TMI Blog2011 (1) TMI 1506X X X X Extracts X X X X X X X X Extracts X X X X ..... nn for use in certain territories for certain products. In consideration of the said license, the judgment debtor agreed to pay annual royalty to the decree holder. This agreement was effective initially from 1.1.2003 to 31.12.2005. A second TLA was executed for the period 1.1.2006 to 31.12.2009, on similar terms and conditions. 3. Clause 18 of the said TLAs contained an arbitration clause for settlement of any dispute with regard to construction, meaning and effect of provisions of the agreement by arbitration of the International Chamber of Commerce (ICC), Paris. Clause 17 of the said TLAs provided that the agreement shall be governed by, and in accordance with, the laws of Austria. 4. The royalty was due at the beginning of each year, yet payable in quarterly installments. Default in punctual payment of the royalty attracted penal interest of 1.5% compounded monthly. The judgment debtor failed to pay the installments and accordingly, the decree holder terminated the contract on 13.6.2006 and appointed another licensee. On 20.9.2006, the decree holder invoked the arbitration before the International Chamber of Commerce, Paris to seek the appointment of an independent arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted a license to Nebus effective from 1.1.2005 to 31.12.2007. Due to the said license being granted by the decree holder to Nebus, it stopped purchasing the balls from the judgment debtor and it also raised various disputes as regards the supplies made by the judgment debtor to Nebus. In June 2005 Nebus raised quality issues. As a confidence building measure, a five member team from Nebus corporate office visited India to look into the matter. A joint inspection was carried out in the presence of Nebus representatives and the balls were found to meet the required specifications and the problem was identified as over inflation of the volleyballs. Judgment debtor alleges that while judgment debtor was sorting out the issues with Nebus regarding the quality of its products, the decree holder in an unethical manner entered directly into discussion with Nebus and openly supported the stand of Nebus, without any basis, that the judgment debtor was supplying defective balls. 11. The judgment debtor vide its email dated 2.7.2005 conveyed their grievance to the decree holder. In response to same, the decree holder wrote a letter dated 4.7.2005 in which the decree holder took an unreas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The dispute was referred to ICC and sole arbitrator was appointed. Thereafter, the learned sole arbitrator drew up the terms of reference on 15.5.2007 and the same were forwarded to the parties on 16.5.2007 for their signature. The decree holder signed the same on 21.5.2007 and forwarded them for the signatures of the judgment debtor. However, the judgment debtor did not sign the same. The sole arbitrator made certain amendments to the terms of reference on 27.6.2007 and sent them to the decree holder for signature. Having obtained decree holder s signature, the sole arbitrator sent the terms of reference to ICC for approval and the same were approved on 23.7.2007. 17. It is further asserted that judgment debtor herein also had filed its counter claim before the said arbitrator, who, on account of the want of deposit of heavy amount of fee, declined to entertain the said counter claim. The judgment debtor was also denied the reasonable opportunity to provide its written defense. It was vide order no.5 dated 5.9.2007 that the arbitrator had rejected the request of the judgment debtor to extend time for filing its statement of defense. Judgment Debtor's Submissions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the award against the public policy of India, as interpreted in ONGC v. Saw Pipes Limited, (2003) 5 SCC 705. Mr. Rakesh Tikku, learned counsel for judgment debtor submits that the award, being against the terms of contract, is patently illegal. 22. Learned counsel for the judgment debtor submits that the closure of the right of defence by arbitrator was manifestly unjust and against the principles of natural justice. It is further submitted by Mr. Tikku that since the judgment debtor had already suffered huge losses, it could not pay the separate advances on cost, due to which counter claims of the judgment debtor were not entertained by the arbitral tribunal. The procedural time table was amended by the arbitrator. The judgment debtor is an Indian Company and was undergoing a bad phase due to the breach committed by Nebus as well as the decree holder. For this reason, the judgment debtor could not arrange a counsel who could represent it before the tribunal. Decree Holder's Submissions: 23. Learned counsel for the decree holder Mr. Darpan Wadhwa submits that the objections have been filed under section 48 of the Act, which is in Chapter I of Part II of the Act dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign arbitral awards at common law a foreign award is enforceable if the award is in accordance with the agreement to arbitrate which is valid by its proper law and the award is valid and final according to the arbitration law governing the proceedings. The award would not be recognised or enforced if, under the submission agreement and the law applicable thereto, the arbitrators have no justification to make it, or it was obtained by fraud or its recognition or enforcement would be contrary to public policy or the proceedings in which it was obtained were opposed to natural justice (See : Dicey Morris, The Conflict of Laws, 11th Edn., Rules 62-64, pp. 558 559 and 571 572; Cheshire North, Private International Law, 12th Edn., pp. 446-447). The English courts would not refuse to recognise or enforce a foreign award merely because the arbitrators (in its view) applied the wrong law to the dispute or misapplied the right law. (See : Dicey Morris, The Conflict of Laws, 11th Edn., Vol. II, p. 565.) 