Friday, November 3, 2017

Now, You have to compound the offence under FEMA for not filing the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies on July 15th Every year.

Now, You have to compound the offence under FEMA for not filing the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies on July 15th Every year.


Earlier, there is no provision under FEMA for mandatory filing of the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies on July 15th Every year.

Now, it has been made the filing of the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies on July 15th Every year as mandatory.

If you fail to file FLA with RBI on or before July 15th Every year, you have to contravene the same with the Regional RBI.

The Relevant circular is reproduced below:


BI/2016-17/220 A.P. (DIR Series) Circular No. 29 February 02, 2017

To
All Category- I Authorised Dealer Banks
Madam / Sir,
Foreign Exchange Management Act, 1999 (FEMA)
Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) -
Compounding of Contraventions under FEMA, 1999

Attention of all the Authorised Dealer Category - I (AD Category - I) banks and their constituents is invited to A.P. (DIR Series) Circular No. 117 and 36 dated April 4, 2014 and October 16, 2014 respectively, and the Foreign Exchange (Compounding Proceedings) Rules, 2000 notified by the Government of India vide G.S.R.No.383 (E) dated 3rd May 2000, as amended from time to time, regarding delegation of powers to the Regional Offices of the Reserve Bank of India to compound the contraventions of FEMA.

2. In partial modification thereof, it has been decided to delegate further powers to Regional Offices as under:

FEMA Regulation
Brief Description of Contravention
Delay in filing the Annual Return on Foreign Liabilities and Assets (FLA return), by all Indian companies which have received Foreign Direct Investment in the previous year(s) including the current year

3. The powers to compound the contraventions at Paragraph 2 above have also been delegated to all Regional Offices (except Kochi and Panaji) without any limit on the amount of contravention.

4. Kochi and Panaji Regional offices can compound the above contraventions for amount of contravention below Rupees One hundred lakh (Rs.1,00,00,000/-) only. The contraventions of Rupees One hundred lakh (Rs.1,00,00,000/) or more under the jurisdiction of Kochi and Panaji Regional Offices will continue to be compounded at Central Office as hitherto.

5. Accordingly, applications for compounding the above contraventions as at Paragraph 2, up to the amount of contravention stated in paragraph 3 and 4 may be submitted by the concerned entities to the respective Regional Offices under whose jurisdiction they fall. For all other contraventions, applications may continue to be submitted to Foreign Exchange Department, 5th floor, Amar Building, Sir P.M.Road, Fort, Mumbai - 400001.

6. The above modifications will come into force with immediate effect. All other instructions on compounding shall remain unchanged. This provision is being clarified in Para 3 and 7.4 of the Master Direction on Compounding of Contraventions under FEMA, 1999.

7. Authorised Dealers may bring the contents of this circular to the notice of their constituents and customers concerned.

8. The directions contained in this circular have been issued under Sections 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999).
Yours faithfully,
(Shekhar Bhatnagar)
Chief General Manager-in-Charge


Thursday, November 2, 2017

RBI Levies a Whooping Fine of Rs 241.16 Crores on Essar Oil Limited.

RBI Levies a Whooping Fine of Rs 241.16 Crores  on Essar Oil Limited.
RBI levied a fine of Rs.241.16  crores on Essar Oil Limited for not reporting GDR subscription amount of Rs.1500 crores in 2014-15 within period of 180 days of the issue
In the

Reserve Bank of India
In the matter of

M/s Essar Oil Limited

(Applicant)


C.A No 675/2016 dated 28 April ,2017

Issue 

Company received GDR subscription amount of Rs.1500 crores in 2014-15 but reported to RBI after a delay of over one year and also allotment was made after a delay of over one year against prescribed period of 180days.  RBI passed compounding order on 28.4.2017 for penalty of Rs.241.16 crores,

Order

 In exercise of the powers conferred under section 15(1) of the Foreign Exchange Management Act, 1999 and the Regulations/Rules/Notifications/Orders made thereunder, pass the following.

1.    The applicant has filed the compounding application dated December 20, 2016 (received at the Reserve Bank on December 26, 2016) for compounding of contraventions of the provisions of the Foreign Exchange Management Act, 1999 (the FEMA) and the regulations issued thereunder. The contraventions sought to be compounded are (i) the equity instruments were issued to the foreign investor, beyond 180 days of the receipt of the inward remittance and (ii) delay in reporting receipt of foreign inward remittance towards subscription to equity, in terms of



paragraphs 8 and 9(1)(A) respectively, of Schedule 1 to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 as amended from time to time (hereinafter referred to as Notification No. FEMA 20/2000-RB).

