The Arbitration and Conciliation Act, 2015, (hereinafter referred to as the “Act”) has been enacted with a view to monitor the arbitral proceeding being conducting at domestic as well as international levels. The Act regulates the enforceability of foreign awards.

The award enforceable under Part II of the Act is binding upon the parties thereto. Such award would not be enforceable as per the provisions of Section 48 of the Act, if at the time it was passed

  1. either party is under some incapacity;
  2. either party was not given any proper notice regarding the appointment of the Arbitrator;
  3. the award itself comprises of decisions beyond the scope of the Arbitration;
  4. the agreed procedure for Arbitration was not followed;
  5. the award is set aside/ suspended by the competent authority before its enforcement;
  6. the subject-matter of the dispute is not capable of settlement by arbitration under the laws of India;
  7. the enforcement of the award would be contrary to the public policy of India.

In a recent judgement dated January 31, 2018, in the case of Daiichi Sankyo Company Limited vs. Malvinder Mohan Singh and Ors.[1], the Delhi Court discussed the enforceability of foreign award.

Brief facts

M/s. Daiichi Sankyo Company Limited (hereinafter referred to as “Daiichi Sankyo”) purchased the total stake of Singh brothers in Ranbaxy Limited for INR 1,980,000,000 under the share purchase and subscription agreement. Disputes arose between the parties when Daiichi Sankyo alleged fraud and concealment of facts. As agreed between the parties the dispute was referred for Arbitration at Singapore whereby an award of INR 35,620,000,000 was passed in favor of Daiichi Sankyo who filed the petition for the enforcement of the said award.

Singh Brothers challenged the enforcement of the said award because of the following reasons:

  1. falling within the preview of non-enforceable awards as per Section 48 of the Act;
  2. Damages being contrary to Section 19 of the Contract Act, 1872 (hereinafter referred to as “Contract Act”);
  3. Consequential damages awarded were beyond the jurisdiction of the Arbitral Tribunal;
  4. Claims were barred by limitation;
  5. Interest on awarded damages amounts to awarding of multiple damages;
  6. Award against minors is not enforceable.

Judgement

The High Court of Delhi vide judgement dated January 31, 2018, upheld the enforceability of the award with the exception of non-applicability of the provisions of the said award on minors.

Ratio

The Court discussed the applicability of foreign awards in accordance with the provisions of Part II of the Act and arrived at the below stated conclusions:

  1. Applicability of Section 48 of the Act – It was observed that the enforceability of foreign award could only be refused if the same is against the fundamental policy of India, interest of India or justice/ morality. The Act does not give an opportunity to have a “second look” at the foreign award at the stage of enforcement. Review of foreign award on merit is not permissible. While considering the enforceability of foreign awards, the Courts do not exercise appellate jurisdiction. Since the case does not fall within the purview of any of the conditions stated under Section 48 of the Act, the said award was held enforceable.
  2. Damages contrary to Section 19 of the Contract Act – It was held that according to the provisions of Section 19 of the Contract Act, the party should be placed in the same position in which they would have been if the representations made were true. Since losses were suffered by Daiichi owing to fraudulent actions of the Singh Brothers, damages awarded were not contrary to Section 19 of the Contract Act.
  3. Consequential damages were beyond the jurisdiction of the Arbitral Tribunal – It was observed that the damages awarded could be said to be beyond the jurisdiction of the Arbitral Tribunal as consequential damages are to be considered in view of punitive, exemplary, multiple damages and not the losses.
  4. Claims were barred by limitation – It was held that the Court could not go into the finding of the Arbitral Tribunal. Therefore, the findings that limitation period commences only when the party could have with reasonable diligence discovered claimable action against the opposite party. The Court while rejecting the said contention, observed that the findings of the Arbitral Tribunal could not be held contrary to the fundamental policy of Indian law.
  5. Interest on awarded damages amounts to awarding of multiple damages – It was observed that there was no absolute bar on award of interest by the way of damages and that the same was permissible if usage/ contract/ provision of law justified such interest.
  6. Award against minors is not enforceable – It was held that minor could not be held guilty of perpetuating fraud either by himself or through agent and any such act committed by the natural guardian could not bind him/ her. Fundamental policy in India seeks to protect the interests of the minor.

 

Conclusion

Enacted with the aim of facilitating the mechanism of dispensing justice, the Act encourages settlement of disputes through alternate dispute resolution mechanism. While covering the aspect of domestic arbitrations, the Act also covers the validity and binding effect of the foreign seated arbitrations. The Court vide the said judgement seeks to repose the faith in the enforceability of foreign arbitral awards.