foreign award

Op EdsOP. ED.

Introduction

The  Supreme Court recently in PASL Wind Solutions (P) Ltd. v. GE Power Conversion (India)(P) Ltd.1 (hereinafter referred to as “PASL Wind Solutions”) has clarified that two Indian parties can choose a foreign arbitral seat. The issue before the Supreme Court was “whether two companies incorporated in India can choose a forum for arbitration outside India and whether an award made at such forum outside India, to which the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the New York Convention or NYC) applies, can be said to be a “foreign award” under Part II of the Arbitration and Conciliation Act, 19962 (the Arbitration Act) and be enforceable as such”.

 Factual background

 The dispute arose between two Indian parties pertaining to supply and warranties of certain converters. It is pertinent to mention here that PASL Wind Solutions Pvt. Ltd. (PASL), the appellant, and GE Power Conversion India Pvt. Ltd. (GE), the respondent, both are companies incorporated under the Companies Act, 19563 with their registered office at Ahmedabad, Gujarat and Chennai, Tamil Nadu respectively. Further, GE is a 99% subsidiary of General Electric Conversion International SAS, France, which in turn is a subsidiary of the General Electric Company, United States.

When the disputes arose between the parties, PASL issued a request for arbitration to the International Chamber of Commerce as per Cl. 6 of the settlement agreement. The relevant portion of Clause 6 is reproduced hereinunder:

6.2. In case no settlement can be reached through negotiations, all disputes, controversies or differences shall be referred to and finally resolved by arbitration in Zurich in the English language….

A preliminary objection with respect to the seat of arbitration was raised by GE, however the arbitrator ruled that the seat of the arbitration is Zurich, Switzerland. GE suggested Mumbai as the convenient venue to hold arbitration proceedings so as to reduce the cost. PASL objected to the suggestion. However, the Tribunal acceded to the suggestion and held that though the seat will be Zurich, all hearings would be held in Mumbai. The arbitral award was passed in favour of GE.

 After the passing of the final award, GE called upon PASL to pay the amounts granted vide the said award, however, PASL failed to oblige and GE initiated enforcement proceedings under Sections 47 and 49 of the Arbitration Act before the High Court of Gujarat, within whose jurisdiction the assets of the appellant were located. At this stage, PASL resisted the enforcement of arbitral award on the ground that the seat of arbitration was Mumbai, where all the hearings of the arbitral proceedings took place. The said argument of PASL was rejected by the Gujarat High Court which upheld the enforcement of the arbitral award, against which PASL filed special leave petition before the Supreme Court.

Arguments of the parties before the Supreme Court

 PASL contented that two Indian parties cannot designate a seat of arbitration outside India—

(i) As the same would be contrary to Section 23 of the Contract Act, 18726 (the Contract Act) read with Sections 28(1)(a) and 34(2-A) of the Arbitration Act;

(ii) That by designating a foreign seat, parties would be able to opt out of substantive law of India, which would be contrary to the public policy of the country;

(iii) That foreign awards as contemplated under Part II of the Arbitration Act can arise only from international commercial arbitrations. Reliance was placed on the definition of “international commercial arbitration”, contained in Section 2(1)(f) of the Arbitration Act (Part I), as per which at least on the parties to the arbitration is a foreign national or a company incorporated in a country other than India, or an association whose central management or control is outside India or Government of a foreign country; and

(iv) That since there was no foreign element involved and the dispute between the two parties arose out a contract to be performed solely in India, by applying the closest connection test, the seat of the arbitration would necessarily be Mumbai and not Zurich.

GE argued that the Arbitration Act does not bar Indian parties from choosing a foreign seat—

(i) That it is a settled position of law10 that Parts I and II of the Arbitration Act are mutually exclusive and hence, the definition of international commercial arbitration (ICA) cannot be imported from Part I of the Act into Section 44 via the expression “unless the context otherwise requires” contained in Section 44;

(ii) That unlike the definition of “international commercial arbitration” contained in Section 2(1)(f) in Part I, nationality, domicile or residence of parties is irrelevant for the purpose of applicability of Section 44 of the Arbitration Act;

(iii) Neither Section 23 nor Section 28 of the Contract Act prescribe the choice of a foreign seat in arbitration. In fact, the exception to Section 28 of the Contract Act expressly excepts arbitration from the clutches of Section 28, which is an express approval to party autonomy which forms the basis of the Arbitration Act; and

(iv) The arbitration clause in the settlement agreement, together with the procedural orders passed by the arbitrator, designated Zurich as the seat and Mumbai only as a convenient venue, which has been accepted by both parties, and must govern the arbitral proceedings in this case.

