Calcutta High Court
Vinayak Oil And Fats Private Ltd. vs Andre (Cayman Islands) Trading Co. Ltd. on 23 July, 2004
Equivalent citations: 2005(2)ARBLR551(CAL), (2004)3CALLT380(HC), 2005(2)CHN29, [2005]64SCL277(CAL)
Author: A.K. Banerjee
Bench: Ashim Kumar Banerjee
JUDGMENT A.K. Banerjee, J.
1. Can a foreign award be made a subject matter of a winding up petition under the present laws of the land?
2. One says It is while other says it is not. But none of them could cite a precedent on the point in issue or nearer to it except a single bench decision of Delhi High Court.
3. Let me now try to resolve the controversy with my understanding of law as discussed hereinafter:
4. Facts of the case:
The petitioning creditor entered into an agreement with the company for sale of 3000MT of oil. Accordingly the oil was transmitted through ship for the purpose of delivery at Calcutta. The company was to open a Letter of Credit. The company failed to do so. When the goods arrived the company could not get those released by opening Letter of Credit thereby petitioner suffered loss and damages. Petitioner invoked the arbitration clause and ultimately obtained an award from London. On the other hand the company filed a suit in the Court involving the petitioner.
4.1. The petitioner filed the instant winding up proceeding as according to them there is just debt due and payable as per the award which the company filed to pay despite statutory notice of demand. The company filed affidavit questioning the maintainability of the winding up proceeding.
Principal Controversy:
5. I heard the parties. To my understanding this winding up petition is principally to enforce the foreign award. Now question is whether it is permissible or not under the present laws of the land. Basic Concept of a Winding up Proceeding Brought by Creditors
6. Under section 433 a creditor can bring an action under sub section (e) provided he has just debt payable by the company and the company failed and neglected to pay and/or secured such claim despite statutory notice of demand. Hence, if an action is brought by a creditor for winding up of a company on account of non payment of debt and defense is taken by the company the Court is only to prima facie examine the defense of the company and if the Court feels that the said defense is bona fide and there is even a possibility of success in case the dispute is relegated to a regular trial winding up is refused. Whether the defense can be sustained or not the winding up Court is only to examine the same prima facie. Neither the winding up Court is competent to finally adjudicate the rights of the parties on account of the claim nor does it have authority in law. If a creditor has claim against the debtor the law has prescribed its remedy. Those remedies are complete code by themselves. Merely because the debtor is a corporate entity the creditor cannot enforce hid debt as a matter of a right in a winding up proceeding. It can only ask for winding up of the debtor and he becomes successful if the defense taken by the company, according to the Court, prima facie not sustainable.
Arbitration Law Laws before:
7. Before 1996 the Indian Law of Arbitration was governed by Arbitration Act, 1940 (hereinafter referred to as the "said Act, 1940"). If a domestic award was made under this law it could be given effect to after a judgment in terms of the award was passed under section 17 of the Act and thereafter the award could be executed as decree passed in terms of the award by Court. In short, a domestic award could be enforced after it was made a rule of Court. This situation was however, diluted by various judgments of this Court in various winding up proceeding. In case of Dalhousie Jute (supra) this Court observed that an unfilled award before it could be made a rule of Court was a good piece of evidence of a claim and a just due and could be made a subject matter of a winding up proceeding.
7.1. In case of a foreign award the Arbitration (Protocol and Convention) Act, 1937 and Foreign Awards (Recognition & Enforce) Act, 1961 were holding the fields. Under section 4 of the Act, 1937 a foreign award was enforceable in India as if it were an award made on a matter referred to arbitration in India. Under section 5 the person interested in a foreign award could apply to Court for having rule of Court on the said award. Under sections 7 and 8 conditions of enfacement of foreign award had been prescribed.
