TMI Blog2020 (5) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... contained an indemnity a further stamp duty of Rupees two Hundred was paid under Article 35 of the Maharashtra Stamp Act,(as payable in the year 2008). In the rejoinder affidavit of the respondents dated 12 July 2019, the respondents have thought it proper not to deny this assertion of the petitioner as raised in paragraph 3 (c) of the reply affidavit. Hence the petitioner s contention in regard to the put option deed being adequately stamped as per the provisions of Article 5 (h) (B) has also been admitted by the respondents. The arbitral tribunal admitted the document in evidence, and has adjudicated the rights and obligations arising under the said document interalia by granting claims as made by the petitioner. Accepting such plea in these circumstances would mean that in exercising jurisdiction under Section 48 of the A C Act the Court would be reopening the trial as need before the arbitral tribunal even on factual issues. This is certainly not the jurisdiction of the Court under Sections 47 to 49 of the A C Act. In these circumstances, surely these decisions are of no avail to the respondents - the objection of the respondents to the enforceability /execution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -spitting was resorted in dissecting the notifications when on the basic premise the respondents were not correct, namely to contend that the Put Option Deed would be invalid under the FEMA as the terms thereof offend the notifications. As clearly seen from the authoritative pronouncement of the Supreme Court in Vijay Karia s case (supra) a challenge to the enforceability of a foreign award on the ground that the contract violates the provisions of FEMA and regulations made thereunder and/or if the award is enforced it may violate the provisions of FEMA is no more res integra. The respondents contentions questioning the enforceability of the arbitral award on the ground of violation of FEMA and/or the regulations made thereunder are thus required to be rejected. Objection on the ground that the award is contrary to the fundamental public policy - HELD THAT:- The arbitral award satisfies all the legal requirements in law so as to be enforced as a decree of this Court. Banyan Tree is correct in its contention that the respondents having accepted investment from Banyan Tree and subsequently being hugely benefited from the same ought to have been fair and honest in their dealin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial Services Commission in Mauritius having its shareholders interalia comprising of large global development financial institutions. The business of Banyan Tree in India is to make investments in mid-market companies with the objective of capital formation for the investee companies and long term capital appreciation for its investors. Banyan Tree is stated to have made an investment of about USD 7.5 million and holds 11.25% of the equity shareholding in respondent no.1-Axiom Cordages Limited which is a company incorporated in India under the provisions of the Companies Act, 1956. (for convenience respondent no. 1 is referred as Axiom ). Axiom is engaged in the business of manufacturing and export of specialised synthetic ropes. 3. Respondent No.2-Responsive Industries Limited (for short Responsive ) is an Indian company incorporated under the Companies Act, 1956, stated to be listed on the National Stock Exchange and Bombay Stock Exchange. Responsive is engaged in the business of manufacturing polyvinyl chloride ( PVC ) based products such as PVC flooring, artificial leather cloth, rigid film, etc. Responsive owns 58% of the paid up share capital in Axiom. 4. Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 9.1 in the following terms:- 9.1 Put Option The Investors shall have the right to, exercise the Put Option on the Promoters, in accordance with the Put Option Agreement within the Put Option Exercise Period in the manner prescribed therein. For the purpose of this Paragraph: Put Option shall mean the option granted by the Promoters to the Investors, to sell the Debentures and/or Equity shares issued upon Conversion and/or Subscription Shares, held by the Investors to the Promoters, in accordance with the Put Option Agreement. Put Option Agreement shall mean a put option agreement dated on or about the date hereof, entered into between, inter alia, the Investors, the Issuer, and the Promoters. 7. Accordingly, also on 12 September 2008 as a condition precedent to the initial investment, an agreement titled as Put Option Deed was executed between the parties being the same day on which the SSA was executed. The disputes in the present proceedings as noted above arise under the Put Option Deed. 8. On 30 September 2008, the parties entered into an Escrow Agreement, which provided that Wellknown agrees to keep the shares in Responsive or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also the Put Option Deed. 12. Thereafter in August 2013, in contemplation of a proposed merger of Axiom with Responsive, the parties agreed that Banyan Tree would convert the compulsory convertible debentures it held in Axiom, into equity shares. The merger did not take place, however, Banyan Tree was nonethless required to convert its debentures into equity shares. 13. The first spark, is an event namely on 19 March 2014, Wellknown transferred the Escrow Shares out of the designated demat-Escrow Accounts without authority or consent of Banyan Tree and/or the Escrow Agent to a new account operated solely by Wellknown. Similarly on 23 July 2014 the cash account was closed without authority and consent of Banyan Tree and/or the Escrow Agent in breach of the Escrow Agreement. 14. On 16 February 2015, Banyan Tree discovered that Wellknown had closed the Escrow Accounts, without any authorization or knowledge of Banyan Tree or the Escrow Agent. Wellknown transferred the shares which were to be held in Escrow Account to a new account operated fully by it. The Escrow Agent being confronted with this situation sought restoration under the escrow mechanism. However, Wellknown by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Schedule 3 of the Put Option Deed was significantly higher than the FMV derived by MZSK Associates. The promoters however failed to purchase the put securities as per the terms of the Put Option Deed and as required under the put option notice. Moreover, Responsive on behalf of the Promoters, by its letter dated 30 September 2015 denied liability to buy Banyan Tree s shares alleging that the Put Option Deed is illegal, contrary to the laws of India and therefore void-ab-initio. 18. In the circumstances, Banyan Tree by its letter dated 1 October 2015 issued a Dispute Notice as per clause 19.3(a) of the Put Option Deed to the promoters. Banyan Tree accordingly notified the Promoters that the dispute had arisen under the Put Option Deed and requested for a meeting between the concerned representatives/ executives of the Promoters to discuss an amicable way forward. By a letter dated 8 October 2015, Responsive acknowledged receipt of the Dispute Notice and reiterated interalia its position as taken in its letter dated 30 September 2015, that the Put Option Deed is illegal, void-abinitio and non-est, hence there was no question of honouring any obligation or of there being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian law. Banyan Tree argued that under Clause 7.4 of the Put Option Deed, Banyan Tree was required to obtain special permission from the Reserve Bank of India for the transaction. It was contended that Clause 7.4 provided that not only did the parties anticipate that the sale and purchase of the Put Option Securities might require special approval, but the Put Option Deed clearly allocated the responsibility of such approval as may be necessary to effect the transaction on the Promoters. Banyan Tree contended that the Promoter s obligation under Clause 7.4 was an absolute one and that it was the Promoter s obligation to take all necessary steps including obtaining special permission from the Reserve Bank of India to perform their obligations under Clause 3.3 of the Put Option Deed. In the alternative, Banyan Tree also claimed that it is entitled to restitution against unjust enrichment pursuant to the principles as contained under Indian Contract Act 1872. Also in relation to Escrow Agreement, Banyan Tree prayed for specific performance from Wellknown pending the resolution of the arbitration. Following are the reliefs which were claimed by Banyan Tree before the arbitral tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is valid and legal under Indian Law? (ii) Whether the Put Option Deed is legal under FEMA and its secondary legislations? (iii) Whether the Put Option Deed is legal under the SCREA and its secondary legislations? 