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27 December 2021, Monday

2 years ago

Foreign Awards must be enforced in a time-bound manner for India to be regarded as an equal partner in international commerce: Kerala High Court

09 December 2021 | International Nut Alliance LLC v. Johns Cashew Company | Arb. A. No. 25 of 2019 | PB Suresh Kumar and CS Sudha JJ | Kerala High Court | 2021 SCC OnLine Ker 500

The appellate bench of the Kerala High Court has reversed an order refusing to enforce a foreign award made by a single judge.

The appellant's enforcement petition was resisted on several pleas, and mainly that the making of the award was induced or affected by fraud because, without John Cashew’s knowledge, the appellant scored off CENTA and wrote AFI, that is, Association of Food Industries Inc. (New York-based association which conducted the arbitration). The single judge refused enforcement.

Overturning that decision, emphasizing the need for enforcement for foreign arbitral awards in a time-bound manner for India to be regarded as an equal partner in international commerce, and directing enforcement to proceed with “utmost expedition”, the appellate court has ruled as follows:

On the meaning of “the making of the award was induced or affected by fraud” under Explanation I to Section 48 (2) (b) ACA, the court said:

  1. The fraud alleged should have a bearing on the making of the award. It would have been different had the expression been “the award was induced or affected”.
  2. AFI is not attributed any role in the alleged falsification. Therefore, there is no material that the making of the award is induced or affected by fraud.
  3. If the case advanced is accepted, the consequence would be that the enforcing court would be required to decide the genuineness of the document. But that is a question for the tribunal.

On the contention, if the tribunal had jurisdiction, the court said the objection was not available at the enforcement stage in this case because:

  1. The respondent had the remedy to apply to the seat-court (USA) to stay the arbitration because there was no valid agreement. It did not.
  2. The tribunal had the competence to decide on the issue. It made a finding in its communication with the respondent at the start.
  3. The award was not challenged in the seat court.

On the contention that no opportunity was given to challenge the composition of the tribunal and the arbitral proceedings was not following the rules of the AFI:

  1. The good faith principle applied in New York Convention signatory countries requires a party in arbitral proceedings to take all procedural pleas in the arbitral proceedings itself.
  2. Procedural pleas taken at the enforcement stage of arbitral awards are presumed to have been raised without good faith.

On whether the award was against the most basic notions of justice because AFI had accepted the AFI clause was based on correspondence between the appellant and the appellant's broker (without John Cashew's knowledge, referencing the need of a revised contract to reflect AFI):

  1. Arbitral institutions transact business in arbitral tribunals abroad at much more ease.
  2. At the most, such a decision can be regarded only as an incorrect decision on facts and is not a ground to object to the enforcement, especially since it is in relation to a procedural matter.
  3. The case on hand is one in which this Court is bound to enforce the foreign arbitral award even if there is any ground in favour of the respondent in terms of Section 48 ACA.

On whether the respondent did not have an adequate opportunity because it was notified late by AFI of its right to seek a stay:

  1. This was a procedural matter, and the respondent is not entitled to raise it in enforcement, especially when they had the opportunity to raise the same in the course of the arbitration proceedings and had chosen not to do so.

On whether Chloro Controls is an authority for the proposition that the tribunal's competence can be made the subject of enforcement action, the court said no.

Read the judgment here.

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Categories: Arbitrators Interpretation of Contract | Challenge to Foreign Award | Competence Competence | Conditions for Enforcement of Foreign Awards | Cruz City | Enforcement | Enforcement of Arbitral Awards | Enforcement of Foreign Awards | FEMA | Fraud in the Making of the Award | Gemini Bay | Good Faith | Illegality of Contract | Kompetenz Kompetenz | Merits Based Review | Most Basic Notions of Morality or Justice | New York Convention Awards | Part II | Public Policy | Public Policy of India | Put Option | Recognition and Enforcement of Foreign Award | Revaluation of Evidence | Review on the Merits of the Dispute | SCRA | Section 48 (2) (b) ACA | Section 48 ACA | Section 49 ACA | Ssangyong | Vijay Karia | When Foreign Award binding

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