Case
The Gujarat High Court, in ASEAN LNG Trading Co. Ltd., now known as Petronas LNG Ltd. v Nishu Tours and Travels Ltd., R/First Appeal No. 3694 of 2018 – judgment pronounced on 24/6/2026, considered the limited but important circumstances in which an Indian court may refuse enforcement of a foreign arbitral award under Section 48 of the Arbitration and Conciliation Act, 1996.
The judgment is significant for parties involved in cross-border commodity, LNG, energy and infrastructure contracts. While Indian courts continue to recognise that enforcement of foreign awards is not an appeal on merits, the Court held that enforcement may nevertheless be refused where the award offends the fundamental policy of Indian law by ignoring foundational principles of contract formation.
Background
The dispute arose out of a Master LNG Sale and Purchase Agreement. The seller sought to enforce a foreign arbitral award arising from alleged “take or pay” liability in relation to LNG cargoes. The buyer resisted enforcement on the basis that there was no concluded contract for the cargoes, since material terms such as the receiving terminal and price had not been finally agreed.
The learned Single Judge refused enforcement of the foreign award. The Division Bench dismissed the appeal and upheld the refusal.
Section 48: Narrow Review, But Not a Hands-Off Approach
The Court reaffirmed that the scope of enquiry under Section 48 is limited. An enforcement court cannot reassess evidence or sit in appeal over the foreign award. However, the Court also clarified that Section 48 does not require Indian courts to adopt a wholly passive role.
At paragraph 155, the Court held:
“Section 48 of the Act’ 1996 though comes with restrictions and limitations, but the Courts are not required to adopt a hands-off approach.”
The Court further noted that Explanation 2 to Section 48(2)(b) prohibits a review on merits when examining whether an award contravenes the fundamental policy of Indian law. At paragraph 156, the Court observed:
“Explanation 2 of Section 48(2)(b) adds a clarification by a caveat that the Court shall not review the award on merits of the dispute…”
The Court therefore drew a careful distinction between impermissible merits review and permissible examination of whether enforcement would offend the fundamental policy of Indian law.
Foreign Awards Are Not Subject to a Second Appeal
The Court relied on the settled position that Section 48 does not permit a second look at the merits of the foreign award. Referring to the Supreme Court’s decision in Vedanta, the Court observed at paragraph 158:
“Section 48 does not provide a de facto appeal on the merits of the award.”
The Court also referred to Shri Lal Mahal, noting at paragraph 160 that:
“The scope of inquiry under Section 48 does not permit review of the foreign award on merits.”
This confirms that errors of fact, contractual interpretation, or evidentiary appreciation will not ordinarily justify refusal of enforcement.
The Public Policy Exception Remains Narrow
The Court reiterated that the public policy defence in enforcement proceedings is narrow. In paragraph 164, the Court referred to Vijay Karia and noted that “fundamental policy” concerns the core values of Indian public policy:
“‘fundamental policy’ refers to the core values of public policy as a nation…”
The Court further noted at paragraph 167 that public policy objections must offend the fundamental and substratal policy of law, and not merely a statutory provision:
“The expression ‘fundamental policy of law’ must… mean only the fundamental and substratal legislative policy…”
Thus, the judgment does not dilute India’s pro-enforcement approach. Rather, it identifies a narrow category of cases where enforcement may be refused because the award proceeds on a basis fundamentally inconsistent with foundational principles of Indian contract law.
No Concluded Contract: Price and Receiving Terminal Were Essential Terms
The central question was whether the arbitral award could be enforced when it proceeded on the basis that there was a concluded contract, despite the Court’s finding that essential terms had not been agreed.
The Court noted that the delivery notice was intended to contain key particulars, including the LNG ship, receiving terminal, scheduled unloading date range, quantity, quality and payment security. The Court found that the receiving terminal had not been fixed and the price had not been finally agreed.
At paragraph 169, the Court held:
“The price aspects remained undecided till the last moment and admittedly, the receiving terminal was not fixed at all.”
The Court was particularly concerned that the arbitral tribunal had treated the receiving terminal and price as operational matters, rather than essential commercial terms. At paragraph 169, the Court stated:
“fixing of the receiving terminal cannot be termed as operational aspect.”
The Court further held:
“the delivery notices sent by the seller was a unilateral act…” (paragraph 169)
Most importantly, the Court observed:
“the contract cannot be said to have been concluded.” (paragraph 169)
The Court also emphasised that in commercial contracts, price and place of delivery are not peripheral matters. At paragraph 169, the Court held:
“the price segment and the place of delivery are the important aspects for execution of a binding contract.”
Take or Pay Liability Could Not Be Triggered
The seller argued that the take or pay liability was triggered under the contract. However, the Court held that such liability could not arise where there was no concluded contract in the first place.
At paragraph 171, the Court found that there was no satisfactory answer as to how the seller could unilaterally decide the receiving terminal:
“there is no answer as to how the receiving terminal could have been decided by the seller on its own…”
At paragraph 172, the Court further observed:
“receiving terminal was required to be confirmed by the buyer for each of the slated delivery of cargo.”
The Court also noted that the parties had not undertaken the consultative process required under the contractual framework. At paragraph 173, the Court held:
“The consultative process to mutually agree between the parties… had never been undertaken…”
The Court’s reasoning was commercially grounded. LNG cannot be treated as an ordinary commodity capable of being delivered anywhere without terminal and regasification arrangements. The receiving terminal was therefore central to performance.
No Agreement on Price
The Court also held that there was no concluded agreement on price. At paragraph 175, the Court noted:
“There has been no agreement between the parties about the price as admitted by the parties.”
The seller’s argument that the Henry Hub price operated as a fixed or default price was rejected. At paragraph 176, the Court held:
“the findings of the learned Arbitrator that the HH price was a default price is wholly incomprehensive.”
This finding was material because the take or pay mechanism depended on the contractual price being ascertainable under the agreed contractual framework.
Fundamental Policy of Indian Law: Contract Formation
The Court’s most important reasoning appears at paragraph 177. It held that the absence of a concluded contract went to the core of Indian contract law:
“in absence of a concluded contract, there was no question of breach.”
The Court then set out the basic principles of contract formation:
“a proposal when accepted, becomes a promise…” (paragraph 177)
“the agreement enforceable by law is a contract.” (paragraph 177)
The Court was careful to clarify that the objection was not that the award merely offended a provision of the Indian Contract Act. Rather, the award offended the fundamental and substratal principles of contract law.
At paragraph 177, the Court held:
“the award offends the fundamental and substratal principles of contract laws.”
This is the core of the decision. The Court did not refuse enforcement because it preferred a different interpretation of the contract. It refused enforcement because, on the Court’s analysis, the award imposed liability for breach despite the absence of a concluded contract.
The Award Defied Logic and Shocked the Conscience of the Court
At paragraph 178, the Court upheld the refusal to enforce the award in strong terms:
“the liability of Take or Pay triggered in the facts of the present case defies all logic.”
The Court further held:
“The award has rightly been held to be based on irrelevant consideration and perverse, irrational…” (paragraph 178)
The Court concluded that the award shocked the conscience of the Court and was therefore contrary to the fundamental public policy of Indian law:
“it shocks the conscience of the Court… against the fundamental public policy of Indian law.” (paragraph 178)
Conclusion
The judgment therefore sits at the intersection of arbitration enforcement and contract formation. Its message is clear: Indian courts will ordinarily enforce foreign awards, but they will not enforce an award that imposes liability where the foundational requirements of a binding contract are absent.
Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances
