IN O.M.P. (EFA) (COMM) 6 OF 2017- DEL HC - To violate 'public policy', an Arbitral Award must contravene the fundamental policy of Indian law, interests of India or basic notions of justice and mere violation of a law was not sufficient: Delhi High Court rejects contentions against Award passed by SIAC
Justice Yashwant Varma [07-07-2023]

Read More: Raffles Education Investment ( India) Pvt. Ltd v. Educomp Professional Education Limited

Simran Singh

New Delhi, July 10, 2023: The Delhi High Court has dismissed contentions challenging enforceability of  an Arbitral Award passed by the Singapore International Arbitration Centre (SIAC), saying the Award could not be said to fall within the mischief of Section 48(2)(b)(ii) of the Arbitration and Conciliation Act, 1996 and was thus held to be enforceable in law.

The Single Judge Bench of Justice Yashwant Varma noted that to violate 'public policy', an award must contravene the fundamental policy of Indian law, interests of India or basic notions of justice and mere violation of a law was not sufficient. The High Court found Educomp's arguments of illegality and monetisation to be misconceived and held that the award did not contravene Indian public policy and allowed its enforcement.

The matter pertained to the legal dispute between Raffles Education Investment (Raffles Education) and Educomp Professional Education over the enforcement of an arbitration award granted by the Singapore International Arbitration Center in favour of Raffles Education and against Educomp who resisted the enforcement arguing that the award violated Indian public policy. The dispute originated from a Share Purchase Agreement (SPA) signed by the parties in 2015 where Raffles sought to buy Educomp's shares in their joint venture and gain control of Jai Radha Raman Education Society (JRRES), a not-for-profit society registered under the Indian law.

Educomp argued this would allow Raffles Education, a for-profit entity, to gain control of the society in violation of Indian law. The challenge to the Award was essentially based on the assertion of Educomp that the Award in essence resulted in the recognition and enforcement of SPA which fundamentally amounted to a for-profit entity taking over control of a charitable society as well as the educational institution established and administered by it.

Educomp further asserted that the Award if implemented would not just result in the monetisation of the assets of JRRES but also result in commercialisation of the activities of the educational institution which was prohibited in law. It was further asserted by Educomp that in terms of the various prescriptions forming part of the SPA, Raffles would take over control of JRRES and which too was proscribed by law especially since Raffles was a foreign entity.

The Arbitral Tribunal had ultimately and in terms of the Award rendered, refused the relief of Specific Performance and found that while companies could not be members of JRRES, for-profit entities could be involved in educational institutions under All India Council for Technical Education regulations (AICTE). It had held that SPA did not involve monetisation of JRRES assets and the award's damages were not based on JRRES land valuation. It awarded damages to Raffles for Educomp's breach of SPA.

The Bench was of the view that “All that need be additionally observed with respect to ―public policy and ―fundamental policy of Indian law is that an objection based on the aforesaid must travel beyond a mere violation of a statutory enactment or a piece of subordinate legislation. That objection must establish a patent violation of a foundational precept, an inviolable principle adopted by our courts and one which can neither be ignored nor condoned. Fundamental policy of Indian law must be a rule or a principle which forms part of the core values of our jurisprudence itself and a violation of which would be considered abhorrent and shocking to the conscience of the court. A challenge to an Award on the grounds of violation of “public policy” or “fundamental policy of Indian law” would be liable to be countenanced provided it is established that its enforcement would run contrary to well established legal tenets which brook of no exception. Public policy would thus be liable to be recognised as referring to that broad set of overarching principles which are considered inviolable and form the very soul of the legal principles which courts in India enforce and uphold. These would be the threads which hold together the fabric constituting our legal philosophy.”

On a more fundamental level and upon a reading of the various provisions of the Societies Registration Act,1860 (SRA), the Court found no provision which may be construed as either restricting or hindering the right of a for-profit entity being involved or engaged in the affairs of a society or nominating or inducting its affiliates on that not-for-profit body. “Indian law does not prohibit a for profit entity setting up a society or trust which may be entrusted with implementation of charitable or philanthropic measures. It could always be open for a for profit entity to incorporate a trust or a society for pursuing charitable objectives. In fact, the for-profit entity may well be justified in incorporating such an entity and thus ensure effective administration and implementation of philanthropic schemes by an independent entity. In any case, such a course if adopted would not fall foul of any fundamental principle of laws prevalent in India. This Court is thus of the firm view that the incorporation of such a society or trust cannot be recognised to be violative of any basic or foundational legal principle.”

