'Perversity' Or 'Patent Illegality' Not Grounds To Refuse Enforcement Of Foreign Arbitration Award: Supreme Court

The Supreme Court observed that perversity of an award is not a ground to refuse enforcement of a foreign award under Section 48 of the Arbitration and Conciliation Act, after 2015 amendment.The Court held that the ground of "patent illegality" is only available to set aside domestic arbitration awards made under Part 1 of the Arbitration and Conciliation Act and will not apply to international commercial awards."The ground of "patent illegality appearing on the face of the award" is an independent ground of challenge which applies only to awards made under Part I which do not involve international commercial arbitrations.", the bench comprising Justices RF Nariman and BR Gavai observed.BackgroundThe court made these observations in an appeal filed by Gemini Bay Transcription Pvt. Ltd. against a Bombay High Court judgment which held that the foreign award is enforceable against them, even though they were non signatories to the Arbitration Agreement. In this case, an Award was passed by International Arbitration Tribunal in the matter of dispute between Integrated Sales Services Ltd. ["ISS"], a company based in Hong Kong and DMC Management Consultants Ltd [DMC]. 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 before the single bench of Bombay High Court. The Single Judge 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 single judge held that award would not be enforceable against Gemini Bay Transcription Pvt. Ltd. GBT and Arun Dev Upadhyaya since were not parties to the arbitration agreement. In appeal, the Division Bench, setting aside the single bench judgment, 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. One of the contentions raised was that the Award suffers from patent illegality.Perversity no longer a ground to refuse enforcement of foreign awardTaking note of the 2015th amendment and the judgment in Ssangyong Engg. & Construction Co. Ltd. v. NHAI,, the court observed that perversity as a ground to set aside an award in an international commercial arbitration held in India no longer obtains after the 2015 amendment to the Arbitration Act, 1996. Section 34 of the Act provides that the arbitral award if is in conflict with the public policy of India, can be set aside under Section 34. Explanation 1 clarifies 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. 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.The 2015 amendment introduced sub-clause 2A which reads as follows: "An arbitral award arising out of arbitration's other than international commercial arbitration's, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award: Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence". Section 48 provides that the enforcement of a foreign arbitral award may also be refused if the Court finds that the enforcement of the award would be contrary to the public policy of India. The same explanation which is provided under Section 34 is given to public policy under Section 48 as well."59. The judgment in Ssangyong (supra) noted in para 29 that Section 48 of the Act has also been amended in the same manner as Section 34 of the Act. The ground of "patent illegality appearing on the face of the award" is an independent ground of challenge which applies only to awards made under Part I which do not involve international commercial arbitrations. Thus, the "public policy of India" ground after the 2015 amendment does not take within its scope, "perversity of an award" as a ground to set aside an award in an international commercial arbitration under Section 34, and concomitantly as a ground to refuse enforcement of a foreign award under Section 48, being a pari materia provision which appears in Part II of the Act. This argument must therefore stand rejected.", the court observed.Section 48(1)(b) does not speak of absence of reasons in an arbitral award at all.Another contention raised in this case was that the Arbitrator's Award contained reasoning which was perfunctory in nature, it would not pass muster...

'Perversity' Or 'Patent Illegality' Not Grounds To Refuse Enforcement Of Foreign Arbitration Award: Supreme Court

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