India: Foreign Arbitral Awards Enforceable On Non-Signatories To Arbitration Agreement: Supreme Court Of India

The Hon'ble Supreme Court in its recent judgment in Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd. & Anr.¹ has held that foreign arbitral awards can bind non-signatories to an arbitration agreement and can be enforced against them. The decision came in a case where the non-signatories were acting as an alter ego under the control of the party signatory to the arbitration agreement. The present article briefly examines the findings of the Hon'ble Supreme Court in the above-mentioned case.

Brief Facts

On 18 September 2000, Integrated Sale Services Ltd. (Integrated), a Hong Kong company and DMC Management Consultants Ltd. (DMC) entered into a Representation Agreement (RA). As per the RA, Integrated was to assist DMC with the sale of its goods and services to prospective customers, against a specified amount of commission in consideration. Further, Integrated was required to identify potential sources of investment and investors and assist DMC with negotiations of the terms of purchase, sale and investment. The RA was signed by the Managing Director (MD) of DMC and Director of Integrated. Thereafter, an amendment was signed between the one Mr. Arun Dev Upadhyaya (Appellant) for DMC and one Mr. Terry Peteete for Integrated. Similarly, a second amendment was signed amongst the parties which added a clause providing for laws of State of Delaware, USA to govern the terms of the RA. Disputes arose amongst the parties as a result of which a notice of arbitration was sent by Integrated to the Appellant in June 2009. A statement of claim was also filed before the Ld. Arbitrator naming the Appellant, DMC (India), DMC Global, Gemini Bay Consulting (GBC), and Gemini Bay Transcription Private Ltd. (GBT) as respondents. It was alleged that the Appellant and his family controlled the activities of DMC, DMC Global, GBC, and GBT to divert funds away from Integrated to deprive it of its commission. Integrated stated that it brought two substantial customers for DMC for which it was supposed to receive a commission of 20% (twenty percent) of the gross revenue from the customers. However, DMC terminated its contracts with the customers only to have new contracts executed subsequently with GBC. This according to Integrated was a strategic move to circumvent the liability to pay commission. Thus, Integrated claimed that the Appellant used GBC as an alter ego of DMC to divert profits. Accordingly, Integrated claimed damages on multiple counts.

In March 2010, the Ld. Arbitrator passed his final award wherein it was held that the timing and coordination of efforts between the DMC and GBC could not simply be a coincidence. The orchestrated conduct of DMC and GBC eliminated an otherwise valid and enforceable contract. Thus, the Arbitrator granted, amongst other things, an award of $6,948,100 (US Dollars Six Million Nine Hundred Forty-Eight Thousand, and One Hundred) to be jointly paid up by DMC, DMC Global, the Appellant, GBC, and GBT. To enforce the arbitral award, Integrated approached the High Court of Bombay (High Court). The matter went through a series of litigation and reached the Hon'ble Supreme Court. The Appellant before the Apex Court challenged the decision of the Division Bench of the High Court which held that the enforcement of impugned award could not be resisted under Section 48 of the Arbitration and Conciliation Act, 1996 (Arbitration Act).

Arguments of the Appellants

I. Burden of proof on the party seeking enforcement

GBT at the outset argued that Section 44 read with Section 47 of the Arbitration Act would indicate that the burden of proving that a foreign award is enforceable is on the person in whose favour the award is rendered. Further, such burden of enforceability of the award on a non-signatory to an arbitration agreement could only be discharged by adducing evidence to that effect. GBT argued that in the instant case, the threshold of the burden of proof was not met.

II. Perversity of the award under Section 48 of the Arbitration Act

GBT then argued that that a non-signatory was directly covered under Section 48(1)(a) and 48(1)(c) of the Arbitration Act which discusses about a party being under some incapacity, the agreement not being valid under law applicable onto parties, or the award dealing with differences not covered by the arbitration agreement. GBT also argued that the Ld. Arbitrator failed to provide any reasons for his decision which was covered under Section 48(1)(b) of the Arbitration Act.

III. Damages awarded without proof of actual loss

GBT stated that the Ld. Arbitrator awarded damages without actual loss having been proved in the instant matter. Reliance was placed upon the case in Agritrade International (P) Ltd. v. National Agricultural Coop. Mktg. Federation of India Ltd.² to contend that the award stood vitiated on this ground.

IV. Commission of torts not covered under contractual disputes

The Appellant argued that the commission of a tort of interference fell outside the domain of contractual disputes. Thus, the arbitral award was vitiated on this ground. Reliance was placed on the decision in Dallah Real Estate and Tourism Co. v. Ministry of Religious Affair of the Government of Pakistan.³ It was also argued that a complete review based on oral and documentary evidence ought to have been undertaken by the Division Bench of the High Court rather than merely echoing the Ld. Arbitrator's findings.

Findings of the Hon'ble Supreme Court

I. Ingredients of a foreign award under Section 44 of the Arbitration Act.

The Hon'ble Supreme Court held that a reading of Section 44 of the Arbitration Act, 1996 would show that there are six ingredients to a foreign award. Firstly, it must be an arbitral award rendered on differences between persons arising out of legal relationships. Secondly, these differences may be in contract or outside of contract, for example, in tort. Thirdly, the legal relationship ought to be considered "commercial" under the law in India. Fourthly, the award must be made on or after the 11th day of October, 1960. Fifthly, the award must be a New York Convention award - in short it must be in pursuance of an agreement in writing to which the New York Convention applies and be in one of such territories. Lastly, it must be made in one of such territories which the Central Government by notification declares to be territories to which the New York Convention applies.

II. On non-signatory affected by the doctrine of alter ego

The Hon'ble Supreme Court held that all requirements posed under Section 44(1) were procedural in nature, the object of which was to satisfy that an award was indeed a foreign award. The Apex Court observed that GBT's arguments that a non-signatory affected by the doctrine of alter ego could only be roped in on evidence being adduced before the enforcing court was disingenuous to say the least. Section 47(1)(c) being procedural in nature did 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. In fact, Section 47(1)(c) only spoke of evidence as may be necessary to prove that an award is a foreign award.

III. On pro-enforcement bias under Section 48 of the Arbitration Act

The Hon'ble Supreme Court held that foreign awards need to be enforced as speedily as possible. The same logic applied to Section 48 of the Arbitration Act. Unless a party is able to show that its case comes clearly within Section 48(1) or 48(2), the foreign award must be enforced. Also, the Apex Court relied on the decision in Ssangyong Engg. & Construction Co. Ltd. v. NHAI.⁴ to clarify that the grounds contained in Sections 48(1)(a) to (e) must not be construed expansively but narrowly. The Apex Court held that the Appellants were trying to in the guise of applying under Section 48(1)(a) undertake a review on the merits.

IV. On perversity no more being a ground to set aside an award in international commercial arbitration

The Hon'ble Supreme Court then examined GBT's challenge to the impugned award on grounds of perversity. It was reiterated that perversity was no more a ground to set aside an award in international commercial arbitration post the 2015 amendment of the Arbitration Act. The Apex Court relied on the decision in Ssangyong which held that the ground of patent illegality appearing on the face of an award was an independent ground of challenge which applied onto to awards made under Part I of the Arbitration Act.

V. On GBT's arguments under Section 48(1)(c)

The Hon'ble Supreme Court observed that the thrust of Section 48(1)(c) was on whether the dispute between parties was qua excepted matters. It was held that Section 48(1)(c) only dealt with disputes that could be said to be outside the scope of an arbitration agreement amongst parties and not whether a person who is not a party to an agreement can be bound by the same.

VI. Tort claims arising in connection with the agreement are amenable to arbitration

The Supreme Court held that Tort claims that arose in connection with the agreement were amenable to arbitration. Reliance was placed on the decision in Renusagar Power Co. Ltd. v. General Electric⁵ along with a catena of other decisions.⁶

Conclusion

The Hon'ble Supreme Court held that there could be no doubt whatsoever that as a result of machinations of the Appellant and the other companies as found by the arbitral tribunal, Integrated was deprived of commission legitimately due to it under the RA. This being so, there could be no doubt that an actual loss had occasioned on Integrated. In any case, the Apex Court held that the damages awarded by the arbitrator in the facts of the instant matter could not even remotely be said to shock the conscience of the Apex Court to clutch the basic notion of justice ground under Section 48(2) Explanation (1)(iii). Accordingly, the appeals were dismissed.

Comments

The instant judgment once again reaffirms India's pro-arbitral stance on the enforcement of awards. The Apex Court has held that the grounds for resisting a foreign arbitral award under Section 48 of the Arbitration Act are to be construed narrowly in line with the spirit of the New York Convention. The decision settles the jurisprudence on the applicability of Section 48 of the Arbitration Act. The courts shall not interfere with the enforcement of a foreign arbitral award unless any of the grounds mentioned under Section 48 are squarely applicable on to a given case. The present judgment will strengthen the line of judicial precedents on the limited scope of intervention in the enforcement of arbitral awards. It would be noteworthy to add that this instant decision is one of the last set of judgments rendered by Justice R.F. Nariman prior to his retirement from the Hon'ble Supreme Court of India. Justice Nariman has been instrumental in India's movement towards becoming a pro-arbitral regime.

Footnotes

1. Gemini Bay Transcription Pvt. Ltd. v. Integrated Sales Service Ltd. & Anr., Civil Appeal Nos. 8343 - 8344 of 2018.

2. Agritrade International (P) Ltd. v. National Agricultural Coop. Mktg. Federation of India Ltd., 2012 SCC OnLine Del 896.

3. Dallah Real Estate and Tourism Co. v. Ministry of Religious Affair of the Government of Pakistan, 2010 3 WLR 1472.

4. Ssangyong Engg. & Construction Co. Ltd. v. NHAI, 2019 15 SCC 131.

5. Renusagar Power Co. Ltd. v. General Electric, 1984 4 SCC 679.

6. Tarapore & Co. v. Cochin Shipyard Ltd., 1984 2 SCC 680; Astro Vencedor Compania Naviera S.A. of Panama v. Mabanaft GmbH, 1971 2 QB 588.

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