TaxTMI 
TaxTMI 
2017 (4) TMI 729
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....ng out of an agreement captioned as Keepwell Agreement dated 06.06.2008 (hereafter 'the Keepwell Agreement'). The Keepwell Agreement was entered into between Cruz City, Burley Holdings Ltd. (hereafter 'Burley'), a wholly owned subsidiary of Unitech Ltd., incorporated under the laws of Mauritius, and Unitech Ltd. (hereafter 'Unitech'), a public company incorporated in India. 2. Unitech has opposed the enforcement of the Award essentially on three grounds. First, it alleges that the Award includes a decision on matters beyond the scope of submission to arbitration; second, that Unitech did not have proper notice from either Cruz City or the Arbitral Tribunal for responding to the claim for payment against the purchase of shares; and third, that the enforcement of the Award would be contrary to the Public Policy of India as it violates the provisions of the Foreign Exchange Management Act, 1999 (FEMA). Background 3. The aforesaid controversy arises in the context of the following facts:- 3.1 Cruz City entered into a Shareholders Agreement (hereafter 'SHA') dated 06.06.2008 with Arsanovia Ltd. (hereafter 'Arsanovia'), a company incorporated in Cyprus and Kerrush Investments....
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.... entitled to exercise a 'put option' and call upon Arsanovia and Burley, to purchase all equity shares of Kerrush, issued and allotted to Cruz City, at a purchase price that yielded a post tax IRR of 15% on the capital contributions made by Cruz City in the event, commencement of construction of the Santacruz Project was delayed beyond the specified period. In terms of clause 15.3.4 of the SHA, Arsanovia and Burley, inter alia, agreed to pay Cruz City all amounts payable upon exercise of the put option by Cruz City as contemplated under clauses 3.9.2, 3.9.3, 3.9.4 and 3.9.5 of the SHA. 3.6 Burley and Unitech were not parties to the SHA, however, they also signed the SHA. Unitech agreed to be bound by certain clauses of the SHA. Similarly, Burley also signed the SHA confirming that it is bound "by the direct obligations imposed upon them, under Clauses 3.9, 5.5.4, 5.6.2 and 15.3.4" of the SHA. 3.7 There were delays in commencement of the construction of the Santacruz Project. Consequently, Cruz City exercised its put option by a notice dated 13.09.2010 calling upon Arsanovia and Burley to jointly and severally purchase the equity shares of Kerrush, issued and allotted to it. B....
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.... Item Amount Registration fee GBP 4,500.00 LCIA's administrative charges GBP 27,146.32 Tribunal's fees and expenses GBP 275,909.39 Total costs of arbitration GBP 307,555.71 These costs are subject to VAT, as applicable. 6.4 The Unitech Parties will also bear the entire Costs of the Arbitrations and will pay Cruz City the net amount that it has contributed thereto, being GBP165,000 at the time of this Award, less any balance of funds which may be refunded to Cruz City by the LCIA. 6.5 Unitech and Burley shall pay Cruz City USD 2,900,000 in respect of its legal fees and other costs and expenses (other than the Costs of the Arbitration set forth in paragraph 6.3 above). 6.6 Unitech and Burley shall pay Cruz City interest on the amounts payable under paragraphs 6.2, 6.3 and 6.4 above commencing with the date of this Award at the rate of 8 per cent per annum, compounded quarterly, until and until such amounts are paid. 6.7 Unitech and Burley shall pay Cruz City any tax payable on the amounts received by Cruz City as provided in the SHA. In case of any dispute as to the amount of any such payment, any party shall have the right to s....
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....to Burley from time to time to enable Burley to meet the obligations undertaken by it. He submitted that in terms of the request for arbitration made by Cruz City, the relief sought against Unitech was for an award directing Unitech to take all steps to cause Burley to pay the put option amount to Cruz City. He submitted that a similar relief was sought by Cruz City in its Statement of Claims and the claim for damages was made in the alternative, which was neither pursued nor awarded. He contended that since Cruz City had neither made any claim nor sought any relief for Unitech to purchase the subject shares in Kerrush, Unitech had no opportunity to contest the same; accordingly, the recognition and enforcement of the Award ought to be refused under Section 48(1)(b) of the Act. 11. Third, he submitted that Unitech had no notice either from Cruz City or from the Arbitral Tribunal in respect of any claim calling upon Unitech to pay any amount to Cruz City against the purchase of shares. He also referred to clause 10 and clause 2(b)(ii) of the Keepwell Agreement and contended that in terms of the said agreement, no notice was issued to Unitech to the effect that Burley had failed t....
