Supreme Court: In an appeal challenging order dated 25-04-2023 and notice of motion passed by the High Court facilitating enforcement of final award dated 27-09-2014 issued in SIAC Arbitration, the Division Bench of Hrishikesh Roy and Prashant Kumar Mishra, JJ. sought to follow the international standards of public policy and held that enforcement of foreign awards should be refused on the ground of bias only in exceptional circumstances.
Factual Background
The appellants in the instant matter were the award debtors, the respondent being the award holder. The appellants objected against enforcement of foreign award under Section 48 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’), which was rejected by the High Court with the directions for order of attachment against the Award Debtors to continue to operate during execution proceedings.
The respondent – HSBC is a company incorporated under Mauritius’ laws, and Avitel India is a company incorporated under Indian laws with parent company being Avitel Group. It holds the entire issued capital of Avitel Holdings Limited, which in turn, holds the entire issued share capital of Avitel Post Studioz FZ LLC. The Appellant 2 is the founder, Chairman and Director of Avitel Post Studioz Limited, Appellants 3 and 4 being his sons who were directors of Appellant 1.
HSBC & Avitel India entered a Share Subscription Agreement on 21-04-2011 for HSBC investing in equity capital of for a consideration of US 60 million dollars to acquire 7.8% of its paid-up capital, which also contained an arbitration clause providing for disputes to be finally resolved at the Singapore International Arbitration Centre (‘SIAC’) designating Singapore as the seat of arbitration excluding Part 1 of Arbitration Act except Section 9. The parties also entered a Shareholders’ Agreement on 6-05-2011 to define their relationship, also containing an identical arbitration clause.
HSBC claimed that the appellants made certain representations at a very advanced stage stating that the investment of US$ 60 Million was required to service a significant contract with the British Broadcasting Corporation (‘BBC’). Following investment, the appellants ceased to provide any information regarding BBC contract despite various follow-up attempts. Thus, HSBC engaged an independent investigation agency and discovered that the purported BBC Contract was non-existent and the invested amount was siphoned off to different Companies. This led HSBC to invoke arbitration clause under the SIAC Rules on 11-05-2012 and claim damages of US$ 60 million from appellants. On 14-05-2012, Mr. Thio Shen Yi, SC was appointed by SIAC as an Emergency Arbitrator, the appellants challenged his appointment which was considered by SIAC on 17-05-2012 and eventually rejected.
On 28-05-2012 and 29-05-2012, the emergency arbitrator passed two interim Awards in favour of HSBC refraining the appellants from disposing of/diminishing the value of their assets upto US$ 50 million. Further, on 27-07-2012, the said emergency arbitrator made an amendment to Interim Awards rejecting to desist investigations against Avitel Dubai and Avitel Mauritius. HSBC alleged that the appellants made several attempts to delay and frustrate the proceedings. The arbitral tribunal consisting of three members rendered its final award on 27-09-2014 directing the appellants to pay US$ 60 million as damages for fraudulent misrepresentations.
The respondent initiated proceedings under Section 9 of Arbitration Act before Bombay High Court, a direction was issued against appellants to deposit 60 million for enforcement of the Award, which led the appellants to file a Special Leave Petition before Supreme Court claiming the dispute to be non-arbitrable as per Indian law for involving allegations of fraud including serious criminal offences such as forgery and impersonation. The Court had decided arbitrability of fraud in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4 SCC 713 holding that HSBC had a strong prima facie case in the enforcement proceedings wherein HSBC sought maintenance of the entire claim amount in Avitel’s bank account. On appellants’ failure to abide by Court’s direction to deposit the amount, a contempt proceeding was initiated when on 11-07-2022, the Court found Avitel deliberately and willfully disobeying its order and directed them to remain present before the Court. However, appellants 2 to 4 went abroad defying the Court’s directions, which led the Court to issue warrants and look-out notices along with further direction to the Ministry of External Affairs and Central Bureau of Investigation to issue Red-Corner Notice. The appellants 2 to 4 surrendered and tendered an unconditional apology, which the Court refused and they were sentenced to imprisonment.