2.    The relevant facts of the case are as follows: The applicant company was incorporated on September 12, 1989 under the Companies Act, 1956 and is engaged in the business to engage in exploration of oil and gas onshore and offshore, in India and elsewhere and to tap oil and gas reserves and processing and marketing of oil, gas in India or elsewherever found. The applicant received foreign inward remittance from M/s Essar Energy Holding Limited, Mauritius towards GDR (Global Depository Receipts) issues and reported the same to the Reserve Bank as indicated below.

Sr.
No.
Amount of Foreign Inward remittance
(INR)
Date of receipt
Date of reporting to RBI
1.
839,16,76,740.00
30.06.2014
28.07.2014
2.
193,98,92,000.00
05.12.2014
05.01.2015
3.
213,23,19,650.00
12.12.2014
05.01.2015
4.
254,13,88,250.00
09.01.2015
19.05.2016
Total
1500,52,76,640.00


The applicant stated that the company could not proceed with the proposed GDR issue due to certain clarifications raised by SEBI for previous GDR issues as well as due to changes in DR (Depository Receipts) guidelines issued by Government of India. The applicant further stated that the company approached Reserve Bank of India, Central Office, on May 11, 2016 for refund of advance and receiving it back towards issuance of equity.
The applicant reported receipt of remittance to the Reserve Bank with a delay of 1 year 3 months and 11 days approximately beyond the stipulated time of 30 days in respect of remittances recorded at serial no.4 above. Whereas, in terms of paragraph 9(1)(A) of Schedule 1 to Notification No. FEMA 20/2000-RB, an Indian company issuing shares or convertible debentures in accordance with these Regulations should report foreign inward remittances to the



Reserve Bank of India as per the prescribed procedure not later than 30 days from the date of receipt of the amount of consideration.

3.    The allotment of shares made on February 10, 2017 amounting to Rs.1500,52,76,640/- was made after 180 days of receipt of remittances with the approval of Reserve Bank. The company approached Reserve Bank of India, Mumbai Regional Office, on January 03, 2017 for specific approval to issue shares against the advances received as above. The Reserve Bank vide letter dated January 17, 2017 accorded approval for issuance of shares and the transaction was completed on February 10, 2017 with a delay ranging from 1 year 5 months 24 days to 2 years and 3 days approximately. Whereas in terms of paragraph 8 of Schedule 1 to Notification No. FEMA 20/2000-RB, and as amended from time to time, if the shares or convertible debentures are not issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE/FCNR(B) account, the amount of consideration so received shall be refunded to the person concerned by outward remittance through normal banking channels or by credit to his NRE/ FCNR(B) account, as the case may be; provided further that the Reserve Bank may, on an application made to it and for sufficient reasons permit an Indian company to refund the amount of consideration received towards issue of security, if such  amount is outstanding beyond a period of 180 days from the date of receipt. The amendment in paragraph 8 of Schedule 1 to Notification No. FEMA 20/2000-RB was introduced by issue of Foreign Exchange Management (Transfer or Issue of security by a person resident outside India) (Third Amendment) Regulations, 2007 notified vide Notification No. FEMA 170/2007-RB dated 13th November 2007 in the official Gazette of the Government of India.


4.    It is noted that the company received advance remittances as detailed in para 2 above towards GDR issue. However the company neither issued GDR/Shares nor refunded the amount to the overseas remitter. The company approached Reserve Bank of India, Central Office, only on May 11, 2016 with a delay ranging from 1 year 4 months and 2 days to 1 year 10 months and 11 days approximately from the date.



of receipt of remittances. It is further noted that the company has retained the funds in the intervening period.

5.     The applicant was given an opportunity for personal hearing vide the Reserve Bank's letter No. FED.MRO.CEFA/2016-17 dated April 07, 2017 for further submission in person and/or producing documents, if any, in support of the application. The applicant appeared for personal hearing on April 12, 2017 during which Mr. Prahalad Pandit, General Manager, Essar Group and Mr. C.M. Bhatt, Vice President, Finance represented the applicant. The representatives of the applicant admitted the contraventions for which compounding has been sought. During the personal hearing, it was submitted that the delay was inadvertent and unintentional. They requested that in view thereof, the matter may be viewed leniently. The application for compounding is, therefore, being considered on the basis of the averments made in the application as well as other documents and submissions submitted along with the application.

