1. Enforcement of a foreign arbitral award under the Arbitration and Conciliation Act, 1996, involving non-signatories bound via the alter ego doctrine. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 12 , 13 , 14 , 15 , 16 , 17 )
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2021 Supreme(SC) 750
SUPREME COURT OF INDIA
ROHINTON FALI NARIMAN, B.R. GAVAI, JJ.
Gemini Bay Transcription Pvt. Ltd. - Appellant
Versus
Integrated Sales Service Ltd. & Anr. - Respondents
Civil Appeal Nos. 8343-8344 of 2018 With Civil Appeal Nos. 8345-8346 of 2018
Decided On : 10-08-2021
Important Points
Foreign awards are subject to a pro-enforcement bias. Non-signatories can be bound by an award under the 'alter ego' doctrine. Such findings are not reviewable under Section 48(1)(a) or (c) of the Arbitration Act, 1996, unless they violate India's fundamental public policy.
Subject
Arbitration Law - Enforcement of Foreign Awards
Act Referred
ARBITRATION AND CEILING ACT: S.34
ARBITRATION AND CONCILIATION ACT: S.44, S.50, S.47, S.46, S.35, S.37, S.48(1)(a), S.43(3), S.28(3), S.34
FOREIGN AWARDS ACT: S.7, S.7(1)(b)(ii)
FOREIGN AWARDS RECOGNITION AND ENFORCEMENT ACT: S.2
ARBITRATION AND CONCILIATION ACT: S.44, S.50, S.47, S.46, S.35, S.37, S.48(1)(a), S.43(3), S.28(3), S.34
FOREIGN AWARDS ACT: S.7, S.7(1)(b)(ii)
FOREIGN AWARDS RECOGNITION AND ENFORCEMENT ACT: S.2
Headnote
Arbitration and Conciliation Act, 1996 – Section 46, 35, 47(1)(c), 48, 48(1) or 48(2), 34, 44 – Maharashtra High Court (Hearing of Writ Petitions by Division Bench and Abolition of Letters Patent) Act, 1986 – Section 3 – Foreign Awards Act, 1961 – Section 7 – Geneva Convention Act of 1927 – Article I(e) – UK Act, Section 103(2)(b) – Singapore’s International Arbitration Act, 1994 – Section 31(2)(b) – Narcotic Drugs and Psychotropic Substances Act, 1985 – When foreign award binding – Evidence – Definition – Conditions for enforcement of foreign awards – Held, There is also merit in submissions made on behalf of that there was no material produced before Arbitral Tribunal by Agritrade to show that it had, in fact, suffered any loss as a result of not opening an L/C for quantity of 5000 MT of CPO – Tribunal merely accepted the default and proceeded to determine “close out price” to assess damage – Facts in this case are far removed from facts in aforesaid High Court Judgment – There can be no doubt whatsoever that as a result of machinations, as found by arbitral tribunal, ISS was deprived of commission legitimately due to it under representation agreement – This being so, there can be no doubt that, on facts as proved before arbitral tribunal, actual loss can be said to have been occasioned to ISS – In any case, damages so awarded in facts of this case cannot even remotely be said to shock conscience of this Court so as to clutch at “basic notion of justice” ground contained in Section 48(2) Explanation (1)(iii) – Appeals dismissed.
Legal Category Hierarchy
- practice and procedure
- tort
- company law
Table of Contents
2. Non-signatories cannot be bound by arbitration agreements; burden of proof under Section 47(1)(c) not met; award is perverse, unreasoned, and damages are speculative. (Para 24 , 25 , 26 )
3. Section 47 is procedural; Section 48 grounds are narrow; non-signatories cannot invoke Section 48(1)(a); tort claims are arbitrable if connected to the contract. (Para 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 , 63 , 64 , 65 , 66 , 67 , 68 , 69 , 70 , 71 , 72 , 73 , 74 , 75 , 76 , 77 , 78 , 79 , 80 )
4. Foreign awards are pro-enforcement; non-signatories cannot resist enforcement under Section 48(1)(a); proof under Section 48 means established on the arbitral record. (Para 37 , 39 , 42 , 49 , 69 )
5. Appeals dismissed. (Para 81 )
6. Does Section 47(1)(c) require substantive evidence to prove a non-signatory is bound by a foreign award?
No. Section 47 is procedural. It requires evidence to prove the award is a foreign award as defined in Section 44, not substantive evidence to prove a non-signatory is bound by the award. (Para 37 )
