Date of the Judgment: 5 July 2023
Citation: (2023) INSC 610
Judges: B.R. Gavai, J. and Vikram Nath, J.
Can a foreign arbitral award be enforced against individuals or entities not directly party to the arbitration agreement? The Supreme Court of India, in this review petition, re-examined its previous judgment upholding the enforcement of a foreign arbitral award against non-signatories. The core issue revolved around whether the Court had overlooked key arguments regarding the enforceability of such awards under Indian law, specifically concerning the interpretation of Section 46 of the Arbitration and Conciliation Act, 1996. The bench was composed of Justice B.R. Gavai and Justice Vikram Nath, with the judgment authored by Justice Vikram Nath.
Case Background
D.M.C. Management Consultants Limited (DMC) entered into a Representation Agreement with Integrated Sales Service Ltd. on September 18, 2000, effective from October 3, 2000. The agreement stipulated that Integrated Sales Service Ltd. would find customers for DMC on a commission basis. The agreement contained an arbitration clause, specifying that disputes would be resolved under the laws of Missouri, USA, by a sole arbitrator.
Two amendments were made to this agreement. The first, in 2005, modified the commission rates and was signed by Arun Dev Upadhyaya, the review petitioner, in his capacity as a Director of DMC. The second amendment, on January 1, 2008, nullified the first amendment, changed the applicable law to Delaware, and was signed by Rattan Pathak, Managing Director of DMC.
Arun Dev Upadhyaya resigned from his position as Director of DMC on March 31, 2009. Subsequently, on June 22, 2009, Integrated Sales Service Ltd. initiated arbitration against DMC, GBTL, and Arun Dev Upadhyaya, claiming damages of US $4.8 million.
GBTL and Arun Dev Upadhyaya objected to being included in the arbitration, arguing they were not signatories to the agreement. However, the Arbitral Tribunal ruled that it had jurisdiction to decide whether non-signatories were appropriately named. The Tribunal issued an award on March 28, 2010, holding DMC, Arun Dev Upadhyaya, and GBTL jointly and severally liable for US $6,948,100.
Integrated Sales Service Ltd. then sought to enforce the award in India. The Single Judge of the Bombay High Court initially held that the award was enforceable only against DMC. However, the Division Bench of the Bombay High Court later ruled that the award was enforceable against all three parties, including Arun Dev Upadhyaya and GBTL. The Supreme Court dismissed the appeals against this decision on August 10, 2021. The present review petitions were filed by Arun Dev Upadhyaya seeking a review of the Supreme Court’s judgment.
Timeline
| Date | Event |
|---|---|
| July 1995 | D.M.C. Management Consultants Limited (DMC) incorporated. |
| September 18, 2000 | Representation Agreement between DMC and Integrated Sales Service Ltd. |
| October 3, 2000 | Representation Agreement becomes effective. |
| 2005 | First amendment to the Representation Agreement regarding commission rates. |
| January 1, 2008 | Second amendment to the Representation Agreement, making Delaware laws applicable. |
| March 31, 2009 | Arun Dev Upadhyaya resigns as Director of DMC. |
| June 22, 2009 | Integrated Sales Service Ltd. issues demand for Arbitration. |
| July 21, 2009 | GBTL and Arun Dev Upadhyaya file objections to the arbitration. |
| October 2009 | GBTL files a civil suit in Nagpur seeking to restrain arbitration. |
| December 23, 2009 | Arbitral Tribunal passes an interlocutory order on jurisdiction. |
| January 25, 2010 | Application under Order 39 Rules 1 & 2 CPC is rejected by Civil Judge, Nagpur. |
| March 28, 2010 | Arbitrator gives an award in favor of Integrated Sales Service Ltd. |
| 2015 | Integrated Sales Service Ltd. moves an application under Section 47 of the Arbitration and Conciliation Act, 1996 before the Principal District Judge at Nagpur. |
| January 27, 2016 | Review Petitioner files objections under Section 47 of the Act before the Nagpur Bench of the Bombay High Court. |
| April 18, 2016 | Single Judge of the Bombay High Court holds that the award was enforceable against DMC only. |
| January 4, 2017 | Division Bench of the Bombay High Court holds the award to be enforceable against Review Petitioner and GBTL. |
| August 10, 2021 | Supreme Court dismisses appeals against the Division Bench order. |
| July 5, 2023 | Supreme Court dismisses review petitions filed by Arun Dev Upadhyaya. |
Course of Proceedings
The matter initially went before the Civil Judge, Senior Division, Nagpur, where GBTL filed a suit seeking a declaration and injunction against the arbitration proceedings. This suit was accompanied by an application to restrain Integrated Sales Service Ltd. from proceeding with the arbitration. The Civil Judge rejected this application.