6.    I have given my careful consideration to the documents on record and submissions made by the applicant during the personal hearing and thereafter. Accordingly, I hold that the applicant has contravened the following FEMA provisions issued in terms of:
(a)      Paragraph 8 of Schedule 1 to Notification No. FEMA 20/2000-RB since the shares were issued beyond 180 days from the date of receipt of the inward remittance. The contravention relates to an amount of Rs. 1500,52,76,640/- and the duration of the contravention is ranging from 1 year 5 months and 24 days to 2 years and 3 days approximately.
(b)    Paragraph 9(1)(A) of Schedule 1 to Notification No. FEMA 20/2000-RB due to the delay in reporting of receipt of foreign inward remittance towards subscription towards shares as detailed in paragraph no. 2 above. The contravention relates to an amount of Rs. 254,13,88,250/- and the duration of contravention is 1 year 3 months and 11 days approximately.



7.    In terms of section 13 of the FEMA, any person contravening any provision of the Act shall be liable to a penalty up to thrice the sum involved in such contraventions upon adjudication. The applicant has received remittances as detailed in paragraph 2 above as advance against GDR issue. However the company neither issued the GDR/Shares nor refunded the amount. The entire remittances (Rs 1500,52,76,640/-) were retained by the applicant. The applicant approached Reserve Bank of India, Central Office, only on May 11, 2016 with a delay ranging from 1 year 4 months 2 days to 1 year 10 months and 11 days approximately with the request to return the advance and receive it back for issuance of equity shares. It is deemed that undue gain have accrued to the applicant for the intervening period where the advances were retained without due reckoning under schedule I, FEMA 20/2000-RB. With a view to neutralize such undue gains to the applicant, the base rates of State Bank of India have been notionally applied to determine the rate of interest that  would have been payable if the applicant had sourced such advances through domestic borrowings. Therefore, taking into account the relevant facts and circumstances of the case as stated in the foregoing paragraphs, I am persuaded to take a view that undue gains made by the applicant require to be neutralized and I consider that an amount of Rs. 241,16,30,941/- (Rupees Two Hundred Forty One Crore Sixteen Lakh Thirty Thousand Nine Hundred Forty One only), incorporating the impact of neutralization as above, will meet the ends of justice.

8.    Accordingly, I compound the admitted contraventions namely, the contravention of paragraphs 8 and 9(1)(A) of Schedule 1 to Notification No. FEMA 20/2000-RB by the applicant as stated above on the facts discussed above in terms of the Foreign Exchange (Compounding Proceedings) Rules, 2000 on payment of an amount of Rs. 241,16,30,941/- (Rupees Two Hundred Forty One Crore Sixteen Lakh Thirty Thousand Nine Hundred Forty One only) which shall be deposited by the applicant with the Reserve Bank of India, Foreign Exchange Department, Mumbai Regional Office, Main Building, 3rd floor, Shahid Bhagat Singh Marg, Fort, Mumbai- 400001 by a demand draft drawn in favour of the "Reserve Bank of India" and payable at “Mumbai” within a period of 15 days from the date of this order. In case of



failure to deposit the compounded amount within the above mentioned period, Rule 10 of the Foreign Exchange (Compounding Proceedings) Rules, 2000 dated May 3, 2000 shall apply.

9.    The above order is passed only in respect of contraventions of Para 8 and 9(1)(A) of Schedule 1 to Notification No. FEMA 20/2000-RB and does not restrict the right of any other authority to proceed against the Company for any other violations/contraventions noticed at any point of time.
The application is disposed of accordingly.