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....(Transfer or Issue of any Foreign Security) Regulations, 2004, which make it mandatory for the shares of a foreign entity to be valued before any investment in those shares can be made. 12.3 He further contended that FEMA proscribes Foreign Direct Investment (FDI) on an assured return basis and therefore, the agreements which were structured to ensure a predetermined return on equity, were illegal. Consequently, the Award enforcing such agreements was contrary to the public policy of India. He referred to circular dated 09.01.2014 (A.P. (DIR Series) Circular No.86) and circular dated 14.07.2014 (A.P. (DIR Series) Circular No.3) and contended that a foreign investor could exit the investment made in India only at a valuation as on the date of exit. He submitted that provisions to FEMA were mandatory and any violation of the said provisions would invite penalties and thus, any agreement contrary to the said regulations was void. 12.4 He referred to the decision of the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co: 1994 Supp (1) SCC 644 and submitted that FEMA, being an enactment of Exchange Control Laws in replacement of the Foreign Exchange Regulation Act, 1....
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....as also noted by the Arbitral Tribunal in the Award. He referred to the notes to the financial statements forming a part of Unitech's Annual Report for the year ended 31st March, 2014, which also reflected the understanding that Unitech was required to make the payment on account of Burley. 15. Mr Mukhopadhaya contested the contention that the enforcement of the Award was liable to be declined in terms of Section 48(1)(c) of the Act as the Award was outside the scope of the reference. He submitted that Unitech's plea that Cruz City's claim in damages could not be allowed without Cruz City establishing the same, was made for the first time in its letter dated 16.03.2012 and, therefore, the Arbitral Tribunal did not permit Unitech to raise such pleadings at the belated stage. He also contested the suggestion that no notice had been issued to Unitech calling upon it to comply with the obligations under the Keepwell Agreement. He contended that no such objection had been raised by Unitech before the Arbitral Tribunal and, therefore, Unitech was precluded from raising any such plea on the principles of res judicata. 16. Insofar as the contention that the enforcement of the Awa....
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....he law of the country where the arbitration took place ; or (e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. (2) Enforcement of an arbitral award may also be refused if the Court finds that- (a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or (b) the enforcement of the award would be contrary to the public policy of India. Explanation 1.-For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,- (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.-For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. (3) If an application for....
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....n United Kingdom or for that matter any other country; only the courts in this country are competent to consider whether the award is to be recognised and enforced in this country. The principle of res judicata is applicable only where the issue/controversy is finally decided by a court/forum of competent jurisdiction and - although prior decision on the issue by a court in another country may be persuasive - neither the decision of the Arbitral Tribunal nor of the High Court of Justice regarding enforceability of the award, is binding on this court. 24. Recognition of a foreign award in the country where it is sought to be enforced, is a necessary pre-condition to enforcing the same; it is sine qua non to the same being accepted as binding by the enforcing court. Thus, it naturally follows that recognition of a foreign award is also a necessary pre-condition to apply the principles of res judicata. Clearly, a decision on an issue contained in a foreign award will not preclude the party resisting its recognition and enforcement, to re-agitate the issue unless that award is recognised as binding by the enforcing court. Given this position, it can hardly be contended that a challe....
