Indian Supreme Court takes a strong stand on delays in enforcing foreign arbitral awards

23 April 2024

In the recent judgment of Avitel Post Studioz Limited & Ors. v. HSBC PI Holdings (Mauritius) Limited the Indian Supreme Court dismissed a challenge to the enforcement of a 2014 SIAC arbitral award obtained in Singapore. The decision is a strong endorsement by the Indian courts of the need to adopt international standards in arbitration, but also recognises the "arduous struggle" which award creditors can face when seeking to enforce an award in India.

Background

The decision is the latest milestone in HSBC's efforts to enforce a SIAC arbitral award in the amount of USD 60 million (plus interest) in respect of a fraud perpetrated against it by Avitel and its directors.

After HSBC applied to enforce the final award in India in 2015, the award debtors have sought to block enforcement at every turn, for example:

by applying to "set aside" the award under section 34 of the Indian Arbitration and Conciliation Act (the "Act"), in petitions which were dismissed by the Bombay High Court;
challenging Bombay High Court orders which HSBC obtained against them to deposit sums by way of security for the award amount – although ultimately three of the award debtors were sentenced to imprisonment after the Indian Supreme Court held them to be in contempt of those orders.

In the enforcement petition itself, the award debtors had challenged enforcement on numerous grounds, including by alleging that the underlying share subscription agreement was insufficiently stamped and that the award debtors were unable to present their case in the arbitration. After numerous delays and interlocutory applications, the Bombay High Court rejected the award debtors' arguments and issued orders for enforcement of the final award in April 2023.

The award debtors challenged the decision of the High Court in the Indian Supreme Court by way of a special leave petition. The only argument which the award debtors pursued was that the presiding arbitrator in the SIAC arbitration, Mr Christopher Lau SC, was subject to bias and therefore enforcement of the award would be contrary to the public policy of India under section 48(2) of the Act. Essentially, the bias argument was based on Mr Lau SC's non-disclosure of certain non-executive directorships of companies which HSBC did business with or held shares in (on behalf of its clients) which, according to the award debtors, compromised his independence and impartiality.

The Court's analysis

The Supreme Court robustly dismissed the special leave petition, finding that the award debtors failed to substantiate their bias allegations and did not meet the high threshold for refusal of enforcement of a foreign award under section 48 of the Act. The Court began by setting out the general principles to be applied in the enforcement of foreign awards:

The Court commented on the pro-enforcement bias of the New York Convention (to which India was one of the earliest signatories), emphasising that "minimal judicial interference to a foreign award is the norm" and that "a review on the merits of the dispute is impermissible." It was further noted that the Supreme Court should only entertain appeals from a High Court decision enforcing a foreign award to settle questions of law or in exceptional cases of blatant disregard of section 48.
Citing domestic and international jurisprudence, the Court confirmed that the doctrine of public policy, when applied to New York Convention awards, should be given an international and not a domestic dimension. Consequently, there is a clear distinction between the standards of public policy applicable for domestic arbitration and international commercial arbitration.

Adopting an internationalist approach and a narrow standard of public policy, the Court concluded that it is only in exceptional circumstances – when the most basic notions of morality or justice are violated – that enforcement of a foreign award should be refused on the grounds of bias. The Court also observed that a higher threshold is invoked to refuse enforcement of a foreign award based on alleged partiality of an arbitrator than is applicable in cases of removal of the arbitrator.

Examining the facts of the alleged bias scenario, the court found that Mr Lau SC had not failed to discharge his duty of disclosure under the IBA Guidelines on Conflict of Interest in International Arbitration (or any other applicable standard) and therefore there was no violation of public policy which would render the award unenforceable in India.

The Court also emphasised that "bonafide challenges to arbitral appointments have to be made in a timely fashion and should not be used strategically to delay the enforcement process." In that regard, the Court strongly criticised the award debtors for never having applied to set aside the award on the bias (or any other) grounds before the Singapore courts (i.e., the courts of the seat of arbitration).

Finally, the Court lamented the "arduous struggle" which HSBC has faced in enforcing the SIAC award against the award debtors. Alluding to the fear that arbitral awards to be enforced in India are nothing more than a paper tiger, the Court saw fit to quote Oscar Wilde's epigram "In this world, there are only two tragedies. One is not getting what one wants, and the other is getting it." As such (notwithstanding the decade-long path to enforcement so far), the Court opened the door to "early enforcement" of the SIAC award, without any further indulgence to the award debtors.

Indeed, in the wake of the Supreme Court's judgment, in early April 2024 the Bombay High Court – in HSBC's execution proceedings in respect of bank accounts belonging to the award debtors which had been frozen as security pending enforcement of the SIAC award – has ordered that the amounts lying in such accounts be transferred to HSBC. As such, nearly ten years after the SIAC award was issued, HSBC is finally set to begin recovering damages against the award debtors.

Comments

This decision of the Indian Supreme Court (by Justices Hrishikesh Roy and Prashant Kumar Mishra) is to be welcomed. While previous Indian court decisions have explained the principles of minimal judicial intervention in the enforcement of foreign arbitral awards, few have done so with such clarity, concision and purpose.

While India has often attempted to reform its arbitration landscape through successive amendments to the Act and policy papers (including the recent Report of the Expert Committee on Arbitration Reforms issued in February 2024), it is ultimately through sensible judicial decision-making that true reform will be achieved. The decision in Avitel Post Studioz Limited & Ors. v. HSBC PI Holdings (Mauritius) Limited demonstrates a commendably internationalist approach to the enforcement of foreign awards and, moreover, highlights a limited tolerance for the lengthy delays and guerilla tactics which parties have frequently faced when seeking to enforce awards in India.

Content relating to India is based on our experience as international counsel representing clients in their business activities in India. We are not permitted to advise on the laws of India, and should such advice be required we would work alongside a domestic law firm.

Clifford Chance acted for HSBC PI Holdings (Mauritius) Limited in the SIAC arbitration proceedings and advised in respect of the Indian proceedings. AZB & Partners appeared in the Indian proceedings and the SIAC proceedings.