23. The respondents cross examined Banyan Tree s witnesses but as contended by Banyan Tree chose not to cross examine the valuation expert and accordingly accepted the valuation of the put option shares calculated by Banyan Tree s experts. In August,2017 the arbitral proceedings were closed for an award to be pronounced. Further on 6 September 2017, the Section 9 petition filed by Banyan Tree in this Court was also disposed of in view of a joint statement made by the parties, directing that the ad-interim order shall continue to operate till the declaration of the award by the arbitral tribunal. 24. Considering the pleadings, documentary and oral evidence and the arguments as advanced on behalf of the parties, the arbitral tribunal by its award in question dated 15 January 2019 allowed the claims as made by Banyan tree in the following terms:- 243. The Tribunal AWARDS, DECLARES and ORDERS that: (i) The Put Option Deed was a valid and legal con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules. The arbitral tribunal corrected the put award as requested by Banyan Tree and accordingly a memorandum of corrections dated 25 February 2019, came to be issued. Thereafter on 11 February 2019 the respondents filed an application before the arbitral tribunal seeking an additional award and an interpretation of the put award. It is contended that Banyan Tree had opposed the said application interalia contending that the application is beyond the scope of the SIAC rules. It is stated that the said application is pending adjudication. Contentions of Banyan Tree in seeking enforcement of the foreign award:- 27. Banyan Tree contends that the Put award is a foreign award within the meaning of chapter I of part II of the A C Act, namely that it is a New York Convention award. It is contended that the only recourse against the put award was to challenge the same under the Singapore International Arbitration Act (IAA), under the laws of Singapore. It is contended that under section 19 B (1) of the IAA, the put award becomes final and binding upon passing and can be relied upon by any of the parties in any court of competent jurisdiction. It is contended that to the knowled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding between the parties under the 'share subscription agreement-SSA', which is the parent agreement under which the put option right was granted to Banyan Tree. It is contended that in the said arbitration a declaration has been sought by the respondents that the put option deed is void ab- initio being illegal and unenforceable hence not binding on the parties. It is thus contended and that any action taken in furtherance thereof shall be against the public policy of India. It is contended that the SSA arbitration is at final stages, the award which would be made in the said arbitration would have a material and direct impact on the orders that would be passed on this petition, hence this petition should not be entertained. The next contention of the respondents is that the put option deed is in contravention of section 18 A of the Securities Contracts (Regulation) Act 1956 for the reasons which are set out in paragraph D of the counter affidavit and the notifications issued thereunder. It is contended that the put option deed was also contrary to the RBI regulations which were in force, on the date the put option deed was executed between the parties, as set out in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whichever is higher. It being stamped with a value of ₹ 300/ is an insufficient stamping. According to the respondents section 47 enjoins upon a party applying for enforcement of a foreign award in India, to produce together with its application interalia evidence of the 'agreement for arbitration'. It is contended that section 33 of the Maharashtra Stamp Act 1958, it is the duty of any judicial authority empowered to receive evidence, to impound a document which is found to be unstamped or insufficiently stamped and to further send the said document for adjudication, in keeping with the objective and the public policy to protect the interests of the revenue. It is submitted that hence the judicial authority when it comes across an arbitration clause in an agreement which is found to be unstamped or insufficiently stamped, is enjoined by the provisions of the Maharashtra Stamp Act to first impound the agreement and ensure that the lawful stamp duty together with penalty if any is paid before the agreement can be acted upon in any manner whatsoever. It is submitted that under the law as also under the Maharashtra Stamp Act 1958 an agreement is not enforceable in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of dealing therein... . Respondents refer to the definition of the term 'derivative', 'option in securities', 'spot delivery contract', as defined under the SCRA as also the provisions of section 16 which provides for power to prohibit contracts in certain cases and more particularly reference to section 18A which deals with contracts on derivatives, in support of this contention. It is submitted that the put option is violative of the provisions of the SCRA and the Foreign Exchange Management Act 1992 and the notifications issued thereunder on different counts as under :- (I) The development of law, on options in securities and derivatives, itself demonstrates that it has been the fundamental policy of Indian law to prohibit all contracts in derivatives except those expressly permitted under the provisions of SCRA. According to the respondents this can be seen from the following:- (i) When the SCRA was enacted and brought into force with effect from 20 February 1957, section 20 thereof contained an absolute prohibition on options in securities'. The legislative intention was also clear from the preamble of the SCRA which provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and were prohibited under the provisions of the SCRA. SEBI also opined that a put option, deriving its value from the underlying securities, had to meet the requirements and the mandate of section 18 A of the SCRA. This letter demonstrated SEBI's view being the market regulator in regard to the applicability of the provisions of the SCRA to the put option agreements. This letter of the SEBI was not considered by the arbitral tribunal. (vii) On 3 October 2013 SEBI vide its notification bearing No. LAD -NRO/GN/2013 14/26/6667 ( 2013 SEBI Notification) issued under Section 16 of the SCRA interalia rescinded the notification dated 27 June 1969, and for the first time interalia permitted contracts in shareholders agreements or articles of association of companies, for purchase or sale of securities pursuant to the exercise of an option contained therein to buy or sell the securities, on the terms and conditions set out therein. It is submitted that the second proviso to the said notification provided that nothing contained in the said notification shall 'affect or validate' any contract which has been entered into prior to the date of the said notification. Also the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the Madras High Court in Rajshree Sugars and Chemicals limited versus Axis Bank Ltd and others AIR 2011 Madras 144. IV A derivative, like the put option, in the present case therefore, being an option attached to the shares of an unlisted public company, was not permitted at such time and would fall foul of the public policy under the SCRA. This is also bolstered by the observations of SEBI in the Interpretive Letter (supra) dated 23 May 2011 wherein SEBI clearly recorded that forward contracts namely contracts other than spot delivery contracts, are prohibited under the SCRA and put options are in violation