US 48 Arbitration Act Enforcement Court can refuse to enforce a foreign award, but cannot reverse it: Delhi High Court

Delhi High Court Bench Mr. Justice Jasmeet Singh confirmed that the right to set aside a foreign arbitral award belongs only to the courts at the place of arbitration that exercise primary/supervisory jurisdiction in the case. Even if the grounds provided for in Section 48 of the Arbitration Act can be established, the Court, being an enforcement court and having only secondary jurisdiction over a foreign arbitral award, cannot set aside the award, but can only “refuse” to enforce it.

Quick Facts

This is a petition for enforcement and execution of a foreign award dated 21.04.2022 passed by the learned Single Arbitrator in the arbitration between International Air Transport Association (“IATA”) and Spring Travels Pvt. LLC (“STPL”). The arbitration was conducted under the auspices of the ICC International Court of Arbitration and the place of arbitration was in Singapore.

applicant-IATA is a trade association of member airlines worldwide, representing approximately 280 airlines representing 83% of total air traffic. IATA, among other things, promotes safe and reliable air travel and operates a billing and settlement system for its member airlines (or “Carriers”) and accredited travel agents.

STPL has been appointed as an IATA Accredited Travel Agent pursuant to the Passenger Sales Agency Agreement (the “PSA Agreement”) dated 18 January 2005, entered into between STPL and IATA Members represented by IATA acting for and on behalf of its Members. This program allowed an accredited travel agent to sell air travel services to passengers of member airlines.

Since STPL violated the PSA by not remitting the money as per the remittance schedule, IATA sought compensation of Rs. 1,24,31,69,623 (equivalent to US$19,125,686 calculated at US$1 = INR 65) received by STPL from ticket sales plus interest.

IATA filed a request for arbitration on March 29, 2018 with the Secretariat of the ICC International Court of Arbitration. STPL filed a response to the Request for Arbitration dated 06/05/2018, inter alia, challenging the jurisdiction of the Arbitration Tribunal (“AT”) to hear claims in arbitration. AT was formed on June 29, 2018. 12. On 05/16/2019, Judge AT issued a partial decision in which STPL’s objections regarding jurisdiction and the possibility of continuing the arbitration proceedings were rejected.

STPL challenged the partial award before the Singapore International Commercial Court (“SICC”) in an appeal, which was dismissed in a judgment dated 25 March 2020. 14. After the decision dated March 25, 2020, the arbitration proceedings were resumed and the arbitration court made a final decision dated April 21, 2022.

In this regard, the present petition for enforcement has been filed.

Disagreements

Respondents presented that pursuant to section 48(1)(c) read with section 48(2) of the Arbitration Act, there was no arbitrable dispute in the absence of consideration by the Travel Agency Commissioner (“TAC”). In this case, reliance is placed, in particular, on the rules of the Guide, which imply that consideration of the TAC was a mandatory precondition for calling arbitration.

• Relies on Indian Oil Corporation. Ltd. v. Shree Ganesh Petroleum (2022) and SAIL v. J. C. Budharaja, Govt. and Mining Contractor (1999) state that the arbitrator, being the subject of the agreement, must act within the framework of the four parties to the agreement.
• The cost of arbitration proceedings was extremely high, preventing STPL from effectively participating in the proceedings and depriving it of a fair opportunity to be heard.
• The foreign award was unenforceable because, under the PSA and the Guidance, the carriers whose funds were involved were necessary parties to the proceedings and IATA’s claim could not be sustained in a representative capacity.
• This conclusion of the AT regarding the limitation was erroneous as there was no specific finding as to whether Indian or Singaporean law would apply.

On the contrary, the applicant stated that AT had the necessary jurisdiction which was not waived by IATA’s failure to obtain TAC review before commencing the arbitration. It is further submitted that STPL cannot challenge jurisdiction at this stage since this court in enforcement proceedings does not act as an appellate court.

• STPL waived the pre-arbitration demand by failing to approach the TAC for review within the prescribed period of 30 days.
• The fact that the issue of alleged financial difficulties of STPL and violation of principles of natural justice is denied as STPL has deliberately evaded the proceedings and is now trying to benefit from its own injustice.