7. Can a non-signatory to an arbitration agreement resist enforcement of a foreign award under Section 48(1)(a)?
No. Section 48(1)(a) specifically refers to parties to the agreement. A non-signatory cannot fit into this ground to resist enforcement, as the provision is not intended to cover non-parties. (Para 42 , 49 )
8. What constitutes proof when resisting the enforcement of a foreign award under Section 48?
Proof under Section 48 means the ground is established on the basis of the record of the arbitral tribunal and other relevant matters, rather than requiring the taking of fresh oral evidence. (Para 38 , 39 )
9. Are claims in tort arbitrable under a commercial arbitration agreement?
Yes, if the tort claim is directly, closely, and inextricably connected with the contract or arises in connection with it, such that recourse to the contract is necessary to settle the dispute. (Para 31 , 66 , 67 , 68 , 69 , 70 )
10. Can an arbitrator award damages based on estimates if absolute certainty is impossible?
Yes. Damages need only be established with reasonable certainty. Where absolute certainty is impossible, the judgment of fair men as to damages directly resulting from the breach governs. (Para 75 , 76 , 77 , 79 )
JUDGMENT :
R.F. Nariman, J.
1. These appeals raise interesting questions relatable to Part II of the Arbitration and Conciliation Act, 1996 [the “Arbitration Act, 1996”] which provisions deal inter alia with recognition and enforcement of foreign awards. The facts necessary to appreciate the points raised in these appeals are as follows.
2. On 18th September, 2000, a representation agreement was entered into between Integrated Sales Services Ltd. [“ISS” / Respondent No. 1], a company based in Hong Kong and DMC Management Consultants Ltd. [“DMC”], a company registered in India, whose principal business address is at Nagpur. By this agreement, ISS was to assist DMC to sell its goods and services to prospective customers, and in consideration thereof was to receive commission. The relevant clauses of the agreement are clauses 2 and 3 which read as follows : -
“2. Duties of Representative
Representative shall assist Company with its efforts to sell its Goods and Services to prospective customers. Secondly, where acceptable to the Company, identify potential sources of investment and Investors, and assist Company in negotiating the terms of purchase, sale and/or investment.
3. Validity
The right of representation under this Agreement is not limited by time. Compensation is due Representative as defined under "Payment" hereinafter. However, if Company finds Representative's efforts to be unsatisfactory, it will state so in writing with specific and, reasonable guidelines which, if accomplished within six months, shall constitute satisfactory performance, If Representative is unable to substantially-satisfy these guidelines, then Company may cancel this Agreement forthwith. However, compensation for existing or potential customers identified by the Representative, shall continue according to the Payment clause below.”
3. The commission payable is then referred to in clause 4. The agreement under clause 8(d) which is “General” then states as follows : -
(d) Interpretation, Amendment, Law, Arbitration, and Assignments
(i) This Agreement is subject to the laws of the State of Missouri, U.S.A.
(ii) In the event a dispute arises in connection with this Agreement, such dispute shall be referred to a single arbitrator in Kansas City, Missouri, U.S.A. to be appointed by agreement between the parties hereto, or failing agreement to be appointed according to the rules of the American Arbitration, Association the same rules under which any dispute which any dispute shall be decided.
(iii) In the event a dispute is committed to arbitration, the party deemed at fault shall reimburse the full cost of the arbitration and legal process to the aggrieved party.
(iv) The Agreement shall not be amended in any way other than by agreement in writing, signed by both parties.
4. It is important to note that this agreement was signed by one Shri Rattan Pathak as Managing Director of DMC, and by one Shri Terry Peteete, Director of ISS. Though this agreement was entered into on 18th September, 2000, it came into force on 3rd October, 2000. A first amendment to this representation agreement was made between the aforesaid parties, which was signed by one Shri Arun Dev Upadhyaya [Appellant in CA No. 8345-8346/2018] on behalf of DMC, and Terry Peteete on behalf of ISS. We are not directly concerned with the changes made by this first amendment except to indicate that Arun Dev Upadhyaya, one of the appellants before us, was a signatory on behalf of DMC. Likewise, a second amendment agreement was entered into on 1st January, 2008, again with effect from 3rd October, 2000, in which various amendments were made to the original representation agreement. We are concerned, with sub-clause (4) of this amendment, which reads as follows:
4. In modification of clause 8(d)(1) of the Agreement, this Agreement is subject to the laws of the State of Delaware, U.S.A., and shall survive the expiration of any other clauses in this Amendment.
5. Disputes arose between the parties, as a result of wh