of Section 18 A and hence prohibited. V The 2013 SEBI notification does not validate the put option for various reasons. In this regard at the outset it ought to be noted that the 2013 SEBI notification rescinds the 2000 SEBI notification, which held the field prior to the 2013 notification, in terms whereof, the contract for sale or purchase of securities was required to qualify as a spot delivery contract hence attracted the limitations of section 18 A. Clause (d) of the 2013 notification permitted contracts in shareholders agreements or article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a forward contract inasmuch as price at which the put option will be exercised, being the put option price is predetermined price for future transfer of shares and on account of such transfer being effected, one month after the date of exercise of the option, the same will not be settled on a spot delivery basis, as seen from the definitions of 'put option price' and 'put settlement date' as contained in the put option deed. In fact, this decision would support the respondents as in the present case it is an undeniable fact that the put option which has been exercised by Banyan Tree will not be completed by means of spot delivery. VII The Supreme Court in the case of BOI Finance Ltd versus The Custodian and others (1997) 10 SCC 488 , referring to the Government of India notification dated 27 June 1969 issued under section 16 of the SCRA has unequivocally held that the contract for the sale or purchase of securities other than by way of spot delivery are impermissible and invalid. Also in the case of Naresh K. Aggarwalla Co versus Canbank Financial Services Ltd (2010) 6 SCC 178 again referring to the 27 June 1969 notification, it was held that what was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t outside India) of FEMA 20. In 2008 when the investment was made by Banyan Tree in the shares/equity of Axiom by virtue of the share subscription agreement, the transaction was governed by Regulation 5 (1) of FEMA 20. Banyan Tree was granted various investors rights in terms of clause 10 of the share subscription agreement read with schedule 16 thereof which interalia included the right to exercise put option. The provisions of regulation 5 (1), FEMA- 20, do not make any mention of permissibility of optionality clauses in such investments made by persons resident outside India. However the RBI by its notification dated 12 November 2013 (2013 RBI notification) amended certain provisions of FEMA 20, whereby a proviso came to be added to regulation 5 (1) of FEMA 20, by which it was provided that shares or convertible debentures containing an optionality clause but without any option or right to exit at an assured price shall be reckoned as eligible instruments to be issued to a person resident outside India, by an Indian company subject to the terms and conditions as specified in schedule I thereto. This amendment makes it clear that even under the regime of FEMA, optionality clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside India under the Foreign Direct Investment (FDI) Scheme , but without any right to exit with an assured return. It is submitted that the said Circular in clause 3 thereof also refers to the fact that the RBI since has amended FEMA 20 by the said 2013 RBI notification. Also a Press Release dated 9 January 2014 which leaves no room for doubt that till October 2013 equity shares which were issued to persons resident outside India were not permitted to carry optionality clause and the same was allowed for the first time. These developments in law have been completely overlooked by the award. In short the submission on this count is that the Put Option Deed is contrary to the FEMA-20 and the provision of FEMA. 34. Submissions on Fundamental Policy of India The arbitral award is contrary to the fundamental public policy of India for the following reasons: (i) The put option was illegal and prohibited under the SCRA. This firstly for the reason that the arbitral award which concerns the shares of Axiom respondent No. 1 subject matter of the put option, is being referred as a private company is clear from paragraph 197 and 198 of the award in question. The entire basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchase or sale of a right to buy or sell securities in the future and includes a put call option in securities. (iii) It cannot be denied that Banyan Tree was issued debentures of Axiom which were subsequently converted into equity shares, this being the case, the shares in question clearly fell within the definition of the term 'securities'. It is an admitted position that the put option entitles the petitioner to call upon Responsive to purchase the said shares at a pre-determined price at a future date. That being the case, there is no basis whatsoever for holding that the Put Option Deed does not constitute a derivative. In fact the decision of the Madras High Court in the Rajshree Sugars (supra) holds that put options would constitute a derivative in terms of the SCRA. The arbitral tribunal itself in paragraph 192 has come to a categoric finding that an option in shares of public listed company would be a derivative of the purposes of the SCRA. The arbitral tribunal having accepted this legal position which is also clear from the decisions of the Supreme Court in Bhagwati Developers (supra) and Naresh K.Aggrawala (supra), there was no legal basis to disting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibiting the same, thereby creating an inconsistency. It is evident that FEMA itself recognises the fact that optionality as deployed in shares of public companies was permitted for the first time in October 2013 as reflected in the 2013 RBI notification. Thus the conclusion of the arbitral tribunal in paragraph 197 of the arbitral award that options in shares of private unlisted companies like Axiom, cannot qualify as a derivative for the purposes of the SCRA is erroneous and contrary to the fundamental policy of Indian law, since the law has been consistent and clear not permitting optionality clauses in shares of public companies (listed/unlisted) prior to October 2013. The arbitral tribunal had also lost sight of the fact that even though section 20 of the SCRA was deleted with effect from 25 January 1995, section 18 A was introduced with effect from 16 December 1999. Hence it is not a case that after deletion of section 20, option contracts came to be permitted without any regulation in that behalf. Moreover the 1969 notification issued under section 16 of the SCRA continued to hold the field thereby only permitting contracts of spot delivery. Further in 1999 upon the introduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingle judge of the Delhi High Court in Cruz City 1 Mauritius Holdings versus Unitech Ltd (2017) 239 DLT 649 are completely misconceived. This decision itself is not applicable to the facts of the present case and is clearly distinguishable. This more particularly as the provisions of the SCRA were not considered by the learned Single Judge in the said decision, at all. Even otherwise this decision does not take into consideration the decision of the Supreme Court in Dropti Devi Anr Versus Union of India and others (2012) 7 SCC 499 which holds that even though FEMA has replaced the FERA, the rigors under the FERA, continued to apply in order to preserve the economic fabric of the country and to that extent there is no difference between the two statutes. Also the decision of this Court in POL India Projects Limited versus Aurelia Reederei Eugen Friederich GmbH Anr. (2015)7 Bom CR 757 , inapplicable in the facts of the present case. Further the decision of the Supreme Court in IDBI Trusteeship Services Ltd versus Hubtown Ltd. 2018 SCC Online SC 2795 it is also not applicable in the facts of the present case as it is not an authority for an interpretation of the circulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on/speculative trading is misplaced, as the put option deed can never result in speculation. Moreover, the notification dated 3 October 13 issued under section 16 and 28 of the SCRA, would establish that the policy of the SCRA is to treat as valid and enforceable, contracts for the purchase or sale of