1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.8343-8344 OF 2018

Gemini Bay Transcription Pvt. Ltd. … Appellant

Versus

Integrated Sales Service Ltd. & Anr. … Respondents

WITH

CIVIL APPEAL NOS.8345-8346 OF 2018

J U D G M E N T

R.F. Nariman, J

1. These appeals raise interesting questions relatable to Part II of the

Arbitration and Conciliation Act, 1996 [the “Arbitration Act, 1996”]

which provisions deal inter alia with recognition and enforcement of

foreign awards. The facts necessary to appreciate the points raised in

these appeals are as follows.

2. On 18

th

September, 2000, a representation agreement was entered into

between Integrated Sales Services Ltd. [“ISS” / Respondent No. 1], a

company based in Hong Kong and DMC Management Consultants Ltd.

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[“DMC”], 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. The relevant clauses of the

agreement are clauses 2 and 3 which read as follows: -

“2. Duties of Representative

Representative shall assist Company with its efforts to sell its

Goods and Services to prospective customers. Secondly,

where acceptable to the Company, identify potential sources

of investment and Investors, and assist Company in

negotiating the terms of purchase, sale and/or investment.

3. Validity

The right of representation under this Agreement is not

limited by time. Compensation is due Representative as

defined under "Payment" hereinafter. However, if Company

finds Representative's efforts to be unsatisfactory, it will state

so in writing with specific and, reasonable guidelines which,

if accomplished within six months, shall constitute

satisfactory performance, If Representative is unable to

substantially- satisfy these guidelines, then Company may

cancel this Agreement forthwith. However, compensation for

existing or potential customers identified by the

Representative, shall continue according to the Payment

clause below.”

3. The commission payable is then referred to in clause 4. The agreement

under clause 8(d) which is “General” then states as follows: -

(d) Interpretation, Amendment, Law, Arbitration, and

Assignments

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(i) This Agreement is subject to the laws of the State of

Missouri, U.S.A.

(ii) In the event a dispute arises in connection with this

Agreement, such dispute shall be referred to a single

arbitrator in Kansas City, Missouri, U.S.A. to be appointed

by agreement between the parties hereto, or failing

agreement to be appointed according to the rules of the

American Arbitration, Association the same rules under

which any dispute which any dispute shall be decided.

(iii) In the event a dispute is committed to arbitration, the

party deemed at fault shall reimburse the full cost of the

arbitration and legal process to the aggrieved party.

(iv) The Agreement shall not be amended in any way

other than by agreement in writing, signed by both

parties.

4. It is important to note that this agreement was signed by one Shri Rattan

Pathak as Managing Director of DMC, and by one Shri Terry Peteete,

Director of ISS. Though this agreement was entered into on 18

th

September, 2000, it came into force on 3

rd

October, 2000. A first

amendment to this representation agreement was made between the

aforesaid parties, which was signed by one Shri Arun Dev Upadhyaya

[Appellant in CA No. 8345-8346/2018] on behalf of DMC, and Terry

Peteete on behalf of ISS. We are not directly concerned with the

changes made by this first amendment except to indicate that Arun Dev

Upadhyaya, one of the appellants before us, was a signatory on behalf

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of DMC. Likewise, a second amendment agreement was entered into

on 1

st

January, 2008, again with effect from 3

rd

October, 2000, in which

various amendments were made to the original representation

agreement. We are concerned, with sub-clause (4) of this amendment,

which reads as follows: -

4. In modification of clause 8(d)(1) of the Agreement, this

Agreement is subject to the laws of the State of Delaware,

U.S.A., and shall survive the expiration of any other clauses

in this Amendment.

5. Disputes arose between the parties, as a result of which a notice for

arbitration dated 22

nd

June, 2009 was sent by ISS to Arun Dev

Upadhyaya. Ultimately, a statement of claim dated 22

nd

June, 2009, was

filed before the learned Arbitrator naming Arun Dev Upadhyaya, DMC

(India), DMC Global (company registered in Mauritius), Gemini Bay

Consulting Limited (company registered in the British Virgin Islands) and

Gemini Bay Transcription Private Limited [“GBT” / Appellant in CA No.

8343-8344/2018] as respondents. The statement of claim alleged as

follows: -

6. DMC Management Consultants, through the Chairman

(Upadhyaya) and/or with his family, in turn owns or controls

all the stock of DMC Global, which has assumed the

obligations of DMC Management Consultants under the

agreement referred to below, including the agreement for

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arbitration; and the Chairman controls and dominates the

activities of DMC Global. Both DMC Management

Consultants and the Chairman have disregarded the

corporate form of DMC Global to effect the wrongs

complained of herein, in such a manner and to such an extent

that DMC Global should be bound as a party to this

arbitration.

7. Gemini Bay Consulting Limited ("GBC") is a company

formed in the British Virgin Islands, which is owned and/or

controlled and dominated by the Chairman, who has

disregarded its corporate form to effect the wrongs

complained of herein, and GBC has been used by the

Chairman among others as a continuation corporation of

DMC Management Consultants and DMC Global to divert

funds away from ISS as complained of herein, in such a

manner and to such an extent that GBC should be bound as

a party to this arbitration.

8. Gemini Bay Transcription Private Limited ("GBT") is a

company formed in India, with a registered office at the same

address as that of the Chairman, which is owned and/or

controlled and dominated by the Chairman, who has

disregarded its corporate form to effect the wrongs

complained of herein, and GBT has been used by the

Chairman among others as a continuation corporation of

DMC Management Consultants and DMC Global to divert

funds away from ISS as complained of herein, in such a

manner and to such an extent that GBT should be bound as

a puny to this arbitration.

xxx xxx xxx

13. As the relationship developed, Claimant ISS as

Representative brought to the Company two substantial "PC"

customers, identified as MedQuist Transcriptions Ltd, of Mt.

Laurel, New Jersey ("MedQuist"), and AssistMed, Inc. of Los

Angeles, California ("AssistMed") (sometimes hereinafter

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collectively referred to as the "Customer"). ISS acted as

representative of the company with the Customers.

14. Under the original terms of the Representation

Agreement, ISS was to receive commission of 20% of the

gross revenues to Company from these Customers for so

long as they continue to be customers.

15. Throughout the relationship between ISS and

Respondents, the principal representative of ISS has been

Terry Peteete, a resident of Kansas City, Missouri.

16. Throughout the same period, the principal representative

of DMC Management Consultants and DMC Global has been

the Chairman, Respondent Arun Dev Upadhyaya. In that

regard, the Chairman has made regular trips from India to the

United States, approximately 4 trips per year, for business

and personal reasons.

17. Those trips have included at least four trips to Kansas

City, Missouri, to conduct business with ISS representative

Terry Peteete, regarding the subject matter of this arbitration.

Therefore, he has purposely availed himself of this

jurisdiction, and requiring his participation in this arbitration in

Kansas City, Missouri does not offend traditional or

constitutional notions of justice arid fair play.

xxx xxx xxx

30. From September 18, 2000, until approximately June 30,

2008, the relationship among the parties proceeded

agreeably. ISS performed its obligations, and upon

information and belief, both DMC Management Consultants

and DMC Global performed their obligations.

xxx xxx xxx

38. On July 22, 2008, DMC Management Consultants gave

notice by email entitled "Contract Termination Notice," to the

two "PC" Customers, MedQuist and Assistmed, of its

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intention to terminate the Customer contracts 90 days later.

(Note that the Customer Contract with MedQuist had been

signed by DMC Global, but was terminated by DMC

Management Consultants). DMC Management Consultants

requested the Customers "begin the ramping down process

15 days from now," and further that the "ramping down be

completed within a period of 90 days.

39. This purported "ramping down" of the Customer

Contracts by DMC Management Consultants and DMC

Global in fact never took place. Upon information and belief,

as part of the scheme to divert funds from DMC Management

and evade payment to ISS of commissions Respondents

caused new contracts to be executed by the Customers with

Respondent Gemini Bay Consultants (GBC). During the

same time, the Chairman caused a new company

Respondent Gemini Bay Transcriptions (GBT) to be set up as

the company that actually performed the work for both PC

Customers, and continues to do so today. The employees of

both DMC Management employees Consultants and DMC

Global became GBT, and work in the same facilities, using

the same equipment, and managed by the same

management team. These two July 22, 2008, email

termination notices were part of a scheme by Respondents

to divert the business from the Customer Contracts away

from DMC Management Consultants and DMC Global to

GBC and GBT.

41. The primary purpose of doing so was to evade the

contractual obligations of the Respondents under the

Representation Agreement to pay ISS its commissions for

revenues earned from these Customers.

42. At all times, DMC Management Consultants and DMC

Global acted under the direct instruction of the Chairman in

furthering this scheme to deprive ISS of its commissions.

43. The Chairman dominated and manipulated the activities

of DMC Management Consultants and DMC Global for his

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personal and business advantage, for the sole improper

purpose of harming ISS and breaching his personal

obligations and the obligations of his two companies to ISS

under the Representation Agreement.

44. The Chairman used the companies as alter egos of

himself, and he ignored the corporate forms of both DMC

Management Consultants and DMC Global to achieve his

improper purpose of breaching the Representation

Agreement.

6. Based on these averments, damages were claimed on the basis of

“Accounting for Lost Commissions” as follows:

64. Upon information and belief, the revenues being paid to

Respondents by the "PC" Customers since October 22, 2008,

continue at a rate such that the commissions payable under

the Representation Agreement for the period since October

22, 2008, is approximately $100,000 per month.

65. Upon information and belief, the amount of lost

commissions, past, present and reasonably certain to occur

in the future, are determined at a rate of $100,000 per month

for the period of 48 months following the termination date of

October 22, 2008, aggregates $4.8 million due and to

become due to ISS from Respondents due to their breach of

contract.

7. It was then averred:

74. By making its claims pursuant to the Representation

Agreement and the corporate law of Delaware in this

arbitration, Claimant ISS is not making, and hereby

specifically reserves: (i) all claims which may arise in the

future, under the Representation Agreement, for

commissions which may become payable in a manner other

than as described above, and (ii) all claims for any additional

right, title, interest and other matters ISS may make at

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another time or in another forum against any of these

Respondents based in tort, fraud, abusive conduct, or any

other wrongful conduct under the law of any of the United

States. India. Mauritius, or any other jurisdiction, whether for

equitable relief, compensatory damages, punitive or

exemplary damages, moral damages, or otherwise.

8. To this statement of claim, objections were filed by GBT and Arun Dev

Upadhyaya, in which all the aforesaid averments were denied.

Meanwhile, a suit was filed by GBT against ISS before the Civil Judge,

Senior Division, Nagpur, with the following prayers: -

(i) Pass a decree of declaration in favour of the plaintiff and

against the defendants, their agent, servants and all other

persons claiming through or under them, declaring therein

that the Arbitration Agreement entered into between the

Defendant No. 1 and Defendant No. 3, is not binding or

enforceable against the Plaintiff and therefore the defendant

Nos. 1 & 2 cannot prosecute/ proceed with any proceeding

against the plaintiff or any one claiming through or under the

plaintiff, in any manner whatsoever, in the peculiar facts and

circumstances of the present case;

(ii) Pass a decree of permanent injunction in favour of the

plaintiff and against the defendants, their agent, servants and

all other persons claiming through or under them, restraining

them from prosecuting or proceeding or continuing with any

arbitration proceedings against the Plaintiff, based on the so-

called Arbitration Agreement entered into between the

Defendant No. 1 and Defendant No. 3, the same being not

binding or enforceable against the Plaintiff, in the peculiar

facts and circumstances of the case and in the interest of

justice;

(iii) Pass a decree of Rs. 10,00,000/ (Rupees Ten Lacs only)

towards compensation in favour of the plaintiff and against

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Defendant Nos. 1 and 2, in the peculiar facts and

circumstances of the case;

(iv) Award costs of the suit against the defendant Nos. 1 & 2;

(v) And be further pleased to pass such order/orders and

grant such other reliefs, as this Hon'ble Court may deem fit in

the given facts and circumstances of the case.

9. Though a temporary injunction was prayed for, it was rejected on 25

th

January, 2010.

10. On 23

rd

December, 2009, the learned Arbitrator raised four issues in a

preliminary award as follows: -

1)The determination of applicable law; and

2) The jurisdiction of this tribunal over non-signatory parties;

and

3) Whether facts warrant piercing the corporate veil of certain

corporations; and

4) Whether certain non-signatory parties to the original

agreement should be excluded from this arbitration.

Only ISS and DMC filed briefs. DMC's brief addressed only

the issue of applicable law and in spite of the arbitrator’s

numerous warnings, other Respondents and non-signatory

parties failed to file relevant briefs on the matters and

submitted affidavits.

11. Issues 1 and 2 were answered stating that Delaware law is the

substantive law which controls the agreement and its interpretation and

that, since neither the claimant nor the respondent challenged the

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validity of the agreement or the validity of the arbitration clause, the

Arbitrator has jurisdiction to decide whether a non-signatory to the

representation agreement can be bound by the award. The other two

issues were stated to require an in-depth review and analysis of factual,

testimonial and documentary evidence as a result of which the decision

on these two issues was “postponed”.

