Author: Vedang Mishra, Research Associate
“Arbitration improves access to justice. It enhances the likelihood of recovery. It delivers speedier results. It keeps costs down. For many, it is a superior option to the expensive, slow, cumbersome ways that have come to typify our civil justice system.” -Peter B. Rutledge
The rapid growth of international trade and the complexities of its transaction lead to the growth of arbitration as the internationally accepted means of resolving commercial disputes. An arbitral award made in the territory of a state other than the state where the recognition and enforcement of the award is sought is a foreign arbitral award. Prior to the enactment of the Arbitration and Conciliation Act, 1996 (hereinafter 1996 act), the foreign arbitral awards were regulated by two separate acts namely, the Foreign Awards (Recognition and Enforcement) Act, 1961 and the Arbitration (Protocol and convention) Act, 1937.
Generally a jurisdiction’s credibility depends upon the efficiency of its award enforcement regime. The 1996 act deals with the enforcement of foreign awards in India and consists of two chapters in part II of the act. Chapter I relates to the awards made under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) and Chapter II to the Geneva Convention on the Execution of Foreign Arbitral Awards (1927). As India is signatory to both these conventions, the relevant provisions relating to the enforcement of these awards have been incorporated under the 1996 Act.
New York Convention Awards
The developments in laws related to recognition and enforcement of foreign awards led to the birth of the New York Convention, 1958. The scope of New York Convention is very wide and an arbitral award made in any foreign country, whether in contracting state or otherwise, is covered under the New York convention.
‘Foreign award’ is defined under 1996 Act as an award which must fulfill the following ingredients ((The Arbitration and Conciliation Act, 1996 section 44)):
i. It must be an award on difference arising out of legal relationships considered as commercial under the law in force in India;
ii. It must have been made on or after 11th October 1960;
iii. It must have been made in pursuance of an agreement in writing for arbitration to which the convention set forth in the First Schedule (New York Convention) applies; and
iv. It must have been made in one of the reciprocating contracting states notified by the Central government.
Procedural Requirements for Enforcement of Foreign Awards
Enforcement process is a three dimensional process integrated in Sections 47, 48 and 49 of 1996 Act. A party seeking enforcement of foreign award has to make an application under section 47, accompanied by the required documentary evidences set forth in it. This section lays down the method of proof for the enforcement of the foreign award.
The party applying for the enforcement of a foreign award is required to produce the following evidences before the court along with the application for along with application for enforcement:
i. the duly authenticated original award or a duly certified copy thereof ((Ibid section 47 (1) (a).));
ii. the original agreement referred to in Article II or a duly certified copy thereof ((Ibid section 47 (1) (b).));
iii. other relevant evidences necessary to prove that the award is a foreign award ((Ibid section 47 (1) (c).));
iv. Certified English translation of the arbitral award or the arbitration agreement ((Ibid section 47 (2).)).
Jurisdiction of the Court
This provision sets forth the formal requirement necessary to apply for the enforcement of a foreign award. It can be enforced if it fulfills two fundamental requirements:
i. That the parties have submitted to arbitration by an agreement valid under its governing law;
ii. The award is final and valid according to the law which governs the arbitration proceedings.
The claimant, therefore, must plead and prove both the existence and validity of the arbitration agreement and the award and depending upon the context, the proceedings may be classified as a claim on the award itself or on the submission agreement ((Dicey and Morris, The Conflict of Laws, Vol I, 13th Ed, 2000, pp 620-621)).
Place of filing
A petition for the enforcement of a foreign award can be filed in any part of the country where a suit for recovery can be filed ((Tata International v. Trisuns Chemical, 2002 (2) Bom CR 88)). It is determined through investigation i.e. if the investigation reveals that the property and assets of losing party are likely to be available in India, the party seeking enforcement has to move the court in India.
A party seeking to enforce an award in an international commercial arbitration may have a choice of country in which to do so, as it is sometimes expressed, the party may be able to go forum shopping. This depends upon the location of the assets of the losing party. Since the purpose of enforcement proceedings is to try to ensure compliance with an award by the legal attachment or seizure of the defaulting party’s assets, legal proceedings of some kind are necessary to obtain title to the assets seized or their proceeds to sale. These legal proceedings must be taken in the State or States in which the property or other assets of the losing party are located ((Redferm and Hunter, Law and Practice of International Commercial Arbitration, 1986 Ed, pp 337- 338)).
It cannot be that a foreign award can be enforced at any time, since even a domestic award can be enforced only within a specified time limit. The New York Convention states that each contracting state shall enforce foreign arbitral award in accordance with the rules of procedure of the territory where the award is relied upon. It is clear that this Article enables the state wherein the award is sought to be enforced to impose ((Article III of New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).)), under its procedural law, time limits within which the enforcement of the award is sought.
Since Part II of the 1996 Act does not prescribe any time limit, the Limitation Act, 1963, would apply ((Orient Middle East Lines Ltd v. M/s. Brace Transport Corporation, AIR 1966 GUJ 62.)). Normally, the starting point of limitation would be the date of finality in the country where the award is made. However, there is a need of clear judicial authority on this point. It would be pertinent to note that neither under the old laws nor under the 1996 Act, the Indian courts are empowered to set aside a foreign award. The only enquiry which the court is supposed to make is about its enforceability.
