Refusal to enforce foreign award justified where perverse findings on concluded contract violate fundamental public policy.

In brief

The question

1. Whether the Arbitral Tribunal’s finding that a concluded contract existed—despite the lack of agreement on price and delivery terminal—was perverse and irrational so as to violate the "fundamental policy of Indian law"

The court held

The Court held that the amended Section 48 (2015) did not apply because the enforcement proceedings commenced in 2014

It also directed

Under the unamended standard, the Court held that the award was contrary to the fundamental policy of Indian law and basic notions of justice because it held the Buyer liable for a "Take or Pay" obligation under a non-concluded contract, which "defies all logic" and "shocks the conscience of the court"

The Court dismissed the appeal and upheld the Single Judge's refusal to enforce the foreign award under Section 48(2)(b)

01Facts

The Appellant (Seller) and Respondent (Buyer) entered into a Master LNG Sale and Purchase Agreement (MSPA) on 02.08.2006

p. 9

On 12.03.2007, they executed a "Confirmation Notice" for four cargoes scheduled for April, May, June, and August 2007

p. 26

The Confirmation Notice left certain details (LNG ship, receiving terminal, specific price) to be finalized via a "Delivery Notice"

pp. 27-28

Between March and May 2007, the Buyer informed the Seller it could not secure regasification slots at the only two available Indian terminals (Hazira/Dahej) due to third-party unavailability

p. 33, 38

The Seller unilaterally issued Delivery Notices and subsequently "Take or Pay" (TOP) invoices for the first three cargoes, later terminating the contract and claiming damages for the fourth

p. 40

An LCIA Arbitral Tribunal in London issued an award on 25.06.2009 in favor of the Seller, holding the contract was concluded and the missing details were merely "operational"

pp. 43-47

The Seller sought enforcement in India under Section 48 of the Arbitration and Conciliation Act, 1996. The Single Judge of the High Court refused enforcement on 05.07.2018, citing public policy violations

p. 2, 7

02Issues

i.1. Whether the Arbitral Tribunal’s finding that a concluded contract existed—despite the lack of agreement on price and delivery terminal—was perverse and irrational so as to violate the "fundamental policy of Indian law"

¶ 3, 38

ii.2. Whether the enforcement of a foreign award can be refused under Section 48(2)(b) if the findings "shock the conscience of the court"

¶ 83, 110

iii.3. Whether the 2015 Amendment to Section 48 (which limits the "fundamental policy" review) applies retrospectively to an enforcement petition filed in 2014

¶ 111, 118

03Law Applied

The Court primarily applied Section 48 of the Arbitration and Conciliation Act, 1996, specifically the "public policy" defense under Section 48(2)(b)

p. 111

It relied on Renusagar Power Co. Ltd. v. General Electric Co., which defined public policy as including the "fundamental policy of Indian law," "interests of India," and "justice or morality"

p. 57, 115

It further applied Associate Builders v. DDA, identifying that a "judicial approach" and non-perversity are part of the fundamental policy

pp. 65-68

The Court applied Vedanta Limited v. Government of India, confirming that while merit review is prohibited, enforcement may be refused if the award violates basic notions of justice

p. 56, 89

Regarding temporal application, it followed Vedanta to hold that the pre-2015 unamended Section 48 applies to petitions filed before October 2015

¶ 111

Provisions in the judgment · 8 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 18 Section 34 Section 44 Section 48 Section 75 Section 81 Section 82 Section 50

04Reasoning

The Court examined whether the Tribunal’s decision to treat the price and receiving terminal as "operational issues" rather than "essential terms" was legally sustainable. Under the MSPA Clause 2.3 and 12.1, a contract is only formed when terms are "mutually agreed" via a Confirmation Notice

p. 15, 18

The Court noted that in LNG transactions, a terminal is not just a delivery point but a necessary regasification facility; without it, the buyer cannot physically receive the goods

¶ 149

The Tribunal’s finding that a contract was "concluded" while the price remained a fluctuating formula and the terminal was non-existent shocked the Court’s conscience

¶ 178

The Court reasoned that the Seller’s unilateral issuance of Delivery Notices and TOP invoices, despite knowing the Buyer lacked a terminal, was an attempt to foist a new contract upon an unwilling party

¶ 151, 173

While acknowledging the narrow scope of Section 48, the Court concluded that the Tribunal ignored hallowed principles of contract law—specifically that an agreement is not a contract unless essential terms are settled—making the award perverse and irrational

¶ 177-178