Analysis of the judgment in PASL Wind Solutions

i) Determination of the seat on the basis of the closest connection test

PASL’s argument that by applying closest connection test as followed in Enercon (India) Ltd. v. Enercon GmbH13 the seat of arbitration is Mumbai (India) was rejected. The Court also held that the closest connection test would apply only if it is unclear that the seat has been designated either by the parties or by Tribunal.

In Enercon14, the arbitration clause provided London as the venue and not the seat. The Court in the said judgment pointed out various factors connecting the dispute to India and the absence of any foreign factors connecting the dispute to England. However, in the instant case, the parties by their express consent designated Zurich as the seat of arbitration and Mumbai as the venue.

ii) Part I and Part II are mutually exclusive and there is no overlapping

The Court reiterated the established position of law that Part I and Part II of the Arbitration Act are mutually exclusive and that the provisions of Part II are not supplementary to Part I. Part I deals with arbitrations situated in India irrespective of whether the arbitration is purely domestic or an ICA i.e. where one of the parties is foreign. Part I is a complete code in itself as it deals with appointment of arbitrator, commencement of arbitration, making of an award, its challenge and execution.

Part II on the other hand is concerned only with enforcement of foreign arbitral award. Thus, the applicability of Part II is solely dependent upon the fact that place where the arbitral award is made is outside India, in a country signatory to the New York Convention.

The Court rejected the contention of PASL that the proviso to Section 2(2) of the Arbitration Act15, which was introduced by the Arbitration and Conciliation (Amendment) Act, 201516 and which envisages that subject to the agreement to the contrary, Section 9 (interim measures), Section 27 (taking of evidence) and Sections 37(1)(a), & 37(3) shall also apply to ICA, even if the seat of arbitration is outside India, is a bridge which connects the two Parts of the Act viz. Parts I and  II. The Court clarified that the proviso was introduced by way of amendment to deal with the confusion created by the judgments in Bhatia International v. Bulk Trading SA20 and Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.21 The proviso to Section 2(2) makes it clear that even in cases where the arbitration takes place outside India and the assets of one of the parties is situation in India, interim orders qua such assets, can be passed by the courts in India. Although the expression “international commercial arbitration” has been used in the proviso, it has been used to refer to arbitration seated outside India. The context of the expression “international commercial arbitration” used in the proviso to Section 2(2) is different from the definition of “international commercial arbitration” under Section 2(1)(f). Thus, the Court clarified that when the expression “international commercial arbitration” is spoken in the context of arbitration taking place outside India, it is place-centric, as provided in Section 44 (Part II) of the Arbitration Act as opposed to the party-centric definition of “international commercial arbitration” contained in Section 2(1)(f).

iii) Distinction between international commercial arbitration and foreign award

The Court clarified that ICA and foreign award are not the same. An award made in a State other than the State where the enforcement is sought is a foreign award. The nationality, domicile, residence of parties is irrelevant to determine whether an award is a foreign award or not. However, nationality domicile, residence of parties would be relevant to determine whether an award is an ICA or not. That majority of the contracting States of NYC consider “seat” chosen by the parties or the tribunal as the place where the award is made. The concept of foreign award is thus “seat-oriented” rather than “party-oriented”.

iv) The awards covered under NYC in contradistinction to Geneva Convention

The Court relied on the article written by Pieter Sanders22 and book by Gary Born23 to hold that scope of NYC Convention is wider than that of the Geneva Convention24. The Geneva Protocol was limited to agreements to arbitrate between parties that were nationals of different contracting parties, whereas Article II of the NYC does not expressly address the categories of arbitration agreements which are subject to the Convention, instead, it refers to arbitration awards which are governed by NYC. As per Article II, NYC applies in two cases:

a. If the award is made in a territory of a State other than the State where the recognition and enforcement is sought.

b. Awards which are not considered as domestic awards in the State where its recognition and enforcement is sought.