securities, pursuant to exercise of an option contained in a contract in shareholders agreements and the notification also expressly clarifies that the same shall be valid notwithstanding anything contained in section 18 A. (iv) Insofar as the submissions on FEMA and FEMA Regulations are concerned, it is submitted that it has been reiterated by the judgements of the Delhi High Court and this Court that FEMA does not purport to invalidate any agreement or contract and is only concerned with actual transactions involving foreign exchange. A reference is made to the decisions in SRM Exploration P Ltd versus N SN Consultants (2012) 129 DRJ 113 ; POL India Projects Limited versus Aurelia (supra), Cruz City I Mauritius Holdings (supra). (v) The arbitral tribunal has also noted in the award that the put option price was less than the FMV of the put shares at that juncture (comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is no constitutional mandate that preventive detention cannot exist for an act where such act is not a criminal offence and does not provide for punishment (para 70). These observations of the Supreme Court while stressing the continued importance of FEMA, do not detract from the said decisions of the High Court that the foreign award in favour of a foreign investor, cannot be assailed as being contrary to the fundamental policy of Indian law on the ground that the contract under which investment was made and received by the Indian entity, was allegedly contrary to and in breach of FEMA. (ix) The circumstances of the present case are what are considered by the arbitral tribunal firstly that the investment of a substantial sum of USD 5 million, had been made by a foreign party/Banyan Tree; secondly that the respondents being the recipients of the said investment amount, had expressly and specifically represented and warranted to the foreign investor/Banyan Tree that the SSA and the put option deed were valid, legal and enforceable and also had provided a written legal opinion to the foreign party/Banyan tree that the same were valid and enforceable; thirdly the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 16 and 28 of the SCRA, which reads contracts in derivatives (covered by clause (b)) as distinct and different from a contract for sale or purchase of securities pursuant to the exercise of an option contained in a shareholders agreement, which is covered separately by clause (d) of the said notification. (xiii) It is submitted that the learned Single Judge of this court in Edelweiss Financial Services Ltd versus Percept Finserve Pvt Ltd (supra), repelled similar argument that a shareholders agreement containing an option to buy/sell their shares constituted an options contract and was illegal under Section 18A of the SCRA. (xiv) The respondents submission that the put option deed is not the spot delivery contract and was illegal under the 1969 Notification issued under Section 16 of the SCRA, until the issuance of notification dated 3 October 2013 is also ex-facie incorrect. Also the submission of the respondents that clause (d) of the notification dated 3 October 2013, establishes that shareholders agreement which contained an option to buy/sell their shares, entered prior to 3 October 2013 is illegal also is misconceived. (xv) In this context it is submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption, would a contract for the sale or purchase of securities would arise falling within the SCRA. (xviii) The respondents submission that the put option deed was illegal and in contravention of the FEMA, as it provided for a fixed and are assured returns at a predetermined rate of 15% also is misconceived and contrary to the legal position. It is submitted that it is well settled that FEMA deals with actual transactions and dealings in foreign exchange, and does not purport to deal with or invalidate agreements or contracts. To support this submission reliance is placed on the decisions in SRM Exploration P Ltd versus N SN Consultants (supra); POL India Projects Ltd versus Aurelia (supra); Cruz City I Mauritius Holdings (supra). (xix) The respondents submission that the Put Option Deed provided for an open-ended assured returns is also not correct. It is submitted that the Put Option Deed provides that the put option would expire on the successful completion of the IPO. In similar circumstances in Cruz City 1 Mauritius Holdings (supra) the Court held in para 120 and 122, that as the put option could be exercised only within a specified time and was contingent on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the respondents that the RBI s press release dated 9 January 2014 and Circular dated 9 January 2014, poisted that agreements for FDI containing optionality clauses, entered prior thereto were illegal and invalid also is misconceived and incorrect. In this context it is submitted that the FEMA does not deal with agreements/contracts or render them illegal and covers only those actual transactions/dealings in foreign exchange. The RBI circular issued under the FEMA as also the regulations framed therein would never have the effect of rendering prior agreements containing optionality clauses, invalid or illegal. Moreover the circular dated 4 January 2014 does not even purport to render invalid or illegal prior FDI contracts containing an optionality clause. In fact Clause 4, of the circular expressly stipulates that all existing contracts will have to comply with the above conditions to qualify as FDI compliant . Hence existing contracts containing optionality clauses, would qualify as FDI compliant, if they comply with the conditions stipulated therein. (xxiii) The put option deed in fact complied with the conditions provided by the parties, that is the investor should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement as contained in the put option deed is also illegal. The contract itself being illegal, there arises no question of enforcement of an award which seeks to enforce rights under an illegal contract; (ii) Put option deed is unenforceable and illegal under the provisions of the Securities Contracts (Regulation) Act 1956 (SCRA) and the notifications issued thereunder. (iii) Put option deed is unenforceable and illegal also under the provisions of Foreign Exchange Management Act, and the notifications issued thereunder. (iv) The arbitral award is contrary to the fundamental policy of Indian law. 41. Each of the above objections are being discussed in the ensuing paragraphs. (I) Put Option Deed Not Being Adequately Stamped 42. It is not in dispute that the entire adjudication before the arbitral tribunal leading to the award in question, was exclusively and solely on Banyan Tree seeking to enforce its 'exit rights' under the Put Option Deed, being the principal document in question before the arbitral tribunal. Some background in this regard is required to be noted. Banyan Tree is a foreign entity who interalia executed with the respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his objection is completely an afterthought apart from being untenable in law. 46. Banyan Tree has contested this plea of the respondents by placing on record an affidavit in opposition dated 1 July 2019, interalia contending that as a matter of fact and in law the document is adequately stamped, that too at the hands of the respondents at Rupees One Hundred, as per Article 5 (h) (B) of the Maharashtra Stamp Act. It is stated that as the document contained an indemnity by further stamp duty of Rupees Two Hundred was paid on the document. Banyan Tree on all counts has contested this plea of the respondents terming it to be a dishonest plea by the respondents. 47. The respondents response to the aforesaid conduct on their part as set out in Banyan Tree s reply, is quite peculiar as stated in paragraph 7 of the rejoinder affidavit dated 12 July 2019. Respondents contend that in so far as the certificate on stamp duty being paid on the Put Option Deed is concerned, as issued by Axiom, it was issued at that time after obtaining advice from lawyers and consultants, and now the respondents have a new advise that the stamp duty paid on the put option deed is insufficient and not as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the put option deed in evidence and proceeded to adjudicate the rights of the parties arising under this document, certain legal consequences have occurred, when they take such position on the document. In this context Section 35 of the Maharashtra Stamp Act becomes relevant, which reads thus:- Section 35. Admission of instrument where not to be questioned. Where an instrument has been admitted in evidence, such admission shall not, except as provided in section 58, be called in question at any stage of the same suit are proceedings on the ground that the instrument has not been duly stamped. 