Supreme Court Upholds Enforcement of Foreign Arbitral Award, Rejecting Bias Allegations: Avitel Post Studioz vs. HSBC PI Holdings (2024)

Introduction

Date of the Judgment: 04 March 2024
Citation: 2024 INSC 242
Judges: Justice Hrishikesh Roy and Justice Prashant Kumar Mishra

Can allegations of bias against an arbitrator prevent the enforcement of a foreign arbitral award in India? The Supreme Court of India recently addressed this critical question in a case involving Avitel Post Studioz Limited and HSBC PI Holdings (Mauritius) Limited. The court examined whether the High Court was correct in facilitating the enforcement of a foreign award, despite claims of arbitrator bias and violation of Indian public policy. This judgment clarifies the scope of judicial intervention in international commercial arbitration, emphasizing a pro-enforcement bias and the need for international standards when assessing bias claims.

Case Background

The dispute arose from a Share Subscription Agreement dated 21 April 2011, between HSBC PI Holdings (Mauritius) Limited (“HSBC”), a company incorporated in Mauritius, and Avitel Post Studioz Limited (“Avitel India”), an Indian company. HSBC invested US$ 60 million in Avitel India, acquiring 7.8% of its paid-up capital. The agreement included an arbitration clause stipulating that disputes would be resolved at the Singapore International Arbitration Centre (SIAC), with Singapore as the seat of arbitration.

HSBC claimed that Avitel India made false representations about a significant contract with the British Broadcasting Corporation (BBC) to secure the investment. Following the investment, HSBC alleged that Avitel India failed to provide information about the BBC contract and that the invested amount was siphoned off to different companies. Consequently, HSBC initiated arbitration proceedings at SIAC on 11 May 2012, seeking damages of US$ 60 million.

The arbitral tribunal, consisting of three members, including Mr. Christopher Lau, SC, as the Chairman, rendered its final award on 27 September 2014, directing Avitel India to pay US$ 60 million for fraudulent misrepresentations.

HSBC then initiated proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 (“Indian Arbitration Act”) before the Bombay High Court, seeking a direction for Avitel India to deposit US$ 60 million for enforcement of the award. Avitel India challenged this, arguing that the dispute was non-arbitrable due to allegations of fraud. However, the Supreme Court, in an earlier round of litigation, held that the dispute was arbitrable.

Timeline

Course of Proceedings

The respondent, HSBC, initiated proceedings under Section 9 of the Indian Arbitration Act before the Bombay High Court, seeking a direction for the appellants to deposit US$ 60 million for the purpose of enforcement of the Award. The appellants challenged this direction before the Supreme Court, arguing that the dispute was non-arbitrable due to allegations of fraud. The Supreme Court, however, held that the dispute was arbitrable and that HSBC had a strong prima facie case for enforcement.

Since the appellants failed to comply with the Supreme Court’s direction to deposit the amount, contempt proceedings were initiated against them. The appellants were directed to remain present before the Court. However, Appellant Nos. 2 to 4 went abroad, defying the Court’s direction, leading to the issuance of warrants and look-out notices. Ultimately, they surrendered and were sentenced to imprisonment for their conduct.

The enforcement proceedings culminated in the impugned orders dated 25 April 2023, of the High Court, whereby the final award was rendered enforceable. The appellants then appealed to the Supreme Court against this order.

Legal Framework

The legal framework for this case is primarily governed by the Arbitration and Conciliation Act, 1996, specifically Section 48, which deals with the enforcement of foreign arbitral awards. Section 48(2)(b) of the Indian Arbitration Act states that enforcement of a foreign award may be refused if it is contrary to the public policy of India.

India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the “New York Convention”). Article V(2) of the New York Convention allows for the refusal of recognition and enforcement of an arbitral award if the subject matter is not capable of settlement by arbitration under the law of that country or if the recognition or enforcement of the award would be contrary to the public policy of that country.

