"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Thursday, March 24, 2011

Enforcement of Foreign Awards: India Catching Up with the International Trend?

Two recent  judgements by the Delhi High Court on the enforcement of foreign awards are worth noting.We'll do a detailed post on one of the two and give the link to the other. We'll cover the other in brief in this month's roundup of arbitration cases.

EX.P. 386/08 & E.A. Nos.451/2010, 704-705/2009 & 77/2010
High Court of Delhi
Date of Judgement: 11 January 2011
High Court of Delhi

Penn Racquet Sports (Penn) is a company based in USA. Major International Ltd. (Major) is an Indian company. Under the Trademark Licence Agreement (TLA) entered into between Penn and Major, the trademark “Penn” was licenced to Major for certain purposes and for the same Major had to pay annual royalty. The annual royalty was to be paid in quarterly instalments. Default in payment attracted interest.

Clause 17 stated that the agreement would be governed by Austrian laws. Clause 18 of the TLA provided for reference of disputes to arbitration administered by ICC.

Major defaulted in payments and consequently, Penn terminated the contract. Disputes arose and were referred to Ms. Gabrielle Nater-Bass, the sole arbitrator. The arbitrator decided in favour of Penn.

Mayor argued before the Delhi High Court that the award was contrary to public policy.

The Court held that narrow meaning has to be attributed to the term “public policy of India” where the matter involves conflict of laws. The court referred to the decision of the Supreme Court in Smita Conductors Ltd. v. Euro Alloys Ltd. In Smitha Conductors, it was held that public policy has been:
used in a narrow sense must necessarily be construed as applied in private international law which means that a foreign award cannot be recognised or enforced if it is contrary to (1) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality.”
The court also referred to Jindal Exports Ltd v. Fuerst Day Lawson Ltd where the Delhi High Court followed the Smita Conductors

Major did not cite any other ground under Section 48 of the Arbitration and Conciliation Act, 1996 (Act). It only contended that the arbitrator interpreted a term of the TLA wrongly. The court rejected Major’s contention for the following reasons:

  • Interpretation of contract is in the domain of the arbitrator.
  • Even in case of domestic awards, courts would not interfere with the interpretation by the arbitrator of the contract unless such interpretation is contrary to the terms of the contract.
  • The substantive law of contract is Austrian law. Thus, if Major contended that the interpretation of the contractual term by the arbitrator was erroneous, the interpretation of the term of the contract would be on the basis of Austrian law, usually proved on the basis of expert evidence. Major did not lead any expert evidence on Austrian Law relating to the interpretation of the relevant provision of law.
  • Major has attempted to interpret the relevant term of the contract on the basis of Indian law, which is not permissible.
  •  An award cannot be denied enforcement merely for the reason that it contravenes Indian law. The award should be contrary to the fundamental policy of India or because the award is contrary to interests of India or is contrary to justice or morality.
Major had also contended that the award was contrary to principles of natural justice because:
  1. the terms of reference drafted by the arbitrator were not signed by Major,
  2. Major’s counter-claim was not even taken on record by the arbitrator.
The court negated the contention of the above contentions as:
  • the arbitrator had given adequate opportunity to sign the terms of reference. Despite several reminders, Major failed to sign the same.
  • The counter claim was fixed by the ICC Court of Arbitration (ICCA) but was not paid by Major. As per the ICC Rules, if the fee for counter-claim is not paid, it is deemed to be withdrawn.
Since the argument of Major failed to convince the court, the court deemed the award enforceable. 

It  may be noted that a post in the Kluwer Arbitration blog comments that this case is a great development for the Indian arbitration industry. Check it out.

The other case that was mentioned at the beginning of this post is Anita Garg v. Glencore Grain Rotterdam B.V. & Anr. The case pertains to enforcement of a GAFTA award. A comment of the case can be found at the Indian Corp Law blog. The challenge/ enforcement of GAFTA awards in India is a fascinating topic that would form the subject-matter of a post on another day.


Santhiya said...

Wonderful blog & good post.Its really helpful for me, awaiting for more new post. Keep Blogging!

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Badrinath Srinivasan said...

Santhiya, thank you.