The Court considered whether the High Court was correct in rejecting the objection under Section 48(2)(b) of Arbitration Act against enforcement of foreign Award on grounds of arbitral bias and violation of public policy, and whether the ground of bias could be raised at the enforcement stage for being violative of the ‘public policy of India’ and ‘most basic notions of morality or justice’.
The Court highlighted the fact that India was one of the earliest signatories to Recognition and Enforcement of Foreign Arbitral Awards, 1958 (‘New York Convention’), which superseded Geneva Convention of 1927 for facilitating enforcement of foreign Arbitral Awards. The Court explained that “the precursors to the New York Convention on the contrary provided for an expansive scope for invoking the public policy ground based on the violation of the “fundamental principles of the law”. Although the notion that ‘public policy’ is ‘a very unruly horse’ has gained traction over the years, one would also do well to remember the words of Lord Denning who said that, “With a good man in the saddle, the unruly horse can be kept in control.” This would suggest that a proper understanding of this branch of law by the horse rider would be necessary.”
The Court referred to Parsons & Whittemore Overseas Co. v. Societe Generale de L’Industrie du Papier, 508 F.2nd 969 (1974) which had been followed in various jurisdictions including Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644. Coming to part 2 of Arbitration Act, the Court reiterated that “we must underscore that minimal judicial intervention to a foreign award is the norm and interference can only be based on the exhaustive grounds mentioned under Section. A review on the merits of the dispute is impermissible.” The Court further cited Vijay Karia v. Prysmian Cavi E Sistemi SRL, (2020) 11 SCC 1 wherein it was noted that “the party resisting enforcement can only have “one bite at the cherry” and when it loses in the High Court, the limited scope for interference could be merited only in exceptional cases of “blatant disregard of Section 48”.” The Court observed that the grounds for resisting enforcement of a foreign award are much narrower than the grounds available for challenging a domestic award under Section 34 of the Indian Arbitration Act.
The Court expressed that being signatory to the New York Convention, India must adopt an internationalist approach, while hinting at the clear distinction between the standards of public policy applicable for domestic arbitration and international commercial arbitration. It went on to explain that “Even though the New York Convention does not explicitly mention “bias”, the possible grounds for refusing recognition of a foreign award are contained in 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).”
Referring to the various approaches of Courts across the world in context with the instant matter, the Court viewed that “we must adopt an internationally recognized narrow standard of public policy, when dealing with the aspect of bias. It is only when the most basic notions of morality or justice are violated that this ground can be attracted.” Citing Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131, the Court viewed that there could be no difficulty in holding that the most basic notions of morality ad justice under ‘public policy’ would include bias, but the Courts must endeavor to adopt international best practices instead of domestic standards, while determining bias. It is only in exceptional circumstances that enforcement should be refused on the ground of bias.
The Court further looked at the implications of IBA Guidelines and their application. Eyeing the facts of the case, the Court concluded that there was no bias factor that could violate the most basic notions of morality and justice or shock the conscience of the Court. The Court indicated at the instant case that “despite the award being in their favour, the award holders found themselves embroiled in multiple litigations in different forums by the concerted and unmerited action of the appellants.”
The Court upheld the High Court’s decision and emphasized the need for early enforcement of the foreign award by the competent forum, without showing any further indulgence to the award debtors.
[Avitel Post Studioz Limited v. HPEIF Holdings 1 Limited, 2024 SCC OnLine SC 345, Order dated 4-03-2024]
Advocates who appeared in this case :
For Petitioners: Mukul Rohatgi, Sr. Adv., Vikram Nankani, Sr. Adv., Shridhar Y. Chitale, Adv., Sumeet Nankani, Adv., Karan Bharihoke, Adv., Manali Singhal, Adv., Ankur Yadav, AOR
For Respondents: Mr. Darius Khambata, Sr. Adv., Nikhil Sakhardande, Sr. Adv., Rajendra Barot, Adv., Priyanka Shetty, Adv., Sherna Doongaji, Adv., Ayush Chaddha, Adv., Dhaval Vora, Adv., Shanay Shroff, Adv., Dhruv Sharma, Adv., Raghav Agarwal, Adv., Sonali Jain, AOR
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