12. The learned Arbitrator in his final award dated 28

th

March, 2010, set out

the issues that were to be adjudicated as follows: -

I THE UNDERSIGNED ARBITRATOR, Alain Frecon, (the

"tribunal") having been designated in accordance with the

arbitration agreement entered into by ISS and DMC

Management Consultants Limited, dated September 18

2000, having been duly sworn, having given the parties full

and complete opportunity to present their respective case,

and having heard all the proofs and allegations of the parties,

including all the witnesses and reviewed all the documents,

demonstrative evidence and submissions presented in this

case, do hereby Award as follows:

TO BE DECIDED

1) Does the "alter ego" doctrine warrant piercing the

corporate veil?

2) Was there a breach of the Representation Agreement and

by whom?

3) Should damages be awarded, and if the answer is yes,

how much?

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13. After describing the parties and the claim made, Issue 1 which was

styled “Alter ego doctrine and piercing of the corporate veil” was

answered as follows: -

Before piercing a corporate veil, this tribunal must carefully

review a complex set of factual, documentary and testimonial

evidence. As Professor William W. Park (Boston University

Law Faculty) points out in his well-known (among

international arbitrators) article “Non Signatories and

International contracts: an arbitrator's dilemma" (1, Belinda

MacMahon, ed, Oxford University Press (2009), the

proverbial devil in the details lurks in the complex fact

patterns underlying most situations that might justify

extension of arbitration clauses and arbitrators must consider

"un faisceau d'indices" (a bundle of criteria) before reaching

such a decision (See page 8).

Having found that Delaware law was the applicable law (see

Order # 4), we must follow the precedents of the Delaware

Court of Chancery.

To determine whether the "alter ego" doctrine applies to his

case and whether the corporate veil should be lifted, we must

consider [the] "bundle of criteria” including control, whether

the corporate form was used as a facade to commit a fraud,

and the timing of these events.

The control of DMC by Mr. Upadhyaya, the timing of events

and coordination of efforts between him and Mr. Pathak

clearly demonstrate that the transfer of the medical business

from DMC to Gemini Bay simply was not, and could not be,

the result of mere coincidence. Their combined actions and

conducts facilitated and orchestrated the use of the corporate

forms of DMC and Gemini Bay to achieve, through deceit, a

result which eliminated an otherwise valid and enforceable

contract. Mr. Upadhyaya totally controlled the business

operations of DMC (a family majority owned business) and

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his minority shareholding did not prevent him from running

the business as he deemed fit (we received for example no

evidence whatsoever that Mr. Upadhyaya's decisions were

ever reviewed/challenged nor even questioned by the board

of directors of DMC). Whatever Mr. Upadhyaya decided,

whether in coordination with, or with the cooperation of Mr.

Pathak and the Board of DMC, that is what DMC would do,

and the board always voted in line with Mr. Upadhyaya's

recommendations. He was as a result, the sole decision

maker. The total control and domination of ÐMC by Mr.

Upadhyaya is therefore not questionable, in spite of his

minority shareholding.

The correlation existing between DMC and Gemini Bay is

also, not the result of mere coincidence. Not only did the very

existence of Gemini Bay germinate within the confines of

DMC (but for Mr. Pathak's position as "Managing Director" of

DMC, he would have never known about Medquist or

AssistMed), but both companies shared (even if ever so

temporarily) the same employees, address, telephone

numbers, e-mail addresses, SVPs, customers (primarily

Medquist and AssistMed), and shared almost identical

contracts with the same customers.

Respondents' affirmations that DMC's corporate formalities

were respected and that some of these facts were only

temporary, are simply not convincing or credible and, in

totality, we find that the control of DMC by Mr. Upadhyaya,

and the collusion with Mr. Pathak and the use of the corporate

forms of DMC and Gemini Bay were simply a "facade" used

to shield or cover-up the unjust result of eliminating ISS. The

alter ego doctrine is therefore an appropriate justification for

lifting the corporate veil.

14. Under the head “Breach of the representation agreement”, it was

recorded that the agreement was not challenged by either party and is

therefore valid and enforceable. It was then held: -

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Το determine that question, we must turn to the

Representation Agreement. That Agreement was not

challenged by either party and is therefore a valid and

enforceable Agreement. It is clear and not ambiguous and

therefore not subject to interpretation.

ISS's obligations under that Agreement are also clear. ISS

must I) sell its Goods and Services (which means the

"products and services being offered for sale by the

company" (i.e. DMC) and 2) "Where acceptable to the

Company (i.e. DMC), identify potential sources of investment

and investors, and assist the company in negotiating the

terms, purchase, sale and/or investment" (See Clause #2).

The Agreement did not specify how many customers, how

often. Neither did it specify how many investors, at what price,

by what date and since it was for an indefinite term ("is not

limited by time" See Clause # 3), it is not legally sustainable

to justify the termination of the ISS/DMC business

relationship based on the fact that ISS did not find an investor.

DMC could terminate that Agreement if "the Company (DMC)

was not satisfied with the Representative efforts provided that

it determined "specific and reasonable guidelines" (See

Clause # 3). Respondents failed to prove by reliable and

relevant evidence that any such "specific and reasonable

guidelines" were ever established by the Board of DMC or Mr.

Upadhyaya or Mr. Pathak. More importantly, even if DMC

could prove that such guidelines had been established, it

could not escape the obligation of clause # 4 of the

Agreement which specifically provides that "this clause

(payment of commissions) survives cancellation of this

Agreement for any reason".

15. Under the head “Did DMC/Gemini Bay try to avoid/eliminate the

payment of such commissions to ISS?”, the oral and documentary

evidence was referred to as follows:

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In this respect, Ms. Parker best summarized the situation in

her testimony (See Parker's/deposition at p 16 lines 7 through

16). Her statement at page 18 (lines II through 25) further

demonstrates the purpose and intent of DMC'S decision to

abandon the medical transcription business, for the benefit of

Gemini Bay minus the payment of commissions to ISS. Her

statement was even acknowledged by Mr. Pathak himself

when she asked him if the purpose of DMC's termination was

"to cut out the Peteetes" (ISS) he responded." In essence

that's what it does". (See Parker's deposition at pages 19

lines 18 through 20).

Even though we agree with Respondents that DMC had no

obligation to remain in the medical transcription business, it

could only do so by respecting the terms of the

Representation Agreement by making sure that the

"compensation for existing or potential customers identified

by the Representative, shall continue according to the

Payment Clause" (See Clauses #3 and #4 of the

Representation Agreement).

The decision by DMC to abandon such business for the

stated purpose (ISS failure to find an investor) does conflict

with the terms of the Representation Agreement which did not

give DMC an option to terminate it under such rationale and

certainly not by refusing (or avoiding) the payment of

commissions in violation of Clause # 4 of the Representation

Agreement.

Had DMC really and totally left the medical transcription

business (without helping any other company to get that

business) we could have found a justifiable rationale for it but

the payment of commissions could not be avoided (or voided

as DMC attempted to do).

In spite of DMC's announcement to abandon the medical

transcription business, Mr. Upadhyaya and Mr. Pathak

engaged in a pattern of well-timed efforts and actions which

resulted in Gemini Bay receiving that business through an

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orchestrated chain of events, to the detriment of ISS and

avoiding, through deceit, the payment of commissions.

Since Gemini Bay "inherited" the Medquist and AssistMed's

business from DMC, it did so inheriting also the terms and

conditions of the ISS/DMC Representation Agreement. To

that effect, Gemini Bay is subrogated to DMC and therefore

DMC's breach can be inputted to all Respondents.

We therefore find that Mr. Upadhyaya, DMC and Gemini Bay

colluded together and find them jointly and severally liable for

breaching the Representation Agreement by terminating it

abruptly in violation of the indefinite term of that contract and

by refusing to pay commissions as obligated under the

Representation Agreement.

16. In deciding what damages should be paid, the learned Arbitrator found :

Respondents DMC, Mr. Arun Dev Upadhyaya and Gemini

Bay’s failure to fully cooperate with certain discovery requests

of Claimant, rendered the task of proving damages with any

reasonable certainty, almost impossible.

DMC biased the discovery process by refusing to make its

books and records available for inspection by ISS's agent, Mr.

Gupta (See Exhibit 169 page II and following). Mr.

Upadhyaya and Gemini Bay further biased the discovery

process by refusing to participate directly in the arbitration

process.

Claimant's failure to use an independent expert on damages

is not a relevant argument because in the absence of

documentary proof, no independent expert could have

possibly reached a reliable and non-speculative opinion,

Under such circumstances, Mr. Peteete's intimate

understanding of the business was the only and best

available option afforded to Claimant. In the absence of such

reliable documentary evidence, Claimant cannot be

penalized for attempting 'to prove damages the best way

17

possible’ under the circumstances. Since Delaware law

accepts the submission of damage testimony by lay opinion

so must this tribunal.

The conduct of Respondents gives us no other alternative but

to conclude that damages should be computed as Claimant

proposes. In essence, Respondents brought this result upon

themselves.

Claimant's request for damages focuses on the commissions

due for finding Medquist and AssistMed and for no other

reason (Claimant does not claim any damage for its efforts

for trying to find an investor). We find that claim reasonable.

We must not however assume that the Gemini

Bay/Medquist/AssistMed Agreements would have, could

have, lasted any specific amount of time in the future and we

must determine the most reasonable period of duration.

There is no guarantee that either the AssistMed or Medquist

contracts would last for the length of their original 3 year term.

The Medquist agreement can be terminated any time upon a

90 days' notice. The AssistMed contract can be terminated

without cause with a 120 days' advance notice (See Exhibit 5

page 3). This tribunal therefore concludes that damages

should be limited in time and cannot be assumed to last

forever in the future.

Claimant's assumptions that both the Medquist and Assisted

contracts would last until 2012 (they are still in force as of the

date of this Award), is not entirely satisfactory as it leads us

to contemplate future damages. Since however we found a

breach of the Representation Agreement, we have a legal

basis to award future damages and find that ending damages

in 2012 is reasonable under the circumstances. Mr.

Upadhyaya's testimony (re: C-Bay' and Mr. Raman Kumar)

that the Medquist contract will be terminated in the near future

is self-serving, not substantiated by any relevant or reliable

information, and therefore, not credible.

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17. As a result, the Award was as follows:

AWARD

1. Within thirty (30) days from the date of transmittal of this

Award to the Parties, DMC Management Consultants, Ltd,

DMC Global, Inc., Arun Dev Upadhyaya, Gemini Bay

Consulting Limited and Gemini Bay Transcription Private

Limited, hereinafter referred to as Respondents, shall jointly

and severally pay to Integrated Sales Services Ltd,

hereinafter referred to as Claimant, the sum of six million,

nine hundred and forty-eight thousand, one hundred dollars

($6,948,100.00).

2. In the event that the award is not fully paid within thirty days

from the date of this Award, Claimant shall be entitled to also

seek recovery of interest computed from the date of

termination of the Representation Agreement (July 22, 2008)

on the total sum of the Award at the highest legal rate

allowable under Delaware law.

3. The administrative fees and expenses of the International

Centre for Dispute Resolution (ICDR) totalling fourteen

thousand dollars ($14,000.00), and the compensation and

expenses of the arbitrator totalling forty-nine thousand, nine

hundred and three dollars ($49,903.00), shall be borne

entirely, jointly and severally by Respondents. Therefore,

Respondents shall jointly and severally reimburse Claimant

the sum of sixty-three thousand, nine hundred and three

dollars ($63,903.00), representing that portion of said fees

and expenses (including the Arbitrator's fees and expenses)

previously incurred by Claimant.

4. Since the arbitration clause did not provide for the award

of attorneys' fees, Claimant and Respondents shall be

responsible for their own attorneys' fees, costs and expenses.

5. As ordered by this tribunal, all the costs and expenses of

the video conference call held on Friday, March 5, 2010 shall

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be borne exclusively by Respondents but Claimant shall be

responsible for the costs and expenses of its attorneys

present during that call.

6. This award is in full settlement of all claims and

counterclaims submitted to this Arbitration. Any claim or

counterclaim not specifically awarded is hereby denied.

18. To enforce the aforesaid Award, the Respondent first knocked at the

doors of the Principal District Judge, Nagpur, but given the fact that,

being a foreign award, a District Judge would have no jurisdiction to

enforce the same, a learned Single Judge of the High Court of

Judicature at Bombay, Nagpur Bench, was then approached. By his

judgment dated 18

th

April, 2016, the learned Single Judge expressly

recorded:

4. …. The parties have agreed that the question of leading

oral evidence in support of their rival contentions does not at

all arise and the pure questions of law are raised, which can

be decided on the basis of the documents which are admitted

and placed on record.

19. After discussing as to whether the ingredients of a foreign award were

met, the learned Single Judge found :

16. It is not in dispute that the Representation Agreements in

force containing clause 8(d) of arbitration brought into force

from 3/10/2000 undertaking to submit to arbitration all or any

differences concerning the subject-matter capable of

settlement by arbitration, are signed by the Director Terry L.

Peteete of the applicant-Company, and by the non-applicant

No.3(i) Rattan Ram Pathak in his capacity as the Managing

20

Director of the non-applicant No.1 Company. There exists a

defined legal relationship in writing in the form of the

Representation Agreements .

The arbitral award passed on 28/3/2010 by the

International Arbitration Tribunal is on the differences

between the parties to the arbitration agreement. The said

award, therefore, satisfies the test of “foreign award”, as

defined under Section 44 of the said Act. The question No.

(1) is answered accordingly.

20. After discussing in detail certain judgments of this Court, the learned

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. So holding, the

learned Single Judge applied Sections 48(1)(c) to (e) to hold that as GBT

and Arun Dev Upadhyaya were not parties to the arbitration agreement,

the award would not be enforceable against them. However, turning

down a “public policy plea” by DMC, the learned Single Judge held that

the Award would be enforceable against DMC as it was a party to the

agreement.

21. A side skirmish took place as to whether an appeal could be filed from

the learned Single Judge’s judgment, and arguments were raised based

on the application of Section 3 of the Maharashtra High Court (Hearing

21

of Writ Petitions by Division Bench and Abolition of Letters Patent) Act,

1986, to arrive at the conclusion that an appeal against the learned

Single Judge’s order would be maintainable (See judgment dated 23

rd

June, 2016 of the Bombay HC in Arb Appeal No. 3/2015). Vide judgment

dated 30

th

September, 2016 in Civil Appeal No. 8475-76/2016, this

Court, after hearing the parties, then ordered that such appeal would be

maintainable but only under Section 50 of the Arbitration Act, 1996.

22. The Division Bench of the High Court, after stating the facts and after

observing that the foreign award in this case had not been challenged in

the USA, then held that the award could only be challenged under

Section 48 if the Delaware law has not been followed on the alter ego

principle. Being satisfied that the Arbitrator had properly applied the

Delaware law on the facts of this case, the Court held that none of the

grounds contained in Section 48 would apply so as to resist enforcement

of the foreign award in this case. The Division Bench then held that

Section 48 required that the grounds that are pressed to resist

enforcement must be “proved”. The Division Bench held that “proof” is

of a higher order than mere evidence being adduced and then held that

the appellants have miserably failed to “prove” that any of the grounds

22

contained in Section 48 were attracted. As a result, the Division Bench

allowed the appeal and set aside the judgment of the Single Judge by

the impugned judgment dated 4

th

January, 2017. A review petition was

subsequently dismissed on 24

th

February, 2017.

23. When the matter came to this Court, in DMC’s Special Leave Petition

(SLP (Civil) No. 20802/2016), special leave was granted by an order

dated 11

th

January, 2017, subject to DMC depositing a sum equivalent

to 2.5 million US Dollars within three months. If this was not done, leave

would automatically stand revoked. DMC defaulted in depositing the

aforesaid amount, as a result of which leave stood revoked, which is

reflected in our order dated 21

th

August, 2017. As a result, the foreign

Award against DMC is now final and binding.

24. Shri K.V. Vishwanathan, learned Senior Advocate appearing on behalf

of GBT, read Sections 44 and 47 of the Arbitration Act, 1996, and then

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 which would independently establish that such non-signatory

23

can be covered by the foreign award in question. This not being done in

the facts of this case, the threshold burden of proof requirement is not

met, as a result of which the enforcement petition ought to have been

thrown out on this ground alone. The learned Senior Advocate then drew

our attention to Section 48 and in particular sub-section (1) sub-clause

(a). According to him, a non-signatory to an arbitration agreement would

be directly covered by sub-clause (a) as well as sub-clause (c), and if

the Award were to be read, it would be clear that the reasons given are

extremely sketchy and based on ipse dixit and not on facts, rendering

the Award liable to be set aside on these two grounds. He also added

that though Section 48(1)(b) refers to a natural justice ground, the giving

of reasons being part of natural justice ought to be included in this

ground, and as no proper reasons have been given by the learned

Arbitrator, the Award should be set aside on this ground as well. He then

argued that the Award is in any case perverse, and that the two clients

of DMC that were shifted to GBT was vital evidence in the case, and the

non-examination of these two clients would also vitiate the Award. He

cited a number of judgments to buttress these submissions.

24

25. Shri Vishwanathan also argued that damages were awarded without

actual loss having been proved before the learned Arbitrator contrary to

the judgment of the Delhi High Court in Agritrade International (P) Ltd.

v. National Agricultural Coop. Mktg. Federation of India Ltd., 2012

SCC OnLine Del 896, as a result of which the Award stood vitiated on

this ground also.

26. Shri Harish Salve, learned Senior Advocate appearing on behalf of

Arun Dev Upadhyaya, argued that the commission of a tort would be

outside contractual disputes that arise under the Arbitration Agreement

and that since the cause of action really arose in tort, the Award was

vitiated on this ground. He also argued relying heavily upon Dallah Real

Estate and Tourism Co v Ministry of Religious Affairs of the

Government of Pakistan [2010] 3 WLR 1472 [“Dallah”] that a full

review based on oral and/or documentary evidence ought to have been

undertaken which was not done on the facts of this case, the Division

Bench merely echoing the Arbitrator’s findings. He then made a

distinction between Section 46 and Section 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

25

may claim under the parties. He also argued that insofar as his client

was concerned, there was no evidence to show his involvement in any

manner and that the findings against his client are unreasoned and

perfunctory, and on this ground also the Award stands vitiated.

27. Shri Arif Bookwala, learned Senior Advocate appearing on behalf of

ISS, supported the Division Bench judgment and took us through the

facts pointing out how, as was correctly held by the learned Arbitrator,

the address of Shri Arun Dev Upadhyaya, DMC and GBT were all at the

very same place in Nagpur. He took us painstakingly through the Award

to show that the learned Arbitrator not only applied his mind to the oral

and documentary evidence in this case which consisted of Ms. Parker

deposing on behalf of ISS, and Shri Pathak and Shri Arun Upadhyaya

deposing on behalf of DMC, and then argued that elaborate reasons

need not be given in an arbitral award so long as the award happens to

be reasoned. He then countered the submissions of Shri Vishwanathan

and Shri Salve by arguing that their clients had conceded before the

learned Single Judge that only questions of law arose as a result of

which no evidence need be led – which was contrary to the submissions

made by Shri Vishwanathan and Shri Salve before us. He then argued

26

that none of the grounds under Section 48 had been made out as neither

Section 48(1)(a) nor Section 48(1)(c) would even remotely deal with

non-signatories to an arbitration agreement and that, as no objection

qua enforcement of the Award being contrary to public policy being

argued by either appellant in the courts below, the appeals should be

dismissed. He also referred to various judgments to buttress his

submissions.

28. Having heard the learned counsel for all the parties, it is important to

first set out the relevant statutory provisions as under :

44. Definition.— In this Chapter, unless the context

otherwise requires, “foreign award” means an arbitral award

on differences between persons arising out of legal

relationships, whether contractual or not, considered as

commercial under the law in force in India, made on or after

the 11th day of October, 1960 —

(a) in pursuance of an agreement in writing for arbitration

to which the Convention set forth in the First Schedule

applies, and

(b) in one of such territories as the Central Government,

being satisfied that reciprocal provisions have been made

may, by notification in the Official Gazette, declare to be

territories to which the said Convention applies.

xxx xxx xxx

46. When foreign award binding.— Any foreign award

which would be enforceable under this Chapter shall be

treated as binding for all purposes on the persons as between

27

whom it was made, and may accordingly be relied on by any

of those persons by way of defence, set off or otherwise in

any legal proceedings in India and any references in this

Chapter to enforcing a foreign award shall be construed as

including references to relying on an award.

47. Evidence.—

(1) The party applying for the enforcement of a foreign award

shall, at the time of the application, produce before the

court—

(a) the original award or a copy thereof, duly

authenticated in the manner required by the law of the

country in which it was made;

(b) the original agreement for arbitration or a duly certified

copy thereof; and

(c) such evidence as may be necessary to prove that the

award is a foreign award.

xxx xxx xxx

48. Conditions for enforcement of foreign awards.—

(1) Enforcement of a foreign award may be refused, at the

request of the party against whom it is invoked, only if that

party furnishes to the court proof that—

(a) the parties to the agreement referred to in section 44

were, under the law applicable to them, under some

incapacity, or the said agreement is not valid under the

law to which the parties have subjected it or, failing any

indication thereon, under the law of the country where the

award was made; or

(b) the party against whom the award is invoked was not

given proper notice of the appointment of the arbitrator or

of the arbitral proceedings or was otherwise unable to

present his case; or

28

(c) the award deals with a difference not contemplated by

or not falling within the terms of the submission to

arbitration, or it contains decisions on matters beyond the

scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to

arbitration can be separated from those not so submitted,

that part of the award which contains decisions on

matters submitted to arbitration may be enforced;

xxx xxx xxx

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 11

th

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.

29

30. The expression “legal relationships” has been explained in Vidya

Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 as follows:

24. … The expression “legal relationship”, again not defined

in the Arbitration Act, means a relationship which gives rise

to legal obligations and duties and, therefore, confers a right.

…

31. Also, the award may deal with differences arising out of breach of

contract or tort.

32. Likewise, what is considered to be “commercial” under the law of India

is well explained in the UNCITRAL Model Law as follows: -

"The term 'commercial' should be given a wide interpretation

so as to cover matters arising from all relationships of a

commercial nature, whether contractual or not. Relationships

of a commercial nature include, but are not limited to, the

following transactions any trade transaction for the supply or

exchange of goods or services; distribution agreement;

commercial representation or agency; factoring, leasing,

construction of works; consulting, engineering, licensing

investment, financing: banking; insurance; exploitation

agreement or concession, joint venture and other forms of

industrial or business co-operation; carriage of goods or

passengers by air, sea, rail, or road."

33. In R.M. Investment and Trading Co. (P) Ltd. v. Boeing Co., (1994) 4

SCC 541, at page 546, this court held:

12. [in] construing the expression “commercial” in Section 2

of the [Foreign Awards (Recognition & Enforcement) Act,

1961] it has to be borne in mind that the

30

“Act is calculated and designed to subserve the cause of

facilitating international trade and promotion thereof by

providing for speedy settlement of disputes arising in

such trade through arbitration and any expression or

phrase occurring therein should receive, consistent with

its literal and grammatical sense, a liberal construction.”

[See : Renusagar Power Co. Ltd. v. General Electric

Co. [(1984) 4 SCC 679] (SCC at p. 723-24) and Koch

Navigation Inc. v. Hindustan Petroleum Corpn.

Ltd. [(1989) 4 SCC 259, 262 (para 8)]

The expression “commercial” should, therefore, be construed

broadly having regard to the manifold activities which are

integral part of international trade today.

34. We now come to Section 47. As the marginal note indicates, this

Section provides 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.

35. Section 47 is based on Article IV of the New York Convention which is

contained in Schedule I to the Arbitration Act, 1996. Article IV reads as

follows:

31

Article IV

1. To obtain the recognition and enforcement mentioned in

the preceding article, the party applying for recognition and

enforcement shall, at the time of the application, supply:

(a) The duly authenticated original award or a duly

certified copy thereof;

(b) The original agreement referred to in article II or a duly

certified copy thereof.

2. If the said award or agreement is not made in an official

language of the country in which the award is relied upon, the

party applying for recognition and enforcement of the award

shall produce a translation of these documents into such

language. The translation shall be certified by an official or

sworn translator or by a diplomatic or consular agent.

36. In his treatise titled International Commercial Arbitration by Gary B.

Born (Wolters Kluwer, 2nd Edn., 2014) [“Gary Born”], the learned

author while discussing Article IV of the New York Convention has this

to say:

Under the convention, it is clear that national arbitration

legislation is not permitted to impose more demanding

requirements of proof of the existence of a foreign or

nondomestic award than those contained in Article IV; Article

IV prescribes a maximum standard of proof of an award and

Contracting States may not impose stricter or more onerous

requirements of proof.

xxx xxx xxx

Article IV was drafted in order to advance the Convention’s

general pro-enforcement policies. As one national court put

it:

32

“Article IV must be interpreted in accordance with the

spirit of the Convention… The Contracting States wished

to reduce the obligation for the party seeking recognition

and enforcement of a foreign arbitral award as much as

possible.” [Judgment of 15 April 1999, XXVI Y.B. Comm.

Arb. 863, 866 (Geneva Cour de justice) (2001)]

Consistent with this objective, national courts have generally

rejected efforts to complicate the proof requirements under

Article IV, taking a practical and relatively flexible approach

towards proof requirements.

