Courts should be slow in rejecting enforcement of foreign awards; SC elucidates principles

Supreme Court: A 3-judge bench of RF Nariman, Aniruddha Bose and V. Ramasubramanian, JJ has held that enforcement of a foreign award may under Section 48 of the Arbitration and Conciliation Act, 1996 be refused only if the party resisting enforcement furnishes to the Court proof that any of the stated grounds has been made out to resist enforcement. The said grounds are watertight – no ground outside Section 48 can be looked at.

Stating that Court’s power under Article 142 ought not to be used to circumvent the legislative policy contained in Section 48 of the Arbitration Act, the bench said,

“nothing in Section 48 of the Arbitration Act would permit an enforcing court to add to or subtract from a foreign award that must either be enforced or rejected by reason of any of the grounds under Section 48 being made out to resist enforcement of such foreign award.”

Some of the important considerations highlighted by the Court for enforcement of a foreign award

  • Unlike Section 37 of the Arbitration Act, which is contained in Part I of the said Act, and which provides an appeal against either setting aside or refusing to set aside a ‘domestic’ arbitration award, the legislative policy so far as recognition and enforcement of foreign awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award but not the other way around (i.e. an order recognising and enforcing an award).

“This is because the policy of the legislature is that there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Act and which have been rejected.”

  • The foreign award must be read as a whole, fairly, and without nit-picking. If read as a whole, the said award has addressed the basic issues raised by the parties and has, in substance, decided the claims and counter-claims of the parties, enforcement must follow.
  • Grounds for resisting enforcement of a foreign award under Section 48
    • Enforcement of a foreign award made without jurisdiction cannot possibly be weighed in the scales for a discretion to be exercised to enforce such award if the scales are tilted in its favour.
    • Where the grounds taken to resist enforcement can be said to be linked to party interest alone, for example, that a party has been unable to present its case before the arbitrator, and which ground is capable of waiver or abandonment, or, the ground being made out, no prejudice has been caused to the party on such ground being made out, a Court may well enforce a foreign award, even if such ground is made out.
    • When it comes to the “public policy of India” ground there would be no discretion in enforcing an award which is induced by fraud or corruption, or which violates the fundamental policy of Indian law, or is in conflict with the most basic notions of morality or justice.
  • The expression “may” in Section 48 can, depending upon the context, mean “shall” or as connoting that a residual discretion remains in the Court to enforce a foreign award, despite grounds for its resistance having been made out. In that case a balancing act may be performed by the Court enforcing a foreign award.
  • Given the fact that the object of Section 48 is to enforce foreign awards subject to certain well-defined narrow exceptions, the 108 expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase. In short, this expression would be a facet of natural justice, which would be breached only if a fair hearing was not given by the arbitrator to the parties.
  • If a foreign award fails to determine a material issue which goes to the root of the matter or fails to decide a claim or counter-claim in its entirety, the award may shock the conscience of the Court and may be set aside.

[Vijay Karia v. Prysmian Cavi E Sistemi Srl, 2020 SCC OnLine SC 177, decided on 13.02.2020]

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