The end of prolonged battles for Foreign Award Holders: The Apex Court clarifies the scope of challenging Arbitrator Bias

In a jurisprudential anomaly between Avitel Post Studioz Limited and HSBC PI Holdings (Mauritius) Limited concerning the enforcement of the Final Award issued by the Singapore International Arbitration Centre (“SIAC”), the Apex Court comprising Justices Hrishikesh Roy and Prashant Kumar Mishra has ruled that international standards have to be applied to determine the “bias” while refusing the enforcement of a foreign award. The inability to demonstrate that the Award was a result of bias, conflict of interest or failure by the Presiding Arbitrator to render disclosure to the parties shall not render a foreign award unenforceable, as per the law recently laid down by the Apex Court.

FACTUAL MATRIX:
On April 21, 2011, Avitel India Studioz Limited and Others (“Appellants) entered into a Share Subscription Agreement with HSBC PI Holdings (Mauritius) Limited (“Respondents”), whereby Respondents agreed to invest USD 60 million into the equity capital of Appellants to acquire 7.8% of its paid-up capital. This Agreement included an arbitration clause stipulating that any disputes arising would be resolved at SIAC, with Singapore designated as the seat of arbitration, thereby excluding the application of Part I of the Arbitration and Conciliation Act, 1996 (“Act”) except for Section 9 of the Act. Subsequently, on May 6, 2011, the parties executed a Shareholders’ Agreement to delineate their relationship, which also contained an identical arbitration clause.

The Award Holder i.e. the Respondents herein asserted that the Appellants made representations at an advanced stage after the investment was made and failed to provide any information about the BBC contract, despite multiple follow-up attempts. However, the discovery by an independent investigation by Respondents led towards invoking the arbitration clause under the SIAC Rules on May 11, 2012 to seek damages of USD 60 million from Appellants. Subsequently, the Arbitral Tribunal rendered its final award in favour of the Respondents directing the Appellants to pay USD 60 million for fraudulent representation.

The Respondents had initiated proceedings under Section 9 of the Act before the Bombay High Court. The Appellants, accordingly filed a Special Leave Petition claiming the dispute to be non-arbitrable as “fraud” is not the subject matter of Arbitration in India. The Bombay High Court, however, ruled against the Appellants stating that Respondents have a strong prima facie case in the enforcement proceedings.

THE APEX COURT’S PERSPECTIVE:
The issues that came up before the Apex Court was whether the High Court of Bombay was justified in rejecting the objection under Section 48(2)(b) of the Act against enforcement of Foreign Award on grounds of arbitral bias and violation of public policy and whether the ground of bias could be raised at the enforcement stage for being violative of the ‘public policy of India’ and ‘most basic notions of morality or justice’.

Firstly, the Court underlined the fact that India is an early signatory to the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”), noting that the precursors to the New York Convention allowed for a broad invocation of public policy grounds based on violations of fundamental legal principles. While also referring to the case of Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier, 508 F.2d 969 (1974) and Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644, the Court reiterated that under Part II of the Act, judicial intervention in foreign awards is minimal and permissible only on the exhaustive grounds specified in Section 48.

Secondly, the grounds for resisting enforcement of a foreign award are significantly narrower than those available for challenging a domestic award under Section 34 of the Act. Although the New York Convention does not explicitly mention bias as a ground for refusing recognition of a foreign award, it is pertinent to note that a narrow, internationally recognized standard of public policy regarding bias, has to be applicable only when the most basic notions of morality or justice are violated. In other words, enforcement should be refused on the grounds of bias only in exceptional circumstances. In this regard, the IBA Guidelines on Evidence were referred to by the Apex Court, which demonstrates the collective effort of the Arbitral Community to define “bias” of an Arbitral Tribunal, ensuring the fairness and impartiality of the Arbitrators in an air-tight manner. After examining the facts of the case, the Bench was of the view that there was no definite evidence that the most basic notions of morality and justice had been violated.

NUMEN’S CONCLUDING REMARKS:
This ruling significantly paves the way for minimalizing judicial intervention and facilitating foreign arbitral institutions’ decisions in India. In addition to the aforesaid, this also reinforces the principle that only the most egregious violations of fundamental principles of morality and justice should be interfered with. In the near future, this decision shall set a clear precedent that Indian courts will uphold the sanctity of international arbitral awards, provided they meet the stringent criteria set forth by the Apex Court. The Apex Court has also embraced the principle that bonafide challenges to arbitral appointments have to be made in a timely fashion and should not be used as a “strategy” to delay the enforcement of an award. The prolonged battle of an Award Holder waiting for the blue moon to reap the benefits of the Award in his favour seems to be partially won.

By - Swetalana Rout and Raj Pipara

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