[Arbitration Act] Once Settlement Terms Are Drawn After Obtaining Legal Opinion, Consent Awards Cannot Be Treated As Unenforceable: Delhi HC

In a matter pertaining to the enforcement of a Foreign Consent Award in ICC Arbitration, the Delhi High Court held that the allegation of economic duress and coercion was clearly an afterthought and a feeble attempt to renege from the terms of the consent Award.

Finding that the settlement terms were drawn after parties had obtained independent legal opinion is a fact which stands clearly recorded in the Settlement Agreement itself, a Single-Judge Bench of Justice Yashwant Varma observed that “the Award was clearly enforceable and did not fall foul of any of the negative stipulations that stood incorporated in Section 48 of the Arbitration and Conciliation Act, 1996”.

Senior Advocate Jayant Mehta appeared for the Decree Holder, whereas Advocate Varun K. Chopra appeared for the Judgment Debtor.

In a nutshell, the matter pertains to the enforcement of a Foreign Consent Award which was opposed by the Respondents who in terms of Section 48 of the Arbitration Act contended that the Award having been passed upon consent was not one which was enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention/New York Convention). It was contended that since the Award itself was an outcome of economic duress and therefore contrary to public policy of India, it should not be recognized as being capable of being enforced under the Arbitration Act. The enforcement petition had been filed before the Court alleging non-compliance on the part of the Respondents to make over the Settlement Amount as envisaged under the Settlement Agreement and contending that the Respondents were liable to pay the aggregate outstanding amount.

On the question as to whether the consent Award would fall within the ambit of the Convention, the High Court stated that undisputedly the Convention does not specifically define the expression ‘Arbitral Awards’, however, the word ‘Award’ in Article I of the Convention principally recognizes as being a decision rendered in the backdrop of differences that may have arisen between persons.

Moreover, the High Court explained that a consent Award was neither specifically excluded from its ambit nor did Article V declare that an Award that may be drawn based on a settlement between parties would not fall under the Convention, and hence, what triggers the arbitral process was the existence of disputes.

Highlighting that the Arbitration Act engrafted specific provisions for settlement terms being given the form of an Arbitral Award, the Bench noted that the parties had in unambiguous terms agreed upon the Arbitration being governed by the ICC Arbitration Rules, and Article 33 of those Rules specifically dealt with the subject of Award by consent.

Referring to UNCITRAL Model Law on International Commercial Arbitration, the Bench stated that the argument of a consent Award not falling within the scope of the Convention, merited rejection.

“There clearly appeared to be unanimity across jurisdictions to accept the possibility of awards being rendered based upon a settlement that may be arrived at between the parties”, added the Bench.

The Bench further added that “The Arbitral Tribunal had duly circulated a draft Award and invited the comments of respective sides. “It was only once those responses were received that it proceeded to pronounce the Award formally. The respondents had undisputedly vide their email dated 04-0902020 expressed their consent for the Tribunal to proceed in terms of the settlement”.

While dealing with the second issue pertaining to the argument of economic duress, the High Court stated that the Respondents were duly represented by counsels before the Arbitral Tribunal at all stages of the proceedings which were drawn, and the fact that the settlement terms were drawn after parties had obtained independent legal opinion was a fact which stood clearly recorded in the Settlement Agreement itself.

“At no stage prior to the filing of the present objections had the respondents taken the plea of economic duress or coercion”, added the Court.

Referring to the decision of the Privy Council in Pao On And Lau Yiu Long [[1980] A.C. 614], the Bench reiterated that ‘Duress’ could be raised as a ground to resile from a contract, provided a party was able to establish that the coercion was of such a degree which would lead one to conclude that the consent of the victim to the contract was not a voluntary act.

Accordingly, the Bench rejected the objections to the recognition and enforcement of the foreign award and placed the matter before the appropriate Court for taking further steps for execution of the Award.

Cause Title: Nuovopignone International Srl v. Cargo Motors Private Limited [Neutral Citation: 2023: DHC: 3818]

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