34. Under the Geneva Convention of 1927, in order to obtain recognition or enforcement of a foreign arbitral award, the requirements of clauses (a) to (e) of Article I had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstance of the arbitration. (p. 269) 36. Similarly Alan Redfern and Martin Hunter have said: The New York Convention does not permit any review on the merits of an award to which the Convention applies and in this respect, therefore, differs from the provisions of some systems of national law governing the challenge of an award, where an appeal to the courts on points of law may be permitted. (Redfern Hunter, Law and Practice of International Commercial Arbitration, 2nd Edn., p. 461.) 37. In our opinion, therefore, in proceedings for enforcement of a foreign award under the Foreign Awards Act, 1961, the scope of enquiry before the court in which award is sought to be enforced is limited to grounds mentioned in Section 7 of the Act and does not enable a party to the said proceedings to impeach the award on merits. (emphasis supplied.) 24. While considering the question as to whether a broad or narrow meaning to be assigned to the expression public policy of India , the court held that a distinction is drawn while applying the said rule of public policy between a mater governed by domestic law and a matter involving conflict of laws. The application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the speedy settlement of disputes through arbitration; that to achieve this objective by dispensing with the requirement of the leave to enforce the award by the courts where the award is made and thereby avoid the problem of double exequatur; that the scope of enquiry is restricted before the court enforcing the award by eliminating the requirement that the award should not be contrary to the principles of the law of the country in which it is sought to be relied upon; that enlarging the field of enquiry to include public policy of the country whose law governs the contract or of the country of place of arbitration, would run counter to the expressed intent of the legislation. Therefore, it was held that the words public policy are intended to broaden the scope of enquiry so as to cover the policy of other countries, that is, the country whose law governs the contract or the country of the place of the arbitration. In the absence of a definition of the expression public policy , it is construed to mean the doctrine of public policy as applied by the courts in which the foreign award is sought to be enforced and this Court referred to a large catena of cases in this regard. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards is the glue which holds the international arbitrating community together, and this will only be strong if the enforcing court is willing to trust, as the convention assumes that they will trust the supervising authorities of the chosen venue. It follows that if, and to the extent that the award has been struck down in the local court it should as a matter of theory and practice be treated when enforcement is sought as if to the extent it did not exist. 21. He further submitted that in foreign arbitration, the award would be subject to being set aside or suspended by the competent authority under the relevant law of that country whereas in the domestic arbitration the only recourse is to Section 34. 22. The aforesaid submission of the learned Senior Counsel requires to be accepted. From the judgments discussed above, it can be held that the term public policy of India is required to be interpreted in the context of the jurisdiction of the court where the validity of award is challenged before it becomes final and executable. The concept of enforcement of the award after it becomes final is different and the jurisdiction of the court at that stage could be limited. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the award is required to be set aside on the ground of patent illegality . .... ... ... .... ... ... .... ... ... 31. Therefore, in our view, the phrase public policy of India used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term public policy in Renusagar case it is required to be held that the award could be set aside if it is patently illegal. The result would be - award could be set aside if it is contrary to: a) Fundamental policy of Indian law; or b) The interest of India; or c) Justice or morality, or d) In addition, if it is patently illegal. Ille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er submits that the Supreme Court has, in Furest Day Lawson v. Jindal Exports, AIR 2001 SC 2293 held, after discussing the old and new Act, that earlier the award was made a rule of the court, and now it is already stamped as a decree and executed accordingly. In this decision, the Supreme Court held: 31. Prior to the enforcement of the Act, the law of arbitration in this country was substantially contained in three enactments, namely, (1) the Arbitration Act, 1940, (2) the Arbitration (Protocol and Convention) Act, 1937, and (3) the Foreign Awards (Recognition and Enforcement) Act, 1961. A party holding a foreign award was required to take recourse to these enactments. The Preamble of the Act makes it abundantly clear that it aims at consolidating and amending Indian laws relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. The object of the Act is to minimize supervisory role of the court and to give speedy justice. In this view, the stage of approaching the court for making the award a rule of court as required in the Arbitration Act, 1940 is dispensed with in the present Act. If the argument of the respondent is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under Section 47 is technical and is of no consequence in the view we have taken. In our opinion, for enforcement of a foreign award there is no need to take separate proceedings, one for deciding the enforceability of the award to make it a rule of the court or decree and the other to take up execution thereafter. In one proceeding, as already stated above, the court enforcing a foreign award can deal with the entire matter. Even otherwise, this procedure does not prejudice a party in the light of what is stated in para 40 of Thyssen1 judgment. (emphasis supplied) 31. This Court, in a recent judgment of Jindal Exports v. Furest Day Lawson (OMP 29/2003 decided on 11.12.2009) again reiterated that a narrow meaning must be given under Section 48 proceedings for enforcement of a foreign award and affirmed