Foreign Arbitral Award Unenforceable In India Without Valid Arbitration Agreement: Kerala High Court

The Kerala High Court on Tuesday held that a foreign arbitral award, even if confined to costs, cannot be enforced in India under the Arbitration and Conciliation Act, 1996, if it is rendered in the absence of a valid arbitration agreement, holding that such disputes are not capable of settlement by arbitration under Indian law.

Justice S. Manu dismissed an execution petition filed by Concilium Marine Group AB and Concejo AB, two Swedish entities, against an Indian resident, observing, “A valid arbitration agreement is a baseline for a lawful arbitral proceeding in India. Agreement-less arbitration is inconceivable in Indian law. S.48(2)(a) stipulates that enforcement of an arbitral award can be refused if the court finds that the subject matter of difference is not capable of settlement by arbitration under the law of India. As the Arbitration and Conciliation Act, 1996 does not envisage a lawful arbitration without an agreement as articulated under S.7, for want of a binding agreement, the differences between the petitioners and the respondent in this case were not capable of settlement by arbitration under the Indian law. Consequently, the award is hit by S.48(2)(a). For the same reason, in my view it attracts the disqualification under S.48(2)(b) too even though the expression 'public policy of India' is understood in a restricted sense.”

The court refused to enforce the Sweden-seated award, holding that an award rendered without a valid arbitration agreement would fail to meet the requirements under Sections 44 and 47 of the Act and would be liable to refusal under Section 48.

The dispute arose when Sharath Thazhathe Veedu initiated arbitration proceedings against the Swedish entities before a three-member arbitral tribunal seated in Sweden under the Stockholm Chamber of Commerce (SCC) Arbitration Rules, 2017.

During the proceedings, the Swedish companies, who were respondents in the arbitration, contested the existence of a binding arbitration agreement.

Accepting this objection, the tribunal, by its award dated January 30, 2023, held that no valid arbitration agreement had come into existence between the parties and rejected the substantive claims. However, it directed Sharath to bear 100% of the arbitration costs.

The Swedish entities thereafter approached the Kerala High Court by way of an execution petition under Part II of the Act, seeking enforcement of the cost award of Rs 10.51 crore along with interest.

They argued that the tribunal was competent under Swedish law to award costs even after declining jurisdiction on merits and that the arbitration agreement had subsequently been produced, contending that enforcement should not be denied on technical grounds.

Sharath Thazhathe Veedu opposed the petition, contending that the tribunal's finding regarding the absence of a valid arbitration agreement had attained finality, as the award was not challenged under Swedish law.

He argued that, in the absence of such an agreement, the award would not qualify as a “foreign award” under Section 44 of the Act and its enforcement would violate statutory requirements as well as public policy.

Examining the Indian law, the court reiterated that while enforcement proceedings under Part II do not permit a review of the award on merits, they nonetheless require strict compliance with the foundational conditions laid down under Sections 44 and 47 of the Act, read with the New York Convention.

Emphasising that a foreign award must arise from a written arbitration agreement, the court held that permitting enforcement in the absence of such an agreement would run contrary to the scheme of the Act.

Accordingly, the High Court refused to enforce the foreign arbitral award and dismissed the execution petition.

For Petitioner (Concilium Marine Group AB & Concejo AB): Advocates Anil Xavier (Senior), Millu Dandapani.

For Respondent (Sharath Thazhathe Veedu): Advocates Saiby Jose Kidangoor, Benny Antony Parel.