50. By application of the above provision the respondents are precluded from raising such an objection having accepted and/or by never raising this issue before the arbitral tribunal. Nothing precluded the respondents from raising any plea before the arbitral tribunal, under any of the provisions of the Indian law. In this context it would be relevant to refer the decision of the Supreme Court in Javer Chand versus Pukhraj Surana AIR 1961 SC 1655, wherein the Supreme Court has held, that when a document has once been admitted in evidence, such admission cannot be called in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption deed, to pay the requisite stamp duty, when consistently for a substantial period of ten years took a position that the put option deed was adequately stamped at their hands, cannot be heard to say and/ or are estopped in law, to challenge their own action and conduct, in contending that the document is not adequately stamped. Apart from being devastatingly unreasonable, it is too late in time for the respondents to assert such a plea. In fact, it is a frivolous contention. Such contention, in the present facts, cannot be considered, much less accepted to be any ground under Section 48 of the A C Act, to hold that the put option deed is not valid under law, so as to refuse enforcement of the award. 54. The respondents reliance on the decision of the Supreme Court in SMS Tea Estates (P) Ltd versus Chandmari Tea Co (P) Ltd (supra) and Garware Wall Ropes Ltd versus Coastal Marine Constructions and Engineering Ltd (supra ), which are in the context of section 11 of the Arbitration and Conciliation Act, 1996, in the facts of the present case, is also not well founded. There cannot be any dispute on the principle of law these decisions lay down, namely that in exercising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lead to a conclusion that the put option deed is invalid and illegal under the SCRA. The contention is that it has been the fundamental policy of Indian law to prohibit all contracts in derivatives except those expressly permitted under the provisions of the SCRA. The put option deed was executed on 12 September 2008, at which point of time SEBI notification dated 1 March 2000 was in operation, interalia prohibiting forward contracts and requiring contracts for the sale or purchase of securities to qualify as spot delivery contracts . Thus the SCRA would recognise only spot delivery contracts and derivative contracts. An option agreement in derivatives as contained in the put option deed, can never be permitted as it is not a spot delivery contract. The rigours of Section 18A of the SCRA were clearly attracted. The put option deed when tested by applying section 18A of the SCRA it is revealed that the same violates the said provision and was prohibited. The legislative intention behind SCRA is to prohibit any fixed return on investment in securities, put option deed by all parameters violates the mandate of not only the statutory notifications issued thereunder but also the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be noted :- 2. Definitions In this Act, unless the context otherwise requires,- (a) contract means a contract for or relating to the purchase or sale of securities; ... ... .. ... [(ac)] derivative includes- (A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; (B) a contract which derives its value from the prices, or index of prices, of underlying securities;] (C) commodity derivatives; and (D) Such other instruments as may be declared by the Central Government to be derivatives; ... ... .. ... ... (d) option in securities means a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities; ... .. ... ... (h) securities include- (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain cases. - (1) If the Central Government is of opinion that it is necessary to prevent undesirable speculation in specified securities in any State or area, it may, by notification in the Official Gazette, declare that no person in the State or area specified in the notification shall, save with the permission of the Central Government, enter into any contract for the sale or purchase of any security specified in the notification except to the extent and in the manner, if any, specified therein. (2) All contracts in contravention of the provisions of sub-section (1) entered into after the date of the notification issued thereunder shall be illegal. ....... .......... .............. ....... 18A. Contracts in derivative (1) Notwithstanding anything contained in any other law for the time being in force, contracts in derivative shall be legal and valid if such contracts are- (a) traded on a recognised stock exchange; (b) settled on the clearing house of the recognised (stock exchange or), in accordance with the rules and bye-laws of such stock exchange. (c) between such parties and on such terms as the Central Government may, by notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnised stock exchange and settled on the clearing house of the recognised stock exchange, in accordance with the rules and bye-laws of such stock exchange. 64. SEBI thereafter issued a notification dated 1 March 2000 under section 16(1) of the SCRA, providing that to prevent undesirable speculation in securities in the whole of India, it was declared that in all the territories where the SCRA was applicable, no person except with the permission of the SEBI shall enter into any contract for the sale or purchase of securities other than such spot delivery contract or contract for cash or hand delivery or special delivery or contract in derivatives as permissible under the SCRA or the Securities and Exchange Board of India Act 1992; and the rules and regulations made thereunder. It is seen that this notification was akin to the 1969 notification (supra), except for the fact that additionally a reference to contract in derivatives came to be incorporated to be dealt in the manner as provided, as also a reference to the Securities and Exchange Board of India Act 1992 came to be made. 65. SEBI on 3 October 2013 issued another notification under section 16 and 28 of the SCRA, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract is settled by way of actual delivery of the underlying securities: Provided that the contract specified in clause this (a) to (d) above, shall be in accordance with the provisions of the Foreign Exchange Management Act, 1999 and rules or regulations made thereunder; Provided further that nothing contained in this notification shall affect or validate any contract which has been entered into prior to the date of this notification Explanation : It is hereby clarified that the contracts mentioned in clause (c) and (d) above shall be valid notwithstanding anything contained in section 18 A read with clause (d) of subsection (1) of section 23 of the Securities Contracts (Regulation) Act 1956(42 of 1956); .. (emphasis supplied) 66. Referring to the statutory provisions of the SCRA and the notifications as noted above, the respondents have contended that the put option deed as executed on 12 September 2008, which is after the SEBI notification dated 1 March 2000 was in operation which prohibited forward contracts and/or permitted sale or purchase of securities interalia only by spot delivery. The respondents contend that the put option deed per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te to and including the Expiry Date; Expiry Date means the date earlier of the successful completion of the IPO or (ii) September 30,2015; Put Exercise Notice means a written notice given in accordance with Clause 3 (Exercise of the Put Option and substantially in the form of Schedule 2 (Form of Put Exercise