the principle that only when the nation s most basic notions of morality and justice are violated, would the public policy doctrine be applied to refuse enforcement. It was also held that such an award cannot be challenged on its merits. The Court held as follows:- 42. Mr. Singh lastly submitted that in the present case the Arbitrator had given no interpretation with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or... xxxx xxxx xxxx xxxx ARTICLE II....... 3. The Court of a Contracting State when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative and incapable of being performed. (emphasis supplied) 45. Consequently, on a conjoint reading of the relevant provisions of Part II Chapter I of Act, 1996, I am of the opinion that any challenge to the validity of the arbitration clause has to be determined with reference to the substantive law governing the contract itself. In fact, the expression Agreement in Sections 44 and 48 has to be given the same meaning. 32. Counsel for the decree holder further submits that the challenge raised by the judgment debtor otherwise only relates to the interpretation of the terms of the contract and more specifically of Clause 2.2.2 in the present enforcement proceedings. This c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reference as being against the principles of natural justice. However there is no specific ground taken, raising this defence, let alone any proof under section 48. No objection was raised before the arbitrator. Judgment debtor abandoned the arbitration and now cannot be heard to say that it had not been given adequate opportunity. 34. Mr. Wadhwa submitted that the judgment debtor did file its reply to the claim, documents in support thereof and gave its views on the Terms of Reference. This establishes that full opportunity was given and duly utilized. He drew the courts attention to page 18/33 of the award para 73 where the judgment debtors arguments were considered by the arbitrator. 73. Mayor argues that clause 2.2.2 STC is not applicable to loyalty companies such as Nebus. Mayor seems to argued that Nebus does not sell their products directly to the final customers but rather to supermarkets, gas stations etc., who then provide the products as part of reward to loyalty programee for free or at a reduced price to their customers. In other words, according to Mayor Nebus does not deliver the products directly to the final customer as would be expected of a licensee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d learned counsels for the parties and considered their submissions, the award in question and the precedents cited by them, I am of the view that there is no merit in the objections raised by the judgment debtor, and consequently E.A. No.704/2009 preferred by the judgment debtor under section 48 of the Act is liable to be dismissed, and the foreign award in question is enforceable under Chapter I Part II of the Act. Consequently, the award is deemed to be a decree of this Court. 38. There is merit in the submission of Mr. Wadhwa that the expression Public Policy of India as under in section 48(2)(b) of the Act carries a narrow meaning when compared to the meaning assigned to the same expression in the context of section 34(2)(b)(ii) of the Act. As rightly pointed out by Mr. Wadhwa, proceedings under section 48 and 49 falling in Chapter I Part II of the Act are proceedings for enforcement of foreign awards, namely, the New York Convention Awards. The grounds on which the foreign award may not be recognized, and consequently may not be enforced, are contained in section 48. 39. Pertinently, it is not the case of the judgment debtor that any of the grounds set out in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld supply the licensed products to another entity which could in turn, consume the said products by free distribution or by distribution at reduced cost, as a reward in retailer loyalty and continuity programmes. 42. The submission of Mr. Tikku that the license could be granted by resort to clause 2.2.2 only to that entity which itself consumes either free, or at reduced costs the licensed products, has not been accepted by the arbitrator, and on a plain reading of clause 2.2.2 of the agreement, it cannot be said that the interpretation given to the said clause by Mr. Tikku is the only plausible interpretation that could be given to the said clause, even on the application of the Indian law. 43. It is pertinent to note that the decree holder had made known to the judgment debtor its interpretation of clause 2.2.2, and the judgment debtor was also aware of the fact that the decree holder granted a license to Nebus with effect from 01.01.2005 by resort to clause 2.2.2, yet the judgment debtor admittedly entered into a second LTA for the period 01.01.2006 to 31.12.2009. 44. As held by the Supreme Court, the recognition and enforcement of a foreign award cannot be denied mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final 10 day extension till 27.8.2007, even though the same was not sought by the judgment debtor. The judgment debtor submitted a belated request for extension on 30.8.2007, which was rejected by arbitrator. 47. The judgment debtor having agreed to the resolution of the disputes between the parties by resort to arbitration, to be conducted by ICC, Paris, was bound by the Rules of the said organization. If, for entertainment of the judgment debtor s counter claim, the ICC costs and fee of the arbitrator had to be deposited in advance, the judgment debtor cannot raise a grievance that merely because the judgment debtor could not afford to make payment thereof, its counter claim ought not to have been left unconsidered. 48. Consequently, I dismiss E.A. No.704/2009 filed by the judgment debtor, and hold that the foreign award in question is enforceable under Chapter I Part II of the Act, and the award is deemed to be decree of this Court. E.A. NO.77/2010 This application has been moved by the decree holder to require the judgment debtor to deposit the awarded amount in this Court pending the hearing of the application preferred by the judgment debtor under section 48 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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