This article has been written by Pawan Kumar pursuing a Diploma in Corporate Litigation course from LawSikho.
This article has been edited and published by Shashwat Kaushik.
Table of Contents
Introduction
Foreign awards are primarily those awards issued in a country other than the country where enforcement takes place. As per Section 44 of the Arbitration and Conciliation Act of 1996, a foreign award is an arbitral award on a dispute between two persons having a legal relationship, whether contractual or not, and is treated as commercial in nature as per Indian Iaw. Foreign awards have international recognition and play a very significant role in international arbitration. Enforcement of foreign awards in India is governed by the Arbitration and Conciliation Act, 1996 and the Code of Civil Procedure, 1908. To be precise, Part II of the Arbitration and Conciliation Act primarily governs the enforcement of foreign arbitral awards in India as per the rules elucidated under the New York Convention or Geneva Convention.
The case of Sakuma Exports Ltd. vs Louise Dreyfus Commodities Suisse S.A mainly addresses the issue of whether the courts in India have jurisdiction to entertain the petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (the Act) to challenge the international commercial arbitral award of an arbitral tribunal constituted by the Refined Sugar Association situated in London.
Case Name: Sakuma Exports Ltd. vs Louise Dreyfus Commodities Suisse S.A
Court: Supreme Court of India
Petitioner: Sakuma Exports Ltd.
Respondent: Louise Dreyfus Commodities Suisse S.A
Date of Judgement: 28 March, 2014
Facts of the case
Sakuma Exports Ltd. is a public company registered under the Companies Act, 1956, carrying out its business from its offices in Mumbai and Louis Dreyfus Commodities, having its registered office in Switzerland. It entered into a contract to purchase and sell Brazilian white sugar as per the terms & conditions of the said purchase contract.
The dispute started when the petitioner failed to pay the respondent despite receiving reminders and letters from the respondent. According to the terms of the contract, the respondent has the right to terminate the contract, sell the cargo to a third party and claim damage from the petitioner in such a situation.
The respondent submitted a written request to the Refined Sugar Association, London to initiate arbitration proceedings. The Association passed an arbitral award allowing the respondent to take their claim. The respondent approached the Bombay High Court in order to enforce the arbitral award, but the petitioner objected to its enforceability on various grounds, including the ground of limitation. An execution application was filed by the respondent for the execution of the said foreign arbitral award. A Notice of Motion seeking condonation for a delay of 273 days in filing an arbitration petition was heard together with the proceeding.
The Honourable Bombay High Court upheld the contention raised by the respondent pertinent to the jurisdiction of the courts in India to entertain the petition under Section 34 of the Arbitration and Conciliation Act, 1996.
The petitioner preferred an appeal in the Supreme Court of India by filing a Special Leave Petition, which was dismissed by the court on March 28, 2014.
Issues of the case
- Whether the court should condone the delay in filing an arbitration petition?
- Whether the courts in India have jurisdiction to entertain the petition filed under Section 34 of the Arbitration and Conciliation Act, 1996, to challenge the international commercial arbitral award of an arbitral tribunal constituted by the Refined Sugar Association?
- Whether the execution application filed by the respondent (Louise Dreyfus Commodities) was valid?
Arguments advanced
Arguments put forth by Sakuma Exports Ltd. in the Bombay High Court against the enforceability of the foreign arbitral award are as follows:
Despite the delay of 273 days in filing the arbitration petition to enforce the foreign award, the respondent (Louise Dreyfus Commodities) failed to disclose the reasons for such delay in order to seek condonation of such delay at the time of filing the arbitration petition. Due to insufficient cause, the court should not condone such delay and dismiss the notice of motion.
The respondent could not have filed an execution application simply to execute a foreign arbitral award. They should have filed the petition under Sections 47 and 48 of the Act to enforce the award, and the application could not be made absolute without enforcing the award. The filing of the execution application was insufficient and could not be considered sufficient compliance with Section 47 of the Act.
The respondent was well aware that they should have filed the petition under Section 47 of the Act to enforce the foreign arbitral award, but they went without filing under Section 47 of the Act. Though there was a gross delay in filing the arbitration petition, the respondent did not file the application for condonation of delay.
The respondent had filed an execution application within time; however, they failed to file any petition to enforce the award within time, i.e., three years from the date of the cause of action as per Article 137 of the schedule of the Limitation Act.
The respondent cannot take the plea of section 14 of the Limitation Act while calculating the amount of time spent in another civil proceeding (Execution Application). The said execution application was not prosecuted by the respondent in good faith and with due diligence in a court that lacks jurisdiction. The respondent had filed the execution application in a competent court but failed to file an application to enforce the foreign award within time under section 47. So, the application of Section 14 of the Limitation Act ceases to exist in such circumstances. Hence, the respondent cannot consider the time spent pursuing the execution application to compute the limitation to file an arbitration petition.
The petitioner was not given the opportunity of an oral hearing by the arbitral tribunal and had imposed a condition of depositing thirty thousand pounds as a pre-condition for rendering any oral hearing. The condition was unreasonable and harsh, and thus, the petitioner could not comply with such arbitrary and unreasonable directions. No law authorises the tribunal to put such pre-conditions in place in order to grant the oral hearing. Therefore, the said foreign award violated public policy and the principles of natural justice and, hence, cannot be enforced under Section 47, read with Section 48.
The respondent was permitted by the tribunal to file additional documents and written arguments, but the petitioner did not have any opportunity to deal with such documents. Thus, the award is violative of the principles of natural justice and cannot be enforced. Even the arbitral tribunal allowed the respondent to claim damages contrary to the findings, i.e., lack of evidence and/or no evidence to prove such a claim. If the petitioner could have had the opportunity of an oral hearing, then the tribunal could have dismissed the claim on the grounds of no evidence / insufficient evidence.
The arbitral tribunal was well aware that the market price of the goods was not completely clear. Contrary to such findings and observations, the tribunal allowed the claim for damages. The tribunal did not even consider the expert evidence filed by the petitioner on the quality and nature of sugar and passed the award based on their personal experience, which shows perversity and contrariness in the impugned award. Therefore, the award conflicts with the fundamental policy of Indian law.
Arguments put forth by Louise Dreyfus Commodities in the Bombay High Court in favour of the enforceability of the foreign arbitral award are as follows:
Relying on the case of Fuerst Day Lawson Ltd. and the case of Thyssen Stahlunion GMBH, the Supreme Court held that there was no need for two separate proceedings, which results in a multiplicity of litigation if the purpose and object can be served in the same proceeding. So, there is no need for a separate petition under Section 47 of the Act along with the execution application.
For about four years, the petitioner (Sakuma Exports Ltd.) did not file any affidavit in response to the execution application and did not even raise any plea with regard to the maintainability of the said execution application. The petitioner raised the plea only before the Appeal Court on the ground that the execution application cannot be filed in isolation and the respondent is required to file an application under Section 47 of the Act along with the execution application.
There was no delay in filing the arbitration petition, as the respondent is not required to file a separate application for execution under Section 47 of the Act. The time taken in prosecuting the execution application needs to be excluded from calculating the limitation period under Section 14 of the Limitation Act, and, therefore, the present petition should not be barred on that ground. The respondent was prosecuting all the proceedings in good faith and with due diligence. Thus, for the reasons stated above and disclosed in the affidavit in support of the Notice of Notion, the court shall condone the delay.
The petition filed by the petitioner to impugn the foreign arbitral award under section 34 has been rejected by the single judge bench of the court (Bombay High Court), and the order has been upheld by the Division Bench of the court (Bombay High Court) and also by the Supreme Court of India. Thus, the award has achieved its finality.
Even if the error has been committed by the arbitral tribunal and affects the merit of the case, the court, on that ground, cannot refuse to enforce the foreign arbitral award under Section 48 of the Act.
Judgement of the Court
The Bombay High Court held that Sakuma Exports Ltd. failed to furnish any proof to justify its refusal to enforce the foreign award in the case of POL India Projects Ltd. vs. Aurelia Eugen Friederich Gmbh. The court, bound by the precedent set in that case, determined that the foreign award was enforceable and binding on the parties under Section 46 of the Arbitration and Conciliation Act, 1996 (the “Act”).
The High Court emphasised that the award stood as a decree, granting Louise Dreyfus Commodities, the successful party in the arbitration, the right to enforce it. The court acknowledged that Louise Dreyfus Commodities had taken adequate steps to execute the foreign award and deemed its petition to be in accordance with the law and Section 47 of the Act.
Moreover, the Bombay High Court condoned the delay in filing the arbitration petition, recognising that such delays could occur for various reasons, and allowed the execution application to proceed. This decision underscores the court’s commitment to ensuring the efficient enforcement of foreign awards, balancing the need for timely action with the recognition of potential extenuating circumstances.
By making the Notice of Motion and Arbitration Petition absolute, the Bombay High Court effectively paved the way for Louise Dreyfus Commodities to take further steps towards executing the foreign award. This judgement reinforces the significance of upholding the principles of international arbitration and the sanctity of arbitral awards, promoting confidence in India’s legal framework for resolving cross-border commercial disputes.
Sakuma Exports Limited approached the Supreme Court of India by filing a Special Leave Petition. The Supreme Court found no merit in the petition, and thereby, the court dismissed the petition on March 28, 2014.
Conclusion
By diligently examining the case and listening to the arguments put forth by both parties, the Hon’ble Bombay High Court upheld the governing principles for the enforcement of the foreign arbitral award. The court was of the view that Sakuma Exports Ltd has not furnished any proof in order to refuse the enforcement of the foreign award and held that the award is enforceable and binding on the parties under section 46 of the Arbitration and Conciliation Act, 1996. Due to a lack of merit in the case, the Hon’ble Supreme Court of India dismissed the Special Leave Petition filed by Sakuma Exports Limited and affirmed the decision given by the Bombay High Court relating to the jurisdiction to entertain the petition filed under section 34 of the Arbitration and Conciliation Act, 1996, to challenge the international commercial arbitral award.
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