Declaring the dismissal of IMAX’s enforcement petition as erroneous, the Bombay High Court held the petition to be within the limitation and found no grounds to refuse enforcement based on public policy. The Court allowed the impleading of the related companies for the purpose of executing the arbitral award against the diverted assets, and remanded the matter to the executing court to proceed with the execution of the foreign awards, which were deemed to be decrees of the Court.
The High Court ruled that a mere violation of FEMA provisions does not, by itself, lead to the conclusion that enforcement of a foreign award would be contrary to India’s public policy. It distinguished the FEMA regime from the stricter, erstwhile FERA regime, noting that FEMA does not render transactions void for lack of prior RBI approval.
The ruling came while considering the disputes that arose between the parties in 2003-2004, leading to arbitration before the International Chamber of Commerce (ICC) in London, where the ICC Arbitral Tribunal passed three foreign awards in favour of IMAX, opining that the Master Agreement was legally binding and the E-City had breached its obligations.
The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna reiterated that the expression ‘Public Policy of India’ in Section 48(2)(b) of the Arbitration and Conciliation Act, 1996, must be construed narrowly, especially in the context of enforcing a foreign award. Thus, the Bench dismissed the argument regarding the non-consideration of expert testimony, treating it as an attempt to seek a merit-based review of the foreign award, which is impermissible under Section 48 of the said 1996 Act.
The Bench observed that the facts presented a clear case for lifting the corporate veil. The diversion of assets from E-City to its associated companies during the pendency of arbitral proceedings was deemed an “impropriety” linked to the use of the corporate structure to avoid or conceal liability. Hence, the two essential conditions for piercing the veil were met: (i) control of the companies by the wrongdoers, and (ii) impropriety in the use of the corporate structure as a façade to conceal wrongdoing.
The Bench pointed out that the diversion of assets worth Rs. 210 Crores from E-City to its associated companies (2nd and 3rd Respondents) during the pendency of arbitration was a misuse of the corporate structure as a façade to conceal liability and render the assets “execution proof” while retaining control over them through the holding company (4th Respondent).
The Bench clarified that execution could be levied against the properties and assets of E-City that were diverted to the 2nd and 3rd Respondents. However, it specified that the 2nd and 3rd Respondents would not be personally liable, and no execution could be levied against the 4th Respondent as no assets were diverted to it.
The Bench also clarified that an erroneous decision on limitation by a court of competent jurisdiction does not render the judgment a nullity or affect the court’s inherent jurisdiction. The issue of limitation was determined to be a mixed question of law and fact, not a pure question of law, going to the root of jurisdiction.
Briefly, the dispute originated from a Master Agreement between the Appellant, IMAX Corporation, and the first Respondent, E-City Entertainment (I) Pvt Ltd., for the lease of six IMAX systems. Following disputes in 2003-2004, the matter was referred to arbitration before the ICC, London, which passed three foreign awards in favour of IMAX. A Liability Award was passed affirming that the Master Agreement created legally binding obligations which E-City had breached. A Quantum Award was passed, quantifying the damages payable by E-City at U.S. $9,406,148.31 plus interest. And a Final Award included interest and costs, bringing the total liability to U.S. $11,309,496.06 plus further interest.
The IMAX contended that during the arbitration, E-City improperly divested assets valued at approximately Rs. 210 Crores to related entities (the 2nd and 3rd Respondents) through court-sanctioned demerger schemes. This action was alleged to be a deliberate attempt to render E-City’s assets “execution proof” and obstruct the recovery of damages. The E-City initially challenged the awards under Section 34 of the 1996 Act, and the Supreme Court held that the awards, being foreign, could only be challenged under Part II of the said Act. The IMAX filed a petition for recognition and enforcement of the awards under Sections 47 to 49 of the said Act, impleading E-City and its related companies. The Single Judge dismissed IMAX’s enforcement petition, opining that the enforcement would be contrary to the public policy of India.
Appearances:
Senior Advocate Aspi Chinoy, along with Advocates Shanay Shah, Rahul Mahajan, Amit Surve, and Simran, for the Appellant
Senior Advocates Vikram Nankani, Navroz Seervai, and Sharan Jagtiani, along with Advocates Sumeet Nankani, Pooja Tidke, Krushi N. Barfiwala, Shlok Bodas, Alisha Mohite, Ishika Lodha, Saket Mone, Gulnar Mistry, Shrey Shah, Shrushti Thorat, Archit Rao, Saket Mone, Shrey Shah, Shrushti Thorat, Akshay Doctor, Siddharth Joshi, Avanti Divan, Samriddhi Lodha, and Archit Rao, for the Respondents
