Technical breach of Indian regulatory law not a ground to halt enforcement of foreign arbitral award: Madras HC

The Madras High Court has held that a mere procedural or rectifiable breach of law, such as a technical violation of regulatory laws, does not amount to a violation of the fundamental policy of India to justify resisting the enforcement of a foreign arbitral award [PI Opportunities Fund-1 v. Financial Software Systems Pvt Limited]..Justice Abdul Quddhose made the observation while ordering the enforcement of an arbitral award passed by the Singapore International Arbitration Centre (SIAC) on July 2024 in favour of three private equity investors (petitioners) against the promoters of Financial Software and Systems Pvt Ltd (FSS). "It is clear that a breach that is procedural or rectifiable, such as a technical violation of regulatory laws, does not amount to a breach of fundamental policy. Infact, even non-rectifiable breaches have been held to be not in violation of fundamental policy of India," the Court said. The Court explained that the a breach of the fundamental policy of Indian law refers to a breach of some legal principles or legislation which is so basic to Indian law that it is not susceptible of being compromised."'Fundamental Policy' refers to the core values of Indian public policy as a nation, which may find expression not only in statutes but also time honoured, hallowed principles, which are followed by the Courts," the Court added. .In October 2014, three major international investment funds - PI Opportunities Fund, Millenna FVCI Ltd and NYLIM Jacob Ballas - acquired equity stakes in FSS, a Chennai-based digital payments company. This acquisition was carried out under a detailed shareholder agreement that provided various exit mechanisms including an IPO by March 2016 and alternative "exit waterfall" options if the IPO failed.When the IPO deadline passed and subsequent exit attempts over several years proved unsuccessful, the investors claimed FSS' promoters Nagaraj and Sharada Mylandla had breached their contractual obligation to facilitate investor exits at agreed prices.The dispute escalated to international arbitration in Singapore in 2022, where a three-member tribunal heard extensive arguments about whether the shareholder agreement imposed an "absolute obligation" on promoters to secure investor exits through secondary sales. On July 5, 2024, the Singapore International Arbitration Centre tribunal ruled comprehensively in favor of the investors, awarding over ₹1,200 crore in damages plus substantial interest and costs, while also granting investors the right to implement a strategic sale of the entire company if the promoters failed to pay the awarded amount within 90 days..When the investors sought enforcement of this award in India, the promoters raised multiple objections including claims of illegal share buybacks, fraud, and violations of Indian public policy.However, the Madras High Court rejected all these arguments, emphasizing India's commitment to enforcing foreign arbitral awards under international treaties.The Court added that Section 48 (conditions for enforcement of foreign awards) of the Arbitration and Conciliation Act does not allow the Court approached for the enforcement of an arbitral award to review the award on merits.“The enforcement Court cannot re-assess the arbitrator's appreciation of evidence or interpretation of contractual clauses. Mere disagreement with the arbitrator's interpretation does not fall within any of the narrowly defined grounds on which enforcement could be refused.”.On the promoters’ attempt to revive arguments already taken before the Singapore High Court, Justice Quddhose said,“Parties ought not to re-litigate issues, which have been or ought to have been raised before the seat Court.”On fraud, the Court reiterated the high threshold required to resist enforcement on such a ground“In order to resist enforcement of a foreign award, the fraud alleged should be of egregious nature and should be proved beyond any reasonable doubt.”“…To resist enforcement of a foreign award on the ground of fraud, there should be substantial evidence, which should be tested on the basis of admitted documents," it said. .The Court also rejected an argument that the arbitral tribunal's decision to award damages and order the strategic sale of the company amounted to double recovery. Finally, the Court warned against treating enforcement proceedings as an appeal on merits.“A party who is objecting to the enforcement of the foreign arbitral award cannot argue the matter just like a first appeal, given the limited jurisdiction available under Section 48 of the Act, and costs can be imposed, if such an attempt is made," it said. .On a parting note, the High Court recounted the words of former US Supreme Court judge, Justice Sandra Day O’Connor that courts "should not be places where resolution of disputes begins. They should be the places where the disputes end.”The High Court concluded that since the foreign arbitral award has attained finality, it has a responsibility to enforce it..The Court went on to impose costs of ₹25 lakhs on the promoters who resisted the arbitral award's enforcement, finding that their objections were untenable and intended only to delay enforcing the arbitral award..PI Opportunities Fund was represented by Senior Advocate Vijay Narayanan with Advocates Anuj Berry, Shalaka Patil, Shilpa Singh Sengar, Harash Khanchandani, H Siddarth, M Karthik from Trilegal..Millenna FVCI Ltd, the second petitioner, was represented by Senior Advocate Srinath Sridevan with Advocates Suhrith Parthasarathy, Amrutha Sathyajith, and G Gayathri, Simran Jalan..NYLIM Jacob Ballas entities, the third petitioner, were represented by Advocate Adarsh Ramanujan..Advocate TK Bhaskar, assisted by A Revanth, S Aravindan and K Yugantara of Fox Mandal & Associates appeared for FSS. Advocate SS Rajesh appeared for the FSS Employees' Welfare Trust.Nishanth Kadur, Ashish Kabra, Ansh Desai, P Rajkumar Jhabakh, Anirudh Krishnan, Adarsh Subramanian, Anuraag Rajagopalan, S Nivethithaa, S Eshwar, Aanchal M Nichani and Rahul M Shankar appeared for other respondents..[Read Judgment]