Thus, there is no reference to nationality, domicile or place of residence of parties at all.

v) Definition of foreign award as contained in Section 44 of the Arbitration Act

The definition of foreign award contains four ingredients:

a. the dispute must be considered to be a commercial dispute under the law in force in India;

b. it must be made in pursuance of an agreement in writing for arbitration;

c. it must be disputes that arise between persons (without regard to their nationality, residence, or domicile); and

d. the arbitration must be conducted in a country which is a signatory to the New York Convention.

Apart from the fact that Parts I and II are mutually exclusive and the definition of Part I will have no significance while interpreting the provisions of Part II, a bare perusal of Section 44 would make it clear that a foreign award has no correlation with the definition of international commercial arbitration as contained in Section 2(1)(f). In fact, the term “International commercial arbitration” is conspicuous by its absence. The Court while taking note of the aforesaid, observes that inserting the concept of “international commercial arbitration” in the definition of foreign award contained in Section 44, would alter the very basis of Section 44. In any event, bodily importing the expression international commercial arbitration into Section 44 cannot be done because of the opening words of Section 44.

vi) Provision of the Arbitration Act as opposed to Federal Arbitration Act of USA (FAA)

During the course of arguments, attention was drawn by PASL to Section 202 of the Federal Arbitration Act which specifically provides that an agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the NYC unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. The Court however, while rejecting the reliance placed on the provision of FAA noted that unlike the FAA, no such caveat was entered when India acceded to the NYC and that Section 44 is reflective of the same.

vii) Position of law prior the decision in PASL Wind Solutions qua party autonomy

The position of the law before the present judgment was also clearly in favour of party autonomy.25 One of the first cases before the Supreme Court challenging the right of parties to choose a foreign-seated arbitration arose in Atlas Export Industries v. Kotak & Co.26 In the said case, even though an Indian company had entered into a contract with a company incorporated in Hong Kong, the goods were to be supplied through an Indian company, namely, Kotak & Co. in Mumbai. As per the arbitration agreement contained in the contract, the arbitration was to take place in London in accordance with arbitration rules of Grain and Feed Trade Association (GAFTA). Dispute arose between the parties and a foreign award was delivered. The respondent moved an application under the provisions of the Foreign Awards (Recognition and Enforcement) Act, 196127 before the High Court seeking enforcement of the award. The award was made a rule of the court and subsequently a decree was passed in terms of the award, against which a letters patent appeal was filed by Atlas on the ground that the award is unenforceable on the ground of it being contrary to Sections 23 and 28 of the Contract Act. The principal contention of the appellant was that the parties between whom the dispute arose, being Indian parties could not have resorted to a foreign seated arbitration and thereby impliedly exclude the remedy available under ordinary Indian law. Reliance was placed on Sections 23 and 28 of the Contract Act, however the same was rejected. The  Supreme Court held merely because the arbitrators are situated in a foreign country that by itself cannot be a reason to nullify the arbitration agreement, when the parties with their eyes open, willingly entered into an arbitration agreement.

It may however, be noted that although the contract was to be performed in India, there was a foreign element involved in the form of a company incorporated in Hong Kong.

However, the Supreme Court in dealing with proceedings relating to appointment of arbitrator in TDM Infrastructure (P) Ltd. v. UE Development (India)(P) Ltd.28 while referring to Section 28 of the Arbitration Act observed that the “intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian Law. This is part of the public policy of the country”. The aforesaid judgment was relied on by the Bombay High Court29 to hold that two Indian parties cannot choose a foreign seat for arbitration.  In 2015, however, the Supreme Court in State of W.B. v. Associated Contractors,30 held that TDM Infrastructure31 being a judgment delivered by a Single Judge under Section 11 of the Arbitration Act, cannot be regarded as a binding precedent.33

