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FACTS– On September 18, 2000, DMC Management Consultants Ltd. (DMC), Nagpur, India, and Integrated Sales Services Ltd. (ISS), Hong Kong, entered into a Representation Agreement (Agreement), under which ISS was to assist DMC in selling its goods and services to potential customers in exchange for commission. The Agreement was to be governed by the laws of the State of Delaware, United States of America (Delaware Laws), pursuant to an addendum. Contracts with clients that were referred to and maintained by ISS were cancelled by DMC in 2008. There were arguments between ISS and DMC. ISS claimed that when the contracts were terminated, DMC through affiliated parties entered into new contracts with these customers that ISS had introduced, depriving ISS of commissions. The ISS started an arbitration against DMC and the related parties which included Mr. Arun Dev Upadhyay (Chairman), DMC Global Inc., Gemini Bay Consulting Limited (GBCL) and Gemini Bay Transcription Pvt. Ltd. (GBT). Award was issued by the arbitrator on 28th March, 2010 wherein it was held by him that DMC, DMC Global, GBCL and GBT along with the chairman were all liable jointly and severally to re-compensate the ISS

ISSUE– The issue that arose before the supreme Court was to decide on the enforcement of the foreign award with respect to non-signatory to Arbitration Agreement.

RATIO– The Court looked at the features of foreign judgements and the restrictions on their enforcement. It came to the conclusion that the public policy-based restrictions on enforcement should be strictly applied. The damage suffered by Integrated Sales Service and the compensation that had accrued to it were acknowledged by the court. The appellants stated that because the arbitrator had applied Delaware State law to the dispute (as specified in the original agreement), the international award should not be adopted owing to “Public Policy.” After carefully considering each point brought up during the arbitration hearing and concluding that the case did not shock the conscience of the courts, the Apex Court rendered a decision in favor of the Respondents, granting them the money they are due.

It is crystal evident from this ruling that the SC supported enforcement. It was appropriate to allow the enforcement of a foreign judgement that had been rendered against non-parties to an arbitration agreement. Now, it is established law that (i) a domestic award is enforceable against non-signatories if they qualify as “persons claiming under the signatories6” under Section 35, and (ii) a foreign award is similarly enforceable if the non-signatories fall under the definition of “persons” under Section 46.

The SC’s decision that non-signatories to an arbitration agreement cannot even raise an objection under Section 48(1) (a) that they are not party to the arbitration agreement seems debatable though. It does not seem correct that a non-signatory is not authorized to take a similar stance if the award debtor who is a signatory to the arbitration agreement is allowed to do so. The parties who can object to enforcement are, in fact, parties to the agreement referred to in Section 44, according to Section 48(1)(a) of the Arbitration Act. The said Section 44 in turns uses the word “persons” which as recognized by the SC itself is a broad phrase that covers non-signatories. In light of this, it follows that even a non-signatory should be able to object to the implementation of a foreign judgement on the grounds that it is not a party to the arbitration agreement. In any case, what is most striking is that the SC has sent a loud and unequivocal signal that foreign judgements can be enforced even against parties who did not sign the arbitration agreement. The recipients of awards can only benefit from this.

We are a law firm in the name and style of Law Offices of Kr. Vivek Tanwar Advocate and Associates at Gurugram and Rewari. We are providing litigation support services for matters related to Arbitration Law.

Written By- Adv. Vartika Chahal

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