Date: April 28, 2017

Compounding Authority Sd/-

(Gautam Prasad Borah)
Chief General Manager


Saturday, April 29, 2017

Tata-DoCoMo case: Delhi HC okays $1.18-billion damages, Rejects RBI's plea

Tata-DoCoMo case: Delhi HC okays $1.18-billion damages, Rejects RBI's plea

Upholds settlement to realise London Court of International Arbitration's award in favour of DoCoMo

Tata-DoCoMo case


FACTS OF THE CASE

Signalling an end to a long-drawn regulatory tussle, the Delhi High Court (HC) on Friday upheld a settlement agreement between Tata Sons and NTT DoCoMo to realise the $1.18-billion London Court of International Arbitration (LCIA) award in favour of the Japanese telecom giant. 
Tata-DoCoMo case


This is a significant development as the DoCoMo settlement is learnt to have been priority for the new Tata Sons chairman, N Chandrasekaran. 

The Tata Teleservices-DoCoMo joint venture (JV) was scripted in 2008 when Ratan Tata was the chairman of the group.
Tata-DoCoMo case

Rejecting the Reserve Bank of India (RBI) intervention in the enforcement proceedings, Justice S Muralidhar pronounced the verdict after coming to the conclusion that there was nothing contrary to any provision of Indian law in the February 2017 settlement plan submitted by the two companies to resolve their dispute. 

“It appears to be a well-settled legal position that parties to a suit, or as in this case, an award, may enter into a settlement even at the stage of execution of the decree or award,” said Justice Muralidhar in a single-Bench judgment. 
Tata-DoCoMo case


Honouring the International Covenants

Friday’s decision held that the issue of an Indian company honouring its commitment under a contract with a foreign entity would have a bearing on its goodwill and reputation in the international arena and have an indubitable impact on strategic relationships between countries. 

It also concluded that a third party (the RBI) could not be allowed to oppose the compromise arrived at between the two companies in such a manner.
Tata-DoCoMo case
Grounds for RBIs Objection

The RBI had opposed the enforcement of the LCIA award in the high court, saying it was void in law, as it had failed to consider the existent regulatory prohibitions and would effectively allow something that could not be done directly to be done in an indirect manner. 

According to the RBI, the award was in violation of Regulation 9 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (as amended in 2013), which prohibited the transfer or sale of shares at a price exceeding the market price of shares arrived at by any international valuation methodology. The banking regulator had also said that the award was in violation of Section 6 of the Foreign Exchange Management Act, 1999, which empowers the RBI to prohibit, restrict or regulate the transfer of any security by a person outside India. 

Stating that the award had allowed a restricted capital account transaction in the garb of a breach of contract, the RBI had claimed that the award (and the settlement agreement) was against the fundamental policy of India and incapable of enforcement in any circumstance. The lawyer for the RBI had also highlighted its apprehensions of the issue becoming a dangerous precedent for similar cases in the future, if the award was eventually enforced.

DoCoMo’s lawyer, senior advocate Kapil Sibal, had opposed the RBI stance by highlighting that the banking regulator could not object to civil proceedings between two private parties for the enforcement of a valid international arbitration award. After initially opposing the enforcement, Tata’s counsel, senior advocate Darius Khambata, had also supported the enforcement in line with their joint settlement agreement and said that the realisation of the award would send a strong signal for future foreign direct investments to come into India.

However , if you go through my earlier blog posting on the heading
“Enforcement of a foreign arbitral award cannot be made in India if it opposes the provisions of FEMA” 


The same Delhi High Court has given a different analysis and findings.

More comments on the contradictions in the above mentioned cases are always welcome. 

Sunday, April 23, 2017

Enforcement of a foreign arbitral award cannot be made in India if it opposes the provisions of FEMA

Enforcement of a foreign arbitral award cannot be made in India if it opposes the provisions of FEMA


On 11 April 2017, the Hon’ble High Court of Delhi (High Court), pronounced its judgment in a case where the enforcement of a foreign arbitral award was opposed inter alia on the ground that the enforcement of the said award would be contrary to the public policy of India as it violated the provisions of the Foreign Exchange Management Act, 1999 (FEMA).

Enforcement of a foreign arbitral award in India


Factual Background

 In 2008, Mauritius-based Cruz City 1 Mauritius Holdings (Cruz City) entered into a Shareholders’ Agreement (SHA) dated 6 June 2008 with Cyprus-based Arsanovia Ltd. and Mauritius-based Kerrush Investments Ltd. (Kerrush) under which Cruz City and Arsanovia Ltd. agreed to invest in Kerrush, which in turn, agreed to invest in a real estate project captioned as ‘Santacruz Project’ in India. On the same date, Cruz City also entered into a Keepwell Agreement with India-based Unitech Limited (Unitech) and Mauritius-based Burley Holdings Ltd.
Enforcement of a foreign arbitral award in India



(Burley), a wholly owned subsidiary of Unitech. Unitech and Burley, although not parties to the SHA, signed the SHA for confirmation of certain obligations accepted by them. Under Clause 3.9.2 of the SHA, Cruz City was entitled to exercise a ‘put option’ to call upon Arsanovia and Burley, to purchase all equity shares of Kerrush held by it, at the purchase price that yield a post tax IRR of 15% on the capital contribution made by Cruz City (Put Option).