The Court stated that it was not shown any provision existing in any other statute which may have tended to frown upon the involvement of foreign nationals in societies or trusts. “Quite apart from there being no statutory bar, Educomp has woefully failed to establish how the involvement of a foreign national in the affairs of a charitable society would be contrary to public policy. The Tribunal also appears to be justified in refusing to place any credence on the Expert Group Report which had suggested certain amendments to be introduced in the SRA. This, as the Arbitral Tribunal correctly observed, remained merely a recommendation and, in any case, could not have been accepted as an iteration of the fundamental policy of Indian law. The recommendations of the Expert Group were in any case in favour of representation of foreign nationals in societies and thus yet another indicator of the involvement of such individuals not being abhorrent to public policy.”

The Court was of the view that the argument of a foreign entity obtaining membership of JRRES was equally meritless since no corporate entity came to become a member of that society. The induction of a corporate entity in any case would have been contrary to the Articles of Association of JRRES itself. In fact, this Court was of the opinion that in light of the above, the question of whether the SRA sanctioned incorporated entities becoming members of a society did not even arise. In any case and in the absence of any statutory injunct embodied in the SRA and which may have disqualified foreign nationals from being members of a society, the Court found itself unable to sustain the submissions addressed on this score.

It was observed that the exclusion of foreign nationals from membership of a society also could not possibly be recognised as being part of the core or fundamental legal principles prevalent in India and was unable to accept the resistance to the enforcement action which rested on the ―players in the shadows doctrine. “Regard must be had to the fact that the management and administration of a charitable society is regulated by the various provisions of the SRA. Notwithstanding the members thereof being nominees or affiliates of a corporate entity, they remain bound to administer the affairs of the society strictly in accordance with the SRA. This is evident from the SRA clearly requiring societies which are registered thereunder to be those which are engaged in literary, scientific or charitable purposes. The members of JRRES notwithstanding them being nominees or affiliates of Raffles and Educomp are thus bound to conduct the affairs of the society in accordance with the principles underlying the SRA and would be obliged in law to administer the affairs of the society in accordance with its avowed charitable objectives. What needs to be emphasised is that while members may have owed their initial nomination in the society to their affiliation with either Raffles or Educomp, they as well as JRRES would still be bound by the MoA and the charitable objectives enshrined therein.”

The Court reiterated that the field of education had itself undergone a paradigm shift in the past few decades. While it was true that an educational institution could not indulge in commercialisation or profiteering, its efforts to generate a reasonable surplus and the utilisation thereof for augmenting the quality of education and the institution itself was one which was no longer frowned upon.

The Court stated that it would be wholly incorrect for this Court to accept the submission that the involvement of a foreign entity or a foreign national in the education sector was contrary to the fundamental policy of Indian law.

While closing the discussion on this aspect the Court additionally noted that the Tribunal had also taken note of the conceded stand of the respondents who had accepted the existence of an educational institution set up by various participants in the oil and gas industrial sector of the country. “As is evident from the provisions made in that Appendix for a for-profit entity is entitled to establish an educational institution through a not-for profit entity. Appendix 3.4 thus clearly indicates that as long as the for-profit entity is interspaced by a not-for profit body which manages and administer the educational institution, the same would clearly be permissible. This too clearly indicates that the involvement of a for-profit entity is not abhorrent to public policy.”

The Bench further stated that “It was Educomp which invited Raffles to enter into a joint venture and develop educational institutions in the country. The appointment of Raffle‘s affiliates in JRRES was in accordance with amendments made in its Articles to which they were a party. Educomp cannot disavow those steps taken by the joint venturers merely to avoid enforcement. The Court is thus constrained to observe that the stand taken in these proceedings by Educomp clearly answers the dishonest defence aspect which was alluded to in Cruz City. On balance and bearing in mind the discretion that Section 48 confers with respect to enforcement, the Court would be inclined to recognise the Award and ensure its execution in accordance with law. ”

The matter was directed to be placed before the appropriate Roster Bench on 13-07-2023 for taking further steps upon the enforcement petition.