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....ore, should be read as "must". 28. Whilst this court accepts the contention that the use of the word "may" as used in the context of Section 48 of the Act does not confer an absolute discretion on the courts, it is not possible to accept that the word "may" should be read as "shall" and the court is compelled to refuse enforcement, if any of the grounds under Section 48 are established. First of all, the plain meaning of the word "may" is not "shall"; it is used to imply discretion and connote an option as opposed to compulsion. 29. In re, Nichols v. Baker: 59 LJ Ch 661, Cotton L.J. observed that '"May' can never mean must, so long as the English language retains its meaning; but it gives a power and then it may be a question, in what cases, when any authority or body has a power given it by the word 'may', it becomes its duty to exercise that power". 30. In Official Liquidator v. Dharti Dhan (P) Ltd.: 1977 (2) SCC 166 the Supreme Court had explained that in certain cases where the legal and factual context in which the discretionary power is to be exercised is specified, it is also annexed with a duty to exercise it in that manner. Keeping the aforesaid in mind, there can....
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.... (See: China Agribusiness Development Corporation v. Balli Trading: [1998] 2 Lloyd's Rep 76). 33. In Yukos Oil Company v. Dardana Limited: [2002] EWCA Civ 543, Lord Justice Mance, speaking for the Supreme Court of the United Kingdom, held as under:- "The use of the word "may" must have been intended to cater for the possibility that, despite the original existence of one or more of the listed circumstances, the right to rely on them had been lost, by for example another agreement or estoppel... ...The word "may" at the start of s.103(2) does not have the "permissive", purely discretionary, or I would say arbitrary, force that the submission suggested. S.103(2) is designed, as I have said in paragraph 8, to enable the court to consider other circumstances, which might on some recognisable legal principle affect the prima facie right to have an award set aside arising in the cases listed in s.103(2) ." 34. The said principle has been stated in Russell On Arbitration, Twenty Third Edition (at page No. 462) in the following words: "The onus of proving the existence of a ground rests upon the party opposing enforcement, but that may not be the end of the matter. The c....
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....ng the ground that it contained decisions on matters beyond the scope of the submission to arbitration. Article V(1)(a) of the New York Convention (and section 103(2)(b) of the 1996 Act) provides: "Recognition and enforcement of the award may be refused ..." See also van den Berg, p 265; Paulsson, May or Must Under the New York Convention: An Exercise in Syntax and Linguistics (1998) 14 Arb Int 227. 127. Since section 103(2)(b) gives effect to an international convention, the discretion should be applied in a way which gives effect to the principles behind the Convention........" 37. The grounds as set out in Section 48 of the Act for refusing enforcement of the award encompass a wide spectrum of acts and factors as they are set in broad terms. While in some cases, it may be imperative to refuse the enforcement of the award while in some other, it may be manifestly unjust to do so. Section 48 is enacted to give effect to Article V of the New York Convention, which enables member States to retain some sovereign control over enforcement of foreign awards in their territory. The ground that enforcement of an award opposed to the national public policy would be declined perhaps p....
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....heme to export Persian rugs out of Iran. Certain disputes arose between them in connection with the distribution of the sale proceeds. The law applicable for resolution of the disputes was Jewish law and apparently Jewish law on illegal contracts is materially different from English law. An award was rendered in favour of the son for a sum of GBP576,574 and an action for enforcement of this award was filed in English Court. The Court of Appeal declined to enforce the award on the ground that the contract between the father and son was illegal and enforcement of an illegal contract would fall foul of the English Public Policy. However, in the case of Westacre Investments Inc. (supra), the English Courts took a slightly different view. 42. In that case, Federal Directorate of Supply and Procurement of the Socialist Federal Republic of Yugoslavia (the Directorate) entered into a contract with Westacre Investments Inc, a Panamanian company, (Westacre) whereby the Directorate appointed Westacre as its consultant with respect to sale of military equipment in Kuwait. In terms of the contract, Westacre was to receive a substantial percentage of the value of the contracts entered into by....
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....tion. It is not necessary to make an endeavour to exhaustively list out such principles assuming that the same is possible. However, clearly, principles akin to res judicata and issue of estoppel would be material. The Courts in United Kingdom have liberally imported the principles of res judicata and the doctrine of issue of estoppel while considering the question whether to enforce a foreign award. The rationale for importing such principles is compelling. Plainly, a party who has voluntary chosen a forum for its decision must be held bound by its decision. Thus, if a party has taken recourse to assail the award before the supervisory court, in normal circumstances, the said party ought not to be permitted to re-litigate the same issue unless the party is able to establish certain special circumstances or indicate good reasons. 45. It is also relevant to mention that the UNCITRAL Model Law provides for almost identical grounds for setting aside an award as for refusing the enforcement of a foreign award; the only additional ground being that the foreign award has not become binding on the parties or has been set aside or suspended by a competent authority of the country in whi....
