SUPREME COURT REFUSES TO SET ASIDE FOREIGN ARBITRAL AWARD AGAINST NON-SIGNATORY TO AGREEMENT

A Two Judge Bench of the Supreme Court comprising of Justice B.R. Gavai and Justice Vikram Nath passed a Judgment dated 05-07-2023 in the matter of Arun Dev Upadhyaya Vs Integrated Sales Service Ltd. & Anr. R.P. (C) Nos. 1273-1274 / 2021 in Civil Appeal Nos. 8345-8346 of 2018 and refused to set aside the Foreign Arbitral Award against the non-signatories to the Agreement, as the grounds mentioned under Section 48 of the Arbitration and Conciliation Act 1996 for refusal of enforcement of Award were not available with the Petitioner.

Facts

1) In the present case, one, DMC Management Consultants Limited (DMC), a public limited company incorporated in July 1995, entered into a Representation Agreement dated 18-09-2000 (w.e.f. 03-10-2000) with the Respondent No. 1, Integrated Sales Service Ltd. (R-1 Company). The said Agreement was signed by the Managing Directors of both Companies.

2) Under the said Agreement, (i) the R-1 Company agreed to act as a representative of DMC and to assist DMC, on a commission fee basis, to sell its goods and services to prospective customers. (ii) Further, in case of any dispute arising out of the said Agreement, the Parties agreed to resort to arbitration and be subjected to the laws of the State of Missouri, USA. (iii) Upon failure to agree to the arbitrator, the appointment of arbitrator would be done according to the Rules of the American Arbitration Association (AAA).

3) Thereafter, two amendments were made to the Agreement in respect of the rate of commission in 2005 and in 2008.

4) The Director of DMC, who signed the first Amendment to the Agreement in 2005, namely, Mr. Arun Dev Upadhyaya, the Review Petitioner herein, tendered his resignation on 31-03-2009.

5) A few months later, the R-1 Company issued a demand for Arbitration to the Review Petitioner under the Commercial Arbitration Rules of the AAA against DMC and one, Gemini Bay Transcription Pvt. Ltd. (GBTL) seeking damages of USD 4.8 Million.

6) However, DMC and GBTL claimed that as GBTL was not a party to the aforementioned Agreement, hence, it cannot be impleaded as a party to the arbitration proceedings.

7) The Review Petitioner further claimed that (i) he was not a signatory to the aforementioned Agreement, (ii) he, in his individual capacity, had never agreed to be bound by any arbitration agreement and (iii) hence, any demand for arbitration against the Review Petitioner in his personal capacity, was not acceptable.

8) Meanwhile, GBTL filed Special Civil Suit No. 1035 of 2009 before the Ld. Civil Judge, Senior Division, Nagpur (Trial Court) against the R-1 Company seeking declaration and perpetual injunction and recovery of damages of Rs. 10 Lakhs.

9) GBTL also filed an Interim Application under Order 39 Rules 1 and 2 of the Code of Civil Procedure 1908 (CPC) (Cases in which temporary injunction may be granted) and (Injunction to restrain repetition or continuance of breach) respectively seeking orders to restrain R-1 from proceeding with the arbitration proceedings, as GBTL was not a party to the Arbitration Agreement. However, the Trial Court dismissed the said Interim Application, vide Order dated 25-01-2010.

10) The Ld. Arbitrator passed an Award dated 28-03-2010 in favour of R-1, thereby holding that DMC breached the Representation Agreement and that DMC, GBTL and the Review Petitioner colluded together against the R-1 Company, hence, they were held jointly and severally liable to pay USD 6,948,100.00 along with interest to R-1.

11) Thereafter, R-1 filed an Application under Section 47 of the Arbitration and Conciliation Act 1996 (Act) (Evidence) before the Ld. Principal District Judge, Nagpur (District Court) seeking execution of the Arbitral Award. However, Ld. District Court directed R-1 to approach the High Court, as the District Court did not have jurisdiction.

12) Accordingly, R-1 moved the High Court of Bombay, at Nagpur Bench seeking enforcement of the Arbitral Award in C.A. No. 1319 of 2015.

13) The Review Petitioner filed its objections in C.A. No. 1319 of 2015 thereby challenging the recognition of the Award as a foreign award as it did not satisfy the requirements under the Act and also under the provisions of the New York Convention.

