GEMINI BAY TRANSCRIPTION PVT. LTD. Vs. INTEGRATED SALES SERVICE LTD. & ANR. [CIVIL APPEAL NOS. 8343-8344 OF 2018]

R.F. NARIMAN, J (TWO JUDGE BENCH)

Date : AUGUST 10, 2021

Non-signatories to arbitration agreement may be bound by the foreign award (ARBITRATION & CONCILIATION ACT)

LAW POINTS
  • Section 47(1)(c) of the Arbitration & Conciliation Act, 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.
  • 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.
  • Perversity as a ground to set aside an award in an international commercial arbitration held in India can no longer be obtained, after the 2015 amendment to the Arbitration Act, 1996.
  • Section 46 does not speak of “parties” at all, but of “persons” who may therefore, be non-signatories to the arbitration agreement.
FACTS

On September 18, 2000, Integrated Sales Services Ltd. (ISS), Hong Kong entered into a Representation Agreement (Agreement) with DMC Management Consultants Ltd. (DMC), Nagpur, India under which ISS was to assist DMC in selling its goods and services to prospective customers, and in consideration thereof was to receive commission. By virtue of an amendment, the Agreement was to be governed by the laws of the State of Delaware, U.S.A. (Delaware Laws).

In 2008, DMC terminated contracts with clients that were introduced and serviced by ISS. Disputes arose between ISS and DMC. ISS alleged that upon termination of the contracts, DMC through related parties signed new contracts with these customers that were introduced by ISS, thereby depriving ISS of commissions.

Arbitration was commenced by ISS against DMC and the related parties which included Mr. Arun Dev Upadhyay (Chairman), DMC Global Inc., Gemini Bay Consulting Limited (GBCL) and Gemini Bay Transcription Pvt. Ltd. (GBT). The arbitrator issued an award on March 28, 2010 (Award) in which he held that DMC, DMC Global Inc., GBCL and GBT along with the Chairman were jointly and severally liable to recompense ISS. In doing so, the arbitrator applied Delaware Laws and also found in favour of ISS that the corporate veil of DMC and DMC’s related parties could be lifted as they had acted in collusion. Thus, the Award was issued as against non- signatories.

The Award was not challenged in USA. ISS approached the High Court of Judicature at Bombay (HC), Nagpur Bench for enforcement of the Award. Although the learned judge enforced the Award as against DMC, it found that the Award could not bind the non-signatories to the arbitration clause. In the appeal before the Division Bench of the High Court, the Division Bench held that the  award was enforceable  as  against the non-signatories as well. Although DMC filed a special leave petition against the decision of the Division Bench, as it did not comply with pre-deposit requirements, the Supreme Court dismissed the petition, and the Award became enforceable as against DMC. The non-signatory parties moved the Supreme Court against the decision of the Division Bench. These came up before the Apex Court.

OBSERVATIONS OF HON’BLE SUPREME COURT

NO BURDEN OF PROOF ON AWARD HOLDER TO PROVE AWARD BINDING ON NON- SIGNATORIES

The award holder does not need to prove that the award is binding on non- signatories. Since it was contended that the award holder must discharge the burden of proof that the foreign award is binding as against non-signatories to the arbitration agreement, the SC examined the process of enforcement of a foreign award and came to the conclusion that under Section 44 and 47 of the Arbitration Act, the enforcing court must simply be satisfied that the award is a foreign award.

ESSENTIALS OF A FOREIGN AWARD

  • the award must be an arbitral award on differences between persons arising out of legal relationships
  • the differences may be in contract or outside of contract
  • the legal relationship must be commercial under the Indian law
  • the award must be made on or after the 11 day of October, 1960
  • the award must be a New York Convention (NY Convention) award and
  • the award must be made in one of such territories which the Central Government (GOI) by notification declares to be territories to which the New  York  Convention applies.

