Jurisdiction - India
Reports and Analysis
India – Supreme Court Expands Public Policy Definition for Enforcement of Foreign Awards.

8 March, 2012

 

 

An Indian export company, Phulchand Exports Limited ("Phulchand"), initiated arbitration in the International Court of Commercial Arbitration at the Chamber of Commerce and Industry of the Russian Federation against a Russian company, OOO Patriot, under a Russian law contract for the export of rice to Russia.[1] The Tribunal found for OOO Patriot on some of the issues and awarded damages.
 
OOO Patriot sought to enforce the award in the High Court of Bombay. Phulchand challenged the enforceability of the award on the grounds that it was contrary to public policy.  The Bombay High Court, and on appeal the Supreme Court, rejected Phulchand's challenge and upheld enforcement. However, in doing so, the Supreme Court set a worrying precedent.
 
Phulchand had challenged enforceability of the award on the grounds that the award was patently illegal and therefore violative of the public policy of India. Previously, pursuant to the ruling in ONGC v Saw Pipes,[2] Indian courts had allowed such challenges in the context of setting aside proceedings. However, since the courts had treated the definition of public policy in the context of challenges to enforcement of foreign awards more narrowly, challenges on grounds such as patent illegality, which were a result of an expansive interpretation of public policy, were considered less likely to succeed.
 
The Supreme Court in Phulchand held that there is no distinction between the interpretation of the term 'public policy' across setting aside and enforcement proceedings. This paved the way for an expansive interpretation of the term, and the extension of the Saw Pipes ruling to cases dealing with enforcement of foreign arbitral awards. The result was that the court, on Phulchand's challenge, engaged in an extensive review of the merits of the foreign award to ascertain whether it was 'patently illegal' and therefore violative of public policy.
 
This decision raises significant concern for foreign parties seeking to enforce arbitral awards in India. The ability of the courts to re-open the case on merits at the stage of enforcement not only results in uncertainty, but also opens the door for potentially drawn-out litigation before the Indian courts. It is hoped that the courts, despite being enabled, adopt a conservative position in reopening cases at the stage of enforcement.

 

For further information, please contact:

 

Alastair Henderson, Partner, Herbert Smith

Alastair.Henderson@herbertsmith.com

 

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