Delhi High Court upholds arbitral award for not falling within the mischief of Section 48(2)(b)(ii) of Arbitration Act

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Delhi High Court: A petition was filed by Raffles Education Investment (India) Pte. Ltd. under Chapter-I, Part-II of the Arbitration and Conciliation Act, 1996 seeking enforcement of a final award dated 31-03-2017 passed by the Singapore International Arbitration Centre (SIAC) in an arbitration matter under the SIAC Rules, 2013 being resisted by Educomp Professional Education Limited which asserts that the award is not liable to be recognized or enforced under Part-II of the Act being contrary to the public policy of India. Yashwant Varma, J., held the award valid in law and enforceable in accordance with law.

On 16-05-2008, Raffles entered a Joint Venture Agreement (JVA) with Educomp Solutions Limited, an Indian legal entity of Educomp. In terms of the JVA, both parties incorporated a special-purpose vehicle Educomp Raffles Higher Education Limited. Raffles held 58.18% shares in ERHEL while Educomp held the balance 41.82% shares. The SPA envisaged Raffles buying all the shares of Educomp in ERHEL and obtaining exclusive control over Jai Radha Raman Education Society which was established to work essentially as a charitable educational society. The terms of the SPA, however, could not be fulfilled.

Disputes arose with respect to the resignation of members/affiliates of Educomp including some which the Arbitral Tribunal has referred to as ‘recalcitrant’ members. The breakdown of the terms of the SPA ultimately led to the commencement of arbitration proceedings by Raffles. Upon disputes having arisen between parties relating to the implementation of the SPA, the matter came to be referred to the SIAC. The Arbitral Tribunal refused the relief of specific performance, however, awarded Damages and Costs.

The challenge to the award is based on the assertion of Educomp that the award in essence results in the recognition and enforcement of a Share Purchase Agreement dated 12-03-2015 which fundamentally amounts to a for-profit entity taking over control of a charitable society JRRES as well as the educational institution established and administered by it. Educomp further asserts that the award if implemented would not only result in the monetization of the assets of JRRES but also in the commercialization of the activities of the educational institution which is prohibited in law and in terms of the various prescriptions forming part of the Share Purchase Agreement, Raffles would take over control of the charitable society and which is proscribed by law especially since Raffles is a foreign entity.

The Court noted that 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 recognized 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.

On the aspect of a charitable society being a for-profit entity, the Court observed that 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.

On the aspect of Raffles being a foreign entity, the Court noted that 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.

On the aspect of commercialization and monetization of assets, the Court observed that while it is true that an educational institution cannot indulge in commercialization or profiteering, its efforts to generate a reasonable surplus and the utilization thereof for augmenting the quality of education and the institution itself is one which is no longer frowned upon. While emphasizing the need to curb the commercialization of education, even the National Education Policy, 2020 speaks of surpluses that may be legitimately generated by institutions to be reinvested in the educational sector. Thus, if the for-profit entity is interspaced by a not-for-profit body that manages and administers the educational institution, the same would clearly be permissible. This also indicates that the involvement of a for-profit entity is not abhorrent to public policy.

The Court concluded that it was Educomp that invited Raffles to enter 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 rejected the objections raised by Educomp and held that the Award cannot be said to fall within the mischief of Section 48(2)(b)(ii) of Act and is thus held to be enforceable in law.

[Raffles Education Investment (India) Pte. Ltd. v. Educomp Professional Education Limited, 2023 SCC OnLine Del 3936, decided on 07-07-2023]

Advocates who appeared in this case :

Mr. Sandeep Sethi, Sr. Adv. with Mr. Sulabh Rewari, Ms. Nikita Garg, Ms. Vasudha Sharma, Mr. Aditya Rajagopal, Mr. Vikram Singh, Ms. Shreya Sethi, Ms. Tanvi Tiwari, Advocates for decree holders;

Ms. Malvika Trivedi, Sr. Adv. with Ms. Bani Dixit, Ms. Sujal Gupta, Mr. Uddhav Khanna, Mr. Shailendra Slaria, Advocates for judgment debtor.

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