Notice); Put Option means the option granted by the Promoters to the Investor under Clause 2 (Grant of the Put Option); Put Option Price means, in respect of any Put Securities on any Put Settlement Date, the Target Value of such Put Securities on that Put Settlement Date; Put Securities means the Subscription Shares, the Series A Debenture and Equity Shares and Put Security means any of them; Put Settlement Date means each date specified as such in a Put Exercise Notice, which date shall be a date which falls one month after the date of service of the Put Exercise Notice; .. . .. ... Subscription Shares means the 100 equity shares of the Issuer of a face value of ₹ 10 (Rupees Ten only) subscribed to by the Investor under the Subscription Agreement; Target Value means a value that results in an annual yield equal to 15.0% pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercised his right under Clause 3.1(a) above; (c) The Investor has the option to put up the balance of the Put Securities until all of the Put Securities have been transferred to one or more of the Promoters, at any time after 36 months from the Issue Date to and including the Expiry Date; (d) Notwithstanding anything contained in this Clause 3.1, the Investor shall have the option to put all the Put Securities to the Promoters at any time as it may deem fit: (i) on the occurrence of any Event of Default, if the same has not been remedied within the relevant cure periods, if any, provided in the Subscription Agreement. (ii) upon the Issuer taking steps in relation to making the IPO. 3.2 The Investor may, from time to time during the Exercise Period, deliver to RIL on behalf of the Promoters a Put Exercise Notice in respect of the Put Securities. 3.3 Exercise of the Put Option shall oblige the Promoters to purchase the Put Securities. 3.4 In the event the Investor does not exercise its right to participate in the initial public offering in the manner provided in Clause 9 of the Subscription Agreement, the Investor shall not have the right to exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms; and (c) the execution and delivery by it of this Deed and its performance under it do not and will not: (i) conflict with or constitute a default under any provision of: A) any agreement or instrument to which it is a party; or B) its constitutional documents; or C) any law, lien, lease, order, judgment, award, injunction, decree, ordinance or regulation or any other restriction of any kind or character by which it is bound; and (ii) relieve any other party to a contract with it of its obligations or enable that party to vary or terminate its rights or obligations under that contract. 7.2 In order to ensure that the Promoters have sufficient liquidity to meet its payment obligations pursuant to this Deed, as and when due, the Promoters agree that they will, on or before the Closing Date, keep in escrow, equity shares owned and controlled by them in RIL in dematerialized firm constituting 26% of the paid-up equity capital of RIL ( RIL Shares ) with an escrow agent to be appointed by the Promoters, in consultation with the Investor. The parties shall enter into such documentation and do all acts, deeds and things as may be necessary to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nity from suit, execution, attachment or other legal process in any proceedings taken in India in the case of the Promoters in relation to this Deed. 7.4 The Promoters must promptly: (a) obtain, maintain and comply with the terms of; and (b) supply certified copies to the Investor, of any authorization required under any applicable law or regulation to enable it to perform its obligations under, or for the validity or enforceability of, this Deed. .............. ................ ............ 21. TERMINATION This Deed shall terminate on the expiry of the Exercise Period or the exercise of the Put Option in respect of all the Put Securities, whichever is earlier. 70. Considering the clauses of the put option deed, as noted above, it is quite clear that the put option deed is a fallout and consequence of what the parties had agreed in the share subscription agreement (SSA). By entering into the 'put option deed', the parties were giving effect to the agreement as contained in the SSA in which Axiom had agreed to issue to Banyan Tree compulsorily convertible debentures in the capital of Axiom in aggregate amount equivalent to USD 50 mil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue , Book value per share , Market cap and sales. 71. From the tenor of the put option deed, it is quite apparent that the intention of the parties was provide Banayan Tree an exit from the investment it had made towards the capital requirement of Axiom. It is not possible to conceive that the intention of the parties was to indulge into any speculation in the put securities, which is the primary factor to consider the applicability of the provisions of the SCRA and the notifications issued thereunder. Thus, even assuming that the contention of the respondent is to be accepted that the 27 June 1969 notification issued under section 16 of the SCRA, was in operation on the date the put option deed was executed, the said notification would not apply. This for the reason, that this notification was principally intended to prevent undesirable speculation on securities. Merely because the said notification provided that any contract for the sale or purchase of securities interalia cannot be other than spot delivery contracts under the act and rules and bylaws of a recognised stock exchange, that would not mean that the notification in any manner prohibited a put option in a shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1992, and the rules and regulations made thereunder. As noted above this notification was akin to the 1969 notification (supra) except for the fact that additionally a reference to contract in derivatives came to be incorporated to be dealt in the manner as provided, as also a reference to the Securities and Exchange Board of India Act 1992 came to be made. 73. Thus, by virtue of the said amendments and the consequent notification, a statutory regime was introduced under the SCRA by which a prohibition on options was deleted and recognition of contracts in derivatives/forward contracts by introduction of Section 18A came to be inserted. This was the legal position as prevailing on 12 September 2008 when the SSA and the Put Option Deed came to be executed between Banyan Tree and the Respondents. It also needs to be observed that section 18A of the SCRA by virtue of the opening words of the provision NB Notwithstanding anything contained in any other law for the time being in force, contracts in derivative shall be legal and valid if such contracts are . cannot be construed to mean that it would render illegal or invalidate any contract entered between the parties containing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification dated 3 October 2013, it is quite clear that there is a complete statutory recognition in regard to shareholders contracts for purchase or sale of securities, containing a put option and permitting an exercise of option under such agreement. Such an agreement can even be an agreement entered prior to the issuance of this notification. The rights of the parties under any such agreement as the notification says shall remain undisturbed notwithstanding the issuance of this notification. It is quite clear, that this notification never intended to either invalidate any existing shareholders agreement containing an option in securities nor it in any manner intends to dilute the rights of the parties under any such agreement. To read this notification in the manner as suggested by the respondents namely to construe that it invalidates the put option deed, would in fact amount to doing violence to the plain language of the notification. In any event in issung this notification it can never be an intention that two classes of shareholders agreements, namely those agreements entered prior to the issuance of the notification and others after issuance of the notification, be create ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale of shares was effected in favour of IL FS. One of the issues as raised by the SEBI in the show