(at pages 3396-3397)

37. 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. Shri

Vishwanathan and Shri Salve’s arguments that to prove that a non-

signatory to an arbitral agreement can only be roped in to the aforesaid

agreement on evidence being adduced before the enforcing court as to

whether the non-signatory is a person who claims under a party or is

otherwise affected by the alter ego doctrine, is disingenuous to say the

least. 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

33

necessary to prove that the award is a foreign award. This Section only

has reference to the six ingredients of a foreign award that have been

outlined hereinabove, which are contained in the definition section,

namely, Section 44. Ingredients 1 to 4 can easily be made out from the

foreign award itself as the award would narrate facts which would show

the legal relationship between the ‘persons’ bound by the award (who

need not necessarily be parties to the arbitration agreement), and as to

whether the award deals with matters that can be considered

commercial under the law in force in India. Equally, the date of the

foreign award would appear on the face of the foreign award itself. Thus,

Section 47(1)(c) would apply to adduce evidence as to whether the

arbitration agreement is a New York Convention agreement. Also, the

requisite Central Government notification can be produced under

Section 47(1)(c), so that Section 44(b) gets satisfied. To argue that the

burden of proof is on the person enforcing the award and that this burden

can only be discharged by such person leading evidence to affirmatively

show that a non-signatory to an arbitration agreement can be bound by

a foreign award is outside Section 47(1)(c). This argument consequently

stands dismissed.

34

38. We now come to Section 48 which deals with enforcement of a foreign

award being refused. It is important to notice 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. Since some arguments were made as

to the expression “proof” contained in Section 48(1), it is necessary to

deal with the same. In Emkay Global Financial Services Ltd. v.

Girdhar Sondhi, (2018) 9 SCC 49, a question arose under the pari

materia provision contained in Section 34 of the Arbitration Act, 1996 as

to what the expression “proof” means therein. After referring to a number

of High Court judgments, and to an amendment that has now been made

to Section 34, in which the expression “furnishes proof that” is now

substituted by “establishes on the basis of the record of the arbitral

tribunal that”, this judgment held that the expression “proof” cannot

possibly mean the taking of oral evidence as it will otherwise defeat the

object of speedy disposal of Section 34 petitions. This was so stated as

follows:

21. It will thus be seen that speedy resolution of arbitral

disputes has been the reason for enacting the 1996 Act, and

continues to be the reason for adding amendments to the

said Act to strengthen the aforesaid object. Quite obviously,

35

if issues are to be framed and oral evidence taken in a

summary proceeding under Section 34, this object will be

defeated. It is also on the cards that if Bill No. 100 of 2018 is

passed, then evidence at the stage of a Section 34

application will be dispensed with altogether. Given the

current state of the law, we are of the view that the two early

Delhi High Court judgments [Sandeep Kumar v. Ashok Hans,

2004 SCC OnLine Del 106 : (2004) 3 Arb LR 306]

,

[Sial

Bioenergie v. SBEC Systems, 2004 SCC OnLine Del 863 :

AIR 2005 Del 95] , cited by us hereinabove, correctly reflect

the position in law as to furnishing proof under Section

34(2)(a). So does the Calcutta High Court judgment [WEB

Techniques & Net Solutions (P) Ltd. v. Gati Ltd., 2012 SCC

OnLine Cal 4271]. We may hasten to add that if the procedure

followed by the Punjab and Haryana High Court judgment

[Punjab SIDC Ltd. v. Sunil K. Kansal, 2012 SCC OnLine P&H

19641] is to be adhered to, the time-limit of one year would

only be observed in most cases in the breach. We therefore

overrule the said decision. We are constrained to observe

that Fiza Developers [Fiza Developers & Inter-Trade (P)

Ltd. v. AMCI (India) (P) Ltd., (2009) 17 SCC] was a step in

the right direction as its ultimate ratio is that issues need not

be struck at the stage of hearing a Section 34 application,

which is a summary procedure. However, this judgment must

now be read in the light of the amendment made in Sections

34(5) and 34(6). So read, we clarify the legal position by

stating that an application for setting aside an arbitral award

will not ordinarily require anything beyond the record that was

before the arbitrator. However, if there are matters not

contained in such record, and are relevant to the

determination of issues arising under Section 34(2)(a), they

may be brought to the notice of the Court by way of affidavits

filed by both parties. Cross-examination of persons swearing

to the affidavits should not be allowed unless absolutely

necessary, as the truth will emerge on a reading of the

affidavits filed by both parties. We, therefore, set aside the

judgment [Girdhar Sondhi v. Emkay Global Financial

Services Ltd., 2017 SCC OnLine Del 12758] of the Delhi High

36

Court and reinstate that of the learned Additional District

Judge dated 22-9-2016. The appeal is accordingly allowed

with no order as to costs.

39. Given that foreign awards in convention countries need to be enforced

as speedily as possible, the same logic would apply to Section 48, as a

result of which the expression “proof” in Section 48 would only mean

“established on the basis of the record of the arbitral tribunal” and such

other matters as are relevant to the grounds contained in Section 48.

40. It is important to remember that the New York Convention, which our

Act has adopted, has a pro-enforcement bias, and unless a party is able

to show that it’s case comes clearly within Sections 48(1) or 48(2), the

foreign award must be enforced. Also, the grounds contained in Sections

48(1)(a) to (e) are not to be construed expansively but narrowly. Thus,

in Ssangyong Engg. & Construction Co. Ltd. v. NHAI, (2019) 15 SCC

131 [“Ssangyong”], it was held: -

45. After referring to the New York Convention, this Court

delineated the scope of enquiry of grounds under Sections

34/48 (equivalent to the grounds under Section 7 of the

Foreign Awards Act, which was considered by the Court), and

held : (Renusagar case [Renusagar Power Co. Ltd. v.

General Electric Co., 1994 Supp (1) SCC 644] , SCC pp. 671-

72 & 681-82, paras 34-37 & 65-66)

“34. Under the Geneva Convention of 1927, in order to

obtain recognition or enforcement of a foreign arbitral

37

award, the requirements of clauses (a) to (e) of Article I

had to be fulfilled and in Article II, it was prescribed that

even if the conditions laid down in Article I were fulfilled

recognition and enforcement of the award would be

refused if the court was satisfied in respect of matters

mentioned in clauses (a), (b) and (c). The principles which

apply to recognition and enforcement of foreign awards

are in substance, similar to those adopted by the English

courts at common law. (See Dicey & Morris, The Conflict

of Laws, 11th Edn., Vol. I, p. 578.) It was, however, felt

that the Geneva Convention suffered from certain defects

which hampered the speedy settlement of disputes

through arbitration. The New York Convention seeks to

remedy the said defects by providing for a much more

simple and effective method of obtaining recognition and

enforcement of foreign awards. Under the New York

Convention the party against whom the award is sought

to be enforced can object to recognition and enforcement

of the foreign award on grounds set out in sub-clauses (a)

to (e) of Clause (1) of Article V and the court can, on its

own motion, refuse recognition and enforcement of a

foreign award for two additional reasons set out in sub-

clauses (a) and (b) of Clause (2) of Article V. None of the

grounds set out in sub-clauses (a) to (e) of Clause (1) and

sub-clauses (a) and (b) of Clause (2) of Article V

postulates a challenge to the award on merits.

35. Albert Jan van den Berg in his treatise The New York

Arbitration Convention of 1958: Towards a Uniform

Judicial Interpretation, has expressed the view:

‘It is a generally accepted interpretation of the

Convention that the court before which the

enforcement of the foreign award is sought may not

review the merits of the award. The main reason is

that the exhaustive list of grounds for refusal of

enforcement enumerated in Article V does not

include a mistake in fact or law by the arbitrator.

38

Furthermore, under the Convention the task of the

enforcement judge is a limited one. The control

exercised by him is limited to verifying whether an

objection of a respondent on the basis of the

grounds for refusal of Article V(1) is justified and

whether the enforcement of the award would violate

the public policy of the law of his country. This

limitation must be seen in the light of the principle

of international commercial arbitration that a

national court should not interfere with the

substance of the arbitration.’ (p. 269)

36. Similarly Alan Redfern and Martin Hunter have said:

‘The New York Convention does not permit any

review on the merits of an award to which the

Convention applies and, in this respect, therefore,

differs from the provisions of some systems of

national law governing the challenge of an award,

where an appeal to the courts on points of law may

be permitted.’ (Redfern & Hunter, Law and Practice

of International Commercial Arbitration, 2nd Edn.,

p. 461.)

37. In our opinion, therefore, in proceedings for

enforcement of a foreign award under the Foreign

Awards Act, 1961, the scope of enquiry before the court

in which award is sought to be enforced is limited to

grounds mentioned in Section 7 of the Act and does not

enable a party to the said proceedings to impeach the

award on merits.

***

65. This would imply that the defence of public policy

which is permissible under Section 7(1)(b)(ii) should be

construed narrowly. In this context, it would also be of

relevance to mention that under Article I(e) of the Geneva

Convention Act of 1927, it is permissible to raise objection

39

to the enforcement of arbitral award on the ground that

the recognition or enforcement of the award is contrary to

the public policy or to the principles of the law of the

country in which it is sought to be relied upon. To the

same effect is the provision in Section 7(1) of the Protocol

& Convention Act of 1837 which requires that the

enforcement of the foreign award must not be contrary to

the public policy or the law of India. Since the expression

“public policy” covers the field not covered by the words

“and the law of India” which follow the said expression,

contravention of law alone will not attract the bar of public

policy and something more than contravention of law is

required.

66. Article V(2)(b) of the New York Convention of 1958

and Section 7(1)(b)(ii) of the Foreign Awards Act do not

postulate refusal of recognition and enforcement of a

foreign award on the ground that it is contrary to the law

of the country of enforcement and the ground of challenge

is confined to the recognition and enforcement being

contrary to the public policy of the country in which the

award is set to be enforced. There is nothing to indicate

that the expression “public policy” in Article V(2)(b) of the

New York Convention and Section 7(1)(b)(ii) of the

Foreign Awards Act is not used in the same sense in

which it was used in Article I(c) of the Geneva Convention

of 1927 and Section 7(1) of the Protocol and Convention

Act of 1937. This would mean that “public policy” in

Section 7(1)(b)(ii) has been used in a narrower sense and

in order to attract the bar of public policy the enforcement

of the award must invoke something more than the

violation of the law of India. Since the Foreign Awards Act

is concerned with recognition and enforcement of foreign

awards which are governed by the principles of private

international law, the expression “public policy” in Section

7(1)(b)(ii) of the Foreign Awards Act must necessarily be

construed in the sense the doctrine of public policy is

applied in the field of private international law. Applying

40

the said criteria it must be held that the enforcement of a

foreign award would be refused on the ground that it is

contrary to public policy if such enforcement would be

contrary to (i) fundamental policy of Indian law; or (ii) the

interests of India; or (iii) justice or morality.”

(emphasis supplied in Ssangyong)

41. Likewise, in Vijay Karia v. Prysmian Cavi E Sistemi SRL, (2020)

11 SCC 1 [“Vijay Karia”], this Court held:

24. Before referring to the wide-ranging arguments on both

sides, it is important to emphasise that, unlike Section 37 of

the Arbitration Act, which is contained in Part I of the said Act,

and which provides an appeal against either setting

aside or refusing to set aside a “domestic” arbitration award,

the legislative policy so far as recognition and enforcement of

foreign awards is that an appeal is provided against a

judgment refusing to recognise and enforce a foreign award

but not the other way around (i.e. an order recognising and

enforcing an award). This is because the policy of the

legislature is that there ought to be only one bite at the cherry

in a case where objections are made to the foreign award on

the extremely narrow grounds contained in Section 48 of the

Act and which have been rejected. This is in consonance with

the fact that India is a signatory to the Convention on the

Recognition and Enforcement of Foreign Arbitral Awards,

1958 (hereinafter referred to as “New York Convention”) and

intends — through this legislation — to ensure that a person

who belongs to a Convention country, and who, in most

cases, has gone through a challenge procedure to the said

award in the country of its origin, must then be able to get

such award recognised and enforced in India as soon as

possible. This is so that such person may enjoy the fruits of

an award which has been challenged and which challenge

has been turned down in the country of its origin, subject to

41

grounds to resist enforcement being made out under Section

48 of the Arbitration Act. ….

xxx xxx xxx

44. Indeed, this approach has commended itself in other

jurisdictions as well. Thus, in Sui Southern Gas Co. Ltd. v.

Habibullah Coastal Power Co. (Pte) Ltd. [Sui Southern Gas

Co. Ltd. v. Habibullah Coastal Power Co. (Pte) Ltd., 2010

SGHC 62] , the Singapore High Court, after setting out the

legislative policy of the Model Law that the “public policy”

exception is to be narrowly viewed and that an arbitral award

that shocks the conscience alone would be set aside, went

on to hold:

“48. It is clear, therefore, that in order for SSGC to have

succeeded on the public policy argument, it had to cross

a very high threshold and demonstrate egregious

circumstances such as corruption, bribery or fraud, which

would violate the most basic notions of morality and

justice. Nothing of the sort had been pleaded or proved

by SSGC, and its ambiguous contention that the award

was “perverse” or “irrational” could not, of itself, amount

to a breach of public policy.”

xxx xxx xxx

50. The US cases show that given the “pro-enforcement bias”

of the New York Convention, which has been adopted in

Section 48 of the Arbitration Act, 1996 — the burden of proof

on parties seeking enforcement has now been placed on

parties objecting to enforcement and not the other way

around; in the guise of public policy of the country involved,

foreign awards cannot be set aside by second guessing the

arbitrator's interpretation of the agreement of the parties; the

challenge procedure in the primary jurisdiction gives more

leeway to courts to interfere with an award than the narrow

restrictive grounds contained in the New York Convention

when a foreign award's enforcement is resisted.