7.2. The 1961 Act was brought into force repealing the 1937 Act. Here also any person interested in a foreign award could apply to Court for having a rule of Court on the said award as also for its enforcement. Section 7 prescribed conditions for enforcement of the foreign award. Law at Present
8. In 1996 the Arbitration and Conciliation Act, 1996 came into force by which the domestic award as well as foreign award were brought under one Act by repealing the 1940 Act as well as 1961 Act. This Act was brought in because of the international convention. This Act was a product of unicitral model laws on International Commercial Arbitration in 1985. This 1996 Act came into force to comprehensively cover international commercial arbitration and conciliation as also domestic arbitration and conciliation. In case of domestic award one stage of proceeding suggested in the earlier Act has been done away with. Domestic award under this Act need not have any judgment pronounced by any Court of law on the same. It can be straight away put to execution provided the time for setting aside the said award has expired or the application having been made has been refused. Under the old law under sections 30 and 33 the award could be challenged. The grounds of challenge in the present law have been substantially narrowed down. Although we are not concerned with the domestic award to resolve the present point in issue these are being discussed only to find out the intention of the legislature while enacting the 1996 Act.
8.1. Foreign award has been dealt with by Part II of the Act. This Act specially section 44 to 49 has given a complete procedure as to the enforcement of the foreign award in our country. To mitigate hardship and inconvenience to the person against whom the award was made section 48 has suggested the conditions for enforcement of foreign awards and at the same time granted liberty to the person against whom the award has been published to contest the enforcement of the said award by pointing out that the conditions embodied in section 48 have not been fulfilled. This was there in 1937 Act as well as 1961 Act. However, the present law under section 48 is in a modified form. Sub section 3 of section 48 also entitles the person against whom the award is made seek adjournment on the ground that the setting aside application or application for suspension of award has been made to a competent authority. However, section 49 prescribes that if the conditions of section 48 are fulfilled the award shall be deemed to be a decree of the Indian Court.
Interpretation of Part II of the said Act of 1996 by the Indian Courts.
9. (M/s. Fuerest Day Lawson Ltd. v. Jindal Exports Ltd.): While interpreting 1996 Act apropos a foreign award the Apex Court held that no separate proceeding is necessary. By one to decide the enforceability of a foreign award and the other for execution it would only have effect of protracting the litigation and adding to the sufferings of litigant in terms of money, the time and energy. In paragraph 29 of the said judgment the apex Court held that in one proceeding the Court could first decide the issue of enforceability and once the Court decides that the award is enforceable it can proceed to take further effective steps for execution of the same. To come to such a conclusion the apex Court heavily relief on the statements, objects and reasons of sections 47 to 49 and the scheme of the Act.
9.1. Jindal Drugs Ltd. v. Nay Vallesina Engineering SPA and Ors. reported in 2002(2} Arbitration Law Reporter 322 (Bombay): Learned single judge of Bombay High Court in this case held that once an application for enforcement of a foreign award is made under section 48 the person against whom the award has been made can appear before the Court and request the Court to refuse enforcement of the said award. The Court held that the person against whom the foreign award has been made is not required to challenge the same because it cannot be executed against him in India unless the Court finds that it is enforceable. In the said case the person against whom the award had been made challenged the award by making an application,. The learned judge further held that the said application was premature and was not maintainable in view of the fact that there was no application made by the awardee for enforcement of the award. However, the apex Court judgment in the ease of M/s. Fuerest Day Lawson Ltd. v. Jindal Exports Ltd. was not considered.
Unreported decision in the ease of Sea Stream Navigation Ltd. v. LMJ International Ltd. M.H.S. Ansari, J. of this Court relied on the Apex Court decision in the case of Fuerest Day Lawson Ltd.(supra) and came to a finding that the award was enforceable in India and then proceeded to execute it in the same proceeding.
Cases cited:
10. The parties cited the following decisions on the issue of enforceability of the foreign award as well as on the issue of maintainability of a winding up proceeding:
(i) (1959)1 All ER 43 (Birtley District Co-operative Society Ltd. v. Windy Nook & District Industrial Co-operative Society Ltd.)
(ii) (Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan (now G. V. Dalvi), Court Receiver, High Court, Bombay)
(iii) 48 Company Cases, page 579 (Registrar of Companies v. Bihar Investment Trust Ltd.)
(iv) 53 Company Cases, page 607 (Dalhousie Jute Co. Ltd. v. Mulchand Lakshmi Chand)
(v) (Renusagar Power Co. Ltd. v. General Electric Company) ( vi) Year Book of Commercial Arbitration volume XXIV (A) 1999 (Mangistanmunaiga Oil Production Association v. United Oil Trade) ( vii) 2001 vol. I Calcutta High Court Notes, page 212 (SWIL Ltd. v. Simportex Ltd.)
