The Delhi High Court has affirmed the validity of settlement awards under the New York Convention and their recognition under the Arbitration and Conciliation Act, 1996.
The High Court concluded that there is unanimous acceptance across jurisdictions that awards based on settlements between parties are enforceable.
Brief Facts:
The Petitioner and Respondent No. 2 entered into an Equipment Purchase Agreement for the sale of a Steam Turbine Generator Package.
Respondent no. 1 provided a Parent Company Guarantee as a guarantor for the second respondent, who was its subsidiary. Disputes arose between the parties, leading the Petitioner to request arbitration due to the Respondent's failure to make payments for the goods.
The request for arbitration was received by the ICC International Court of Arbitration.
Throughout the process, various documents and statements were exchanged between the parties and the Arbitral Tribunal. Eventually, a draft consent award was circulated on August 20, 2020, after which both the Respondents and the Claimant provided their comments. Notably, the Respondents did not object to the inclusion of the Settlement Agreement as part of the consent award.
Hence, a petition has been preferred to seek execution of the said award.
Contentions of the Petitioners:
It was asserted that the Convention itself does not define "awards." It was argued that the absence of specific provisions regarding settlements in the Convention, despite the representations made by the Federal Republic of Germany and Austria, does not necessarily mean that awards based on settlements are unenforceable under the Convention.
Contentions of the Respondents:
It was argued that the consent-based Award is not enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Additionally, it was contended that the Award, resulting from economic duress and contrary to India's public policy, should not be recognised as enforceable under the 1996 Act. It was argued that since the award was rendered on consent, it falls outside the scope of awards recognised under the Convention.
Further, it was asserted that the New York Convention only applies to awards arising from disputes between parties. Moreover, settlement awards are not explicitly included in the Convention, as evidenced by the preparatory material and representations made by certain nations, such as the former Federal Republic of Germany and Austria.
Observations of the Court:
The Court considered the issue of consent awards and their applicability under the Convention. The Bench concluded that the Convention does not exclude consent awards and there is no legal basis to hold them as unenforceable. Settlements reached during arbitral proceedings can be adopted by the Arbitral Tribunal to bring closure to the disputes. It was also noted that various statutory enactments and institutional rules recognise the concept of awards based on settlements.
The High Court further examined the argument of economic duress and found it unfounded. It was emphasised that the respondents were represented by counsel throughout the proceedings, had received independent legal advice, and raised no objections to the settlement agreement. The Court cited legal principles and previous cases to establish that allegations of economic duress must be supported by evidence of coercion that vitiates the consent, which was not present in this case.
The Delhi High Court firmly concluded that the argument that a consent award falls outside the scope of the Convention should be rejected. It is evident that there is a unanimous consensus among jurisdictions that awards based on settlements between parties are permissible.
Therefore, it was noted that there is no legal justification to claim that consent awards should not be recognised or enforced. Given the unanimity of opinion across jurisdictions and its incorporation into the Arbitration and Conciliation Act, 1996, the High Court ruled that the Award is not contrary to the public policy of India. The Bench directed the appropriate court to proceed with the execution of the award.
The decision of the Court:
The Delhi High Court, thus, referred the case to the appropriate Court.
Case Title: Nuovopignone International Srl v Cargo Motors Private Limited & Anr.
Case No.: Original Miscellaneous Application (O.M.P.(EFA)(COMM.)) 11 of 2021
Coram: Hon'ble Mr. Justice Yashwant Varma
Advocates for Petitioner: Advs. Mr. Jayant Mehta, Sr. Adv. with Mr. Abhijnan Jha, Ms. Bhagya Yadav, Ms. Sadhvi Chhabra and Mr. Srikar
Advocates for Respondents: Advs. Mr.Varun K. Chopra, Mr. R.V. Prabhat, Ms. Mehul Sharma, Mr. Dipu Kumar Jha
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