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.... injustice; (ii) whether the enforcee has invoked the supervisory Jurisdiction of the seat of the arbitration; (iii) whether a remedy was available under that jurisdiction; (iv) whether the courts of that jurisdiction have conclusively determined the enforcee's complaint in favour of upholding the award; and (v) if the enforcee has failed to invoke that remedial jurisdiction, for what reason, and in particular whether he was acting unreasonably in failing to do so." 49. In Diag Human SE v. The Czech Republic: (2014) EWHC 1639 (Comm), the enforcement of a foreign arbitral award against the Czech Republic was sought in UK. Prior to the said occasion, the claimant had instituted proceedings before the Austrian Supreme Court for enforcement of the arbitral award, which was declined on the ground that under the Czech Law, a review of the arbitral tribunal's decision was permissible and such review was being undertaken. Before the English Commercial Court, the question arose whether the decision of the Austrian Supreme Court to refuse enforcement of the foreign award would serve as an estoppel. The Court accepted the said plea of estoppel and held that where issue between the ....
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....the issues between the parties, no challenge to the merits of the decision ought to be entertained. In such cases, the arbitral tribunal's decision on the issues having a bearing on the grounds set out in Section 48 (1) of the Act also cannot be ignored. 53. In Renusagar Power Co. Ltd. v. General Electric Co. (supra), the Supreme Court had observed as under:- "In our opinion, therefore, in proceedings for enforcement of a foreign award under the Foreign Awards Act, 1961, the scope of enquiry before the court in which award is sought to be enforced is limited to grounds mentioned in Section 7 of the Act and does not enable a party to the said proceedings to impeach the award on merits." 54. Thus, the question whether Unitech ought to be permitted to raise the grounds urged must be considered in the light of the aforesaid principles. Re: challenge to the enforcement of the Award under Sections 48(1)(b)and 48(1)(c)of the Act. 55. There is no dispute that Unitech had proper notice of the appointment of the Arbitral Tribunal and the arbitral proceedings. Thus, the questions to be addressed are: (i) whether there is any merit in Unitech's claim that it was unable to pr....
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....ase. In accordance with Clause 3.9.2 of the Shareholders' Agreement, the amount due pursuant to the exercise of the Put Option as of the date of this Put Option Notice is USD 275,587,066.85 (the "Put Option Amount"). Please transfer the Put Option Amount to LBREP's bank account, without making any deduction or withholding for taxes or otherwise, by wire transfer of immediately available cleared funds, according to the following instructions:" 59. Thus, Unitech was duly put to notice of Cruz City's demand for payment of the consideration for the subject shares of Kerrush. Cruz City had unequivocally demanded that the said consideration be remitted to its bank account, the details of which were provided in the said notice. 0. Admittedly, the said notice was not complied with and consequently, Cruz City filed a request for arbitration, inter alia, indicating that it was seeking the following reliefs:- "31. Accordingly, in this arbitration, Cruz City seeks: (a) a declaration that no Bankruptcy/Dissolution Event has occurred in relation to Cruz City under the Shareholders' Agreement; (b) an award ordering Burley to purchase all of Cruz City's Equity Shares ....
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....heir obligations under the SHA. Cruz City also alleged that Unitech had failed to cause Burley to make payment of the Put Option Amount in breach of its obligations under Clause 2(b) of the Keepwell Agreement. 63. Cruz City further asserted that it was entitled to recover from Unitech, a sum equal to the Put Option Amount by way of damages for breach of contract. 64. Arsanovia, Burley and Unitech filed a joint Statement of Defence. In their Statement of Defence, they questioned the maintainability of the arbitral proceedings as they claimed that the proceedings were premature. It was asserted that Unitech's obligation would arise only when it was found that Burley's obligation under the SHA had become due and Burley had failed to honour such obligation. It was contended that since Burley was disputing its obligation under the SHA, there was no occasion for Unitech's obligation to be "due". In response to the specific pleadings regarding Unitech's breach of the obligations under the Keepwell Agreement and the claim of damages, the main defence taken was (i) that the Put Option sought to be exercised by Cruz City, was invalid on account of a prior event of default and (ii) that....
