Avitel Post Studioz Limited & Ors. v. HSBC PI Holdings (Mauritius) Limited (2024) SCC OnLine SC 345 – Judgment dated 4 March 2024
Introduction
The Supreme Court in its recent decision Avitel Post Studioz Limited & Ors. v. HSBC PI Holdings (Mauritius) Limited1 examined whether bias of an arbitrator can be a ground for resisting enforcement of a foreign arbitral award under section 48 of the Arbitration and Conciliation Act, 1996 (“Act”), and the standard to be applied in deciding whether in fact there was bias at play which would render the foreign award unenforceable. 2
This case stems from an appeal challenging an order dated 25 April 2023 passed by the Hon’ble High Court of Bombay (“Bombay HC”) facilitating enforcement of a foreign arbitral award passed by a threemember arbitral tribunal (“Tribunal”) under the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC”). The Appellant alleged that one of the arbitrators failed to disclose a conflict of interest and hence, the arbitral award was contrary to public policy of India on account of bias by the arbitrator.
The Supreme Court held in this case that while an award vitiated by bias of an arbitrator would be contrary to public policy of India, the standard to be applied to determine whether in fact there was a conflict of interest should be a narrow and international standard and not a domestic one. Applying this principle to the facts of the case, the Supreme Court held that there was no bias in the present case that would constitute a violation of public policy, and accordingly dismissed the appeal.
Background
HSBC PI Holdings (Mauritius) Ltd. (“HSBC”) initiated arbitral proceedings against Avitel Post Studioz Ltd. (“Avitel”) before SIAC, seeking damages for breach of a share subscription agreement by Avitel. The Tribunal passed a final award dated 27 September 2014 (“Award”) in favour of HSBC and directed Avitel to pay USD 60 million as damages for fraudulent misrepresentation.
HSBC filed proceedings before the Bombay HC for enforcement of the Award.
Avitel objected to the enforcement of the Award under section 48 of the Act inter alia on the ground that one of the arbitrators failed to disclose a conflict of interest. The arbitrator was an independent director on the board of a company called Wing Tai in which a group company of HSBC held 6.29% of equity on a trustee/nominee basis. The arbitrator was also an independent director on the board of a second company called Neptune, which also allegedly had a business relationship with a group company of HSBC. This, according to Avitel, meant that the arbitrator’s impartiality was compromised, and consequently, he was required to make a disclosure in terms of General Standard 3 under the Guidelines on Conflict of Interest in International Arbitration published by the International Bar Association in 2004 (“IBA Guidelines”)3 , which he failed to do. It was therefore argued that the Award is vitiated by bias and is unenforceable for being contrary to public policy of India in terms of section 48(2)(b) of the Act.
HSBC argued that Wing Tai and Neptune were not a part of the HSBC group of companies and had no contractual relationship with HSBC. There was therefore no requirement under the IBA Guidelines for the arbitrator to disclose his association with the said companies.
Court’s Analysis
Does ‘bias’ form a part of violation of Public Policy?
The Supreme Court while examining the scope of “public policy” under Section 48(2) of the Act noted that there should be minimal judicial intervention in enforcement of foreign awards and the grounds under section 48 of the Act are exhaustive. The Court observed that this pro-enforcement approach finds recognition in several decisions of the Supreme Court4 , where a distinction has been drawn between the relatively wide interpretation given to the ground of “public policy” in challenges to awards passed in domestic arbitrations under Section 34(2)(b) of the Act, compared to the restricted and narrow approach in respect of challenge to enforcement of foreign awards under Section 48(2)(b) of the Act.5
The Court then went on to observe that, while the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention") (of which India is a signatory) does not explicitly provide ‘bias’ as a ground for refusing enforcement of a foreign award, it may form a part of Article V(1)(d) (irregular composition of arbitral tribunal), Article V(1)(b) (due process) and the public policy defence under Article V(2)(b) of the New York Convention. The Court therefore found that the most basic notions of morality and justice under the concept of ‘public policy’ in section 48 of the Act would include ‘bias’.
What is the standard for determining bias at the enforcement stage?
The Court discussed the standard for bias to be applied when deciding a violation of public policy and its findings in this regard are as follows:
a. The threshold for bias in preventing the enforcement of an arbitral award is higher than for ordinary judicial review. Further, the threshold in enforcement proceedings must also be higher than for removal of an arbitrator on the same ground since greater time, effort and expense is involved in refusing enforcement of an award compared to removal of an arbitrator.
b. Since India is a signatory to the New York Convention, a more internationalist approach ought to be taken when determining a violation of public policy. Only narrow and international standards should be used when dealing with public policy in the context of foreign awards.
c. It is also important to apply international standards since different countries apply different standards for determining bias. Therefore, applying a uniform international standard would foster more “trust, certainty, and effectiveness” in resolving international disputes.
d. It is only when most basic principles of morality and justice are violated that a court ought to refuse enforcement of a foreign award. In Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India6 , the court held that the ground of violation of most basic principles of morality and justice can be invoked only if it shocks the conscience of the court.
