10 November 2021 | EIG (Mauritius) Limited v. McNally Bharat Engineering Company Limited | EC 77 of 2021 | Calcutta High Court | Moushumi Bhattacharya | 2021 SCC OnLine Cal 2915 The Calcutta High Court has allowed the enforcement of a foreign award rejecting several objections.

The primary objection was that that the enforcement would be contrary to the public policy of India because:

1. the award, allowing enforcement of a Put Option providing assured returns to a non-resident entity, contravened the Foreign Exchange Management Act, 1999, and
2. the Put Option violated the Securities Contracts Regulation Act, 1956.

The court’s key findings and observations on the application of Section 48 ACA grounds vis-à-vis illegality of the underlying contract are as follows:-

1. Grounds under Section 48(1) ACA are limited. Section 48(2)(b) ACA provides for an additional ground (public policy of India), and Explanations 1 and 2 to Section 48(2)(b) ACA further narrows that ground.
2. For the public policy ground to apply, there must be a breach of the most basic principles of Indian law, which forms the substratum of the country’s laws.
3. Merits-based review is barred. The mandate of Section 48(2)(b) ACA clarifies that the statutory intent is to curtail the inquiry on the violation of the fundamental policy of Indian law within the periphery of the obvious without delving into the merits of the dispute. [rejecting the argument that, in enforcement action, the court can review the terms of the underlying contract to examine its legality; distinguishing the English decision Soleimany [1998] 3 WLR 811 because it involved a breach of criminal law and did not deal with the commercial transaction. Not considering Supreme Court’s Alimenta 2020 SCC OnLine SC 381 because the court examined merits of the dispute].

On the argument that the award violated the SCRA, the court ruled as follows:-

1. The tribunal applied Edelweiss 2019 SCC OnLine Bom 732 that considered Section 16 SCRA, and that same notification relied on the award-debtor (SEBI notification of 01.03.2020).
2. The tribunal ruled that the performance of the Put Option was on a Spot Delivery Contract basis and was, hence, not rendered invalid by the SCRA read with the notification. It rejected the distinction sought to be drawn with Edelweiss (there was a “voluntary postponement” in that case as opposed to “contractual postponement”).
3. The tribunal’s construction is in line with the commercial purpose of the transaction and the parties’ intention at the time of execution.

On the argument that Put Option providing assured returns by the respondent, or a “legally able” non-resident third party violated FEMA:

4. The tribunal concluded that the transaction would not contravene FEMA because a non-resident purchaser (to whom FEMA does not apply) could purchase the shares. For this, the tribunal relied on NTT Docomo 2017 SCC OnLine Del 8078 and interpreted a contract clause.

On breach of FEMA constituting violation of the public policy of India, the court said:

1. In Vijay Karia (2020) 11 SCC 1, the Supreme Court--approving Cruz City decision of Bombay (sic Delhi) High Court---held that transactions that violate FEMA could not be held to be void. An award upholding such a transaction could simply not be invalidated on that basis.
2. In Banyan 2020 SCC OnLine Bom 781, the Bombay High Court refused to interfere with the enforcement of a foreign award on the ground of violation of a FEMA Regulation.
3. Hence, FEMA does not form part of the fundamental policy of Indian law, and a violation of FEMA, even if assumed to be correct, would not render the award unenforceable.

On the effect of the tribunal’s detailed and reasoned award, the court said:

1. For an award as complete and comprehensive as this, any further inquiry into the transaction documents or the construction of the relevant clauses would amount to an exercise that has precisely been taken out of the present statutory framework.
2. To repeat, the contravention of the law must be such that no further discussion would be warranted to dislodge the finding of contravention.
3. In other words, the enforcement of the award should be clearly and manifestly contrary to Indian law.
4. The subtle distinction between the ‘enforcement’ of an award being put to the test in Section 48 ACA as opposed to the ‘award’ itself having to pass muster under Section 34 ACA further reins in all possible enquiries on the relevant factual matters on the aspect of contravention of the fundamental policy of Indian law.

[Ed. The reference by Bhattacharya J to the contravention of “law” should be read in the overall context. She is talking about contravention of the fundamental policy of Indian law, or a law that constitutes a fundamental policy of Indian law]

Towards the end of the decision, Bhattacharya J set out her “alternative view” that the award, in essence, does not enforce the Put Option but simply awards damages for the breach without bearing on India's public policy.

Lastly, the court reiterated that the enforcement and execution of a foreign award have to considered in same proceeding.

Read the judgment here.