cause notice issued to the petitioner therein, in rejecting the application filed by the petitioner- MCX Stock Exchange Ltd, was to the effect that the buyback arrangement constituted a forward contract and was contrary to the provisions of the SCRA. It is in this context, albeit not directly deciding an issue falling under Section 18A, the Division Bench held that a contract giving an option to one of the parties to sell or purchase the securities was a mere privilege, that may or may not be exercised and did not constitute a contract for the sale or purchase of securities falling within the SCRA. It was held that a contract for the sale of securities falling within the SCRA would come into existence only pursuant to exercise of the option. The Division Bench made the following observations in para 75, 77 and 80 of this judgement which are relevant in the present context :- 75. In a buy back agreement of the nature involved in the present case, the promissor who makes an offer to buy back shares cannot compel the exercise of the option by the promisee to sell the shares at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is considered lawful. Hence, the basis and foundation of the order which is that there was a forward contract which is unlawful at its inception is lacking in substance. 78. In Edelweiss Financial Services Ltd Versus Percept Finserve Pvt.Ltd Anr (supra), the learned Single Judge of this court was considering a similar issue as in the present case namely a share purchase contract in a share purchase agreement under which petitioner therein had an option to either resell the shares held by it to respondent No. 1 , who was bound to purchase the same at the price, which would give the petitioner an internal rate of return (IRR) of 10% on the original purchase consideration, or to interalia continue as a shareholder of respondent No. 2. The petitioner exercised the put option, requiring respondent no.1 to repurchase the shareholding of the petitioner in the respondent No. 2 for a sum of 22 crores giving an IRR of 10% on the original purchase consideration of 20 crores. As₹ respondent No. 1 refused to comply, an arbitration was invoked under the SPA. The arbitral tribunal rejected the petitioner s claim on the ground that the transaction of a share purchase option was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /respondents to purchase the securities by payment of the put option price. Hence a contract for the sale or purchase of securities had come into existence only in the year 2015 when Banyan tree exercised its option. From the terms and conditions of the put option deed it certainly cannot be construed to mean, that there was any such obligation on Banyan Tree to sell the put securities. Thus, the nature of the put option deed is such that it cannot be classified as an exclusive contract in derivatives as understood under the SCRA, although there are some traits creating an impression that the provisions of the SCRA may be attracted, when they are actually not. As the option in favour of the Banyan Tree could neither be dealt nor traded on the stock exchange, being a specific buyback arrangement between the shareholders, there was no question of any speculative transaction between the parties, attracting the provisions of SCRA or the notifications issued thereunder. It is thus not possible to accept the respondents contention that the put option deed fell foul of section 18A of the SCRA, interalia being not traded on a recognised stock exchange. 80. The respondents reliance on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification dated 27 June 1969 issued by the Government under Section 16 (1) of the SCRA which permitted only spot delivery contract and not forward transactions. It was held that, the Custodian was however not entitled to claim the securities as the first leg of the transaction were severable and valid. 81. It is thus clearly seen that the transaction in the said case was a transaction purely dealing with purchase and sale of securities there was only an intention to speculate, which is completely different than what the parties had agreed in the Put Option Deed, the purpose of which was ancillary to the SSA. No doubt that the SCRA would be applicable to securities of companies which are not listed on the stock exchange as also held in Naresh Aggarwala Co. versus Canbank Financial Services Ltd Anr (supra) and Bhagwati Developers Private Limited versus Peerless General Finance and Investment Company Ltd Anr (supra) however for more than one reason the decisions in BOI Finance Ltd. (Supra) would not be applicable. Firstly, the Court in this case was not dealing with a contract akin to the contract in the present case, which is an agreement between shareholders, the genesi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was observed that some trace of their history goes back to 600 BC, when a Greek purchased an option to work on olive presses, while others traced it to the period of William and Mary in the 17th century. It was observed that although the history of futures trading in commodities is fairly long, the history of futures in stocks and securities is shorter and the history of futures trading in foreign currencies is only a few decades old in our country. The Court held that the transactions in derivatives being age-old insofar as commodities and stocks and securities are concerned, it was futile on the part of the plaintiff to contend that the transactions are either are prohibited by law or opposed to public policy, and that what was expressly permitted by law, cannot be held to be opposed to public policy. It was in fact observed that the Master Circular issued by the RBI from time to time and the regulations framed by the RBI under the FEMA permitted such transactions. Such transactions have the sanction of law the world over. Although the put option deed stricto sensu is not a contract in derivatives however even if it is assumed to have some traits of a contract in derivatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the mechanism provided in the said regulation. It is contended by the respondents that the underlying principle being that the guaranteed assured return on equity instruments such as shares was an anathema to such investment. RBI s further Circular dated 9 January 2014 (2014 RBI Circular) leaves no room for doubt that optionality clauses in foreign investments made under the regime of FEMA 20 were not permitted at the time when the SSA and the put option deed was executed between the Respondents and Banayan Tree. According to the respondents the impugned award completely overlooks these aspects, rendering the award illegal. 85. In my opinion, the above contentions of the respondents proceed on a fundamentally erroneous premise both on facts and on law. At the outset it is required to be noted that on a cumulative reading of clause 12.2.2 of the SSA read with clause 9 under schedule 16 (Investors Right) to the SSA, it is quite clear that the put option deed did not provide for an open-ended assured return to Banyan Tree, as an exit option. It is clear that the put option could be exercised by Banyan Tree within a specified time and was contingent on the respondents not compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereunder. In paragraph 112 and 114 of the arbitral award, referring to FEMA Regulation 9 (1) which pertained to transfer of shares and convertible debentures of an Indian company by a person resident outside India, and regulation 10 (B) which provided for prior permission of the RBI in respect of transfer by way of sale not covered by Regulation 9 by a person resident outside India ,it is held that the put option deed was made to be compliant with the regime of regulation 9 and/or 10 (B). The tribunal has observed that the question as to which regime of permission was governing the put option deed had no legal substance or relevance for determining the question of the legality of the put option deed under FEMA, for the reason that FEMA and the subordinate legislation thereunder were not dealing with the legality of the contract like the put option deed, but dealt with the manner in which the contract could be performed from the foreign exchange perspective. I do not see any illegality in the tribunal reaching to this conclusion. This would also be clearfrom the following discussion. 