The Supreme Court also considered the International Bar Association (IBA) Guidelines on Conflict of Interest in International Arbitration, 2004, which provide standards for arbitrator impartiality and disclosure.

Arguments

Appellants’ (Award Debtors) Submissions:

• The Presiding Arbitrator, Mr. Christopher Lau, failed to disclose a conflict of interest, specifically his position as an independent non-executive director of Wing Tai, a company allegedly associated with the respondent.
• This non-disclosure violated the IBA Guidelines on Conflict of Interest in International Arbitration, particularly General Standard 3, which requires independence and impartiality of arbitrators.
• The award should not be enforced as it is against the public policy of India as per Section 48(2)(b) of the Indian Arbitration Act due to the arbitrator’s alleged bias.
• The appellants also raised an additional challenge under Section 48(1)(b) of the Indian Arbitration Act on account of ‘inability to present their case’ and the effect of the dictum of the five-judge bench of the Supreme Court in NN Global Mercantile Private Ltd. v M/s Indo Unique Flame Ltd.

Respondent’s (Award Holder) Submissions:

• The respondent, HSBC PI Holdings (Mauritius) Limited, is a subsidiary of HSBC Holdings PLC (United Kingdom). Another subsidiary, HSBC (Singapore) Nominees Pte Ltd., held a small percentage of Wing Tai’s equity on a trustee/nominee basis. However, Wing Tai has no relationship with the Award Holder and is not part of the HSBC Group.
• Mr. Christopher Lau, the Presiding Arbitrator, was an independent non-executive director of Wing Tai since 28 October 2013, and Chairman of its Audit and Risk Committee. However, he is not an employee of Wing Tai, and this did not compromise his independence or impartiality.
• The issue of bias cannot be raised under the concept of “public policy of India.” However, even if it could be raised, no disclosure was required on the part of the arbitrator.
• The respondent argued that the appellants’ challenge was a strategic attempt to delay the enforcement process and that the appellants had not raised any challenge to the award before the Singapore Courts.

Innovativeness of the argument: The appellants attempted to expand the scope of public policy to include bias, arguing that the arbitrator’s non-disclosure violated fundamental principles of justice. The respondent argued that the appellants’ challenge was a strategic attempt to delay the enforcement process.

Submissions

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues for consideration:

1. Whether the High Court was correct in rejecting the objection under Section 48(2)(b) of the Indian Arbitration Act against enforcement of the foreign Award on the grounds of arbitral bias and violation of public policy.
2. Whether the ground of bias could be raised at the enforcement stage under Section 48(2)(b) for being violative of the “public policy of India” and the “most basic notions of morality or justice”.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

On the interpretation of public policy in the context of enforcement of foreign awards:

• Parsons & Whittemore Overseas Co. v. Societe Generale de L’Industrie du Papier, 508 F.2d 969 (1974) (United States Court of Appeals, Second Circuit) – The Court followed this case, which advocated for a narrow reading of the public policy defense, stating that enforcement should only be denied where it violates the forum state’s most basic notions of morality and justice.
• Renusagar Power Co. Ltd. v. General Electric Co, 1994 Supp (1) SCC 644 (Supreme Court of India) – The Court noted that this case had followed the decision in Parsons & Whittemore Overseas Co. and had held that “public policy” should be construed to be the “public policy of India” by giving it a narrower meaning.
• Shri Lal Mahal Ltd. v Progetto Grano SpA, (2014) 2 SCC 433 (Supreme Court of India) – The Court highlighted that this case held that the wider meaning given to ‘public policy of India’ in the domestic sphere under Section 34(2)(b)(ii) would not apply where objection is raised to the enforcement of the Award under Section 48(2)(b) of the Indian Arbitration Act.
• Union of India v. Vedanta, (2020) 10 SCC 1 (Supreme Court of India) – The Court noted that the principle of pro-enforcement bias was further entrenched by the Supreme Court in this case.
• Vijay Karia v. Prysmian Cavi E. Sistemi SRL, (2020) 11 SCC 1 (Supreme Court of India) – The Court referred to this case, which had noted that Section 50 of the Indian Arbitration Act, 1996 does not provide an appeal against a foreign award enforced by a judgment of a learned Single Judge of a High Court and therefore the Supreme Court should only entertain the appeal with a view to settle the law.
• Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI), (2019) 15 SCC 131 (Supreme Court of India) – The Court noted that this case had held that the ground of most basic notions of morality or justice can only be invoked when the conscience of the Court is shocked by infraction of fundamental notions or principles of justice.

