Supreme Court on the Challenge of Foreign Arbitral Awards and Article 136 of the Indian Constitution

Keywords: enforcement, award, appeal, Supreme Court

Section 48 of the Arbitration and Conciliation Act, 1996 (“the Act”) stipulates conditions for enforcement of a foreign award. It also lays down grounds on which enforcement of a foreign award can be refused in the country. Section 50 of the Act further specifies which orders are appealable under the Act. It is pertinent to note that Section 50 is neatly drafted to allow only appeals from an order refusing the enforcement of a foreign award and not vice versa. An order allowing the enforcement cannot be further appealed under the scheme of the Act. This is in line with the scheme of Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“the convention”) of which India is a signatory. As per the scheme of the convention, an award debtor has two forums to challenge the award or refuse the enforcement of the said award. First, by challenging the said award before the court of the country where it has been passed, and second before the court of the country where it has to be enforced.

Once a competent court under Section 48 has allowed the enforcement of the award, no appeal is allowed from such an order. The intention is to provide finality to a foreign award without unnecessary hurdles to the award holder. However, more often than not, litigants in India have chosen to avail the jurisdiction of the Supreme Court of India to take a second bite at the cherry by approaching the court under Article 136 of the Indian Constitution. Article 136 of the Constitution, vests in the Supreme Court the power to grant a “special leave to appeal from any judgement”. Further, Section 50 of the Act also specifies that “nothing in this section shall affect or take away any right to appeal to the Supreme Court,” allowing the parties to approach the Supreme Court even when no appeal lies under the scheme of the Act.

Lately, the Supreme Court has become cognizant of attempts by the award debtors to abuse the jurisdiction of the Supreme Court by taking a third attempt at challenging the award by approaching the court under Article 136. In order to understand the jurisdiction of the Supreme Court under Article 136 vis-à-vis Section 50 of the Act, it is important to understand the “right to appeal” stated in Section 50.

The question came up distinctly before the Supreme Court in the case of Shin-Etsu Chemical Co. Ltd. Vs. Vindhya Telelinks Ltd. and Ors[i], whereby the court examined its power to decide on a subject matter, to which a second appeal is barred under Section 50 of the Act. In Shin Etsu, the Court pointed out that under Article 136, parties do not have a ‘right to appeal.’

“Article 136 does not confer a right to a party to appeal to the Supreme Court. The said article confers discretion upon the Supreme Court to grant leave to appeal in suitable cases. The power vested in Supreme Court to grant leave, which is to be used sparingly in appropriate cases, cannot be construed as vesting of a right of appeal in a party under Article 136………………..The words “right to appeal” refers to a right conferred either under the Constitution or under a statute to file an appeal to a higher court against the judgment, decree or order of a lower court, without having to first obtain any permission or leave. ………….An appeal by special leave to Supreme Court cannot therefore be considered as an appeal as of right or as an appeal in pursuance of a right to appeal to the Supreme Court.”

In a recent judgement, the High Court of Telangana in Avra Commodities Pte. Ltd. Vs. Meenakshi Energy Ltd[ii]., held that while a discretionary appeal lies to the Supreme Court under Article 136 even when an appeal in not allowed under Section 50 of the Act, such appeals should be entertained only if the Court feels that they raise a question of fundamental importance or public interest. Further in Vijay Karia and Ors. Vs Prysmian Cavi E Sistemi Srl and Ors.[iii], the Supreme Court laid down the ultimate test for preferring an appeal under Article 136 of the Constitution whereby a second appeal is barred under Section 50 of the Act. The Supreme Court in this case discussed the legislative policy of the Act according to which only one bite at the cherry is allowed. The parties may only prevent enforcement once, by approaching the court under extremely narrow grounds contained in Section 48 of the Act. If the parties then approach the court under Article 136, the Supreme Court directed that it must entertain such petition on a narrow ground, and it should entertain an appeal only if it opens up a unique question of law and requires guidance of the Supreme Court on the same. The Supreme Court further stated that it is “only in a very exceptional case of a blatant disregard of Section 48 of the Act that the Supreme Court would interfere with a judgment which recognizes and enforces a foreign award however inelegantly drafted the judgment may be.”

Be as it may, it has been observed that more often than not, the litigants prefer a petition under Article 136 to ensure that they exhaust every single remedy possible, within or outside the Act. However, on 12 October 2020, in the case of Responsive Industries Ltd v Banayan Tree Growth Capital L.L.C & Ors[iv], the Supreme Court while citing its judgement in Vijay Karia, imposed a cost of Rs.10,00,000 on the award debtor who approached the court under a special leave petition against the Bombay High Court’s judgement which allowed the enforcement of the said foreign award.

Conclusion

Through its recent pronouncements, the Supreme Court has strengthened the position of law regarding the enforcement of a foreign award in India. It has clarified two very important things – 1) that Article 136 does not offer the ‘right to appeal’ as envisaged under Section 50 of the Act and that the discretion under Article 136 lies solely with the Supreme Court to grant a leave; and 2) if the Supreme Court does in fact grant a leave to hear a petition under Article 136, it must do so on very narrow circumstances where the matter requires determination on a unique question of law. By introducing such a narrow test, the Court has made it clear that the litigants must not be allowed to do indirectly what they cannot do directly. Article 136 is another way of taking a bite at the cherry that cannot be touched as per Section 50 of the Act. The judgment in Responsive Industries should be a guiding note for all the parties referring to arbitration and the counsels representing them, to understand the scheme of the act and accord finality to the award by the arbitral tribunal.

ENDNOTES

[i] AIR 2009 SC 3284
[ii] 2020 (3 )ALD 387
[iii] AIR 2020 SC 1807
[iv] Special leave petition number Nos.11404-11405/2020

Divyansha Agrawal is an associate at Advani & Co., and an alumnus of O.P. Jindal Global University.

The views and opinions expressed in the article are those of the author(s) solely and do not reflect the official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.