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....sputes relating to such arrangements, the Tribunal stands ready to assist them to do so." 69. The relevant part of the Award reads as under:- "6.2 Against delivery of all of Cruz City's Equity Shares in Kurresh, free and clear of all liens and encumbrances, Arsanovia and Burley shall pay Cruz City USD 298,382,949.34 as the purchase price of those shares. In case of any dispute as to the mechanism for delivery of Cruz City's Equity Shares in Kurresh, any party shall have the right to seek a further Award from this Tribunal resolving the dispute." 70. The Arbitral Tribunal also awarded costs of arbitration at GBP165,000 and further other costs and expenses quantified at $2,900,000. In addition, the Arbitral Tribunal awarded post award interest at 8% p.a. compounded quarterly. It was also directed that Unitech and Burley would pay any tax payable on the amount received by Cruz City. 71. In view of the aforesaid, it is apparent that Unitech was not only aware and had notice of Cruz City's claim for the Put Option Amount against it but had also contested the said demand. Unitech's contention that its obligations were not concurrent with Burley, was advanced and was r....
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.... Holdings Ltd. (Mauritius) so as to enable it to purchase the investments of Cruz City 1 Mauritius Holdings (Mauritius) in the joint-venture company, Kerrush Investments Ltd. (Mauritius). The High Court of Justice, Queen's Bench Division, Commercial Court London has confirmed the said award. Based on the legal advice received by it, the Company believes that the said award is not enforceable in India on various grounds including but not limited to lack of jurisdiction by the LCIA appointed arbitral tribunal to pass the said award. Nevertheless, in case the Company is required to make the aforesaid investment into Burley Holdings Limited, its economic interest in the SRA project in Santa Cruz Mumbai shall stand Increased proportionately thereby creating a substantial asset for the Company with an immense development potential." 77. Further, in its reply to the rejoinder filed by Cruz City, Unitech has affirmed as under:- "14. In reply to para 6(d)........ i) It is submitted that for the purpose of satisfying the Second Award, the Respondent requires to provide funds to Burley for the purpose of purchasing the Kerrush shares held by Cruz City by way of investing into ....
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....s FEMA and is, thus, contrary to the Public Policy of India. The first is that the Award directs Unitech to invest in the shares of Kerrush and therefore violates Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004. The second is that Unitech's obligation under the Keepwell Agreement is in the nature of a guarantee by Unitech on behalf of Burley and such guarantee violates the Foreign Exchange Management (Guarantees) Regulations, 2000. The third is that in terms of Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, the shares of Kerrush are required to be valued and purchase of those shares can only be made at the fair market value of those shares. And, the fourth is that the SHA contemplates an assured exit at a pre-determined rate to Cruz City in respect of its investment in the Santacruz Project and this, according to Unitech, violates the mandatory circulars issued by RBI. Another facet of this argument is that the SHA is a device to circumvent the provisions of FEMA and the Regulations issued thereunder, which proscribe an assured exit from a foreign direct investment (FDI) at a pre-determined rate. U....
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....n award, the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co. (supra) had observed as under:- 66. Article V (2)(b) of the New York Convention of 1958 and Section 7(1)(b)(ii) of the Foreign Awards Act do not postulate refusal of recognition and enforcement of a foreign award on the ground that it is contrary to the law of the country of enforcement and the ground of challenge is confined to the recognition and enforcement being contrary to the public policy of the country in which the award is set to be enforced. There is nothing to indicate that the expression "public policy" in Article V (2) (b) of the New York Convention and Section 7 (1)(b)(ii) of the Foreign Awards Act is not used in the same sense in which it was used in Article 1(c) of the Geneva Convention of 1927 and Section 7(1) of the Protocol and Convention Act of 1937. This would mean that "public policy" in Section 7 (1)(b) (ii) has been used in a narrower sense and in order to attract the bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards whi....
