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LMJ International Ltd. v. Sleepwell Industries Co. Ltd. and connected matters

Special Leave Petition (Civil) · 2019 INSC 241Decided 20 Feb 2019
Special Leave Petition (Civil) No. 540 of 2018, Special Leave Petition (Civil) No. 5493 of 2019
Justice A.M. Khanwilkar · Justice Ajay Rastogi

Background

LMJ International (buyer) and a related company had contracted with Sleepwell Industries (seller) to buy Non-Basmati Parboiled Rice from Thailand for onward supply to the Government of Bangladesh, with disputes to be resolved by GAFTA arbitration in London. When a dispute arose over rice quality and unpaid invoices, Sleepwell invoked arbitration; LMJ refused to participate, and the arbitral tribunal passed awards against it ex parte. Sleepwell then sought to enforce these foreign awards in the Calcutta High Court, which upheld the awards' enforceability over LMJ's objections (including that no formal declaration of enforceability was sought, that a related civil suit was pending, and that the arbitration clause and arbitrator appointments were procedurally defective), prompting LMJ to approach the Supreme Court.

Decision Breakdown

The Supreme Court examined the arbitral tribunal's detailed findings on the contract's terms (including an amendment on when the balance payment became due, tied to a quality inspection report that the buyer never produced) and found the tribunal had considered all aspects of the dispute properly. The Court held that even if the arbitral tribunal had erred, correction of such errors could only be pursued through an appeal under English law (which governed the arbitration), not through resisting enforcement in Indian courts, and that none of LMJ's procedural objections undermined the awards' enforceability. The Supreme Court dismissed the special leave petitions with exemplary costs of Rs. 20 lakh, and directed the Calcutta High Court's Registrar to encash the fixed deposits held in the execution proceedings and, after RBI permission, remit the full award amount with interest to Sleepwell within eight weeks.

Lesson Learnt

Once parties agree to resolve disputes through foreign-seated arbitration, Indian courts enforcing the resulting award will not re-examine the merits of the arbitrator's findings: objections to the award's correctness must be pursued (if at all) under the law governing the arbitration itself, not used to resist enforcement, and parties who refuse to participate in arbitration proceedings do so at serious risk of an unfavorable ex parte award plus the cost of resisting its enforcement.

Official source (sci.gov.in)View Judgment (PDF)

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