Foreign Award Enforcement Can't Be Resisted By Re-litigating Issues Rejected By Seat Court; Scope Of 'Public Policy' Defence Narrow: Madras High Court - 2025-10-04

Madras High Court Upholds Over ₹1100 Crore Foreign Arbitral Award Against FSS Promoters, Cites Pro-Enforcement Bias

Chennai: In a significant ruling reinforcing India's pro-enforcement stance on foreign arbitral awards, the Madras High Court, led by Justice Abdul Quddhose , has declared a multi-crore Singapore-seated arbitral award enforceable against the promoters of Chennai-based digital payments company, Financial Software and Systems Pvt. Ltd. (FSS). The Court dismissed objections raised by the promoters under Section 48 of the Arbitration and Conciliation Act, 1996, holding that the grounds for resisting enforcement are narrow and do not permit a review of the award on its merits.

The Court imposed costs of ₹25 lakhs on the promoters, payable to each of the three petitioning investor groups, for raising "untenable objections" and attempting to delay the inevitable execution of the award.

Background of the Dispute

The case originated from a dispute between a consortium of investors— PI Opportunities Fund - I, Millenna FVCI Ltd., and NYLIM Jacob Ballas India entities —and the promoters of FSS, primarily Nagaraj V. Mylandla and Sharada Mylandla . The investors had acquired shares in FSS under a Share Acquisition and Shareholder’s Agreement (SASHA), which included specific "exit" mechanisms, such as a secondary sale of their shares at a predetermined "Exit Price."

When the promoters allegedly failed to facilitate this exit, the investors initiated arbitration proceedings before the Singapore International Arbitration Centre (SIAC). On July 5, 2024, the Arbitral Tribunal passed a final award in favor of the investors, directing the promoters to pay damages totaling over ₹1128 crore (INR 11.28 billion), plus pre-award interest, post-award interest at 5.33% p.a., and substantial legal costs. The award stipulated that if the damages were not paid within 90 days, the investors were entitled to implement a "Strategic Sale" of the company.

The investors subsequently approached the Madras High Court to enforce this foreign award as a decree of the court.

Promoters' Arguments Against Enforcement

The promoters, Nagaraj and Sharada Mylandla, vehemently resisted the enforcement, raising several objections under Section 48 of the Act. They argued that the award was contrary to the fundamental public policy of India on multiple grounds:

• Illegal Buy-back: They contended that the award, by directing payment of damages against the surrender of shares, effectively mandated an illegal share buy-back, which contravenes provisions of the Indian Companies Act, 2013.
• Violation of Doctrine of Election: The promoters argued that the investors had simultaneously sought termination of the promoters' rights and a strategic sale, which are mutually exclusive remedies under the SASHA. They claimed the arbitral tribunal's decision violated the doctrine of election.
• Fraud and Concealment: A key allegation was that the investors had concealed an Ernst & Young (E&Y) report which allegedly revealed financial irregularities in FSS. This, they claimed, amounted to fraud that vitiated the award.
• Contravention of Specific Relief Act: They asserted that the award improperly granted both damages and specific performance (strategic sale), contrary to the Specific Relief Act.
• Failure to Consider Material Issues: The promoters also claimed the tribunal failed to consider their defence of waiver and misinterpreted the limitation of liability clause in the SASHA.

The Court's Pro-Enforcement Stance

Justice Abdul Quddhose systematically dismantled each of the promoters' objections, delivering a comprehensive judgment that underscored the limited scope of judicial review in enforcement proceedings.

On the 'Public Policy' Defence

The Court reiterated the principles laid down by the Supreme Court in landmark cases like Vijay Karia v. Prysmian Cavi E Sistemi SRL and Renusagar Power Co. Ltd. v. General Electric Co. It held:

"The expression 'Fundamental policy of Indian Law' calls for a violation that is beyond mere statutory violation... contravention of law alone will not attract the bar of public policy and something more than contravention of law is required."

The judgment emphasized that the test for contravention of fundamental policy "shall not entail a review on the merits of the dispute," and an enforcement court cannot take a "second look" at the award.

Key Findings on Objections

• No Illegal Buy-back: The Court distinguished between a "buy-back" and a "surrender of shares," noting the award directed the latter upon payment of damages to avoid double recovery, not a company-initiated buy-back. This issue had also been raised and rejected by the Singapore High Court, the seat court.
• Transnational Issue Estoppel: Justice Quddhose observed that parties ought not to re-litigate issues that were, or could have been, raised before the seat court. Since the promoters had challenged the award in Singapore and lost, they were estopped from raising similar issues again.
• Fraud Allegations Unsubstantiated: The Court dismissed the fraud allegations as a "last-ditch effort to thwart the enforcement." It noted the promoters were aware of the E&Y report during the arbitration but failed to raise it or seek its production. The Court held that to resist enforcement, fraud must be of an "egregious nature" and proven, not based on "mere apprehension and speculation."
• Doctrine of Election Properly Considered: The Court found that the arbitral tribunal had duly considered the issue of election and concluded that the investors had invoked both remedies simultaneously without electing one over the other, with the strategic sale being the core relief.

Final Decision and Implications

Finding no merit in any of the objections, the Madras High Court declared the foreign arbitral award enforceable and deemed it to be a decree of the Court. The judgment stands as a strong message to award debtors that Indian courts will uphold their international commitments under the New York Convention and will not permit enforcement proceedings to be turned into a de facto appeal.

By imposing significant costs, the Court also signaled its disapproval of tactics aimed at delaying the enforcement of validly obtained foreign awards, reinforcing India's reputation as an arbitration-friendly jurisdiction.