42

42. Given these parameters, let us examine arguments of the appellants

insofar as Section 48(1)(a) is concerned. If read literally, Section

48(1)(a) speaks only of parties to the agreement being under some

incapacity, or the agreement being invalid under the law to which parties

have subjected it. There can be no doubt that a non-party to the

agreement, alleging that it cannot be bound by an award made under

such agreement, is outside the literal construction of Section 48(1)(a).

Also, it must not be forgotten that whereas Section 44 speaks of an

arbitral award on differences between “persons”, Section 48(1)(a) refers

only to the “parties” to the agreement referred to in Section 44(a). Thus,

to include non-parties to the agreement by introducing the word “person”

would run contrary to the express language of Section 48(1)(a), when

read with Section 44. Also, it must not be forgotten that these grounds

cannot be expansively interpreted as has been held above. 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.

43

43. Quite apart from the fact that Section 48(1)(a) was not put forward

either before the learned Single Judge or the Division Bench, let us

examine the judgment in Dallah (supra) which appears to justify the

bringing of a non-signatory to the agreement’s objection to a foreign

award under Section 48(1)(a).

44. In Dallah’s case (supra), a Saudi company applied under the United

Kingdom’s Arbitration Act, 1996 for leave to enforce an award against a

ministry of the Government of Pakistan. There was no doubt on the facts

of that case that the Government was not a party to the arbitration

agreement, which was between Dallah and the Awami Hajj Trust. The

Supreme Court of the United Kingdom found, on a trial conducted before

it, that the agreement containing the arbitration clause fell to be decided

under French law as the law of the country where the award was made,

which required that there be a common intention between the parties to

the agreement that the Government of Pakistan be bound by the

arbitration agreement. It was found, contrary to the Tribunal’s finding,

that the agreement had been deliberately structured to reflect a common

intention that only the parties to the agreement were to be bound, a non-

44

party being an outsider. The Tribunal’s award had held on the facts of

that case as follows: (para 146 of Dallah)

“Certainly, many of the above-mentioned factual elements, if

isolated and taken into a fragmented way, may not be

construed as sufficiently conclusive for the purpose of this

section. However, Dr Mahmassani believes that when all the

relevant factual elements are looked into globally as a whole,

such elements constitute a comprehensive set of evidence

that may be relied upon to conclude that the defendant is a

true party to the agreement with the claimant and therefore a

proper party to the dispute that has arisen with the claimant

under the present arbitration proceedings. Whilst joining in

this conclusion Dr Shah and Lord Mustill note that they do so

with some hesitation, considering that the case lies very close

to the line.”

45. This was referred to as a “weak conclusion” in para 146, and in any

case did not conform to French law as the doctrine of alter ego was

completely different from common intention of parties to the agreement

which was required under French law. As a result, the arbitral award was

set aside under Section 103(2)(b) of the UK Act, which is substantially

similar to Section 48(1)(a) of the Indian Arbitration Act, 1996.

46. The leading judgment of Lord Mance JSC set out the facts and posed

the question before the Court thus: -

2 ...The tribunal in a first partial award dated 26 June 2001

concluded that the Government was a true party to the

agreement and as such bound by the arbitration clause, and

so that the tribunal had jurisdiction to determine Dallah’s

45

claim against the Government. The central issue before the

English courts is whether the Government can establish that,

applying French law principles, there was no such “common

intention” on the part of the Government and Dallah as would

make the Government a party.

47. The learned Judge then noted, in para 11, that the argument made

before the Tribunal was that the Trust was either the alter ego of the

Government of Pakistan or the Government of Pakistan was the

successor to the Trust. Since the ‘alter ego’ argument found favour with

the Tribunal, and since it was not pursued before the Supreme Court,

the conclusion that the award was bad would necessarily follow. In para

31, Lord Mance JSC made it clear that a court seized of an issue under

Section 103(2)(b) will examine, both carefully and with interest, the

reasoning and conclusion of an arbitral tribunal which has undertaken a

similar examination before arriving at its own conclusion on facts.

48. In a separate concurring judgment, Lord Collins of Mapesbury JSC

set out as to why, in His Lordship’s opinion, Article V(1)(a) of the New

York Convention (equivalent to Section 103(2)(b) of the UK Act and

Section 48(4)(a) of the Indian Arbitration Act, 1996) would be attracted

as follows: -

77 Although article V(1)(a) (and section 103(2)(b)) deals

expressly only with the case where the arbitration agreement

46

is not valid, the consistent international practice shows that

there is no doubt that it also covers the case where a party

claims that the agreement is not binding on it because that

party was never a party to the arbitration agreement. Thus in

Dardana Ltd v Yukos Oil Co [2002] 2 Lloyd’s Rep 326 it was

accepted by the Court of Appeal that section 103(2)(b)

applied in a case where the question was whether a Swedish

award was enforceable in England against Yukos on the

basis that, although it was not a signatory, it had by its

conduct rendered itself an additional party to the contract

containing the arbitration agreement. In Sarhank Group v

Oracle Corp (2005) 404 F 3d 657 the issue, on the

enforcement of an Egyptian award, was whether a non-

signatory parent company was bound by an arbitration

agreement on the basis that its subsidiary, which had signed

the agreement, was a mere shell; and in China Minmetals

Materials Import and Export Co Ltd v Chi Mei Corpn (2003)

334 F 3d 274 enforcement of a Chinese award was resisted

on the ground that the agreement was a forgery. See also

Born, International Commercial Arbitration (2009), Vol II, pp

2778–2779.

49. Given the conclusion on Section 48(1)(a) when read with Section 44 of

the Arbitration Act 1996, we cannot follow what is stated to be

“international practice” in trying to fit a non-signatory’s objection to a

foreign award being binding upon it under Section 48(1)(a). We therefore

distinguish Dallah’s case on facts as well as on law – a non-signatory’s

objection cannot possibly fit into Section 48(1)(a) as has been held by

us hereinabove. Without delving deep into this problem, it may perhaps

be open in an appropriate case for a non-signatory to bring its case

47

within Section 48(2) read with Explanation 1(iii), as explained in

Ssangyong (supra) (see paras 70 and 76 in Ssangyong).

50. Shri Vishwanathan relied on a judgment of the Supreme Court of

Victoria, Australia, in the case of IMC Aviation Solutions Pty Ltd. v

Altain Khuder LLC [2011] VSCA 248 to submit that, where a party

resists enforcement of a foreign award on the ground that it is not a

signatory to the arbitration agreement, the enforcing court is duty bound

to examine the question of jurisdiction by itself.

51. In the said case, the Supreme Court of Victoria, after citing Dallah’s

case with approval, held that the foreign award in that case cannot be

enforced against a party who was not a signatory to the arbitration

agreement. This decision was premised on the reasoning that the words

‘the arbitration agreement is not valid’ appearing in Section 8(5)(b) of the

Australian International Arbitration Act, 1974 [“Australian Act”] (which

is equivalent to Section 48(1)(a) of the Indian Arbitration Act, 1996)

includes the ground that the ‘award-debtor was not a party to the

arbitration agreement’.

52. What is important to note is that there is a significant difference in the

Australian Act i.e., Section 8(1) of the Australian Act (which is analogous

48

to Section 46 of the Indian Arbitration Act, 1996) which states that “a

foreign award is binding …. on the parties to the arbitration agreement

in pursuance of which it was made”.

53. The Supreme Court of Victoria, after initially expressing some doubt on

whether ‘not being signatory to the agreement’ can be a ground that can

be canvassed under Section 8(5)(b), held that, since Section 8(1) clearly

does not intend enforcement of foreign awards against non-signatories,

such a plea can be brought within the ambit of Section 8(5)(b). The

relevant paras are as follows:

135 In our opinion, at stage one, the award creditor must

satisfy the Court, on a prima facie basis, of the following

matters before the Court may make an order enforcing the

award:

(a) an award has been made by a foreign arbitral tribunal

granting relief to the award creditor against the award debtor;

(b) the award was made pursuant to an arbitration

agreement; and

(c) the award creditor and the award debtor are parties to the

arbitration agreement.

xxx xxx xxx

156 Thirdly, s 8(1) appears prominently in the scheme of s 8.

This is not surprising, as it defines the subject matter of Part

II of the Act, namely, that by virtue of the Act, a foreign arbitral

award is binding on ‘the parties to the arbitration agreement

in pursuance of which it was made’. In thus identifying that

49

which is binding, s 8(1) limits the Court’s jurisdiction pursuant

to s 8(2) to enforcing a foreign arbitral award against a party

to the arbitration agreement in pursuance of which it was

made.

159 Logically, the expression ‘the arbitration agreement is not

valid’ in s 8(5)(b) may be inapt to accommodate the ground

that a person is not a party to the arbitration agreement. This

is because a person that seeks to establish that he or she is

not a party to an agreement may have no legal or factual

basis for impugning the validity of the agreement. The

agreement may be valid as between the parties to it, and

simply not apply to any person that is not a party to it. A

person who establishes that he or she is not a party to an

arbitration agreement does not thereby establish that the

arbitration agreement is not valid.

160 Sixthly, a reading of s 8(5) as a whole indicates that the

provision assumes that the question of whether the person

resisting the enforcement of the award was a party to the

arbitration agreement in pursuance of which the award was

made has already been resolved against that person. This is

evident from s 8(5)(a), which refers to ‘a party to the

arbitration agreement’, and s 8(5)(f), which refers to ‘the

parties to the arbitration agreement’. If these provisions are

read literally, the grounds covered by them are only available

to parties to the arbitration agreement. It is not clear why

these provisions should be so confined if it is the intention of

the Act to permit a person that alleges that he or she is not a

party to an arbitration agreement to resist enforcement of the

award under s 8(5).

xxx xxx xxx

165 It cannot be said that the ground that the award debtor

was not a party to the arbitration agreement in pursuance of

which the award was made is more significant than, for

example, the ground that the arbitration agreement pursuant

to which the award was made was not valid. There is no

50

reason to think that an award debtor has greater justification

to be aggrieved because it maintains that it was not a party

to the arbitration agreement than an award debtor that

maintains that the arbitration agreement was invalid because

it was forged or obtained by fraud. If the forgery or fraud are

not apparent on the face of the arbitration agreement, and an

ex parte order is made to enforce the award, the award debtor

would have the onus under s 8(5)(b) to persuade the Court

that the arbitration agreement was a forgery or was obtained

by fraud. There is no justification for adopting a different

approach where, on the face of the arbitration agreement, the

award debtor was a party to that agreement.

166 Fourthly, the ordinary and natural meaning of the

expression ‘the arbitration agreement is not valid’ is that the

arbitration agreement is of no legal effect under the relevant

law. A person who asserts that he or she is not a party to an

arbitration agreement is, in substance, asserting that the

arbitration agreement is of no legal effect as against him or

her. Accordingly, s 8(5)(b) may be taken to include the ground

that the award debtor was not a party to the arbitration

agreement in pursuance of which the award was made.

xxx xxx xxx

171 In relation to the question of whether s 8(5)(b) extends to

the ground that the award debtor was not a party to the

arbitration agreement, we respectfully agree with the

approach that has been adopted in the United Kingdom.

172 In Dallah, Lord Collins JSC said that, notwithstanding

that para 1(a) of art V of the Convention – which is reflected

in s 8(5)(b) of the Act – deals expressly only with the case

where the arbitration agreement is not valid, ‘the consistent

international practice shows that there is no doubt that it also

covers the case where a party claims that the agreement is

not binding on it because that party was never a party to the

arbitration agreement.’ In support of this proposition, Lord

Collins JSC referred to Dardana Ltd v Yukos Oil Co. In that

51

case, Mance LJ said that ‘[i]t is clear, and was effectively

common ground before us, that [the UK equivalent of s

8(5)(b) of the Act] is one vehicle enabling the present

appellants to challenge the recognition and enforcement of

the Swedish award, by maintaining that they never became

party to the [arbitration agreement]’

xxx xxx xxx

272 It will be recalled from [166] and [171] to [172] above that

the words ‘the arbitration agreement is not valid’ in s 8(5)(b)

of the Act include the ground that the award debtor was not a

party to the arbitration agreement.

(emphasis supplied)

54. This case in inapplicable when construing Section 48(1)(a) of the

Arbitration Act, 1996 for the same reason as Dallah is inapplicable.

