Bombay High Court Upholds Foreign Award In TASL–Ion Exchange Dispute, Rejects Public Policy Challenge

The Bombay High Court on 17 March held that the “public policy of India” ground under Section 48 of the Arbitration Act, 1996 (the Act), cannot be used to apply Indian legal principles to challenge enforcement of a foreign arbitral award arising from a foreign-law governed contract.

Justice Somasekhar Sundaresan allowed a petition filed by Trading and Agency Services Limited (TASL), a Qatari company, to enforce a foreign arbitral award of USD 978,300 against Ion Exchange (India) Limited.

The Court observed:

“While Indian law principles can be sought to be imported on what was a Qatari-law governed contract, it would not be possible to simply apply Indian law as if the parties' conscious choice of law is to be ignored, just when it comes to enforcement of the Subject Award.”

TASL filed the petition under Part II of the Arbitration and Conciliation Act seeking recognition and enforcement of an arbitral award dated 27 October 2022 against Ion Exchange (India) Limited.

TASL had engaged Ion Exchange as a subcontractor through a memorandum of understanding and four sub-contracts for engineering, procurement, installation and commissioning of industrial water plants in Qatar for Ras Laffan and Qatar Chemical under lump-sum contracts valued at QAR 106 million and QAR 123 million respectively. In May 2018, the main clients terminated their contracts with TASL, triggering back-to-back termination of the sub-contracts.

Ion Exchange initiated arbitration under the ICC Rules in London. The arbitrator directed Ion Exchange to pay TASL USD 978,300.48 with 5 percent compound interest from November 2022. TASL subsequently approached the Bombay High Court seeking enforcement of the foreign award in India.

Ion Exchange argued that TASL had settled its disputes with the main clients and therefore suffered no loss, contending that recovery from Ion would amount to unjust enrichment. It also argued that under Indian contract law unliquidated damages could not be granted over and above liquidated damages.

It further contended that the arbitrator's refusal to postpone the July 2021 hearing during the COVID-19 lockdown prevented it from producing witnesses and violated principles of natural justice under Section 48(1)(b) of the Act.

TASL submitted that the arbitrator correctly treated reimbursement of the settlement amount paid to the main clients as an independent indemnity claim distinct from liquidated damages. It also argued that under Qatari law the burden of proving absence of loss lay on Ion Exchange and that the virtual hearing afforded both parties a reasonable opportunity to present their case.

Accepting TASL's submissions, the Court held that the indemnity claim relating to settlement payments and liquidated damages for delay operated independently. Referring to Article 266 of the Qatari Civil Code, the Court noted that Ion Exchange bore the burden of proving that TASL had suffered no loss, which it failed to do. The Court also noted that the arbitrator had reduced the claim from QAR 7 million to QAR 4.5 million.

The Court observed:

“Under Qatari law, which governed the four Sub-Contracts, the onus was on Ion Exchange to prove that no loss was suffered by Trading and Agency or that the losses were exaggerated… one cannot seek to convert a contract governed by Qatari law to be treated as a contract governed by Indian law when enforcement of a commercially-reasonable foreign award is brought to India for recognition and enforcement.”

On the objection regarding the virtual hearing, the Court held that the arbitrator was justified in proceeding with the July 2021 hearing through video conferencing, noting that Ion Exchange had actively participated and failed to show that its ability to present its case was materially impaired.

Accordingly, the Court rejected Ion Exchange's objections and held that the arbitral award was enforceable under Section 49 of the Act.

For Petitioner: Mr. Sharan Jagtiani, Senior Advocate a/w Ms. Sushmita Gandhi, Ms. Sanaya Patel, Mr. Vedant Chajed, Ms. Kritika Garg, Adv. Sankalpita Mallik i/b Trilegal,

For Respondent: Mr. S. U. Kamdar, Senior Advocate a/w Adv. Shaheda Madraswala, Adv. Devam Singh, Adv. Sharanya Sahadevan i/b Vashi and Vashi