(viii) (Fewrest Day Lawson Ltd. v. Jindal Exports Ltd.)
(ix) 2001 Year Book [Tongywan (USA) International Trading Group (China) v. Uniclam Ltd.]
(x) 2002 vol. II Arbitration Law Reporter (Jindal Drugs Ltd. v. Noy Vallesina Engineering SpA and Ors.)
(xi) 2003 vol. IX Supreme Court Cases, Page 79 (Shreejee Traco (I) Pvt. Ltd. v. Paper Line International INC.)
(xii) 118, Company Cases, Page 580 (California Pacific Trading Corporation v. Kitply Industries Ltd.)
(xiii) Sea Steamer Navigation Ltd. v, LMJ International Ltd., unreported decision, Ansari, J.)
(xiv) 2004(2) Company Law Journal page 50 [Marina World Shipping Corporation Ltd. v. Jindal Exports (P) Ltd.] Proposition of law discussed and decided in the above precedents:
11. 1959 All England Law Reports (Birtley Distract Co-operative Society Ltd. v. Windy Nook & Distract Industrial Co-operative Society Ltd] : In this ease the Queen's Bench Division refused to entertain a counter claim set forward as a defense to an arbitral award. It was held that in an action on an arbitration award misconduct of the arbitrator could not be raised by way of counter claim to set aside the award.
12. AIR 1996, Supreme Court, page 1707 (Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan (now G.V. Dalvi), Court Receiver, High Court, Bombay: The apex Court held that a winding up petitions a perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution which the Court gives to a creditor against a company unable to pay its debts. The apex Court held that winding up process is a form of equitable execution.
13. 48 Company Cases, page 579 (Registrar of Companies v. Bihar Investment Trust Ltd.) This has no relevance in the present case.
14. 53 Company Cases, page 607 (Dalhousie Jute Co. Ltd. v. Mulchand Lakshmi Chand] : The Division Bench of this Court held that an unfilled award is a good piece of evidence of debt and can be made a subject matter of winding up proceeding.
15. [Ramsagar Power Co. Ltd. v. General Electric Company): The apex Court held that while enforcing the foreign award under the Act of 1961 the scope of enquiry before the Court was limited to grounds mentioned in section 7 of the said Act, 1961 and does not enable a party to the said proceeding to impeach the award on merits. The apex Court here also considered the issue of "public policy" while enforcing the foreign award under the said Act.
16. Year Book, Commercial Arbitration, volume XXIV-A, 1999 {Mangistanmunaiga Oil Production Association v. United Oil Trade) : The District Court of United States rejected the contention of the respondents that the charge of corruption by the arbitral tribunal was waived by the opposing party which they could take before the arbitral tribunal.
17. 2000 vol. I. Calcutta High Court Notes, page 212 (SWIL Ltd. v. Simportex Ltd.) : Pinaki Chandra Ghosh, J. admitted the winding up petition brought by a creditor on the basis of a foreign award which was passed abroad and decree and/or judgment in terms of the said award was passed by the High Court of Justice in England. His Lordship held that the decree passed by the English Court was a judgment on merits and was conclusive against the company.
18. (Fewrest Day Lawmn Ltd. v. Jindal Exports Ltd.) : Here the apex Court considered the foreign award and held that enforcement of a foreign award and its execution can be clubbed together in one single proceeding. The Court, before whom such action is brought, would first venture to find out whether the said award is enforceable in law and if it is satisfied then it would proceed to execute it. In paragraph 29 of this judgment the apex Court observed that once the Court decides that foreign award is enforceable lit can proceed to take further effective steps for execution of the same.