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....aeli conflict (the six day war), the Egyptian Government broke diplomatic ties with the United States and expelled all Americans from Egypt except those who applied and qualified for a special visa. In the circumstances, Overseas abandoned the project at a stage when the construction phase was near completion and sought excuse from performance on the ground of a force majeure clause in the agreement. Rakta disputed the same. The said disputes were referred to an arbitral tribunal constituted under the Rules of International Chambers of Commerce. The arbitral tribunal held that the unilateral decision of Overseas to abandon the project was not justified and entered an award in favour of Rakta. An action for enforcement of this foreign award was filed in United States of America. In the aforesaid context, the court noted that the public policy defence must be construed narrowly and enforcement of a foreign award may be denied only where enforcement would violate the State's most basic notions of morality and justice. While dismissing the objection to enforcement, the court observed as under:- "[1] [2] We conclude, therefore, that the Convention's public policy defense should be co....
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....fy the condition of offending the "most basic notions of morality and justice". 93. The aforesaid decisions have been referred only to emphasise that the width of the public policy defence to resist enforcement of a foreign award, is extremely narrow. And, the same cannot be equated to offending any particular provision or a statute. 94. Section 7(1) of the Arbitration (Protocol & Convention) Act, 1937 inter alia mandated that the enforcement a foreign award "must not be contrary to public policy or the law of British India". By Indian Independence (Adaption of Central Acts and Ordinances) Order, 1948, the words "British India" were replaced by the words "the Provinces". These words were, by virtue of the Adaption of Laws Order, 1950, substituted by the words "the States". And, by Part B States (Laws) Act, 1951, the words "the States" were replaced by "of India". In Renusagar's case, the Supreme Court considered the above and held that: "This means that even in the Protocol and Convention Act of 1937 the legislature had used the words "Public Policy" only and by the said words it was intended to mean "the public policy of India". The New York Convention has further curtail....
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....tional laws. Thus, the objections to enforcement on the ground of public policy must be such that offend the core values of a member State's national policy and which it cannot be expected to compromise. The expression "fundamental policy of law" must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy and not a provision of any enactment. 98. In Oil and Natural Gas Corporation Limited v. Western Geco International Limited: (2014) 9 SCC 263, the Supreme Court sought to explain meaning of the expression "fundamental policy of Indian Law" in the following words: "the expression must, in our opinion, include all such fundamental principles as providing a basis for administration of justice and enforcement of law in this country". The court further indicated three fundamental juristic principles that must necessarily be understood as a part and parcel of the fundamental policy of Indian law: (i) judicial approach, (ii) principles of natural justice and (iii) reasonableness on the touchstone of Wednesbury principle. 99. The explanations to Section 48(2)(b) of the Act as amended/ introduced by the Arbitration and Conciliation ....
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....sure. The Statement of Objects and Reasons of FERA indicate that FERA was enacted as the RBI had suggested and Government had agreed on the need for regulating, among other matters, the entry of foreign capital in the form of branches and concerns with substantial non-resident interest in them, the employment of foreigners in India etc. 102. Section 8 of FERA expressly proscribed any person, other than an authorized dealer, to purchase or otherwise acquire or borrow from, or sell, or otherwise transfer or lend to or exchange with, any person not being an authorised dealer, any foreign exchange without the general or special permission of the Reserve Bank of India. All persons were prohibited from entering into any transaction which provided for conversion of Indian currency into foreign currency or vice versa. In terms of Section 26 of FERA, no person was permitted to give guarantee in respect of any debt or other obligation or liability (i) of any person resident in India and due or owing to a person resident outside India, or (ii) of a person resident outside India. FERA provided severe penalties and prosecution for contravention of provisions of FERA. It is material to note t....