55. As a matter of fact, the Singapore High Court in Aloe Vera of America,

Inc v Asianic Food (S) Pte Ltd & Anr., [2006] SGHC 78, has arrived

at a conclusion, on facts similar to ours, that the equivalent of Section

48(1)(a) in the Singapore Act would not be attracted.

56. In the facts of this case, Aloe Vera of America, Inc. [“AVA”], a company

incorporated and existing under the laws of Texas, USA, was a

manufacturer and distributor of aloe vera products. One Mr. Chiew was

employed by AVA to be an independent distributor of the aforesaid

products. When AVA decided to close its Singapore office, Mr. Chiew

persuaded AVA to let him take over AVA’s Singapore operations. He

52

established Asianic Food (S) Pte Ltd. [“Asianic”] for this purpose, as a

result of which, an Exclusive Supply, Distributorship and License

Agreement was entered into between AVA and Asianic. Mr. Chiew

signed the agreement on behalf of Asianic. This agreement was

subsequently terminated, with AVA commencing arbitral proceedings

against both Asianic and Mr. Chiew. Mr. Chiew took the position that,

not being a party to the agreement, he had not agreed to arbitration or

to the laws of Arizona applying to him personally. However, the learned

Arbitrator, in his award, ordered both Asianic and Mr. Chiew to pay AVA

damages, compensation, administrative fees and expenses. In this fact

situation, when Section 31(2)(b) of Singapore’s International Arbitration

Act [the “Singapore Act”] (equivalent of Section 48(1)(a) of the Indian

Arbitration Act, 1996) was pressed in support of Mr. Chiew’s objection

to the foreign award, the Singapore High Court held: -

61. First of all, it should be remembered that under s 31(2) of

the Act, it is the party who wishes the court to refuse

enforcement of the award who has the burden of establishing

that one of the grounds for refusal exists. Sub-section (2)(b)

calls on the challenger to establish that the arbitration

agreement in question is not valid under the law to which the

parties have subjected it. In this case, the arbitration

agreement was subject to the law of Arizona and therefore

Mr Chiew bore the burden of establishing that it was not valid

under the law of Arizona and that under the law of Arizona

53

the clauses of the Agreement could not have any application

to him. It would not be correct in this situation for me to

construe cl 13.7 or any other clause of the Agreement in the

same way as I would be able to if it were subject to Singapore

law in order to establish whether there was a valid arbitration

agreement binding Mr Chiew.

62. The same argument was brought before the assistant

registrar who correctly held that the issue as to whether there

was a valid arbitration agreement had to be determined on

the basis of foreign law. He also recognised that Mr Chiew

had the burden to adduce evidence to establish his

contention. The assistant registrar found that Mr Chiew had

failed to adduce such evidence. On the contrary, the

evidence showed that Mr Chiew had signed the Agreement

and was also active in running Asianic. The assistant registrar

found support from the reasoning of the US District Court

decision in the Sarhank case [Sarhank Group v Oracle

Corporation reported in Yearbook Comm Arbʼn XXVIII (2003)

p 1043)]. Batts J who decided it at first instance stated:

[T]he court has been asked to enforce an international

arbitral award in which arbitrability has already been

established under the laws of Egypt. …

…

[T]he Convention … does not sanction second-guessing

the arbitratorʼs construction of the partiesʼ agreement. …

It is well-settled that absent “extraordinary

circumstances”, a confirming court is not to reconsider

the arbitratorsʼ findings. …

…

[The arbitratorsʼ] conclusion of partnership under the

contract is one of “construction of the partiesʼ agreement”

and will not be reviewed by the Court, absent

extraordinary circumstances. In the instant case, no such

extraordinary circumstances exist.

54

Whilst the decision of Batts J may have been reversed by the

Court of Appeals [404 F 3d 657 (2nd Cir, 2005)], I respectfully

agree with his observations which are in line with the general

approach taken by an enforcement court to the decision of

the arbitral tribunal in question. They are also consonant with

the views of the court in the Hebei case which underline that

the approach towards the decisions of foreign arbitral

tribunals in Convention countries is to recognise the validity

of the same and give effect to them subject to basic notions

of morality and justice. The Court of Appeals in the Sarhank

case took a different view, one that I hope will not be generally

endorsed.

57. In the facts of the present case, what this Court is being asked to do, in

the guise of applying Section 48(1)(a), is really to undertake a review on

the merits. As has been pointed out by us hereinabove, the application

of the alter ego doctrine under Delaware law would depend primarily

upon the Arbitrator applying the oral and documentary evidence led

before him to arrive at this conclusion on facts. This he has done by not

only adverting to the documentary evidence, but also adverting to the

oral evidence of Ms. Parker of ISS, Mr. Pathak, MD of DMC and Arun

Dev Upadhyaya, Chairman of DMC. Given the fact that the foreign

award gives reasons on facts in this case to apply the alter ego doctrine,

it would not be possible for us to re-appreciate these facts especially

when the burden lies on the appellants to establish the grounds made

out in Section 48(1), none of which go to the merits of the case.

55

58. Shri Vishwanathan also argued that the award is perverse in that vital

evidence was not led in support of the claimant’s case before the

arbitrator. 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. This Court in

Ssangyong (supra) held as follows:

41. What is important to note is that a decision which is

perverse, as understood in paras 31 and 32 of Associate

Builders v. DDA, (2015) 3 SCC 49, while no longer being a

ground for challenge under “public policy of India”, would

certainly amount to a patent illegality appearing on the face

of the award. Thus, 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. Additionally, a finding based on

documents taken behind the back of the parties by the

arbitrator would also qualify as a decision based on no

evidence inasmuch as such decision is not based on

evidence led by the parties, and therefore, would also have

to be characterised as perverse.

42. Given the fact that the amended Act will now apply, and

that the “patent illegality” ground for setting aside arbitral

awards in international commercial arbitrations will not apply,

it is necessary to advert to the grounds contained in Sections

34(2)(a)(iii) and (iv) as applicable to the facts of the present

case.

(emphasis supplied)

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

56

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.

60. The appellants then pressed Section 48(1)(c) into operation. As can be

seen, Section 48(1)(c) relates to an award which deals with a difference

not contemplated by or not falling within the terms of the submission to

arbitration, or it contains decisions on matters beyond the scope of the

submissions to arbitration. Given the fact that the expression

‘submission to arbitration’ would refer primarily to the arbitration

agreement (see Olympus Superstructures (P) Ltd. v. Meena Vijay

Khetan, (1999) 5 SCC 651 at para 19), sub-clause (c) only deals with

disputes that could be said to be outside the scope of the arbitration

57

agreement between the parties – and not to whether a person who is

not a party to the agreement can be bound by the same. In fact, the

proviso to Section 48(1)(c) makes this even clearer, in that it states that

an award may be partially enforced, provided that matters which are

outside the submission to arbitration can be segregated, thereby again

showing that the thrust of the provision is whether the dispute between

parties are qua excepted matters for example, or are otherwise outside

the scope of the arbitration agreement. In Ssangyong (supra), this

Court narrowed the scope of the challenge contained in Section

34(2)(a)(iv), which is pari materia with Section 48(1)(c) as follows:

58. So far as this defence is concerned, standard textbooks

on the subject have held that the expression “submission to

arbitration” either refers to the arbitration agreement itself, or

to disputes submitted to arbitration, and that so long as

disputes raised are within the ken of the arbitration

agreement or the disputes submitted to arbitration, they

cannot be said to be disputes which are either not

contemplated by or which fall outside the arbitration

agreement. The expression “submission to arbitration” occurs

in various provisions of the 1996 Act. Thus, under Section

28(1)(a), an Arbitral Tribunal “… shall decide the dispute

submitted to arbitration …”. Section 43(3) of the 1996 Act

refers to “… an arbitration agreement to submit future

disputes to arbitration …”. Also, it has been stated that where

matters, though not strictly in issue, are connected with

matters in issue, they would not readily be held to be matters

that could be considered to be outside or beyond the scope

of submission to arbitration. ….

58

xxx xxx xxx

67. In State of Goa v. Praveen Enterprises, (2012) 12 SCC

581 (Praveen Enterprises), this Court set out what is meant

by “reference to arbitration” as follows : (SCC pp. 587-88,

paras 10-11)

“10. “Reference to arbitration” describes various acts.

Reference to arbitration can be by parties themselves or

by an appointing authority named in the arbitration

agreement or by a court on an application by a party to

the arbitration agreement. We may elaborate:

(a) If an arbitration agreement provides that all

disputes between the parties relating to the contract

(some agreements may refer to some exceptions)

shall be referred to arbitration and that the decision

of the arbitrator shall be final and binding, the

“reference” contemplated is the act of parties to the

arbitration agreement, referring their disputes to an

agreed arbitrator to settle the disputes.

(b) If an arbitration agreement provides that in the

event of any dispute between the parties, an

authority named therein shall nominate the

arbitrator and refer the disputes which required to

be settled by arbitration, the “reference”

contemplated is an act of the appointing authority

referring the disputes to the arbitrator appointed by

him.

(c) Where the parties fail to concur in the

appointment of the arbitrator(s) as required by the

arbitration agreement, or the authority named in the

arbitration agreement failing to nominate the

arbitrator and refer the disputes raised to arbitration

as required by the arbitration agreement, on an

application by an aggrieved party, the court can

appoint the arbitrator and on such appointment, the

59

disputes between the parties stand referred to such

arbitrator in terms of the arbitration agreement.

11. Reference to arbitration can be in respect of all

disputes between the parties or all disputes regarding a

contract or in respect of specific enumerated disputes.

Where “all disputes” are referred, the arbitrator has the

jurisdiction to decide all disputes raised in the pleadings

(both claims and counterclaims) subject to any limitations

placed by the arbitration agreement. Where the

arbitration agreement provides that all disputes shall be

settled by arbitration but excludes certain matters from

arbitration, then, the arbitrator will exclude the excepted

matter and decide only those disputes which are

arbitrable. But where the reference to the arbitrator is to

decide specific disputes enumerated by the

parties/court/appointing authority, the arbitrator's

jurisdiction is circumscribed by the specific reference and

the arbitrator can decide only those specific disputes.”

68. A conspectus of the above authorities would show that

where an Arbitral Tribunal has rendered an award which

decides matters either beyond the scope of the arbitration

agreement or beyond the disputes referred to the Arbitral

Tribunal, as understood in Praveen Enterprises, the arbitral

award could be said to have dealt with decisions on matters

beyond the scope of submission to arbitration.

69. We therefore hold, following the aforesaid authorities, that

in the guise of misinterpretation of the contract, and

consequent “errors of jurisdiction”, it is not possible to state

that the arbitral award would be beyond the scope of

submission to arbitration if otherwise the aforesaid

misinterpretation (which would include going beyond the

terms of the contract), could be said to have been fairly

comprehended as “disputes” within the arbitration

agreement, or which were referred to the decision of the

arbitrators as understood by the authorities above. If an

arbitrator is alleged to have wandered outside the contract

60

and dealt with matters not allotted to him, this would be a

jurisdictional error which could be corrected on the ground of

“patent illegality”, which, as we have seen, would not apply to

international commercial arbitrations that are decided under

Part II of the 1996 Act. To bring in by the backdoor grounds

relatable to Section 28(3) of the 1996 Act to be matters

beyond the scope of submission to arbitration under Section

34(2)(a)(iv) would not be permissible as this ground must be

construed narrowly and so construed, must refer only to

matters which are beyond the arbitration agreement or

beyond the reference to the Arbitral Tribunal.

61. In the Aloe Vera of America case (supra), the Singapore High Court

adverted to Section 31(2)(d) of the Singapore Act (which is the

equivalent to Section 48(1)(c) of the Indian Arbitration Act, 1996), and

then held:

64. Under s 31(2)(d), enforcement of the Award may be

refused if it “deals with a difference not contemplated by, or

not falling within the terms of, the submission to arbitration or

contains a decision on the matter beyond the scope of the

submission to arbitration”.

65. Mr Loh submitted that the Award should not be enforced

in Singapore because it contains a decision on matters that

are beyond the scope of the submission to arbitration – the

arbitration agreement was between AVA and Asianic and the

submission to arbitration was restricted to those parties only.

Joining Mr Chiew and entering an award against him went

beyond the scope of the submission to arbitration. Javor v

Francoeur [2003] BCJ No 480 was cited in support.

Additionally, Mr Loh said certain academics (though he

referred me to only one article, that by Prof Wedam-Lukic,

“The Jurisdictional Problems of Arbitration” (1994) 1 Croatian

Arbitration Yearbook 51) were also of the view that an award

61

seeking to bind non-parties to an arbitration agreement was

a ground for refusal of enforcement under Art V(1)(c) of the

Convention (the equivalent of s 31(2)(d) of the Act).