19. 2001, Year Book [Tongywan (U.S.A.) International Trading Group (China) v. Uniclam Ltd.] : the Queen's Bench decision of the English Court observed as follows:
"I am not aware of any case in which the Courts have accepted that it would be inappropriate to allow a Convention award which is otherwise valid and enforceable to be enforced as a judgment on the grounds that the judgment debtor has an arguable cross-claim against the holder of the award. In my judgment, there is a very strong public policy consideration in favour of enforcing awards, whether awards published in this country or published abroad, and it would require a very strong and unusual case to render the enforcement of an award in circumstances of this kind contrary to public policy. I have seen nothing in the evidence in this case which would lead me to that conclusion, and there fore I reject this ground as well. In those circumstances, this application must fail."
20. 2002, vol. II, Arbitration Law Reporter {Jindal Drugs Ltd. v. Noy Vallesina Engineering SpA & Ors.) : The learned single Judge of Bombay High Court held that once an action is brought for enforcing foreign award under section 48 the party against whom the award as made can only then challenge the validity of the award on the grounds mentioned in section 48 the Act of 1996. This judgment, however, did not discuss the ratio decided in the case of Fuerest Day Lawson Ltd. (supra).
21. 2003, vol. IX, Supreme Court Cases, page 79 [Shreejee Traco (I) Pvt. Ltd. v. Paper Line International Inc.] : Paragraph 7 of this judgment was relied upon where the apex Court decided as to which law would prevail in case of an international arbitration when there is conflict of laws.
22. 118 Company Cases, page 580 [California Pacific Trading Corporation v. Kitply Industries Ltd.) : In this case the learned single Judge of Gwahati High Court entertained a winding up petition based on a decree passed by District Court of United States of America.
23. Sea Steamer Navigation Ltd. v. LMJ International Ltd., unreported decision, Ansari, J. : Relying on the decision of the Apex Court in the case of Fuerest Day Lawson Ltd. (supra) this Court held that in one single proceeding the enforceability of the award can be decided and once being satisfied about the enforceability His Lordship proceeded to execute the same. It is significant to mention that the genesis of the case before His Lordship was a winding up petition which was initially moved before me. When identical point was taken the petitioning creditor withdrew the petition and approached His Lordship for enforcing the foreign award. His Lordship also decided the question of public policy raised by the respondents in the said proceeding.
24. 2004(2) Company Law Journal, page 50 [Marina World Shipping Corporation Ltd. v. Jindal Exports (P) Ltd.] : In this case the learned judge of the Delhi High Court refused to entertain the winding up petition on the basis of foreign award and according to His Lordship it would not be proper for the winding up Court to entertain a winding up petition on the basis of a foreign award without having the remedy exhausted under sections 44 to 48 of the Act of 1993.
Enforcement Award in a Winding up Proceeding
25. This Court in the case of Dalhousie Jute (supra) held that an unfilled award is a good piece of evidence of debt due and can be made a subject matter of winding up proceeding. In that case the award was domestic one under Act, 1940. The Division Bench of this Court further held that the rights involved in the award remain effective as between the parties for some purpose and can neither be called invalid document nor a mere waste paper. In a winding up proceeding based on an unfiled award Court only examines as to whether a debt is presently payable and then for find out whether the disputes raised on behalf of the company is a pima Jade bona fide. The Division Bench however, held that the Court in disposing of the winding up proceeding might be satisfied that a bona fide dispute has been raised by the company and on that basis might pass such order as the Court might think proper depending on the facts and circumstances. The Court does not decide the validity of or enforcement of the award. It merely takes a prima facie view of the matter. In short, the winding up Court is to proceed on the basis of the unfilled award being a good piece of evidence as to the payability of the debt and if the Court is satisfied prima facie that the award may be set aside if a proper application is made in accordance with the available procedure it would refuse admission of winding up and if not it would allow the petitioner to proceed with the winding up. Such view of the winding up Court is a prime facie view and the Court would not finally decide as to the enforceability of the award.
26. Marina World Shipping Corporation Limited v. Jindal Exports (P) Limited, reported in 2004(2) Company Law Journal, page 50(Delhi) : The Delhi High Court refused admission of winding up petition on the ground that on the basis of a foreign award if a winding up order is passed and then on a proper proceeding under sections 47 and 48 the award could not be enforced it would create an anomatons situation and as such the petitioner should approach the Civil Court to seek enforcement and execution of the award. Delhi High Court observed that once enforceability of the award is established in Civil Court then winding up proceeding can be maintained.
