含羞草社区

Two recent Supreme Court decisions, Nagaraj V Mylandla v Pi Opportunities Fund – I, and Rajiv Gaddh v Subodh Parkash, affirm that while courts remain vigilant in protecting procedural fairness and the right to be heard, due process objections cannot be invoked to obstruct or delay arbitral proceedings or the enforcement of awards.

Mylandla: Estoppel limits enforcement challenges

In the Mylandla case, investors initiated arbitration under the 10 October 2014 Share Acquisition and Shareholders’ Agreement (SASHA) against the promoter-directors of Financial Software and Systems Private Limited (FSSPL) for breach of SASHA arising from FSSPL’s and Mylandla’s failure to provide an exit to investors.

The tribunal awarded damages equivalent to the contractual exit price and authorised the investors to execute a strategic sale in the event of non-payment. The promoters’ challenge before the Singapore courts was unsuccessful, and no appeal was pursued. The award was subsequently enforced in India by the Madras High Court.

The promoters then argued before the Supreme Court that enforcement of the award would violate 含羞草社区 public policy because it allegedly resulted in the buyback of shares, contrary to the Companies Act, 2013, and the Specific Relief Act, 1963. The court rejected these objections, drawing a distinction between a statutory buy-back and a voluntary surrender of shares – the investors’ offer to return their shares on receipt of damages was an equitable gesture to prevent double recovery, not a buy-back by FSSPL.

Critically, the court held that an enforcement court cannot revisit merits already argued before the seat court merely by recasting such arguments as public policy or natural justice objections, formally recognising the principle of transnational issue estoppel.

The court also preserved a significant carve-out: questions of domestic public policy remain within the independent purview of the enforcement court, given that the parameters applied by the seat court and the enforcement court may not be coextensive.

This is significant, since if every foreign award were susceptible to challenge on arguments already addressed before the tribunal – merely repackaged as public policy or due process objections – the foreign award would be rendered an empty remedy. The Mylandla case offers an important assurance to investors and award holders: the enforcement court is not a court of second appeal on the merits.

Supreme Court bars repeat arbitration

The Rajiv Gaddh case addresses the same problem but from a different angle. In this case, the respondent invoked arbitration in 2015 under agreements related to lands acquired through a bank auction and obtained appointment of an arbitrator.

Having participated in the proceedings, the respondent ceased to appear in 2019, alleging bias by the arbitrator. An award was issued against the respondent in 2020, which was duly challenged. In 2021, while that challenge remained pending, the respondent filed a fresh application for the appointment of an arbitrator, purportedly premised on a new cause of action arising from a Supreme Court judgment upholding the bank auction in which both parties had participated.

Although the relevant high court appointed an arbitrator, leaving the question of res judicata (a matter judged) open for determination, the Supreme Court disagreed and set the appointment aside.

Applying the principles of order 23, rule 1 of the Code of Civil Procedure, 1908, which bar fresh proceedings on the same cause of action without the leave of the court to applications under section 11(6) of the Arbitration and Conciliation Act, 1996, the Supreme Court held that the respondent’s conduct was tantamount to abandonment of the earlier proceedings, and that no fresh cause of action arose.

Supreme Court curbs arbitration gamesmanship

For businesses, the message is unambiguous. Indian courts remain firmly supportive of arbitration, but they increasingly expect parties to conduct themselves in a manner consistent with that choice. A party that has had a fair opportunity to present its case cannot subsequently invoke due process or public policy to obstruct enforcement, multiply proceedings or relitigate a dispute it elected not to pursue.

Arbitration functions only where the procedure is fair, and outcomes carry a reasonable degree of finality. These decisions indicate that the Supreme Court will intervene to protect procedural fairness and will not countenance procedural gamesmanship.

Sneha Jaisingh is a partner and practice lead, disputes practice group, and Jaidhara Shah is a senior associate at Bharucha & Partners