Integrated Sales Service Ltd. then approached the Principal District Judge at Nagpur seeking execution of the Arbitral Award. However, this application was deemed not maintainable as the High Court had jurisdiction. The matter was then taken before the Nagpur Bench of the Bombay High Court, which registered it as M.C.A. No. 1319 of 2015.
The Single Judge of the Bombay High Court ruled that the award was a foreign award enforceable only against DMC. Integrated Sales Service Ltd. appealed this decision, leading to the Division Bench ruling that the award was enforceable against all three parties. The Supreme Court dismissed the appeals against this decision.
Legal Framework
The case primarily involves the interpretation of the Arbitration and Conciliation Act, 1996, specifically Sections 35, 44, 46, 47, and 48.
Section 35 of the Arbitration and Conciliation Act, 1996, deals with the finality of arbitral awards, stating:
“Subject to this Part an arbitral award shall be final and binding on the parties and persons claiming under them respectively.”
Section 44 of the Arbitration and Conciliation Act, 1996, defines a “foreign award” as an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered commercial under Indian law, made in a territory notified by the Central Government.
Section 46 of the Arbitration and Conciliation Act, 1996, addresses when a foreign award is binding, stating:
“Any foreign award which would be enforceable under this Chapter shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in India and any references in this Chapter to enforcing a foreign award shall be construed as including references to relying on an award.”
Section 47 of the Arbitration and Conciliation Act, 1996, outlines the evidence required for the enforcement of a foreign award.
Section 48 of the Arbitration and Conciliation Act, 1996, specifies the conditions for refusing enforcement of a foreign award.
Arguments
Arguments of the Review Petitioner (Arun Dev Upadhyaya)
-
The review petitioner argued that the Supreme Court overlooked the fundamental point that Section 44 read with Section 46 of the Arbitration and Conciliation Act, 1996, makes only a foreign award enforceable. To determine if an award is a foreign award, the court is not constrained by Section 48 of the Arbitration and Conciliation Act, 1996.
-
The review petitioner contended that although he was not a party to the Representation Agreement, the Arbitrator, by applying Delaware law, made him a party to the arbitration. The award, when sought to be enforced in India, should be tested against Indian law, which does not permit enforcement against non-parties.
-
The review petitioner asserted that the Supreme Court misconstrued the distinction between Section 35 and Section 46 of the Arbitration and Conciliation Act, 1996. While Section 35 makes an award binding on parties and persons claiming under them, Section 46 binds only the persons between whom the award was made. The review petitioner argued that Section 46 does not extend to non-parties even if they are claiming under a party to the agreement.
-
The review petitioner submitted that the damages were calculated without any quantified basis, relying only on Mr. Peteete’s understanding of the business, unsupported by any documentary evidence.
Arguments of the Respondent (Integrated Sales Service Ltd.)
-
The respondent argued that the impugned judgment was justified and that all points raised by the review petitioner had already been considered by the Supreme Court.
-
The respondent contended that the scope of a review petition is limited and does not allow for a fresh hearing of the appeal.
| Main Submissions | Sub-Submissions of Review Petitioner | Sub-Submissions of Respondent |
|---|---|---|
| Enforceability of Foreign Award |
|
|
| Non-Signatory to the Agreement |
|
|
| Interpretation of Section 35 and 46 |
|
|
| Calculation of Damages |
|
Issues Framed by the Supreme Court
- Whether the Supreme Court overlooked the fundamental point that Section 44 read with Section 46 of the Arbitration and Conciliation Act, 1996, makes only a foreign award enforceable, and the court is not constrained by Section 48 of the Arbitration and Conciliation Act, 1996 to determine if the award is a foreign award.
- Whether the Arbitrator could make the review petitioner a party to the arbitration proceedings by applying Delaware law, even though the review petitioner was not a party to the Representation Agreement.
- Whether the Supreme Court misconstrued the distinction between Section 35 and Section 46 of the Arbitration and Conciliation Act, 1996, regarding the binding nature of a foreign award on non-parties.
- Whether the damages were calculated without any quantified basis, relying only on Mr. Peteete’s understanding of the business, unsupported by any documentary evidence.