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....egislation to FEMA namely FERA 1973 vide Section 47 prohibited entering into any contract or agreement directly or indirectly evading or avoiding any operation of the said Act or any provision thereof. However Sub Section (3) thereof also provided that such prohibition shall not prevent legal proceedings being brought in India for recovery of a sum which apart from the provision of FERA would be due. However the legislature while re-enacting the law on the subject has chosen to do away with such a provision. We are of the view that the same shows a legislative intent to not void the transaction even if in violation of the said Act. Thus we are of the opinion that the plea of the appellant Company in this regard is without any force." 105. The Bombay High Court in the case of POL India Projects Limited and Ors. v. Aurelia Reederei Eugen Friederich GmbH Schiffahrtsgesellschaft & Company KG and Ors.: (2015) SCCOnline Bom 1109 held that no prior permission was required to be taken before the execution of a letter of guarantee. The court further held that even if such permission was required, the execution of letter of guarantee would not be contrary to the fundamental policy of Indi....
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....Reserve Bank of India. There may also be a question whether the initial agreement pursuant to which a foreign award has been rendered required any express permission from RBI. However, as indicated earlier, the policy under FEMA is to permit all transactions albeit subject to reasonable restrictions in the interest of conserving and managing foreign exchange. India has not accepted full capital account convertibility as yet. Thus, there are transactions for which permission may not be forthcoming. Whereas certain transactions are permitted under FEMA and regulations made thereunder without any further permissions; other transactions may require express permission from the RBI. However, these considerations can be addressed by ensuring that no funds are remitted outside the country in enforcement of a foreign award, without the necessary permissions from the Reserve Bank of India. This would adequately address the issue of public interest and the concerns relating to foreign exchange management, which FEMA seeks to address. 108. As discussed hereinbefore, this Court while considering the question whether to decline enforcement of a foreign award on the ground of public policy, is....
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....ly pay LBREP [Cruz City] (i) an amount determined pursuant to the Shareholders Agreement upon exercise by LBREP [Cruz City] of the Put Option and (ii) certain tax indemnity amounts; and D. Unitech Ltd. [Unitech] and Unitech Holdco [Burley] (the "Unitech Entities") acknowledge that they will benefit from LBREP's [Cruz City's] investment in the Santa Cruz Project and to induce LBREP [Cruz City] to make such investment, the Unitech Entities [Unitech and Burley] have agreed to enter into this Keepwell Agreement. **** **** **** 8. Representations and Warranties. The Unitech Entities [Unitech and Burley] hereby represent and warrant to LBREP [Cruz City] that, as of the date hereof;..... (b) Authorization. The execution, delivery and performance of this Keepwell Agreement and the transactions contemplated hereby (i) are within the respective corporate authority of the Unitech Entities [Unitech and Burley], (ii) have been duly authorized by all necessary corporate proceedings by the respective Unitech Entities [Unitech and Burley], (iii) do not conflict with or result in any breach or contravention of any provision of any Law to which the Unitech Entities [Unitech and Burley] a....
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.... except where in any such case the failure to comply with any of the foregoing would not materially adversely affect their respective business, property and financial condition. If any authorization filing consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that a Unitech Entity [Unitech/Burley] may fulfil any of its obligations hereunder, then such Unitech entity [Unitech/Burley] will immediately take or cause to be taken all necessary steps within its power to obtain or make such authorization, filing, consent, approval, permit or license and furnish LBREP [Cruz City] with evidence thereof. (l) Potential Liability. To the extent that any applicable Law imposes limits on the liabilities or obligations which Unitech Ltd. [Unitech] is permitted to incur, Unitech Ltd. [Unitech] will not undertake any liabilities or obligations which would cause the potential liability under this Keepwell Agreement, when taken together with all other liabilities and obligations of Unitech Ltd. [Unitech] which are to be taken into account for the purpose of determining compliance with such limits, to exceed su....