66. On behalf of AVA, Mr Dhillon submitted that s 31(2)(d)

dealt with the grounds of excess of power or authority of the

arbitrator. He cited para 20.145 of Halsburyʼs Laws of

Singapore vol 2 (LexisNexis, 2003 Reissue) where the author

stated that this ground of challenge assumed that the tribunal

had jurisdiction over the parties and that the excess of

jurisdiction should be looked at in relation to the scope of the

arbitration agreement and not be restricted to the pleadings

filed in the arbitration. The author added that when the court

examined such a challenge, it should be cautious that in

doing so it did not go into the merits in the case raised before

the arbitrator, including any issue of law.

67. Mr Dhillon further submitted that s 31(2)(d) did not overlap

with s 31(2)(b) which was the proper section to invoke when

a challenge was being made on the basis that a person was

not a party to the arbitration agreement. He pointed out that

in Peter Cremer GmbH & Co v Co -operative Molasses

Traders Ltd [1985] ILRM 564, the appellant had argued that

there was no binding contract between the parties and that

therefore there could not be a binding agreement to submit

disputes to arbitration. Dealing with this argument in the Irish

Supreme Court, Finlay CJ held at 573 that:

I am not satisfied that this issue can properly be made the

subject matter of a defence pursuant to either s.9(2)(d) or

s.9(2)(f) of the Act of 1980. S.9(2)(d) clearly, in my view,

refers to a situation where there is an undoubted

submission to arbitration … If, as is contended by the

appellants in this case, there was no binding agreement

containing an arbitration clause then, by definition, there

could be no submission to arbitration and in the absence

of a submission to arbitration there could be no issue as

to whether an award dealt with differences not

62

contemplated or falling within the terms of a submission

or went beyond the scope of the submission.

In Peter Cremer, no challenge was mounted on the basis of

the Irish equivalent of s 31(2)(b) but it is quite clear that the

court did not consider that a challenge, premised on the

argument that a person was not a party to an agreement,

could be made under s 31(2)(b).

68. In any event, Mr Dhillon submitted that in order to

determine whether the award dealt with matters that were

beyond the scope of the submission to arbitration, the law to

be applied would have to be the governing law of the

arbitration agreement since that law would control the way in

which the arbitration agreement was construed. Accordingly,

where a Convention award is to be enforced, the foreign law

of the award would be applicable. In this case, Mr Chiew had

brought no evidence based on Arizona law to prove that the

Award contained a decision on a matter beyond the scope of

the submission to arbitration. As for Javor v Francoeur, this

case was distinguishable on its facts as the arbitrator there

had held that the respondent was liable without finding him to

be a party to the arbitration agreement.

69. Having considered Mr Dhillonʼs arguments, I accept them.

I agree with the assistant registrar that this ground of

challenge relates to the scope of the arbitration agreement

rather than to whether a particular person was a party to that

agreement. Mr Chiew has not established that this ground

avails him in this instance.

62. We think this judgment states the law correctly.

63. Shri Vishwanathan then pressed the ground that since the Arbitrator’s

Award in the present case contained reasoning which was perfunctory

in nature, it would not pass muster and it would be a breach of natural

63

justice, ‘reasons’ being a part of natural justice as understood in this

country. For this, he referred to Section 48(1)(b) of the Arbitration Act,

1996. Section 48(1)(b) does not speak of absence of reasons in an

arbitral award at all. The only grounds on which a foreign award cannot

be enforced under Section 48(1)(b) are natural justice grounds relatable

to notice of appointment of the arbitrator or of the arbitral proceedings,

or that a party was otherwise unable to present its case before the

arbitral tribunal, all of which are events anterior to the making of the

award. Section 48(1)(b) has in any case been narrowly construed in the

case of Vijay Karia (supra) as follows:

81. Given the fact that the object of Section 48 is to enforce

foreign awards subject to certain well-defined narrow

exceptions, the expression “was otherwise unable to present

his case” occurring in Section 48(1)(b) cannot be given an

expansive meaning and would have to be read in the context

and colour of the words preceding the said phrase. In short,

this expression would be a facet of natural justice, which

would be breached only if a fair hearing was not given by the

arbitrator to the parties. Read along with the first part of

Section 48(1)(b), it is clear that this expression would apply

at the hearing stage and not after the award has been

delivered, as has been held in Ssangyong. A good working

test for determining whether a party has been unable to

present his case is to see whether factors outside the party's

control have combined to deny the party a fair hearing. Thus,

where no opportunity was given to deal with an argument

which goes to the root of the case or findings based on

evidence which go behind the back of the party and which

64

results in a denial of justice to the prejudice of the party; or

additional or new evidence is taken which forms the basis of

the award on which a party has been given no opportunity of

rebuttal, would, on the facts of a given case, render a foreign

award unenforceable on the ground that a party has been

unable to present his case. This must, of course, be with the

caveat that such breach be clearly made out on the facts of a

given case, and that awards must always be read

supportively with an inclination to uphold rather than destroy,

given the minimal interference possible with foreign awards

under Section 48.

64. This judgment also expressly referred to arbitral awards which may be

poorly reasoned as follows: -

24. …. Also, it would only be in a very exceptional case of a

blatant disregard of Section 48 of the Arbitration Act that the

Supreme Court would interfere with a judgment which

recognises and enforces a foreign award however inelegantly

drafted the judgment may be. …

83. Having said this, however, if a foreign award fails to

determine a material issue which goes to the root of the

matter or fails to decide a claim or counterclaim in its entirety,

the award may shock the conscience of the Court and may

not be enforced, as was done by the Delhi High Court in

Campos Bros. Farms v. Matru Bhumi Supply Chain (P) Ltd.,

2019 SCC OnLine Del 8350 : (2019) 261 DLT 201 on the

ground of violation of the public policy of India, in that it would

then offend a most basic notion of justice in this country. It

must always be remembered that poor reasoning, by which a

material issue or claim is rejected, can never fall in this class

of cases. ….

65. This argument also stands rejected.

65

66. Shri Salve argued that since damages were given in tort in the present

case, they would be outside the scope of the arbitration agreement. The

arbitration agreement in this case reads as follows: -

(ii) In the event a dispute arises in connection with this

Agreement such dispute shall be referred to a single

arbitrator in Kansas City, Missouri, U.S.A. to be appointed by

agreement between the parties hereto, or failing agreement

to be appointed according to the rules of the American

Arbitration, Association the same rules under which any

dispute which any dispute shall be decided.

(emphasis supplied)

67. As has been noticed by us earlier in this judgment, Section 44

recognises the fact that tort claims may be decided by an arbitrator

provided they are disputes that arise in connection with the

agreement. Thus in Renusagar Power Co. Ltd. v. General Electric

Co., (1984) 4 SCC 679, this court held: -

39. As regards the third claim of compensatory damages it is

true that Renusagar is being saddled with this liability as

tortfeasor, a stake-holder and/or a constructive trustee, but,

in our view, that aspect by itself will not justify a conclusion

that the same is not covered by the arbitration clause

because the question is not whether the claim lies in tort but

the question is whether even though it has lain in tort it “arises

out of” or is “related to” the contract, that is to say, whether it

arises out of the terms of the contract or is consequential

upon any breach thereof. As explained earlier, this claim is

based on and is consequential upon and by way of corollary

to the non-payment of the two detained amounts by

66

Renusagar to G.E.C. in breach of the terms of the contract.

In other words, it is clear that before adjudicating upon this

claim the adjudicating authority will have first necessarily to

adjudicate upon first two claims preferred by G.E.C. and only

if it is found that G.E.C. is entitled to receive the first two

amounts which ought to have been paid by Renusagar under

the terms of the contract but which Renusagar had failed to

pay that this third claim could, if at all, be allowed to G.E.C.

In the real sense, therefore, this claim is directly, closely and

inextricably connected with the terms and conditions of the

contract, the payments to be made thereunder and the

breaches thereof and as such will have to be regarded as a

claim “arising out of” or “related to” the contract. As we shall

point out presently this Court in one of its decisions has laid

down the test for determining the question in such cases and

the test is whether recourse to the contract, by which both the

parties are bound, would be necessary for the purpose of

determining whether the claim in question was justified or

otherwise and this test, as indicated above, is clearly satisfied

with regard to the third claim in the instant case.

40. We may, at this stage, refer to a passage in Russell on

Arbitration and a few decided cases which fortify our

aforesaid conclusion. In Russell on Arbitration (Twentieth

Edn.) the following statement of law occurs at p. 90:

“Claims in tort may be so intimately connected with a

contract that a clause of appropriate width designed

primarily to make contractual disputes arbitrable will

nevertheless render such claims in tort arbitrable as well.”

41. In Woolf v. Collis Removal Service [(1947) 2 All ER 260

: (1948) 1 KB 11 : 177 LT 405 (CA)] the defendants had

contracted to remove plaintiff's furniture and effects from

London to their store in Marlow and there safely to keep and

take care of them, but, according to the plaintiff, the

defendants had, in breach of the contract, removed the goods

to a different destination where some were lost and others

damaged. Alternatively the plaintiff claimed that the goods

67

were lost and damaged owing to the negligence of the

defendants in using an unsuitable place in which to store

them and guarding them inefficiently. The clause providing

for arbitration ran: “If the customer makes any claims upon or

counter-claim to any claim made by the contractors” the same

shall be referred to the decision of the two arbitrators. The

question was whether the claim for damages was covered by

this clause. The Court of Appeal held that even if the claim in

negligence was a claim in tort and not under the contract yet

there was a sufficient close connection between that claim

and the transaction to bring the claim within the arbitration

clause. This authority clearly shows that even though a claim

may not directly arise under the contract which contains an

arbitration clause, if there was sufficient close connection

between that claim and the transaction under the contract it

will be covered by the arbitration clause.

42. In Astro Vencedor Compania Naviera SA of Panama

v. Mabanaft GmbH [(1971) 2 All ER 1301 (QBD & CA)] the

arbitration clause contained in a contract of charter-party ran:

“any dispute arising during the execution of this charter-party”

shall be settled by two arbitrators, one to be appointed by the

owners and the other by the charterers. The relevant

charterers ordered the vessel to a Dutch port not named in

the bill of lading whereby satisfactory bills of lading were not

available in time and disputes arose as to unloading. By

action of the relevant charterers the vessel was arrested and

released on a bank guarantee. Later, under a charter quite

unconnected with the relevant charterers the vessel

happened to be again in a Dutch port and was arrested again

as a result of disputes as to the satisfactory nature of the

original bank guarantee. The owners arbitrated a claim for

damages in respect of each of the two arrests of the vessel.

The charterers argued that these were claims in tort and

outside the arbitrator's jurisdiction. The Court held that

arbitrator had jurisdiction (1) over the first arrest as it was

closely connected with the dispute under the contract, and

was indeed a direct consequence of a claim for damages

68

under the contract, and (2) over the second arrest as it was

part and parcel of the original arrest.

xxx xxx xxx

44. In Alliance Jute Mills Co. Ltd. v. Lalchand

Dharamchand [AIR 1978 Cal 19] disputes between the

parties to a commercial contract were arbitrable under the

bye-laws of the East India Jute & Hessian Exchange

Association and the relevant bye-law ran thus: “All matters,

questions, disputes, difference and/or claims arising out of

and/or concerning and/or in connection with and/or in

consequence of or relating to this contract shall be referred

to arbitration....” Under the commercial contract Respondent

1 had sold, through a broker, certain quantities of fibre to the

appellant Mill and after effecting delivery of the goods

Respondent 1 had submitted bills to the appellant Mill again

through the broker; the appellant Mill, however, claimed

reduction in price on account of shortage in weight and

submitted claims in that respect. Since the price was not paid,

Respondent 1 referred the claim to the arbitration of Bengal

Chamber of Commerce and Industry. The appellant Mill

informed the Chamber of Commerce and Industry that it had

filed a suit upon the whole of the subject-matter of the

reference and served a notice under Section 35 of the

Arbitration Act. In the suit so filed against Respondent 1 and

the broker apart from the declaration sought that the broker

had no claims against the appellant Mill in respect of the

contract or in respect of the bills submitted by the broker for

the price of goods sold and delivered the appellant Mill had

also claimed a decree for Rs 50,000 as damages for the

alleged libel published by Respondent 1 and the broker. In an

application for stay of the suit under Section 34 of the

Arbitration Act, 1940, one of the questions raised was

whether the arbitration clause was wide enough to include the

claim for damages for the alleged libel. The High Court held

that the claim in damages for defamation arose “out of” and

“in connection with” the non-payment of the bills of

69

Respondent 1 and in going into the question of tort the Court

would necessarily have to go into the terms and conditions of

the contract relating to payment and that the claim in tort was

directly and inextricably connected with the terms and

conditions of the contract and as such came within the scope

of the arbitration clause which was wide enough to cover the

same. In this view of the matter Court stayed the suit under

Section 34 of the Arbitration Act.

xxx xxx xxx

46. As stated earlier since this third claim for compensatory

damages is directly, closely and inextricably connected with

the terms and conditions of the contract, the payments to be

made thereunder and the breaches thereof and since for

adjudication thereof recourse to the contract would be

necessary it will have to be held that it is a claim “arising out

of” and in any event “related to” the contract.

xxx xxx xxx

48. Having regard to the aforesaid discussion we are clearly

of the view that all the three claims referred by G.E.C. to the

Court of Arbitration of I.C.C. do “arise out of” and are “related

to” the commercial contract in fact the first two claims arise

“under the contract”) and squarely fall within the widely

worded Arbitration clause being Article XVII contained in the

commercial contract. It is also clear that the Arbitration clause

embraces even the question of its effect (scope), that is to

say, it embraces the issue of the arbitrability of the three

claims Questions whether in law, namely, the law of the

Forum, the arbitrators will have jurisdiction and power to

decide the arbitrability of the claims or not and whether

Renusagar's suit is liable to be stayed or not will be

considered by us next but at this stage we are categorically

negativing the contentions of counsel for Renusagar that on

merits the three claims are beyond the scope or purview of

the Arbitration clause or that the Arbitration clause on its own

70

language does not embrace the issue of arbitrability of the

three claims.

