpose of determining compliance with such limits, to exceed such limits (and in this regard LBREP [Cruz City] may from time to time request, and Unitech Ltd. [Unitech] shall provide, evidence that Unitech Ltd. s [Unitech s] liabilities and obligations are within such limits). (n) Bona Fide Business. Unitech Ltd. shall cause Unitech Holdco [Burley] to continue to undertake and be engaged in a bona fide business and activities in pursuit thereof as a governing concern in compliance with applicable Law. 111. Unitech had made unambiguous representations to the effect that the obligations undertaken by U .....

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..... Award requires Unitech to purchase the shares of Kerrush from Cruz City, is palpably erroneous. Thus, the line of argument that the provisions of Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 would be violated by implementation of the Award, is bereft of any merit. The Award only seeks to enforce Unitech s obligations to secure Burley s performance of obligations undertaken under the Keepwell Agreement. 116. The next contention to be considered is whether the Award or the Keepwell Agreement violates the Foreign Exchange Management (Guarantees) Regulations, 2000. 116.1 Section 5 of FEMA permits all current account transactions, however, provides that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions, as may be prescribed. 116.2 Section 6 of FEMA concerns capital account transactions and the relevant extract of the said Section as in force at the material time, when the Keepwell Agreement was entered into (i.e., in 2008), is set out below:- 6. Capital account transactions. -(1) Subject to the provisions of sub-section .....

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..... rson resident in India; (b) transactions, specified in Schedule II, of a person resident outside India. (2) Subject to the provisions of the Act or the rules or regulations or direction or orders made or issued thereunder, any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction specified in the Schedules; Provided that the transaction is within the limit, if any, specified in the regulations relevant to the transaction. [emphasis supplied] 116.4 Schedule I of the said regulations pertains to capital account transactions of persons resident in India. Entry (a) and (d) of the said schedule pertain to investment by a person resident in India in foreign securities and security issued by a person resident in India in favour of a person resident outside India . 116.5 In so far as guarantees are concerned, the relevant regulations are the Foreign Exchange Management (Guarantees) Regulations, 2000. Regulation 5 of the said regulations specifically permits the giving of guarantees in certain circumstances, including by a company in India for and on behalf of a wholly owned subsidiary. 116.6 Regulation 5(b) Forei .....

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..... y are permissible provided the conditions stipulated in Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 for promoting and setting up a subsidiary are continued to be complied with. 116.9 In terms of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, Unitech could establish a wholly owned subsidiary provided it complied with the limits specified in the relevant regulations. The relevant regulations in this regard is the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004. 116.10 Regulation 6 of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004, permits an Indian party to make a direct investment in a wholly owned subsidiary subject to the conditions specified in Regulation 6 (2) of the said Regulations being met. The relevant extract of Regulation 6 of the said regulations is set out below:- 6. Permission for Direct Investment in certain cases .-(1) Subject to the conditions specified in subregulation (2), [(and Regulation 7 in case investment in financial services sector) an Indian party may make direct invest .....

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..... rantees remains within the overall ceiling stipulated for overseas investment by an Indian Party; and (b) no guarantee is open ended ; (d) utilisation of the amount raised by issue of ADRs/GDRs by the Indian party; (e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines; **** **** **** (4)(i) An Indian Party may extend a loan or a guarantee to or on behalf of the Joint Venture/Wholly Owned Subsidiary abroad, within the permissible financial commitment, provided that the Indian Party has made investment by way of contribution to the equity capital of the Joint Venture. **** **** **** (6)(a) For the purposes of investment under this regulation by way of remittance from India in a existing company outside India, the valuation of shares of the company outside India shall be made, - (i) where the investment is more than USD 5 [five] million, by a Category 1 Merchant Banker registered with Securities and Exchange Board of India [SEBl], or an Investment Banker/Merchant Banker outside India registered with the appropriate regulatory authority in the host country; and (ii) in all other cases, by a Chartered Accountant or a Cert .....

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..... on 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. 118.3 Third, 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. 119. 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 .....

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