Challenge to Foreign Award u/s 34 is not maintainable

The Hon’ble Supreme Court on 26.11.2020 in the matter of Noy Vallesina Engineering Spa Vs. Jindal Drugs Limited & Ors (Civil Appeal No. 8607 Of 2010), while referring to a catena of judgments, held that a challenge through a petition u/s 34 of the Arbitration and Conciliation Act against a foreign award is not maintainable.

Facts of the case-

The respondent (hereafter “Jindal”), in 1994 negotiated with a company- Engineering Chur AG of Sangenstrasse 97, 1001 Chur, Switzerland (hereafter ‘Enco’) and on 30.01.1995 entered into four agreements with Enco to set up an ascorbic acid plant in India. In March 1995, with the consent of respondent, Enco assigned the said agreements i.e. ECAAP to NV Engineering. All the obligations of Enco towards Jindal were taken over by NV Engineering.
Dispute arose between Jindal and NV Engineering (Appellant herein) and 31.10.1996, Jindal filed a request for arbitration under the ECAAP before ICC, Paris and the Appellant filed reply and filed counter claim. After considering the claims and counterclaims a partial award was passed on 01.02.2000 by which the claim of Jindal was rejected and NV Engineering was awarded SFR.44,33,416. Aggrieved by the partial award, Jindal on 20.02.2000 filed a petition u/s 34 of the Act before the Bombay High Court, wherein the court issued an interim injunction to the ICC restraining them from further proceedings. The ICC however, was of the view that the interim order passed by the high court was not binding on it and consequently, proceeded further and made its final award on 22.10.2001.
The Single Judge decided the petition u/s 34 on 06.02.2002 and held that since the partial award was a foreign award, a challenge through a petition was not maintainable under Section 34 of the Act. Thereafter, Jindal preferred an appeal before the Division Bench (Appeal No. 492/2006), however during the pendency of the Appeal, NV Engineering applied for the enforcement of the partial and the final award u/s 47 & 48 of the Act and the Judge held that the said awards were enforceable except for the part of the award which directs payment of SFR.44,33,416 by Jindal to NV Engineering, aggrieved by which NV Engineering filed a cross appeal (Appeal. No. 740/2006). The Division Bench relied on the judgments of the Apex Court in Bhatia International v. Bulk Trading S. A. & Anr and Venture Global Engineering v. Satyam Computer Services Ltd. & Anr to hold that proceedings under Section 34 of the Act could be validly maintained to challenge a foreign award.

The parties contention-

Ld. Counsel for the Appellant submitted that impugned judgment is unsupportable in law because a foreign award cannot be challenged u/s 34 of the Act and the judgments relied by the Division Bench were both held to be incorrect in the in the larger, five judges ruling in Bharat Aluminium Company vs Kaiser Aluminium Technical Services Inc; 2012 (9) SCC 552 (“BALCO” hereafter). He relied on BALCO extensively in support of his argument that the foreign awards in this case, having been rendered outside India under the aegis of the ICC cannot be challenged merely because a condition in the underlying contract says that the law governing the agreement, would be Indian law.
It was next argued that BALCO, clearly enunciated the principle that the seat of arbitration also indicated the choice of the law governing the arbitration. Learned counsel relied on the observations of the larger bench, and its emphasis on the “Shashoua principle”13. It was contended that according to that principle, the designation of a “seat” of the arbitration would carry with it “something akin to an exclusive jurisdiction clause”. Learned counsel referred to identical conditions in each contract, in the present case, which expressly stated that arbitration would be “under the Rules of Conciliation and arbitration of the International Chamber of Commerce, Paris and Arbitration proceedings shall be in the English language and shall take place in London.” NV Engineering therefore, argued that the intention of the parties expressed unambiguously in the contract was that the arbitration was governed by the law of the seat, i.e. UK law. Therefore, the findings in the impugned judgment were clearly untenable.
Ld. Counsel for the Respondent on the other hand relied on the observations in BALCO that arbitration agreements entered into before the decision, and disputes which arose under them, would continue to be bound by the pre-BALCO rules. Since, in this case, the agreements were entered into, and awards too were rendered during the prevalence of Bhatia principle, the later decision in BALCO or any subsequent judgment could not apply.

Observations of the Hon’ble Court-

The decision in Bhatia, and later, in Venture Global , had ruled that resort to remedies under Part I of the Act can be made in respect of foreign awards, despite the clear dichotomy in the enactment between domestic awards (covered by Part I) and foreign awards (covered by Part II). This understanding was re-visited in BALCO, wherein it was concluded that-
“194. In view of the above discussion, we are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to international commercial arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in the Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996.”
The Shashoua principle has been followed repeatedly in a series of decisions of this court, with respect to the law governing the seat as the law of the “seat” where the arbitration had been held. In this behalf, the Apex Court reiterated a catena of judgments including IMAX Corporation v. E-City Entertainment (India) (P.) Ltd, 2017 (5) SCC 331 which was a pre-BALCO award and the said rule was again followed. Taking into consideration the fact that the parties had expressly chosen to resolve the dispute through the ICC, in the form of a London based arbitration, the court stated that “ICC having chosen London, leaves no doubt that the place of arbitration will attract the law of UK in all matters concerning arbitration.”
The latest decision on this issue is Government of India v Vedanta Ltd, 2020 SCC Online (SC) 749. The dispute arose out of a pre-BALCO contract; the award was rendered on 18.01.2011 (prior to the BALCO decision). The seat of arbitration was Kuala Lumpur; however, the governing law of the agreement or contract, was English law. This court, in its three-judge decision, held that the curial law, i.e. the law governing the challenge to the award, was Malaysian law. This court, therefore, categorically ruled that a substantive challenge to the award, correctly was adjudicated by the Malaysian court, because the seat of arbitration was Kuala Lumpur.
The Hon’ble Court concluded that “having regard to the precedential unanimity, so to say, about the manner of applicability of BALCO in respect of agreements entered into and awards rendered earlier, with respect to the law of the seat of arbitration (or the curial law) excluding applicability of Part I of the Act, and the unambiguous intention of the parties in the present case (expressed in Clause 12.4.2) that the seat of arbitration was London, where the ICC arbitration proceedings were in fact held, and the awards rendered, this court is of the opinion that the impugned judgment cannot be sustained”.
Feurest Day Lawson Ltd. v. Jindal Exports Ltd, (2011) 8 SCC 333 unambiguously ruled out the maintainability of any appeal against an order granting enforcement of a foreign arbitration award. In the present case, both the partial and final awards are foreign awards. Therefore, in view of the categorical holdings in the judgments of this court, Jindal’s appeal to the Division Bench, (Appeal No. 492/2006) is not maintainable. However, in view of the above decisions, and the express terms of Section 50, NV Engineering’s appeal (Appeal. No. 740/2006), against the order of the single judge (to the extent it refuses enforcement) is maintainable.
Without going into the merits of the case, the Hon’ble Court set aside the impugned judgment and order and imposed cost of Rs. 1,50,000/- on Respondent No.1.