Foreign Award Can Be Binding On Non-Signatories To Arbitration Agreement: Supreme Court

The Supreme Court has held that a foreign award can be binding on non-signatories to the arbitration agreement and can be thus enforced against them.In this regard, the Court referred to Section 46 of the Arbitration and Conciliation Act, which deals with the circumstances under which a foreign award is binding. The Court noted that the provision speaks of "persons as between whom it was made" and not parties to the agreement. "Persons" can include non-signatories to the agreement."First and foremost, Section 46 does not speak of "parties" at all, but of "persons" who may, therefore, be non-signatories to the arbitration agreement", the Court said in its judgment in the case Gemini Bay Transcription Pvt. Ltd. vs. Integrated Sales Service Ltd.Enforcement of foreign award cannot be resisted on the sole ground that it was made against a non-signatoryFurther, the Court held that the enforcement of a foreign award cannot be resisted on the sole ground that it has passed against a non-signatory to the arbitration agreement.A division bench comprising Justices RF Nariman and BR Gavai held that a non-signatory's objections will not fit into the grounds under Section 48(1) of the Arbitration and Conciliation Act, which specify the conditions on which the enforcement of a foreign award can be refused."The grounds are in themselves specific, and only speak of incapacity of parties and the agreement being invalid under the law to which the parties have subjected it. To attempt to bring non-parties within this ground is to try and fit a square peg in a round hole", the judgment authored by Justice Nariman stated.Background factsIn 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.Six ingredients to an award being a foreign awardWhile considering the appeal filed against the Division bench judgment, the court first referred to Section 44 and 47 as follows:29. A reading of Section 44 of the Arbitration and Conciliation Act, 1996 would show that there are six ingredients to an award being a foreign award under the said Section. First, it must be an arbitral award on differences between persons arising out of legal relationships. Second, these differences may be in contract or outside of contract, for example, in tort. Third, the legal relationship so spoken of ought to be considered "commercial" under the law in India. Fourth, the award must be made on or after the 11th day of October, 1960. Fifth, the award must be a New York Convention award – in short it must be in pursuance of an agreement in writing to which the New York Convention applies and be in one of such territories. And Sixth, it must be made in one of such territories which the Central Government by notification declares to be territories to which the New York Convention applies.Pre-requisites for the enforcement of a foreign awardOn Section 47, the court noted that the pre-requisites for the enforcement of a foreign award are: (1) the original award or a copy thereof duly authenticated in the manner required by the law of the country in which it is made; (2) the original agreement for arbitration or a duly certified copy thereof, and; (3) such evidence as may be necessary to prove that the award is a foreign award.All the requirements of 47(1) are procedural in nature,The court, referring to Section 47, observed that all the requirements of sub-section (1) are procedural in nature,35. From this, is clear that all the requirements of sub-section (1) are procedural in nature, the object being that the enforcing court must first be satisfied that it is indeed a foreign award, as defined, and that it is enforceable against persons who are bound by the award. Section 47(1)(c) being procedural in nature does not go to the extent of requiring substantive evidence to "prove" that a non-signatory to an arbitration agreement can be bound by a foreign award. As a matter of fact, Section 47(1)(c) speaks of only evidence as may be necessary to prove that the...

Foreign Award Can Be Binding On Non-Signatories To Arbitration Agreement: Supreme Court

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