In the above background, the Supreme Court observed that the IBA Guidelines are a collective effort by the international community to set certain standards for determining bias. The IBA Guidelines suggest the application of the “reasonable third person” test in deciding allegations of bias i.e., whether in the facts and circumstances, a reasonable and informed third party would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case. 7
Further, in terms of the IBA Guidelines, arbitrators are required to disclose to the parties any facts or circumstances that could compromise their impartiality or independence.The IBA Guidelines sets out different lists as guidance for disclosure, which are summarized below8 :
a. Non-Waivable Red List: This includes situations deriving from the overriding principle that no person can be their own judge and conflicts covered under this list cannot be cured.
b. Waivable Red List: This covers situations of conflict which are serious but not as severe as the ones in the Non-Waivable Red list. These situations can be waived only if all parties to the proceedings, being aware of the conflict, expressly state their willingness to have such a person to act as an arbitrator.
c. Orange List: This is a non-exhaustive list covering situations which may give rise to doubts regarding the arbitrator’s impartiality, and the arbitrator is obligated to make appropriate disclosures. However, if no objections are made within specified timelines, parties are deemed to have accepted the arbitrator’s appointment.
d. Green List: This is a non-exhaustive list of specific situations where no actual conflict of interest can exist either under the subjective or the objective standard. Thus, the arbitrator has no duty to disclose situations falling within this list.
Court’s reasoning on facts
a. Award not challenged before the appropriate forum
At the outset, the Supreme Court referred to the decisions in Perma Container (UK) Line Limited v. Perma Container Line (India) Ltd.9 and Vijay Karia v. Prysmian Cavi E. Sistemi SRL10 (“Vijay Karia”), wherein it was held that the objection of bias must be raised in appropriate proceedings before courts of the seat of arbitration. The Court observed in this context that Avitel never challenged the Award based on grounds of bias before the courts in Singapore and therefore could not be permitted to raise such a ground at the enforcement stage.
b. The ‘reasonable third person’ test
The Supreme Court thereafter agreed with the view taken by the Bombay HC in applying the “reasonable third person” test for assessing conflict of interest. The findings of the Bombay HC, which were approved by the Supreme Court, based on which the ground of bias was rejected in the present case were as follows:
a. Wing Tai and Neptune do not fall within the definition of “affiliate” of HSBC in terms of the IBA Guidelines that would lead a reasonable third person to conclude that there was a justifiable doubt as to the independence and impartiality of the arbitrator.
b. Even if Avitel’s argument that this was a case of conflict that went beyond the Red and Orange Lists and that the Green List was not applicable was accepted, Avitel could not establish any discernible bias on applying the “reasonable third person” test.
c. Avitel’s allegation that the affiliate of HSBC held a significant shareholding in Wing Tai was unsupported by evidence.
d. Even taking the subjective approach to disclosure, limitations of the Green List apply. Based on clause 4.5 and 4.53 of the Green List, no circumstances of conflict of interest exist in the present case. Therefore, since the circumstances alleged fall under the purview of the Green List, there is no duty for the arbitrator to disclose the same.
In light of the above, the court concluded that it did not find any bias or likelihood of bias by the arbitrator in the present case and there was therefore no violation of public policy. The Appeal was accordingly dismissed.
Conclusion
This decision is significant for emphasizing that a very high threshold must be met for refusal to enforce a foreign award on the ground of bias and this threshold is greater than that which is used for ordinary judicial review and for dismissing an arbitrator on the same ground prior to or during the proceedings. The Court has further held that an international standard of the “reasonable third party” test must be applied when deciding whether a foreign award is vitiated by bias.
It is also critical to read the above findings in the context of two important findings of the Supreme Court in this case: (a) As held in Vijay Karia, section 50 of the Act does not permit any appeal from the decision of a High Court in respect of enforcement of a foreign award. Therefore, the Supreme Court will intervene in only in rare cases, with a view to settle the law, where there has been a blatant disregard of section 48 of the Act and (b) objection of bias must be raised first in the courts of the seat if such a remedy is available and cannot be raised for the first time at the enforcement stage.
The Court has therefore once again taken a pro-enforcement approach and has reiterated the need for minimal judicial intervention in enforcement of foreign awards.