Owing to delays in commencement of the construction of the Santa Cruz Project beyond a specified period, Cruz City exercised the put option under the SHA. However, the put option was not honoured and accordingly, Cruz City moved the London Court of International Tribunal (LCIA) under the SHA as well as Keepwell Agreement.

Enforcement of a foreign arbitral award in India


The LCIA Tribunal passed an award in favour of Cruz City and inter alia directed Unitech and Burley to pay Cruz City the purchase price for the shares held by Cruz City in Kerrush against delivery of all such shares (Award). In view thereof, a petition for the enforcement of the said Award was filed by Cruz City before the High Court. Main Submissions on Behalf of Unitech The enforcement of the Award was opposed by Unitech inter alia on the following grounds:  FEMA, being an enactment of exchange control laws in replacement of the Foreign Exchange Regulation Act, 1973 (FERA), would form a part of the public policy of India.

Therefore, the enforcement of the Award would be contrary to the public policy of India in terms of Section 48(2)(b) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) as it contravened the provisions of FEMA for the following reasons: The obligation under the Keepwell Agreement was in the nature of a guarantee issued by Unitech on behalf of Burley, which was not permissible under the Foreign Exchange Management (Guarantees) Regulations, 2000.

The SHA was structured to ensure a pre-determined return on equity which was prohibited under FEMA as it amounted to Foreign Direct Investment (FDI) on an assured return basis. Reliance was placed on RBI circulars dated 9 January 2014 and 14 July 2014 to contend that a foreign investor could exit the investment made in India only at a valuation as on the date of exit. Further, as per the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000, the shares of Kerrush could only be purchased at the fair market value of such shares. The Award effectively directed Unitech to invest in the shares of Kerrush, which could not be made without valuation of the shares by a Category-I Merchant Banker/Investment Banker.

Enforcement of a foreign arbitral award in India

 Thus, the Award was in violation of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004.  The Award in as much as it directs Unitech to make payment against the delivery of shares of Kerrush, in effect, directs Unitech to make an investment in Kerrush, which was not permissible without the approval of the Reserve Bank of India (RBI).  Cruz City had not claimed any relief that Unitech purchase its shareholding in Kerrush. Consequently, no notice was issued to Unitech either from Cruz City or the Arbitral Tribunal in respect of any claim against Unitech.

Therefore, the Award was beyond the relief claimed by Cruz City and without notice to Unitech and hence, its recognition and enforcement ought to be declined in terms of Sections 48(1)(b) and 48(1)(c) of the Arbitration Act. Main Submissions on Behalf of Cruz City  The Award did not require Unitech to purchase the shares of Kerrush but only to pay the purchase price in accordance with Unitech’s obligations under the Keepwell Agreement.  Violation of FEMA would not amount to a violation of public policy under Section 48(2)(b) of the Arbitration Act.

 In any case, there was no violation of FEMA in entering into the Keepwell Agreement.  Further, the question whether any permissions from the RBI were required for remitting of the money recovered from Unitech in the enforcement of the Award, would be a question to be addressed after the amount awarded had been recovered.

 Unitech was precluded from raising any plea to the effect that the Keepwell Agreement was illegal or that the approval of the RBI had not been obtained since, under the Keepwell Agreement, Unitech had expressly represented that the transactions were in compliance with all applicable laws.  Unitech was also precluded from raising the objection that it was not given an opportunity to present its case on the principles of res judicata since it was open for Unitech to raise these issues before the Court in the United Kingdom (UK), wherein it had challenged the Award or before the Arbitral Tribunal.

