Foreign Award Can Be Binding On Non-Signatories To Arbitration Agreement: Supreme Court

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Foreign Award Can Be Binding On Non-Signatories To Arbitration Agreement

Case: Gemini Bay Transcription Pvt. Ltd. vs. Integrated Sales Service Ltd.

Coram: Justices RF Nariman and BR Gavai

Case No: CA 8343-8344 OF 2018

Court Observation: “First and foremost, Section 46 does not speak of “parties” at all, but of “persons” who may, therefore, be non-signatories to the arbitration agreement”

“The grounds are in themselves specific, and only speak of incapacity of parties and the agreement being invalid under the law to which the parties have subjected it. To attempt to bring non-parties within this ground is to try and fit a square peg in a round hole”

From this, is clear that all the requirements of subsection (1) are procedural in nature, the object being that the enforcing court must first be satisfied that it is indeed a foreign award, as defined, and that it is enforceable against persons who are bound by the award. Section 47(1)(c) being procedural in nature does not go to the extent of requiring substantive evidence to “prove” that a non-signatory to an arbitration agreement can be bound by a foreign award. As a matter of fact, Section 47(1) (c) speaks of only evidence as may be necessary to prove that the award is a foreign award.

Shri Vishwanathan and Shri Salve’s arguments that to prove that a nonsignatory to an arbitral agreement can only be roped into the aforesaid agreement on evidence being adduced before the enforcing court as to whether the non-signatory is a person who claims under a party or is otherwise affected by the alter ego doctrine, is disingenuous to say the least. This Section only has reference to the six ingredients of a foreign award that have been outlined hereinabove, which are contained in the definition section, namely, Section 44. Ingredients 1 to 4 can easily be made out from the foreign award itself as the award would narrate facts which would show the legal relationship between the ‘persons’ bound by the award (who need not necessarily be parties to the arbitration agreement), and as to whether the award deals with matters that can be considered commercial under the law in force in India. Equally, the date of the foreign award would appear on the face of the foreign award itself. Thus, Section 47(1)(c) would apply to adduce evidence as to whether the arbitration agreement is a New York Convention agreement. Also, the requisite Central Government notification can be produced under Section 47(1)(c), so that Section 44(b) gets satisfied. To argue that the burden of proof is on the person enforcing the award and that this burden can only be discharged by such person leading evidence to affirmatively show that a non-signatory to an arbitration agreement can be bound by a foreign award is outside Section 47(1)(c). This argument consequently stands dismissed.

It is important to remember that the New York Convention, which our Act has adopted, has a pro-enforcement bias, and unless a party is able to show that it’s case comes clearly within Sections 48(1) or 48(2), the foreign award must be enforced. Also, the grounds contained in Sections 48(1)(a) to (e) are not to be construed expansively but narrowly Given these parameters, let us examine arguments of the appellants insofar as Section 48(1)(a) is concerned. If read literally, Section 48(1) (a) speaks only of parties to the agreement being under some incapacity, or the agreement being invalid under the law to which parties have subjected it. There can be no doubt that a non-party to the agreement, alleging that it cannot be bound by an award made under such agreement, is outside the literal construction of Section 48(1)(a).

Also, it must not be forgotten that whereas Section 44 speaks of an arbitral award on differences between “persons”, Section 48(1)(a) refers only to the “parties” to the agreement referred to in Section 44(a). Thus, to include non-parties to the agreement by introducing the word “person” would run contrary to the express language of Section 48(1)(a), when read with Section 44. Also, it must not be forgotten that these grounds cannot be expansively interpreted as has been held above. The grounds are in themselves specific, and only speak of incapacity of parties and the agreement being invalid under the law to which the parties have subjected it. To attempt to bring non-parties within this ground is to try and fit a square peg in a round hole

The judgment in Ssangyong (supra) noted in para 29 that Section 48 of the Act has also been amended in the same manner as Section 34 of the Act. The ground of “patent illegality appearing on the face of the award” is an independent ground of challenge which applies only to awards made under Part I which do not involve international commercial arbitrations. Thus, the “public policy of India” ground after the 2015 amendment does not take within its scope, “perversity of an award” as a ground to set aside an award in an international commercial arbitration under Section 34, and concomitantly as a ground to refuse enforcement of a foreign award under Section 48, being a pari materia provision which appears in Part II of the Act. This argument must therefore stand rejected

Section 48(1)(b) does not speak of absence of reasons in an arbitral award at all. The only grounds on which a foreign award cannot be enforced under Section 48(1)(b) are natural justice grounds relatable to notice of appointment of the arbitrator or of the arbitral proceedings, or that a party was otherwise unable to present its case before the arbitral tribunal, all of which are events anterior to the making of the award

“First and foremost, Section 46 does not speak of “parties” at all, but of “persons” who may, therefore, be non-signatories to the arbitration agreement. Also, Section 35 of the Act speaks of “persons” in the context of an arbitral award being final and binding on the “parties” and “persons claiming under them”, respectively. Section 35 would, therefore, refer to only persons claiming under parties and is, therefore, more restrictive in its application than Section 46 which speaks of “persons” without any restriction.

Quite apart from this, another important conundrum arises from the Division Bench judgment in the present case. The Division Bench judgment applied Delaware law to satisfy itself that such law had indeed been followed to apply the alter ego doctrine correctly, as a result of which the foreign award would have to be upheld. We wish to indicate that this approach is completely erroneous. First and foremost, Section 48 does not contain any ground for resisting enforcement of a foreign award based upon the foreign award being contrary to the substantive law agreed to by the parties and which it is to apply in reaching its conclusion. As a matter of fact, whether the award is correct in law (applying Delaware 72 law), would be relevant if at all such award were to be set aside in the State in which it was made and that too if such law permitted interference on the ground that the arbitral award had infracted the substantive law of the agreement. As has been pointed out hereinabove, the arbitral award in this case was not challenged in the State of Missouri. Hence, the Division Bench’s foray into this line of reasoning is wholly incorrect.

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