TaxTMI 
TaxTMI 
2021 (11) TMI 549
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....he scope of inquiry for resisting the enforcement of a foreign award under Section 48 (2)(b) in Part II of The Arbitration and Conciliation Act, 1996. In essence, the respondent Award debtor opposes the prayer in the execution case on the ground that the enforcement would be contrary to the public policy of India, specifically the fundamental policy of Indian law, since enforcing a Put Option available to the petitioner violates The Foreign Exchange Management Act, 1999 and the Securities Contracts (Regulation) Act, 1956. Brief Facts : The transaction: 3. The transaction which forms the nub of the dispute consists of several Agreements entered into between the parties including a Shareholder's Agreement and an Agreement related to EIG's (the petitioner before this court and the claimant before the Arbitral Tribunal) Put Right, which were executed on 9th October, 2009. The Shareholder's Agreement provided for EIG to acquire shares in MSEL from the respondent MBECL. Both the Agreements contained specific obligations on the respondent and MSEL and a series of exit mechanisms for the benefit of the petitioner EIG. The admitted factual position before the Arbitral Tribunal was that t....
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....r's Agreement falls foul of the Indian law and is, therefore, unenforceable. Findings of the Arbitral Tribunal: 6. By a majority comprising of Dr. Pryles and Dr. Secomb, the Arbitral Tribunal directed the respondent to make payment of an amount of INR 1,14,01,90,000/-, as damages, which is equivalent to the Put Price and upon payment, transfer of shares held by the petitioner in favour of the respondent. A dissenting opinion was given by Justice (Retd.) Ashok Ganguly holding that the Put Option runs contrary to the FEMA and the SCRA and is not hence enforceable. 7. The Arbitral Tribunal found that the petitioner's exercise of the Put Option under Clause 11.2 of the Shareholder's Agreement did not contravene either FEMA or SCRA. The reasoning in brief for arriving at this conclusion was that Put Option did not violate FEMA since the Put Option required the respondent to arrange a non-resident third party to purchase the shares if it was legally unable to do so itself by reason of which FEMA did not apply to the said transaction. The Tribunal was also of the view that SCRA did not apply to the Put Option and hence was not rendered invalid under the SCRA. The Arbitral Tribunal accor....
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....s Contracts (Regulation) Act, 1956 (SCRA) and The Foreign Exchange Management Act, 1999 (FEMA). The issues are being dealt with in sequence. (i) The extent of inquiry permitted under Section 48(2)(b) of The Arbitration and Conciliation Act, 1996. 12. Section 48 is placed in Part II of the Act which deals with enforcement of certain foreign awards. The term "Foreign Award" has been defined in Section 44 to mean an Arbitral Award on differences between persons arising out of legal or contractual relationships and considered as commercial under the law in force in India and made on or after 11th October, 1960 in pursuance of an agreement in writing for arbitration governed by the First Schedule to the Act and in one of the territories having reciprocal provisions as notified by the Central Government to which the Convention in the First Schedule applies. Section 48 - "Conditions for enforcement for foreign awards" - is the roadblock to the facilitators for enforcement of such Awards under Part II, where the onus is placed on the party who would suffer the consequences of the enforcement. The facilitators are Sections 46 and 47 which mandate that a Foreign Award shall be treated as....
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....required to attract the bar of public policy. Although Renusagar was decided in the context of Section 7(1)(b)(ii) of the 1961 Act, which was subsequently repealed, the aforesaid view of the Supreme Court in Renusagar has been accorded statutory recognition under 48(2)(b). Renusagar was reiterated in Cruz City 1 Mauritius Holdings vs. Unitech Limited; 2017 SCC Online Del 7810 where a Single Bench of the Delhi High Court held that any contravention of a provision of an enactment is not synonymous with contravention of the fundamental policy of Indian law. Cruz City was approved by the Supreme Court in Vijay Karia vs. Prysmian Cavi E Sistemi SRL; (2020) 11 SCC 1 holding that violation of public policy of India should amount to breach of the most basic notion of justice in the country. 16. Therefore, if the conditions for refusal under 48(1) and 48(2) are read together with the cited decisions, the irrefutable conclusion appears to be that the threshold for breach of the fundamental policy of Indian law must be a breach of the most basic principles of Indian law which forms the substratum of the laws of the country. This construction sits well with the statutory framework in Section ....