My view
27. After perusing various cases it is clear to me that for enforceability and execution of a foreign award one need not multiply the proceeding. If awardees applies to Court for enforcement of the award the Court upon being satisfied about the conditions stipulated under sections 47 and 48 would proceed to execute the award.
27.1. It is also settled law that winding up proceeding is an equitable mode of execution, if that is so why the winding up proceeding cannot be used for enforcement of the foreign award and Court should allow the same in its discretion. Under the old law domestic awards were allowed to be made subject matter of the winding up proceeding. Under the old law the procedure was completely different. I refrain from discussing any further on this issue. I am only concerned with the foreign award and its enforceability under the present law. If under the present law I allow the winding up proceeding to be proceeded with on the basis of a foreign award. 1 would have to in fact examine the said award under sections 44 to 49 of the said Act, 1996. In effect, I would have to transpose myself in an arbitration Court under Chapter II of the said Act. 1996 and proceed to enforce the said award and then execute it.
27.2. The concept of winding up as initially held by this Court as well as by apex Court was that it was not to be be used as a handle to recover a money claim against a corporate entity. However, the idea was changed in the case of Hari Nagar Sugar Mill (supra) where the apex Court held that it is an equitable mode of execution. Such view is still prevalent as of date. Assuming I would be applying the Division Bench decision in the case of Daihousie Jute (supra) even then there also the Division Bench was cautious enough to deal with the issue. The Division Bench observed that the winding up Court must not go into the question of enforceability of the award. It would purely examine the defense prima facie. Now if I apply that ratio in the instant case I would have to examine whether the requirements of sections 47 and 48 are fulfilled or not. Once I find that those are fulfilled then it is a decree of the Court and I can proceed with the execution and thereby admitting the winding up proceeding and subsequently passing order of winding up. In case, I am of the prima facie view that the defense raised by the company needs a proper adjudication I would have to ask the parties to avail the usual procedure. Looking at from another angle to come to a prima facie conclusion I would have to transpose myself in an arbitration Court within the meaning of Chapter II of 1996 Act.
27.3. In my view I have a complete discretion either to admit the winding up petition or to relegate parties to avail the prescribed mode available in law. I feel that learned single Judge of the Delhi High Courts rightly refused admission of the winding up proceeding 27.4. In this regard I would be relying on the apex Court decision in the case of M/s. Fuerest Day Lawson Ltd. (supra) where the apex Court relied upon the objects and reasons of the 1996 Act and observed that the procedure must be minimized as far as practicable. If I encourage winding up proceeding on the basis of a foreign award it might lead to protracting litigation. Moreover, it would be a dangerous proposition to venture adjudication of the disputes under sections 47 and 48 on a prima facie view sitting in winding up Court.
27.5. There might be a thin line of distinction between the old law and the law at present on the issue. However, if one reads the preamble of the Act as a whole the intention of the legislature would be clear. The present law has been enacted to honour the international convention and to minimize the hardship of the litigants as per as practicable and not by protracting the litigation by using one more or the other. The present law is a complete code by itself which has taken care of 1940 Act as well as 1961 Act as also the resolution came out in the conventions. Considering that I cannot convincingly say that a winding up petition can be held to be maintainable on the basis of a foreign award.
Result
28. The winding up petition, is therefore, dismissed. The petitioner is granted liberty to approach the arbitration Court in accordance with the provision of Chapter II of the Act of 1996. There would be, however, no order as to costs.
28.1. This order of dismissal would however not preclude the petitioner to take recourse to section 14 of the Limitation Act while approaching the Arbitration Court as they were pursuing the remedy before this Court bona fide on the self same cause of action provided such action is brought within a period of six weeks from date.
28.2. The learned counsel for the petitioning creditor also argued on merits. However, the learned counsel for the company argued on maintainability and reserved his right to argue on merits if I ultimately entertain the winding up petition.
28.3. Since I have decided that the winding up petition is not maintainable I refrain from going into the merits. I also refrain from making any comments about the issue of public policy raised by the parties. Those are left open to be decided by the Arbitration Court, if approached.
Urgent Xerox certified copy would be given to the parties, if applied for.