68. In Tarapore & Co. v. Cochin Shipyard Ltd., (1984) 2 SCC 680, this

Court held:

39. Phrases such as “claim arising out of contract” or “relating

to the contract” or “concerning the contract” on proper

construction would mean that if while entertaining or rejecting

the claim or the dispute in relation to claim may be entertained

or rejected after reference to the contract, it is a claim arising

out of contract. Again the language of clause 40 shows that

any claim arising out of the contract in relation to estimates

made in the contract would be covered by the arbitration

clause. If it becomes necessary to have recourse to the

contract to settle the dispute one way or the other then

certainly it can be said that it is a dispute arising out of the

contract. And in this case the arbitration clause so widely

worded as disputes arising out of the contract or in relation to

the contract or execution of the works would comprehend

within its compass a claim for compensation related to

estimates and arising out of the contract. The test is whether

it is necessary to have recourse to the contract to settle the

dispute that has arisen. [ (See Russel on Arbitration,

Twentieth Ed., page 85)]

69. It then specifically referred to Astro Vencedor Compania Naviera S.A.

of Panama v. Mabanaft GmbH [(1971) 2 QB 588 as follows:

42. In Astro Vencedor Compania Naviera S .A. of

Panama v. Mabanaft GmbH [(1971) 2 QB 588 : (1971) 2 All

ER 1301 : (1971) 3 WLR 24] a question arose whether a claim

in tort would be covered by the arbitration clause? It was

admitted that the claim for wrongful arrest is a claim in tort.

And it was contended that a claim in tort cannot come within

the arbitration clause. The Court of Appeal speaking through

71

Lord Denning held that the claim in tort would be covered by

the arbitration clause, if the claim or the issue has a

sufficiently close connection with the claim under the

contract.

70. As a result, this contention has no legs on which to stand.

71. Shri Salve argued relying upon three judgments of this Court, namely,

Indowind Energy Ltd. v. Wescare (India) Ltd., (2010) 5 SCC 306,

Chloro Controls India (P) Ltd. v. Severn Trent Water Purification

Inc., (2013) 1 SCC 641, Cheran Properties Ltd. v. Kasturi & Sons

Ltd., (2018) 16 SCC 413 that a comparison between Sections 35 and

46 of the Arbitration Act, 1996 would show that the legislature

circumscribed the power of the enforcing court under Section 46 to

persons who are bound by a foreign award as opposed to persons which

would include ‘persons claiming under them’ and that, therefore, a

foreign award would be binding on parties alone and not on others. 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. 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. Section 35 would,

therefore, refer to only persons claiming under parties and is, therefore,

72

more restrictive in its application than Section 46 which speaks of

“persons” without any restriction. Quite apart from this, another

important conundrum arises from the Division Bench judgment in the

present case. The Division Bench judgment applied Delaware law to

satisfy itself that such law had indeed been followed to apply the alter

ego doctrine correctly, as a result of which the foreign award would have

to be upheld. We wish to indicate that this approach is completely

erroneous. First and foremost, Section 48 does not contain any ground

for resisting enforcement of a foreign award based upon the foreign

award being contrary to the substantive law agreed to by the parties and

which it is to apply in reaching its conclusion. As a matter of fact, whether

the award is correct in law (applying Delaware law), would be relevant if

at all such award were to be set aside in the State in which it was made

and that too if such law permitted interference on the ground that the

arbitral award had infracted the substantive law of the agreement. As

has been pointed out hereinabove, the arbitral award in this case was

not challenged in the State of Missouri. Hence, the Division Bench’s

foray into this line of reasoning is wholly incorrect.

73

72. As a matter of fact, if an international commercial arbitration were to be

held in India, Section 28(1)(b) recognises that an arbitral tribunal can

decide the dispute in accordance with the rules of law designated by the

parties as applicable to the substance of the dispute which, in turn, has

a direct nexus to the substantive law of the country whose laws are said

to apply. There is no ground in the pari materia provisions of Section 34

to set aside such award on the ground that the substantive law of that

country has been infracted. Indeed, the only ground on which such

award could possibly be interfered with is if such award, valid under the

law which it applied, could be held to be contrary to the public policy of

India. Gary Born (supra) has this to say on this aspect:

Despite the potentially expansive and unruly character of

“public policy,” courts in most jurisdictions have been very

reluctant to invoke the exception to deny recognition to

foreign awards. Rather, they have underscored the narrow,

exceptional character of the public policy defense in

recognition proceedings, emphasizing that the exception is

not satisfied merely because foreign law or foreign tribunal

reached a different result, or even an entirely opposite reslt,

from that provided by domestic law. One leading Swiss

judicial decision sums up this approach as follows:

“The appellant forgets that the enforcement court does

not decide on the arbitral award as an appellate instance;

the merits of the award cannot be reviewed under the

cover of public policy.” [Judgment of 9 January 1995, Inter

74

Maritime Mgmt SA v. Russin & Vecchi, XXII Y.B. Comm.

Arb. 789,796 (Swiss Federal Tribunal)]

Other courts have also repeatedly made clear that “erroneous

legal reasoning or misapplication of law is generally not a

violation of public policy within the meaning of the New York

Convention. That result has been repeatedly and squarely

affirmed by decisions in U.S., Swiss, French, English,

German, Austrian, Singaporean, Hong Kong, Indian, Korean

and other courts. Thus, the fact that an arbitral tribunal

applies a law that is different from that of the recognition

forum’s law, or wrongly applies the recognition forum’s laws,

or reaches a result that is contrary to that which the

recognition forum’s courts would reach when applying their

own (or a foreign) law, is not a basis for finding a violation of

public policy under Article V (2) (b).

The same principle is even more clearly applicable with

regard to factual findings by an arbitral tribunal …

(at pages 3667-3669)

xxx xxx xxx

It is frequently said that conduct involving violations of certain

types of criminal prohibitions implicates national and

international public policies, crimes of terrorism, piracy, slave-

trading, drug smuggling, torture, murder, kidnapping and

robbery are all typically identified as examples of public

policy. As discussed above, in the context of arbitration

agreements:

“The English court would not recognise an agreement

between … highwaymen to arbitrate their differences any

more than it would recognise the original agreement to

split the proceeds.” [Soleimany v. Soleimany [1999] QB

785, 797 (English Ct. Appl)]

Equally, neither an English court nor courts of most other

states would recognize awards that split the proceeds of a

criminal enterprise or that otherwise facilitated serious

75

criminal activities, whether highway robbery, terrorism, drug

smuggling, slave- trading, human-trafficking, or similar

crimes. In practice, however, it is highly unusual for criminals

involved in such enterprises to come anywhere close to either

lawyers or arbitrators; other forms of alternative dispute

resolution are used in almost all such settings. As a

consequence, there are very few national court decisions

involving the text-book cases of serious criminal activities.

(at pages 3672-3693)

73. Thus, if in a given case the substantive law of a foreign country were to

recognise a narcotic drug as being legal based upon which an award for

the supply of such drug is then ordered, such award may possibly be

resisted in India on the ground that it would be contrary to the

fundamental policy of Indian law to give effect to such agreement in a

case in which the Narcotic Drugs and Psychotropic Substances Act,

1985 prohibits import of such a drug. A foreign award cannot be set at

naught under Section 48 on the ground that it has infracted the

substantive law of the agreement.

74. The final argument that the damages that have been awarded have

been awarded on no basis whatsoever would again not fall within any of

the exceptions contained in Section 48(1). In order to attract Section

48(2) read with Explanation 1(iii), this Court in Ssangyong (supra) has

held that it is only in exceptional cases which involve some basic

76

infraction of justice which shocks the conscience of the court that such

a plea can be entertained. This Court held:

70. The expression “most basic notions of … justice” finds

mention in Explanation 1 to sub-clause (iii) of Section

34(2)(b). Here again, what is referred to is, substantively or

procedurally, some fundamental principle of justice which has

been breached, and which shocks the conscience of the

Court. ….

xxx xxx xxx

76. However, when it comes to the public policy of India,

argument based upon “most basic notions of justice”, it is

clear that this ground can be attracted only in very

exceptional circumstances when the conscience of the Court

is shocked by infraction of fundamental notions or principles

of justice. ….

75. The Arbitrator correctly held that as nothing was forthcoming from any

of the appellants, he would have to make a best judgment assessment

for damages. In making that assessment, he took into account the

commission that was being earned by GBT from the two clients of DMC

and arrived at a figure of 100,000 USD per month and then found, on a

reasonable estimate, that they would continue to be clients for a period

of four years, as a result of which the figure of 6,948,100 USD was

reached.

76. That such ‘guesstimates’ are not a stranger to the law of damages in

the U.S. and other common law tradition nations has been established

77

very early on in a judgment of Asutosh Mookerjee, J. reported as

Frederick Thomas Kingsley v. The Secretary of State for India AIR

1923 Cal 49. In this judgment, a learned Division Bench of the Calcutta

High Court put it thus: -

It may be conceded that though every breach of duty arising

out of a contract gives rise to an action for damages, without

proof of actual damage, Marzetti v. Williams [(1830) I B & Ad.

415 : 35 R.R. 329.], Embery v. Owen [(1851) 6 Exch. 353 :

86 R.R. 331], the amount of damages recoverable is, as

general rule, governed by the extent of the actual damage

sustained in the consequence of the defendant’s act, Hiort v.

L.N.W. Ry. Co. [(1879) 4 Exch. Div. 188.]. In cases admitting

proof of such damage, the amount must be established with

reasonable certainty, The Commerce [(1850) 3 W. Rob.

283.]. But this does not mean that absolute certainty is

required, nor in all cases, is there a necessity for direct

evidence as to the amount. Damages are not uncertain for

the reason that the loss sustained is incapable of proof with

the certainty of mathematical demonstration or is to some

extent contingent and incapable of precise measurement. As

Harlan J. observed in delivering the judgment of the Supreme

Court of the United States in Heztel v. Baltimore and O.R. Co.

[(1897) 169 U.S. 26 (38)], certainty to reasonable extent is

necessary, and the meaning of that language is that the loss

of damage must be so far removed from speculation or doubt

as to create in the minds of intelligent and reasonable men

the belief that it is most likely to follow from the breach of the

contract and was a probable and direct result thereof. To the

same effect is the decision in Morris v. U.S. [174 U.S. 291.]

that where absolute certainty is impossible, judgment of fair

men as to damages directly resulting governs.

(at pages 50,51)

78

77. Significantly, this judgment referred to and relied upon U.S. Supreme

Court judgments to arrive at this conclusion.

78. However, Shri Viswanathan relied upon Agritrade International (P)

Ltd. v. National Agricultural Coop. Mktg. Federation of India Ltd.,

(supra) and para 24 in particular, which states: -

24. There is also merit in the submissions made on behalf of

NAFED that there was no material produced before the

Arbitral Tribunal by Agritrade to show that it had, in fact,

suffered any loss as a result of NAFED not opening an L/C

for the quantity of 5000 MT of CPO. In its final Award dated

14th January 2008, the Arbitral. Tribunal merely accepted the

default date as 7th October 2004 and proceeded to determine

the “close out price” to assess the damage. Unless there was

actual proof of loss suffered by Agritrade, awarding of any

differential between the contracted price and close out price

must also be held to be based on no evidence.

79. The facts in this case are far removed from the facts in the aforesaid

High Court Judgment. There can be no doubt whatsoever that as a result

of the machinations of Upadhyaya and Pathak, as found by the arbitral

tribunal, ISS was deprived of commission legitimately due to it under the

representation agreement. This being so, there can be no doubt that,

on facts as proved before the arbitral tribunal, actual loss can be said to

have been occasioned to ISS.

79

80. In any case, the damages so awarded in the facts of this case cannot

even remotely be said to shock the conscience of this Court so as to

clutch at “the basic notion of justice” ground contained in Section 48(2)

Explanation (1)(iii).

81. The result is that the appeals are dismissed for the reasons given by us

without any order as to costs.

………………….......................J.

[ ROHINTON FALI NARIMAN ]

………………….......................J.

[ B.R. GAVAI ]

New Delhi;

August 10

th

, 2021.