Forensic analysis

The Court first discussed the powers of the enforcement court under Section 48 of the Arbitration Act and referred to the decision of the Supreme Court in Union of India v. Vedanta Ltd., (2020) At the same time, it was established that the right to set aside a foreign arbitral award belongs only to the courts at the place of arbitration, which exercise primary/supervisory jurisdiction on this issue.

The court in the above case further held that “even if the grounds under Section 48 of the 1996 Act can be shown, this Court, being an enforcement court and having only secondary jurisdiction over a foreign award, cannot set aside the award but can only “refuse” to enforce it. He also does not have the authority to verify the correctness of the decision of the court of the place.”

Based on the above, the court, applying the law to the facts of the present case, held that, in my opinion, AT’s view that nothing in the PSA Agreement or the Handbook states that IATA must approach the TAC to claim unpaid dues is plausible point of view.

The court went further and noted that “AT did not go beyond the terms of the contract and interpreted the terms of the contract reasonably. IATA’s claim was based on unpaid duties on tickets sold by STPL. Therefore, under Article 48 there can be no grounds for refusing enforcement of the award.”

The Court further agreed with AT’s view that STPL had waived its objection by concluding that it had the requisite jurisdiction and noted that AT had found that STPL was late in approaching the TAC and was therefore barred from seeking revision. .

The court further noted that IATA then applied to the court to enforce its claims against STPL. STPL, instead of defending the claims in court, filed an application under Rule 11 of the Code VII Order read with Section 8 of the 1996 Act in this suit seeking referral of the disputes to arbitration and obtained a favorable award. IATA did not object to this and went to arbitration.

The court also held that such conduct by STPL, in the opinion of AT, amounted to estoppel of the right to object. In my opinion, AT’s point is correct and, at worst, plausible. STPL does not have discretion to approve or disapprove. If STPL’s objection is accepted, IATA will be left without a remedy. STPL’s behavior suggests that it is attempting to derail the arbitration process. Therefore, this objection cannot be sustained under Article 48.

The Court further considered the dispute on natural justice and referred to the decision of the Supreme Court in Vijay Kariya v. Prysmian Cavi E Sistemi SRL, (2020) it was found that “Thus, if no opportunity has been given to deal with an argument that goes to the heart of the case, or with inferences based on evidence that occurs behind the party’s back and which results in a denial of justice to the detriment of the party, it will be: on the facts of the case, admit the foreign the decision is unenforceable on the grounds that the party failed to present its case.”

The court went further and noted that at each stage STPL was included in the correspondence, bearing legal costs, having access to the document storage system, links and the necessary details to enter the proceedings; and despite this, STPL refused to participate in the proceedings, refused to present its defense and refused to cross-examine its witness. Thus, STPL had ample opportunity to present its case but deliberately chose not to do so. STPL failed to prove that enforcement of the foreign award should be rejected on the ground of failure/denial of opportunity to present its case.

The court further noted that STPL also argued that the finding of limitation was erroneous. This is not the appellate court or the trial/supervisory court for this case. Moreover, the ground of perversity is not provided for in Article 48. Therefore, this objection is rejected.

The Court further noted that so far as the objection of non-compliance with section 47(1)(b) of the 1996 Act is concerned, it is erroneous. Hon’ble Supreme Court in PEC Ltd. v Austbulk Shipping Sdn. Bhd (2019) held that failure to produce documents under Article 47 is not a valid ground for refusal of enforcement under Article 48.

Based on the above, the court ruled that the PSA Agreement was attached to IATA’s petition as Document-2. Relevant extracts from the Handbook are attached to STPL as Document-R/2. The full text of the arbitration agreement is available in the court file and, therefore, the requirements of the 1996 Act were properly complied with. This basis is not a basis for refusing to enforce the decision. Therefore this objection is rejected.

The Court concluded that, for the reasons set out above, the objection raised by the respondent STPL under section 48 of the 1996 Act fails. Accordingly, the writ petition was granted.

Case name: INTERNATIONAL AIR TRANSPORT ASSOCIATION V.SPRING TRAVELS PVT LTD VIA

Help on the case: OMP(EFA)(COMM.) 1/2023 and EX.APPL.(OS) 537/2023

Date of decision: 10/29/2024

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