The Supreme Court bench comprising Justices RF Nariman and BR Gavai observed that the ground of "patent illegality" is only available to set aside domestic arbitration awards and will not apply to international commercial awards and held that a foreign award can be binding on non-signatories to the arbitration agreement and can be thus enforced against them.
The instant appeal raises questions of part II of the Arbitration and Conciliation Act of 1996 which deals with recognition and enforcement of foreign awards. The facts of the case were as follows. A representation agreement was entered into between Integrated Sales Services(ISS) Ltd. a company based in Hong Kong and DMC Management Consultants Ltd. a company registered in India, whose principal business address is at Nagpur. By this agreement, ISS was to assist DMC to sell its goods and services to prospective customers, and in consideration thereof was to receive commission. Disputes arose between the parties, as a result of which a notice for arbitration was sent by ISS.An award was passed and the award was also made binding on certain entities which were not signatories to the agreement. DMC filed an application for enforcement of this foreign award in the Bombay High Court. The learned Single Judge applied sections 48 (1)(c) to (e) and held that the agreement and the arbitration clause cannot be enforced against persons who are non-signatories, even though such non-signatories may participate in the arbitration, as no acquiescence or estoppel can apply to issues relatable to jurisdiction. The Division Bench of the High Court held that the award could only be challenged under Section 48 and observed that none of the grounds contained in Section 48 would apply so as to resist enforcement of the foreign award in this case. Thus GBT approached the Apex Court by filing an appeal.
Shri K.V. Vishwanathan, learned Senior Advocate appearing on behalf of GBT argued that under Section 47(1)(c), the burden of proving that a foreign award may be enforced under Part II is on the person in whose favour that award is made, and that such burden in the case of a non-signatory to an arbitration agreement can only be discharged by adducing evidence. He then argued that the Award is in any case perverse, and that the two clients of DMC that were shifted to GBT were vital evidence in the case, and the non-examination of these two clients would also vitiate the Award. Shri Harish Salve, learned Senior Advocate appearing on behalf of Arun Dev Upadhyaya made a distinction between Section 46 and 35 of the Arbitration Act, and argued that under Section 46, a foreign award is to be treated as binding only on persons as between whom it was made and not on persons who may claim under the parties.
The court also referred to the judgement in Ssangyong Engg. & Construction Co. Ltd. v. NHAI [(2019) 15 SCC 131], the court observed that perversity as a ground to set aside an award in an international commercial held in India no longer obtains after the 2015 amendment to the Arbitration Act, 1996. The court in Ssangyong held that a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality.
The supreme court observed that when enforcement of a foreign award is resisted, the party who resists it must prove to the court that its case falls within any of the sub-clauses of sub-section (1) or sub-section (2) of Section 48 and expression “proof” in Section 48 would only mean “established on the basis of the record of the arbitral tribunal”. Rejecting the argument that a foreign award would be binding on parties alone and not on others, the court said that Section 46 does not speak of “parties” at all, but of “persons” who may, therefore, be non-signatories to the arbitration agreement. Also, Section 35 of the Act speaks of “persons” in the context of an arbitral award being final and binding on the “parties” and “persons claiming under them”, respectively. Hence, the appeals are dismissed.
For reading the complete judgment, please click below:-