87. FEMA which was brought into force on 1 June 2000 is the successor of the Foreign Exchange Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he orderly development and maintenance of foreign exchange markets in India (emphasis supplied) 88. The preamble of FEMA also throws much light on what the legislation intends. It reads that it is an Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting orderly development and maintenance of foreign exchange market in India. If the legislative scheme emanating from the provisions of FEMA is considered, it is quite clear that it principally concerns regulation and management of foreign exchange and remittances to a foreign country by any entity and the requisite permissions in that regard. There is no provision in FEMA which would void transactions. The regulations framed under the FEMA advance the purpose as contained in in the substantive provisions as contained in the FEMA. It certainly cannot be accepted as a legal proposition that the provisions of FEMA or the regulations made thereunder would invalidate or render void a contract like the put option deed. In the facts of the present case it may concern Banyan Tree when it remits the award money outside India, which Banyan Tree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal and contrary to the fundamental policy of Indian law. 91. The Supreme Court by its order dated 19 January 2018 (SLP (C) No. 32244/2017 rejected the challenge to it decision of the learned Single Judge of the Delhi High Court rendered in Cruz City 1 Mauritius Holdings versus Unitech Ltd (supra) wherein the Court considering a similar contention as raised by the respondent therein in objecting to the enforcement of the foreign award held that the enforcement of a foreign award cannot be declined on the ground of any regulatory compliance or violation of a provision of FEMA. In paragraph 110 of this decision the learned Single Judge observed as under: 110. 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 recovered from Unitech in enforcement of the award would necessarily require compliance of regulatory provisions and/or permissions 92. In a recent decision of the Supreme Court in Vijay Karia and others versus Prysmian Cavi E Sistemi SRL Ors. (2020 SCC Online SC 177) the Supreme Court again approved the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the ground that it is contrary to the public policy of India if it is covered by one of the three categories enumerated in the decision in Renusagar's case (i.e. fundamental policy of Indian law; the interest of India or justice or morality). The application of public policy of India doctrine for the purposes of section 48 (2) (b) would be more limited than the application of the same expression in respect of the domestic award. The Court accordingly confirmed and approved the principles as laid down in Renusagar's case. It would be appropriate to note the following observations of the Supreme Court: 23. Of the many questions framed for determination in Renusagar, the two questions under consideration were: (i) Does Section 7(1)(b)(ii) of the Foreign Awards Act preclude enforcement of the award of the Arbitral Tribunal, GAFTA for the reason that the said award is contrary to the public policy of the State of New York? , and (ii) what is meant by public policy in Section 7(1)(b)(ii) of the Foreign Awards Act? . This Court held that the words public policy used in Section 7(1)(b)(ii) of the Foreign Awards Act meant public policy of India. The arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrued 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. .. ... 27 . In our view, what has been stated by this Court in Renusagar with reference to Section 7(1)(b)(ii) of the Foreign Awards Act must apply equally to the ambit and scope of Section 48(2)(b) of the 1996 Act. In Renusagar it has been expressly exposited that the expression public policy in Section 7(1)(b)(ii) of the Foreign Awards Act refers to the public policy of India. The expression public policy used in Section 7(1)(b)(ii) was held to mean public policy of India . A distinction in the rule of public policy between a matter governed by the domestic law and a matter involving conflict of laws has been noticed in Renusagar. For all this there is no reason why Renusagar should not apply as regards the scope of inquiry under Section 48(2) (b) . Following Renusagar, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of shares from the Karias, who are persons resident in India, to the Respondent No.1, who is a person resident outside India, cannot be less than the valuation of such shares as done by a duly certified Chartered Accountant, Merchant Banker or Cost Accountant, and, as the sale of such shares at a discount of 10% would violate Rule 21(2)(b)(iii), the fundamental policy of Indian law contained in the aforesaid Rules would be breached; as a result of which the award cannot be enforced. .. . 91. This reasoning commends itself to us. First and foremost,FEMA -unlike FERA - refers to the nation s policy of managing foreign exchange instead of policing foreign exchange, the policeman being the Reserve Bank of India under FERA. It is important to remember that Section 47 of FERA no longer exists in FEMA, so that transactions that violate FEMA cannot be held to be void. Also, if a particular act violates any provision of FEMA or the Rules framed thereunder, permission of the Reserve Bank of India may be obtained post-facto if such violation can be condoned. Neither the award, nor the agreement being enforced by the award, can, therefore, be held to be of no effect in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A continues with the regime of rigorous control of foreign exchange and dealing in the foreign exchange is permitted only through authorised person. While its aim is to promote the orderly development and maintenance of foreign exchange markets in India, the Government's control in matters of foreign exchange has not been diluted. The conservation and augmentation of foreign exchange continues to be as important as it was under FERA. The restrictions on the dealings in foreign exchange continue to be as rigorous in FEMA as they were in FERA and the control of the Government over foreign exchange continues to be as complete and full as it was in FERA. 67. The importance of foreign exchange in the development of a country needs no emphasis. FEMA regulates the foreign exchange. The conservation and augmentation of foreign exchange continue to be its important theme. Although contravention of its provisions is not regarded as a criminal offence, yet it is an illegal activity jeopardising the very economic fabric of the country. For violation of foreign exchange regulations, penalty can be levied and its noncompliance results in civil imprisonment of the defaulter. The whole in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from being without substance were merely an eye wash so as to make an attempt to deprive Banyan Tree of the fruits of the award. Although the pleas as raised by the respondents can be said to be legal pleas, but the entire approach of the respondents in pursuing the present proceedings was nothing less than converting these proceedings as if it is an appeal knowing well the limited scope of interference under Section 48 of ACA. Taking an overall view of the matter, in my opinion, the respondents in these circumstances cannot deprive Banyan Tree of the fruits of the arbitral award. 98. Resultantly the petition needs to succeed. It is accordingly allowed in terms of prayer clause (a). The Put Award dated January 15, 2019, (as subsequently corrected),in SIAC ARB 37 of 2016 is declared to be binding under section 46 and enforceable as a decree of this Court, under Part II of the Arbitration and Conciliation Act 1996. Ordered accordingly. 99. In regard to the other prayers the petitioner-Banyan Tree is at liberty to adopt appropriate proceedings as permissible in law. 100. Petition stands allowed in the aforesaid terms. No order as to cost. Commercial Arbitration Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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