Treatment of the Issue by the Court
| Issue | How the Court Dealt with It |
|---|---|
| Whether the Supreme Court overlooked the fundamental point that Section 44 read with Section 46 of the Arbitration and Conciliation Act, 1996, makes only a foreign award enforceable, and the court is not constrained by Section 48 of the Arbitration and Conciliation Act, 1996 to determine if the award is a foreign award. | The Court held that it had considered the interpretation of Section 44 and 46 of the Arbitration and Conciliation Act, 1996, and found no error in its previous judgment. The court reiterated that the grounds for refusing enforcement of a foreign award are contained in Section 48 of the Act. |
| Whether the Arbitrator could make the review petitioner a party to the arbitration proceedings by applying Delaware law, even though the review petitioner was not a party to the Representation Agreement. | The Court determined that the arbitrator’s decision to include the review petitioner as a party was valid under the applicable law (Delaware law) and that the enforcement of the award in India was not contrary to Indian law. |
| Whether the Supreme Court misconstrued the distinction between Section 35 and Section 46 of the Arbitration and Conciliation Act, 1996, regarding the binding nature of a foreign award on non-parties. | The Court clarified that it had compared the scope of Section 35 and 46 of the Arbitration and Conciliation Act, 1996, and concluded that Section 46 applies to all persons between whom the award was made, which can include non-signatories under certain circumstances. |
| Whether the damages were calculated without any quantified basis, relying only on Mr. Peteete’s understanding of the business, unsupported by any documentary evidence. | The Court found that the quantification of damages was justified, even if based on the best judgment assessment, and did not require detailed documentary evidence. |
Authorities
| Authority | Court | How the Authority was Used | Legal Point |
|---|---|---|---|
| Satyanarayan Laxminarayan Hegde and others Vs. Millikarjun Bhavanappa Tirumale, AIR 1960 SC 137 | Supreme Court of India | Discussed the scope of ‘error apparent on the face of record’. | Scope of review jurisdiction |
| Parison Devi Vs. Sumitri Devi, (1997) 8 SCC 715 | Supreme Court of India | Ruled that an error not self-evident and requiring reasoning is not an error apparent on the face of record. | Scope of review jurisdiction |
| Shivdeo Singh Vs. State of Punjab, AIR 1963 SC 1909 | Supreme Court of India | Held that power of review is not to be exercised on the ground that the decision was erroneous on merits. | Scope of review jurisdiction |
| Aribam Tuleshwar Sharma Vs. Aribam Pishak Sharma, AIR 1979 SC 1047 | Supreme Court of India | Held that power of review is not to be exercised on the ground that the decision was erroneous on merits. | Scope of review jurisdiction |
| Meera Bhanja (Smt.) Vs. Nirmala Kumari Choudhary (Smt.), (1995) 1 SCC 170. | Supreme Court of India | Held that power of review is not to be exercised on the ground that the decision was erroneous on merits. | Scope of review jurisdiction |
| Uma Nath Pandey Vs. State of U.P., (2009) 12 SCC 40 | Supreme Court of India | Held that power of review is not to be exercised on the ground that the decision was erroneous on merits. | Scope of review jurisdiction |
| S. Murali Sundaram Vs. Jothibai Kannan and Others, Civil Appeal No.1167 -1170 of 2023 | Supreme Court of India | Observed that an erroneous judgment is not a ground for review. | Scope of review jurisdiction |
| Perry Kansagra Vs. Smriti Madan Kansagra, (2019) 20 SCC 753 | Supreme Court of India | Observed that a review court does not sit in appeal over its own order. | Scope of review jurisdiction |
| Shanti Conductors (P) Ltd. Vs. Assam SEB, (2020) 2 SCC 677 | Supreme Court of India | Observed that under the guise of review, the petitioner cannot be permitted to re-agitate and re-argue questions already decided. | Scope of review jurisdiction |
Judgment
| Submission by Parties | Treatment by the Court |
|---|---|
| The review petitioner argued that Section 44 read with Section 46 of the Arbitration and Conciliation Act, 1996, makes only a foreign award enforceable. | The Court held that it had considered the interpretation of Section 44 and 46 of the Act and found no error in its previous judgment. |
| The review petitioner contended that the Arbitrator wrongly made him a party to the arbitration by applying Delaware law. | The Court determined that the arbitrator’s decision to include the review petitioner was valid under Delaware law and the enforcement was not contrary to Indian law. |
| The review petitioner asserted that the Supreme Court misconstrued the distinction between Section 35 and Section 46 of the Arbitration and Conciliation Act, 1996. | The Court clarified that it had compared the scope of Section 35 and 46 of the Act and concluded that Section 46 applies to all persons between whom the award was made, which can include non-signatories under certain circumstances. |
| The review petitioner submitted that the damages were calculated without any quantified basis. | The Court found that the quantification of damages was justified, even if based on best judgment assessment. |
The Supreme Court reviewed the arguments presented by the review petitioner and reaffirmed its previous decision. The Court found that all the grounds raised in the review petitions had been considered in detail in the original judgment.
The Court cited several cases to emphasize that a review is not an appeal and that an error must be apparent on the face of the record to warrant a review. The Court reiterated that the power of review cannot be exercised on the ground that the decision was erroneous on merits.
The Court stated that the arguments advanced in the review petition, if accepted, would result in expressing a different opinion on the points already decided, which does not fall within the scope of Order XLVII Rule 1 of the Code of Civil Procedure (CPC) relating to an error apparent on the face of the record.
The Court specifically addressed the arguments regarding the interpretation of Section 44 and 46 of the Arbitration and Conciliation Act, 1996, and concluded that the previous judgment had correctly interpreted and applied these provisions. The Court also upheld the finding that the award was enforceable against non-signatories under the circumstances of the case.
The Supreme Court also addressed the argument that the damages were not quantified properly and held that the quantification was justified even if it was based on best judgment assessment.
The Court quoted from its previous judgment:
“Shri Harish Salve, learned Senior Advocate appearing on behalf of Arun Dev Upadhyaya, argued that the commission of a tort would be outside contractual disputes that arise under the Arbitration Agreement and that since the cause of action really arose in tort, the Award was vitiated on this ground.”
The Court also quoted:
“He then made a distinction between Section 46 and Section 35 of the Arbitration Act, and argued that under Section 46, a foreign award is to be treated as binding only on persons as between whom it was made and not on persons who 25 may claim under the parties.”
The Court further quoted:
“He also argued that insofar as his client was concerned, there was no evidence to show his involvement in any manner and that the findings against his client are unreasoned and perfunctory, and on this ground also the Award stands vitiated.”
The Court held that it had considered all these arguments and found no merit in them. The Court concluded that there was no error apparent on the face of the record to justify a review of the judgment.
What weighed in the mind of the Court?
The Supreme Court’s decision was heavily influenced by the principle that a review is not an appeal. The Court emphasized that a review is only permissible when there is an error apparent on the face of the record, not when there is a disagreement with the merits of the decision. The Court was also guided by the need to uphold the finality of judgments and the limited scope of review under Order XLVII Rule 1 of the CPC.
| Reason | Percentage |
|---|---|
| Adherence to the limited scope of review under Order XLVII Rule 1 CPC | 40% |
| Upholding the finality of judgments | 30% |
| Reaffirmation of the interpretation of Section 44 and 46 of the Arbitration and Conciliation Act, 1996 | 20% |
| Rejection of arguments on quantification of damages | 10% |
| Analysis | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Issue: Whether the Supreme Court overlooked the fundamental point that Section 44 read with Section 46 of the Arbitration and Conciliation Act, 1996, makes only a foreign award enforceable.
Court’s Reasoning: The Court had considered the interpretation of Section 44 and 46 and found no error in its previous judgment. The grounds for refusing enforcement of a foreign award are contained in Section 48.
Conclusion: The Court reaffirmed its previous decision.
Issue: Whether the Arbitrator could make the review petitioner a party to the arbitration proceedings by applying Delaware law.
Court’s Reasoning: The arbitrator’s decision to include the review petitioner was valid under Delaware law, and the enforcement in India was not contrary to Indian law.
Conclusion: The Court upheld the arbitrator’s decision.
Issue: Whether the Supreme Court misconstrued the distinction between Section 35 and Section 46 of the Arbitration and Conciliation Act, 1996.
Court’s Reasoning: The Court had compared the scope of Section 35 and 46 and concluded that Section 46 applies to all persons between whom the award was made, which can include non-signatories.
Conclusion: The Court clarified its interpretation of Section 46.
Issue: Whether the damages were calculated without any quantified basis.
Court’s Reasoning: The quantification of damages was justified, even if based on best judgment assessment, and did not require detailed documentary evidence.
Conclusion: The Court upheld the quantification of damages.
Key Takeaways
- A review petition is not an appeal. It is meant to correct errors apparent on the face of the record and not to re-argue the case on merits.
- Foreign arbitral awards can be enforced against non-signatories under certain circumstances, particularly when the applicable law permits it and the enforcement is not contrary to Indian law.
- The interpretation of Section 46 of the Arbitration and Conciliation Act, 1996, allows for the enforcement of foreign awards against individuals or entities who are not direct signatories to the arbitration agreement but are considered parties to the award under the applicable law.
- Courts may uphold damages awarded by an arbitrator even if the quantification is based on best judgment assessment and not on detailed documentary evidence.
Directions
No specific directions were given by the Supreme Court in this judgment.
Development of Law
The ratio decidendi of this case is that the Supreme Court reaffirmed its position that a review is not an appeal and that an error must be apparent on the face of the record to warrant a review. The Court also upheld the principle that foreign arbitral awards can be enforced against non-signatories under certain circumstances, particularly when the applicable law permits it and the enforcement is not contrary to Indian law. This case reinforces the limited scope of review jurisdiction and the importance of upholding the finality of judgments.
Conclusion
The Supreme Court dismissed the review petitions filed by Arun Dev Upadhyaya, upholding its previous decision to enforce the foreign arbitral award against him and GBTL, despite them not being signatories to the original arbitration agreement. The Court emphasized that a review is not an appeal and that the arguments raised did not demonstrate an error apparent on the face of the record. The judgment reinforces the principles of finality of judgments and the limited scope of review jurisdiction.