On the issue of bias in arbitration:

• Halliburton Co. v Chhub Bermuda Insurance Ltd, [2020] UKSC 48 (English Courts) – The Court noted that English Courts adopt the “informed or fair minded” observer test to conclude whether there is a “real possibility of bias”.
• Hancock v Hancock Prospecting Pty Ltd, [2022] NSWSC 724 (Australia) – The Court noted that Australia adopts the “real danger of bias” test.
• Re Shankar Alan s/o Anant Kulkarni, [2007] 1 SLR(R) 85 (Singapore) – The Court noted that Singapore prefers the standard of “reasonable suspicion”, rejecting the “real danger of bias” test.
• Perma Container(UK) Line Limited v Perma Container Line(India) Ltd, 2014 SCC OnLine Bom 575 (Bombay High Court) – The Court referred to this case, which had noted that since the objection of bias was not raised in appropriate proceedings under the English Arbitration Act,1996 , it could not be raised at the post-award Stage.
• Dutch Shipowner v. German Cattle and Meat Dealer, Bundesgerichtshof, Germany, 1 February 2001, XXIX Y.B.Com. Arb. 700 (2004) (German Supreme Court) – The Court noted that this case held that the objection of bias must be first raised in the Country of origin of the Award and only if the objection was rejected or was impossible to raise, could it be raised at the time of enforcement.

On the application of the IBA Guidelines:

• The Court discussed the IBA Guidelines on Conflict of Interest in International Arbitration, 2004, and the Red, Orange, and Green lists appended thereto.

Legal Provisions:

• Section 48 of the Arbitration and Conciliation Act, 1996 – The Court analyzed this section, which pertains to the enforcement of foreign arbitral awards.
• Article V(2) of the New York Convention – The Court referred to this article, which allows for the refusal of recognition and enforcement of an arbitral award if the subject matter is not capable of settlement by arbitration under the law of that country or if the recognition or enforcement of the award would be contrary to the public policy of that country.

Judgment

How each authority was viewed by the Court:

• Parsons & Whittemore Overseas Co. v. Societe Generale de L’Industrie du Papier [CITATION]: The Court followed this case, emphasizing a narrow interpretation of the public policy defense.
• Renusagar Power Co. Ltd. v. General Electric Co [CITATION]: The Court noted that this case had followed the decision in Parsons & Whittemore Overseas Co. and had held that “public policy” should be construed to be the “public policy of India” by giving it a narrower meaning.
• Shri Lal Mahal Ltd. v Progetto Grano SpA [CITATION]: The Court highlighted that this case held that the wider meaning given to ‘public policy of India’ in the domestic sphere under Section 34(2)(b)(ii) would not apply where objection is raised to the enforcement of the Award under Section 48(2)(b) of the Indian Arbitration Act.
• Union of India v. Vedanta [CITATION]: The Court noted that the principle of pro-enforcement bias was further entrenched by the Supreme Court in this case.
• Vijay Karia v. Prysmian Cavi E. Sistemi SRL [CITATION]: The Court referred to this case, which had noted that Section 50 of the Indian Arbitration Act, 1996 does not provide an appeal against a foreign award enforced by a judgment of a learned Single Judge of a High Court and therefore the Supreme Court should only entertain the appeal with a view to settle the law.
• Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) [CITATION]: The Court noted that this case had held that the ground of most basic notions of morality or justice can only be invoked when the conscience of the Court is shocked by infraction of fundamental notions or principles of justice.
• Halliburton Co. v Chhub Bermuda Insurance Ltd [CITATION]: The Court noted that English Courts adopt the “informed or fair minded” observer test to conclude whether there is a “real possibility of bias”.
• Hancock v Hancock Prospecting Pty Ltd [CITATION]: The Court noted that Australia adopts the “real danger of bias” test.
• Re Shankar Alan s/o Anant Kulkarni [CITATION]: The Court noted that Singapore prefers the standard of “reasonable suspicion”, rejecting the “real danger of bias” test.
• Perma Container(UK) Line Limited v Perma Container Line(India) Ltd [CITATION]: The Court referred to this case, which had noted that since the objection of bias was not raised in appropriate proceedings under the English Arbitration Act,1996 , it could not be raised at the post-award Stage.
• Dutch Shipowner v. German Cattle and Meat Dealer [CITATION]: The Court noted that this case held that the objection of bias must be first raised in the Country of origin of the Award and only if the objection was rejected or was impossible to raise, could it be raised at the time of enforcement.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Pro-Enforcement Bias: The Court emphasized the need for a pro-enforcement bias in international commercial arbitration, stating that minimal judicial intervention is the norm.
• Narrow Interpretation of Public Policy: The Court reiterated that the public policy exception under Section 48(2)(b) of the Indian Arbitration Act should be construed narrowly, in line with international standards.
• International Standards for Bias: The Court held that when assessing bias claims, international standards should be applied rather than domestic standards, and that bias should only be a ground for refusal of enforcement in exceptional circumstances.
• Timely Challenges: The Court stressed that challenges to arbitral appointments must be made in a timely manner and not strategically used to delay the enforcement process.
• IBA Guidelines: The Court found that the High Court had correctly applied the reasonable third-person test from the IBA Guidelines and concluded that no justifiable doubts arose about Mr. Lau’s impartiality or independence.
• No Conflict of Interest: The Court determined that Mr. Christopher Lau did not have a duty to disclose his position as an independent non-executive director of Wing Tai, as Wing Tai did not fall within the definition of “affiliate” of the award holder.
• Failure to Challenge in Singapore: The Court noted that the appellants had not raised any challenge to the award before the Singapore Courts, which was the seat of arbitration.

Sentiment Analysis:

Ranking of Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio

Logical Reasoning:

The Court considered alternative interpretations but rejected them based on the above reasoning, emphasizing the need for a pro-enforcement bias and the application of international standards.

The Court’s decision was clear: the appellants’ arguments for denying enforcement were not supported by the facts or the law. The Court found no evidence of bias thatwould warrant the rejection of the foreign arbitral award.

Final Verdict

The Supreme Court dismissed the appeals filed by Avitel Post Studioz Limited and others, upholding the High Court’s decision to enforce the foreign arbitral award. The Court found no merit in the allegations of arbitrator bias and emphasized the importance of a pro-enforcement bias in international commercial arbitration.

Implications

This judgment has significant implications for parties involved in international commercial arbitration:

• Pro-Enforcement Bias: The judgment reinforces the pro-enforcement bias in India for foreign arbitral awards, making it more difficult to challenge such awards on flimsy grounds.
• Narrow Interpretation of Public Policy: The Court’s narrow interpretation of “public policy” means that only in exceptional circumstances will an award be denied enforcement on this basis.
• International Standards for Bias: Parties must be aware that Indian courts will apply international standards when assessing claims of arbitrator bias, and not domestic standards.
• Timely Challenges: Challenges to arbitral appointments must be made promptly and in the appropriate forum, as strategic delays will not be tolerated.
• IBA Guidelines: The IBA Guidelines on Conflict of Interest in International Arbitration will be given due consideration by Indian courts when assessing claims of bias.
• Limited Scope for Judicial Intervention: The judgment underscores the limited scope for judicial intervention in international commercial arbitration, encouraging parties to resolve disputes through arbitration.
• Importance of Seat of Arbitration: Parties must be mindful of the seat of arbitration and the laws governing arbitral proceedings in that jurisdiction.