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....the fundamental policy of Indian law within the periphery of the obvious without delving into the merits of the dispute. 19. The above decisions do not assist the case of the respondent in engaging with the merits of the dispute. (ii) If considered on merits, whether the Award violates the Securities Contracts (Regulation) Act, 1956 (SCRA) and the Foreign Exchange Management Act, 1999 (FEMA)? The argument of the respondent award-debtor before the Tribunal on the SCRA: 20. The award-debtor had argued that the Put Option was not a Spot Delivery Contract under the SCRA and hence was illegal since there was a delay between the date the Put Option was exercised, the date of the delivery of the Shares and payment of the Put Option. The Arbitral Tribunal's findings on the SCRA: 21. The Arbitral Tribunal primarily examined the three questions; the definition of a "Spot Delivery Contract" under Section 2(i) of the SCRA; the relevance of the decisions in Edelweiss Financial Services Ltd. vs. Percept Finserve Pvt. Ltd.; (2019) SCC OnLine Bom 732; and Clause 11.9 of the Shareholder's Agreement requiring an immediate transfer of the shares by the petitioner to either the responden....
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....purchase the shares. The Arbitral Tribunal found that the term "legally able" referred to a legal ability to complete the transaction and concluded that the third party requirement under Clause 11.2 of the Shareholder's Agreement must include a non-resident third party. The aforesaid finding of the Arbitral Tribunal was based on the intention of the parties and the centrality of the exit mechanism given to the petitioner under the Shareholder's Agreement. The Tribunal also relied on NTT Docomo Inc. vs. Tata Sons Ltd. (2017) SCC Online Del 8078 for the similarities between Docomo and the case before the Tribunal. Docomo held that the promoter could have lawfully performed its obligation to provide an exit to the investor at any price including at a price above the market value of the Shares through a non-resident buyer. The Tribunal agreed with the view of the Delhi High Court in Docomo that an Indian entity would not have been able to complete the transaction due to FEMA restrictions and concluded that the option available to the respondent by in procuring a non-resident purchaser to purchase the shares would not contravene FEMA as FEMA would not apply to a non-resident third party....
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....z City and Vijay Karia. The view also stands reinforced by the decision of the Bombay High Court in Banyan Tree. Notably, the appeal from Banyan Tree was dismissed by the Supreme Court with exemplary costs. The Arbitral Tribunal's findings are therefore consistent with the law as it stands today. 29. Although, learned counsel appearing for the respondent has attempted to differentiate between the present transaction and those in the cases which are construed against the respondent by the Tribunal and in Banyan Tree, this court is unable to agree that the difference would render the enforcement of the present Award vulnerable on the public policy ground. The interdict contained in Explanation 2 to Section 48(2)(b) against a review on the merits of the dispute is revitalized in light of the arguments proffered on behalf of the respondent before this court. The Award contains a detailed recording of the submissions made on behalf of the parties followed by the analysis of the Tribunal on each of the points of submission. The Arbitral Tribunal has not only construed the Clauses in the Shareholder's Agreement in the context of the submissions made by the respondents but has also consi....
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....the considered view that the Award in essence is an Award for breach of the obligations of the respondent and its wholly-owned subsidiary. The Arbitral Tribunal found that the failure on the part of the respondent and MSEL to procure a third party purchaser constituted a breach of such obligations with clear consequences as to damages. The Tribunal, accordingly, held that loss of the bargain and the measurement of damages was readily apparent by reference to the value of the Agreements themselves. Seen in this light, the Award does not enforce the Put Option but simply awards damages to the petitioner for the breach on the part of the award-debtor. The Tribunal relied on Docomo in this context wherein the investor had been awarded damages for the promoter's breach of the obligation to provide an exit to the investor. The Award can therefore also be seen as a money Award simpliciter without having any bearing on the public policy of India in the context of either SCRA or FEMA. The consequential question which must also be answered: whether there should be simultaneous enforcement and execution of a Foreign Award: 33. Section 49 of the Act makes it clear that once a foreign Award is....