Conditions for Enforcement of Foreign Awards
Section 46 of the 1996 Act deals with conditions for enforcement of foreign awards and enumerates the circumstances which justify court’s refusal to enforce the award. Briefly stated these circumstances are:
a) Incapacity: Incapacity of the party to conclude the arbitration agreement, under the law applicable to him, can be a ground for the refusal for enforcement of foreign awards ((The Arbitration and Conciliation Act, 1996 section 48 (1) (a).)).
b) Invalid arbitration agreement: If the arbitration agreement was invalid under the law of the country where the award was made. The principle that the parties are free to designate the law applicable to arbitration agreement is embodied in this ground ((Ibid section 48 (1) (a).)).
c) Due Process: If the due process of law has been violated. In other words, if the party was not given the proper notice of the appointment of the arbitrator or of the arbitration proceedings or was unable to present the case. It deals with the fundamental principle of procedure and requires fair hearing ((Ibid section 48 (1) (b).)).
d) Jurisdictional Defect: The enforcement of foreign award may be refused if the respondent can prove that the award has exceeded the scope of the submission to arbitration. This ground does not deal with failure of the arbitration tribunal to exercise jurisdiction but it only deals with overstepping authority by the arbitral tribunal ((Ibid section 48 (1) (c).)).
e) Composition of the tribunal and procedure: Irregularity in the composition of arbitral tribunal or arbitral proceedings may be a ground for the refusal for enforcement of foreign awards ((Ibid section 48 (1) (d).)).
f) Ineffective award: The enforcement of foreign award may be refused if the award is being set aside or suspended in the country in which, or under the law of which, that award was made ((Ibid section 48 (1) (e).)).
Ex Officio Grounds:
The court also may refuse to enforce a foreign award of it finds:
- Non-arbitrability: that the award is in respect of a matter which is not capable of settlement by arbitration under the law of India ((Ibid section 48 (2) (a).)).
- Contrary to public policy: that the enforcement of the foreign award would be contrary to public policy of India ((Ibid section 48 (2) (b).)).
Conflict with public policy of India:
Public policy is a ground on which the court may refuse enforcement of foreign arbitral award on its own motion without any request of the party against whom the award is invoked. ‘Public Policy’ has been defined by Winfield as “a principle of judicial legislation or interpretation founded on the current needs of the community” ((Murlidhar v. State of UP, AIR 1974 SC 1924.)).
An arbitral award can be set aside on the ground of public policy in India under section 34 of the Arbitration and Conciliation Act, 1996. A foreign award may not be enforced if the court dealing with the case is satisfied that the enforcement of the award would be contrary to public policy. The Supreme Court of India in Gherulal Parakh Vs. Mahadeodas Maiya ((AIR 1959 SC 781))has held that public policy of India is nothing but the policy of law in India. The doctrine of public policy should only be invoked in clear and incontestable cases of harm to the public. Though the heads are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of the ever changing world, it is convenient in the interest of stability of society not to make any attempt to discover new heads of public policy.
In Renusager Power Co. Ltd v. General Electric Co ((AIR 1994 SC 860)). the Supreme Court observed that in order to attract the bar of public policy, the enforcement of award must involve something more than mere violation of law in India. Again in the Oil & Natural Gas Corporation Ltd. v. SAW Pipes Ltd (( 5 SCC 705))while upholding the validity of Renusager case, the Hon’ble Court held that the term “public policy of India” should be given wider interpretation. The enforcement of award would be contrary to public policy if it is contrary to (a) Fundamental policy of India; (b) Interest of India; (c) Justice or morality; and (d) if it is patently illegal. It is heartening to note that the Arbitration (Amendment) Bill, 2010 seeks to define the term ‘Public Policy’ so as to give it an exact meaning.
Conflicting Decisions: From Bhatia International to Venture Global Engineering
The Judgment of Apex Court in both Bhatia Internationa case ((Bhatia International v. Bulk Trading S.A., AIR 2002 SC 1432 ))and Venture Global Engineering case ((Venture Global Engineering Company U.S.A. v. Satyam Computer Services, AIR 2008 SC 1061))revolves around the issue of lex loci arbitri i.e. seat of arbitration. It is a well accepted principle of law that the country of the seat of arbitration alone has jurisdiction to set aside an award. In Bhatia International v. Bulk Trading, Supreme Court held that though there was no provision in Part II of the Act providing for challenge to a foreign award, a petition to set aside the same would lie under Section 34 Part I of the Act (i.e. it applied the domestic award provisions to foreign awards).
In Venture Global Engineering case also, the Supreme Court relied heavily on Bhatia International. It was held that a person seeking to enforce a foreign award has to not only to file an application for enforcement under Section 48 of the Act; it has to meet an application under Section 34 of the Act seeking to set aside the award. But, it went on further to hold that where it is open to the parties to exclude the application of the provisions of Part I by express or implied agreement, it would mean that otherwise the whole of Part I would apply.
But now the situation related to foreign arbitral award has totally changed after the overruling of the Bhatia International Case in 2012 by the constitutional bench of Supreme Court in which Supreme Court held that the courts in India do not have jurisdiction over international commercial arbitral award where the seat of arbitration is outside India ((Balco case.)).
Award to be Deemed Decree of the Court
A foreign award becomes deemed decree only on the satisfaction of the Court in respect of enforceability of award when it is applied for. Section 49 of 1996 provides for enforcement of the award. The Supreme Court in Furest Day Lawson v. Jindal Exports Ltd ((AIR 2001 SC 2293)), held that the provisions of section 46 to 49 of the 1996 Act read together make it clear that no separate proceedings are necessary for the enforcement of award. The Court decides the enforceability of the award to make it a decree or rule of Court.
Any person who is interested in enforcing a foreign award may apply in writing to any Court having jurisdiction over the subject matter of the award. The Court for this purpose would be Principal civil Court for original jurisdiction in a District and High Court exercising original jurisdiction in Civil Courts. If the conditions for enforcement are fulfilled and the court is satisfied about the enforceability of a foreign award, the award is deemed to be a decree of that court and enforceable under the law.