Decision of the High Court, New Delhi

The High Court rejected the objections raised by Unitech against the enforcement of the Award and decided the issues as follows: On whether Unitech was required to purchase the shares of Kerrush  The premise that the Award requires Unitech to purchase the shares of Kerrush is fundamentally flawed. The Arbitral Tribunal having found that Unitech had breached its obligations, directed it to pay the purchase price. The Award only seeks to enforce Unitech’s obligations undertaken under the Keepwell Agreement. There is no stipulation in the Award that the shares must be delivered only to Unitech. Although, the Award requires Burley and Unitech to pay the purchase price, it does not require that the delivery of shares of Kerrush be made to Unitech and not Burley.

 The payment of purchase price for the shares of Kerrush by Unitech would be on behalf of Burley which is in conformity with the obligations that were undertaken by Unitech in the Keepwell Agreement. On violation of FEMA ipso jure being in conflict with Public Policy  The objections to enforcement on the ground of public policy must be such that offend the “core values of a member State's national policy and which it cannot be expected to compromise”.  A simpliciter violation of any particular provision of FEMA cannot be considered synonymous to offending the fundamental policy of Indian law.

The expression “fundamental policy” must mean only the fundamental and substratal legislative policy and not a provision of any enactment.  There has been a material change in the fundamental policy of exchange control as enacted under FERA and as now contemplated under FEMA. The objective of FERA was to ensure that the nation does not lose foreign exchange essential for economic survival of the nation whereas under FEMA, the focus had shifting from prohibiting transactions to a more permissible environment.

 The enforcement of a foreign award will invariably involve considerations relating to exchange control or remittance outside the country for enforcement of foreign award or the initial agreement pursuant to which award required permission of RBI. However, these concerns can be addressed by ensuring that no funds are remitted outside India from RBI, which addresses the issue of public interest and foreign exchange.  Thus, the High Court held that the question of declining enforcement on the ground of a simpliciter violation of any provision of FEMA cannot be considered synonymous to offending the fundamental policy of Indian Law but, any remittance of money recovered from Unitech in enforcement of Award would necessarily require compliance of regulatory provision and/or permissions.

On whether the Award violated the provisions of FEMA  The Award does not contravene the Foreign Exchange Management (Guarantees) Regulations, 2000 since Regulation 5 specifically permits the giving of guarantees in certain circumstances, including by a company in India for and on behalf of a wholly owned subsidiary. In the instant case, Burley is a wholly owned subsidiary incorporated by Unitech in Mauritius and, therefore, it was entitled to give guarantees for Burley’s business to stand as surety for obligations undertaken by Burley within the limits prescribed in the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004.

Unitech cannot take the argument that Burley has no business and therefore, Regulation 5 (b) of the Foreign Exchange Management (Guarantees) Regulations, 2000 would not be applicable since it is not bonafide, a complete afterthought and runs contrary to the express representations made by Unitech in the Keepwell Agreement. On whether the SHA provided an assured return.

The Put Option was not an open ended assured exit option and could be exercised only within a specified time and was contingent on the Santa Cruz project not being commenced within the prescribed period.  RBI only restricts assured return instruments brought in India under the guise of equity. However, in the present case, Cruz City is only seeking to enforce its obligations against Burley.

Even if it is accepted that the Keepwell Agreement was designed to induce Cruz City to make investments by offering assured returns, Unitech cannot escape its liability as Cruz City had invested in Kerrush on the assurances held out by Unitech. Hence, even if Unitech may be liable to be proceeded against for violation of provisions of FEMA, the enforcement of the Award cannot be declined. On whether Unitech was precluded from raising the plea that it was unable to present its case.

The principle of res judicata is applicable only where the issue/controversy is finally considered and decided by a ‘court of competent jurisdiction’ and the question whether the award will be recognised/enforced in India cannot be adjudicated by any other forum in any country except the courts of India.

The Learning from the Case

 This judgment rendered by the High Court may have far reaching consequences for other pending disputes on similar issues. The High Court came down heavily on Unitech and observed that it must ‘bear the consequences of violating the provisions of law, but cannot be permitted to escape their liability under the Award’. The message is that parties representing that the transaction is in compliance with all applicable laws cannot be permitted to derogate from their obligations under the contract in the garb of an alleged violation of a provision of law at a later stage. Further, this again reflects the approach of the courts in India to not interfere in the arbitral proceedings and awards.


Courtesy : Sanjeev Kapoor (Partner), Aakash Bajaj (Senior Associate) and Aayush Jain (Associate) of khaitan & Co