ANALYSIS OF SECTION 46,47 VIS-À-VIS SECTION 35 OF ARBITRATION ACT

The Supreme Court held that the proof required under Section 47 is only in respect of demonstrating that the award is a foreign award. Section 47 does not require substantive evidence to “prove” that a non-signatory to an arbitration agreement can be bound by a foreign award. Foreign Award is enforceable as against non- signatories The SC examined Section 46 and found that a foreign award is binding between persons and non-parties, thereby indicating a broader intent as compared to Section 35 (which deals with domestic awards and limits itself to be binding as against parties and persons claiming under them). Thus, the SC held that the foreign award is binding on non-signatories to the arbitration agreement.

NON-SIGNATORIES CANNOT OPPOSE EXECUTION U/S 48(1)(a)

Non-signatory to arbitration agreement cannot oppose enforcement under Section 48 (1)(a). Keeping in mind the pro-enforcement policy as expressed in the New York Convention, the decisions of the SC in Ssangyong Engg. & Construction Co. Ltd. v. NHAI 2019 SC and Vijay Karia v. Prysmian Cavi E Sistemi SRL2020 SC, the SC held that non-signatories to arbitration agreement cannot oppose enforcement under Section 48(1) (a). The SC held that Section 48(1) (a) (which permits objections to the enforcement of an award on the ground of invalidity of the arbitration agreement or incapacity of the parties thereto) restricts itself to parties to the agreement, thus, excluding non-parties.

Importantly, the SC considered the decision in Dallah Real Estate and Tourism Co v Ministry of Religious Affairs of the Government of Pakistan 2010 SC (Dallah) wherein a non-signatory to the arbitration agreement successfully resisted enforcement of a foreign award on the ground that it was not party to the arbitration agreement. The SC stated that Dallah was distinguishable on facts and also based on the wording of the Arbitration Act. The SC also distinguished the decision of the Supreme Court of Victoria in IMC Aviation Solutions Pty Ltd. v Altain Khuder LLC 2011, where a non-signatory to the arbitration agreement resisted enforcement of a foreign award. The SC held that the  Australian International Arbitration Act, 1974 was materially different from the Arbitration Act as the former restricted the binding effect of the foreign award to “parties to the arbitration agreement”.

REJECTION OF PLEA UNDER SECTION 48(1) (b) AND (c)

The SC also rejected the plea that the Award ought not to be enforced under Section 48(1) (b) as the arbitrator had not given adequate reasons to justify the lifting of corporate veil under Delaware Laws. The SC correctly held that the said provision deals with a situation where the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case. The plea that the arbitrator had  not given adequate reasons could not be equated to a violation of the rule of natural justice. Thus, a disguised review of the Award was not permitted under this Section.

It was also contended that since the damages were given in tort, the Award thus considered matters outside the scope of the  arbitration  agreement  and  hence  the Award was not enforceable under Section 48(1) (c). The SC rejected  this  argument stating that it is well settled law that tort claims may be decided by  an  arbitrator provided they are disputes that arise in connection with the agreement.

VALID OBJECTIONS DURING ENFORCEMENT PROCEEDINGS

The SC also reproached the Division Bench of the HC  for  satisfying  itself  that  the arbitral tribunal had correctly applied the legal principles of  Delaware  Laws  in  the lifting of the corporate veil. The SC stated that Section 48  does  not  contain  any ground for resisting enforcement of a foreign award that permits the enforcing court to examine whether the foreign award is contrary to the substantive law agreed to by the  parties.  The  SC  held  that  a  review  of  the merits  of  the matter is impermissible during enforcement proceedings.

DECISION- The Court permitted enforcement of a foreign award which was issued against non-signatories to an arbitration agreement. Now, it is settled law that a domestic award is enforceable against non-signatories, if they fall within the parameters of the words “persons claiming” under the signatories in Section 35 and that a foreign award is similarly enforceable, if the non-signatories amount to “persons” within the ambit of Section 46.

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