Arbitration | Every Violation Of Statute Not Against Fundamental Public Policy Of India, Exception Has To Be Construed Narrowly: Bombay High Court

While enforcing a foreign arbitral award, the Bombay High Court has held that violation of a statute would not necessarily violate the fundamental policy of Indian law and the fundamental policy test must be applied according to the circumstances and facts of each case. Further stating that poor reasoning to reject a claim would not attract any public policy ground, unless the most basic notion of justice is offended, Justice A.K. Menon held that to lead to a violation of the fundamental public policy of India, a high threshold of 'egregious circumstances' like bribery, corruption or fraud and like circumstances that tamper with the most basic notions of morality and justice would apply. The brief facts of the case are as follows: the petitioner is a company, based in UAE engaged in the business of leasing and chartering aircraft and helicopters and the respondent is a company incorporated in India involved in the business of providing helicopter services to oil and gas industry of the Country. Both parties entered into a lease agreement however, the the respondent failed to pay the applicable consideration. Both parties then entered into a settlement deed which essentially provided for settlement of outstanding sum, but the same also remained unpaid.The petitioner then initiated arbitration proceedings and the respondents nominated an arbitrator. The arbitrators nominated by the parties came to be appointed by the President of the Court of Arbitration of Singapore International Arbitration Centre (SIAC). Chairman of the tribunal was appointed and after considering the submissions advanced by both the parties, an award was passed by the tribunal in January 2017 and there was no challenge to this award and thus, the High Court of the Republic of Singapore declared the award and the respective addendum to be final and binding on the parties. The petitioner then sought an injunction against the respondent via a commercial arbitration petition under S.9 of the Arbitration and Conciliation Act, which was allowed. Since the petitioner had fulfilled the requirements under S.47 of Arbitration and Conciliation Act, 1996, and the tribunal had heard the respondent's contention in detail and only then an award was passed and when it was not contended in the Court within the prescribed time, it was declared final. Thus, the petitioners argued that the award must be enforced. However, the respondents contended that because the petitioner was investigated by the US Bureau of Industry and Security and was placed on BIS Entity List, this prevented the respondents from performing their obligations under the settlement deed leading to its frustration. This contention had been rejected by the tribunal. Petitioner's contentions Dr. Chandrachud, Counsel for the petitioner contended that if a mere misinterpretation of substantive law would constitute a violation of the fundamental public policy of India, then there would be no difference between substantive law violation and violation of the fundamental policy of Indian law. Thus, he submitted that the party terminating the contract can sue for specific performance or price of goods. Submitting that the tribunal might have erroneously applied the law (S.49 of Singapore Sale of Goods Act, 1999) when holding that once the property had passed to the buyer, the seller could sue for the price of the goods, the learned counsel argued that this did not result in violating the fundamental policy of Indian law. Further submitting that even if there are grounds for interfering/declining with a foreign award's enforcement, the Courts must consider whether overall justice has been done or not. And since in the present case, the helicopter is in the respondent's possession since 2012 and the respondent had earned USD 2.4 million but did not pay any part of the agreed amount to the petitioners, the award of the tribunal is justified as it's only equivalent to three years revenue earned by the respondent although the respondent had continued to retain the helicopter for over 9 years. The learned counsel further drew the court's attention to the fact that the amendment to the statement of claim had been made prior to the commencement of the trial and thus, the procedure that was followed was in accordance with Indian law and did not violate the fundamental policy of Indian law i.e. no amendment should be allowed to pleadings once a trial is commenced without good reasons. Submitting that the respondent was fully allowed and able to present its case, the learned counsel asserted that the award did not violate S.48(1)(b) of the Act. The learned counsel concluded that the amount in the contract was not a penalty but a genuine pre-estimate of loss and since the tribunal's decision would not cause any unjust enrichment to the petitioner because the petitioner was willing to transfer ownership of the helicopter to the...

Arbitration | Every Violation Of Statute Not Against Fundamental Public Policy Of India, Exception Has To Be Construed Narrowly: Bombay High Court

Rashmi Bagri

Very high threshold would have to be crossed such as egregious circumstances of corruption, fraud which would violate most basic notions of morality and justice.

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