14) DMC and GBTL also filed their respective objections in C.A. No. 1319 of 2015.

15) The High Court vide Judgment dated 18-04-2016 held that the Arbitral Award was a foreign award and enforceable only against DMC, and not GBTL and Review Petitioner.

16) Aggrieved by the High Court Order dated 18-04-2016, the R-1 filed Letters Patent Appeal, i.e. an appeal filed against a single judge bench order, before a different bench of the same court, in Arbitration Appeal No.3 of 2016 before the Division Bench of the High Court, which allowed the Appeal filed by R-1, vide Order dated 04-01-2017, and held that the Award is maintainable against GBTL and the Review Petitioner as well.

17) Aggrieved by the High Court Order dated 04-01-2017, the Review Petitioner filed Civil Appeal Nos. 8345-8346 of 2018 before the Hon’ble Supreme Court. GBTL and DMC also moved the Apex Court in separate Special Leave Petitions (SLPs). However, the Supreme Court dismissed all the Appeals, vide Order dated 10-08-2021.

Supreme Court Observations

Aggrieved by the Apex Court Order dated 10-08-2021, the Review Petitioner filed a Review Petition bearing R.P. (C) Nos. 1273-1274 / 2021 before the Supreme Court. The Apex Court, vide Order dated 05-07-2023, made the following observations:

(i) That in the present case, the Review Petition has been filed on the ground that there is a mistake or error apparent on the face of the Order dated 10-08-2021 passed by the Supreme Court. The Bench interpreted the power of review as follows:

a) As per Order 47 Rule 1 CPC (Application for review of judgment), one of the conditions in which the power of review can be exercised is a mistake or error apparent on the face of record.

b) An error which is not self-evident and has to be detected by a process of reasoning, can hardly be said to be an error apparent on the face of the record justifying the Court to exercise its power of review.

c) Further, the power to review may not be exercised on the ground that decision was erroneous on merits as the same would be the domain of the Court of appeal.

d) A review petition cannot be allowed to be treated as an appeal in disguise.

(ii) Further, the Arbitral Award qualifies to be a foreign award as per Section 44 of the Act (Definition), which states that the following ingredients have to be established for an award to qualify as a foreign award:

a) The award is based on a dispute between persons arising out of legal relationships.

b) The said disputes / differences may be in contract or outside contract, say, tort.

c) The aforementioned legal relationship ought to be commercial in nature under the laws of India.

d) The award is made on or after 11-10-1960.

e) The award is passed in pursuance of a written agreement to which the New York Convention applies.

f) The award is passed in one of such territories as the Indian Government, by notification in the Official Gazette, declares to be reciprocating territories to which the New York Convention applies.

(iii) That the Apex Court in its Order dated 10-08-2021 rejected the contention of the Review Petitioner that evidence should be adduced and full trial ought to be conducted to prove that the non-signatory to the Agreement would also be bound by a foreign award, as the same was beyond the scope of powers of the Court dealing with enforcement of foreign award.

(iv) That the Supreme Court in its Order dated 10-08-2021, further held that the Court cannot review the Award on merits, as none of the grounds mentioned under Section 48 of the Act for refusal of enforcement of Award were available with the Petitioner, inter alia,

(a) the parties to the agreement are under some incapacity;

(b) the agreement is not valid under law of the country to which the parties have subjected themselves to;

(c) the aggrieved party was not given proper notice of arbitration;

(d) the decision is beyond the scope of submissions to the arbitration;

(e) the composition of arbitral authority was not as per the agreement of the parties;

(f) the award has been set aside or suspended by a competent authority of the country in which the award was made, etc.

(v) That in the present case, the Award was not challenged in the country where it was passed and the aforementioned disputes / contentions were raised by the Petitioner only at the time of enforcement of the Award.

Thus, based on the aforesaid observations, the Apex Court in the Review Petition held that the Supreme Court in its Order dated 10-08-2021 has dealt with all the issues and submissions and hence, there was no error or mistake apparent on the face of it justifying the Apex Court to exercise its power of review. As a result, the Review Petitions were dismissed.

Harini Daliparthy

Senior Associate

The Indian Lawyer