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.... the same before the Arbitral Tribunal. Thus, Unitech cannot be permitted to raise such contentions at this stage. It is also necessary to bear in mind that the present proceedings are for enforcement of inter se rights between Cruz City and Unitech and Cruz City cannot be precluded from enforcing its rights which fall within the ambit of private international law. 114. The only remaining issue now to be addressed is whether enforcement of the Award would violate the provisions of FEMA. 115. As indicated above, the contention that the Award requires Unitech to purchase the shares of Kerrush from Cruz City, is palpably erroneous. Thus, the line of argument that the provisions of Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 would be violated by implementation of the Award, is bereft of any merit. The Award only seeks to enforce Unitech's obligations to secure Burley's performance of obligations undertaken under the Keepwell Agreement. 116. The next contention to be considered is whether the Award or the Keepwell Agreement violates the Foreign Exchange Management (Guarantees) Regulations, 2000. 116.1 Section 5 of FEMA permits al....
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.... person resident in India and owed to a person resident outside India; or (ii) by a person resident outside India...." 116.3 In terms of Section 6, the Reserve Bank of India has framed the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000. Regulation 3 of the said regulations reads as under:- "3. Permissible Capital Account Transactions.- (1) Capital account transactions of a person may be classified under the following heads, namely :- (a) transactions, specified in Schedule I, of a person resident in India; (b) transactions, specified in Schedule II, of a person resident outside India. (2) Subject to the provisions of the Act or the rules or regulations or direction or orders made or issued thereunder, any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction specified in the Schedules; Provided that the transaction is within the limit, if any, specified in the regulations relevant to the transaction." [emphasis supplied] 116.4 Schedule I of the said regulations pertains to capital account transactions of persons resident in India. Entry (a) and (d) of the said s....
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....anagement (Transfer and Issue of Foreign Security) (Amendment) Regulations, 2004 for promoting or setting up such company or subsidiary are continued to be complied with. Explanation: 'Indian Party' shall have the same meaning as assigned to it in Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004." 116.8 In terms of the proviso to Regulation 5(b)(i) of the Foreign Exchange Management (Guarantees) Regulations, 2000, providing guarantees for obligations of a wholly owned subsidiary are permissible provided the conditions stipulated in Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 for promoting and setting up a subsidiary are continued to be complied with. 116.9 In terms of the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, Unitech could establish a wholly owned subsidiary provided it complied with the limits specified in the relevant regulations. The relevant regulations in this regard is the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004. 116.10 Regulation 6 of the Foreign Exchange Manag....
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.... as mentioned in Regulations 11 and 12; (c) [hundred per cent of the amount of guarantees] issued by the Indian party to or on behalf of the Joint Venture company or Wholly Owned Subsidiary. [Explanation:-An Indian Party may offer to a person resident outside India any form of guarantees, that is, corporate or personal/primary or collateral/guarantee by promoter company in India/guarantee by group company, sister concern or associate company in India, provided that: (a) total "financial commitment" including all forms of guarantees remains within the overall ceiling stipulated for overseas investment by an Indian Party; and (b) no guarantee is "open ended"; (d) utilisation of the amount raised by issue of ADRs/GDRs by the Indian party; (e) External Commercial Borrowing in conformity with other parameters of the ECB guidelines; **** **** **** (4)(i) An Indian Party may extend a loan or a guarantee to or on behalf of the Joint Venture/Wholly Owned Subsidiary abroad, within the permissible financial commitment, provided that the Indian Party has made investment by way of contribution to the equity capital of the Joint Venture. **** **** **** (....
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....ell Agreement was subject to Indian laws and Unitech had full opportunity to challenge the validity of the Keepwell Agreement before the Arbitral Tribunal. However, Unitech having failed to do so, this court finds no reason to entertain such contentions to resist enforcement of the Award. There is also much merit in Mr Mukopadhaya's contention that Unitech had deliberately refrained from taking any such plea before the Arbitral Tribunal as that may have entitled Cruz City to claim further damages. It is apparent that Unitech has also not provided any reason why such defences were not raised before the Arbitral Tribunal. In the circumstances, this court has little hesitation in finding that the contentions now raised are an abuse of the process of this court and, therefore, must be rejected. This is a fit case where principles of issue estoppel ought to be applied notwithstanding the grounds available under Section 48(1) of the Act. 118.3 Third, even if it is accepted that Burley's business was not bonafide, Unitech would be liable to suffer the consequences that would follow under FEMA, but Unitech cannot escape its liability to Cruz City. Insofar as the public policy of Ind....