Finally, the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.34, crystallised the position of law insofar as mutual exclusivity of Parts I and II of the Arbitration Act is concerned. The five-Judge Bench in its decision categorically held Section 28, contained in Part I of the Act will not apply where the seat of arbitration is outside India. Also, the purpose of Section 28 is only to identify the rules that would be applicable to substance of dispute. This section makes a distinction between purely domestic arbitrations and international commercial arbitrations, with a seat in India. Section 28(1)(a) makes it clear that in an arbitration under Part I to which Section 2(1)(f) does not apply i.e. not an international commercial arbitration, there is no choice but for the Tribunal to decide the dispute by applying the Indian substantive law applicable to the contract. This is clearly to ensure that two or more Indian parties do not circumvent the substantive Indian law, by resorting to arbitrations. However, when the seat is outside India, the conflict of law rule of the country in which the arbitration takes place would have to be applied. That the expression used in Section 28(1)(a) “where the place of arbitration is situated in India” does not indicate the intention of Parliament to give extraterritorial operation to Part I of the Arbitration Act of 1996.

 In Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd.35, while upholding the parties’ right to have a two-tier arbitration, the Court held that the principle of party autonomy is virtually the backbone of arbitrations.  In Union of India v. U.P. State Bridge Corpn. Ltd.36 too, the Supreme Court recognised party autonomy in the choice of procedure as one of the foundational pillars of arbitration.

The Supreme Court gave approval to the statement of law laid down by the Madhya Pradesh High Court in Sasan Power Ltd. v. North American Coal Corpn. (India)(P) Ltd.37 (Sasan I). Sasan I discussed series of judgments pertaining to applicability of Parts I and II of the Arbitration Act and party autonomy. The High Court in unequivocal terms held that applicability of Part II is determined solely based on what is the seat of arbitration and that nationality of parties is irrelevant. The High Court qua party autonomy went on to hold that once parties by mutual agreement have decided to resolve their dispute and when they, on their own, chose to have the seat of arbitration in a foreign country, then in view of Section 2(2) of the Arbitration Act, Part I of the Act will have no application.

It would not be out of place to mention that the Supreme Court while adjudicating the appeal noted that the dispute was in fact between three parties, one of which was an American company and hence there existed a foreign element. The Court in its judgment concluded that the question whether two Indian companies could enter into an agreement to be governed by the laws of another country does not arise in this case.38

From the foregoing discussion it is clear that the question whether party autonomy being unfettered insofar as allowing two Indian companies to choose a foreign seat of arbitration came to be decided by the Supreme Court for the first time in PASL Wind Solutions39. Although judgments like Atlas Export40 and Sasan Power41 dealt with the said issue, there was foreign element involved in both the casesin the form of foreign parties.

viii) Freedom of contract

In PASL Wind Solutions42, the Supreme Court after citing numerous judgments on public policy and referring to Sections 23 and 28 of the Contract Act came to the conclusion that the balancing act between freedom of contract and clear and undeniable harm to the public must be resolved in favour of freedom of contract as there is no clear and undeniable harm caused to the public in permitting two Indian nationals from referring their dispute to arbitration at neutral forum outside India.

The argument of PASL that since two Indian parties cannot opt out of the substantive law of India and therefore, ought to be confined to arbitrations in India by placing reliance on Sections 28(1)(a) and 34(2-A) was rejected. The Court held that:

  1. … Section 28(1)(a) of the Arbitration Act makes no reference to an arbitration being conducted between two Indian parties in a country other than India, and cannot be held, by some tortuous process of reasoning, to interdict two Indian parties from resolving their disputes at a neutral forum in a country other than India.43

 The Court accepted the argument of the respondent GE that the parties in present scenario, will have two bites at the cherry i.e. first, by challenging the award under Swiss Law in Zurich and second, by resisting the enforcement under the grounds mentioned in Section 48 of the Arbitration Act. The Supreme Court concluded that Section 48 of the Arbitration Act provides sufficient safeguard against enforcement of an award which is violative of public policy. If in a given case it is found that two Indian nationals have circumvented a law which pertains to fundamental policy of India or enforcement of a foreign award would be violative of public policy of India, enforcement of such foreign award may be refused by Indian courts.

Conclusion

 The authors are of the opinion that the judgment of the Supreme Court is a welcome step towards making India an arbitration friendly country as it upholds the concept of party autonomy and freedom of contract, which forms the backbone of arbitration. In the past, as can be seen from the judgments discussed in the foregoing paragraphs, the Supreme Court has upheld party autonomy with respect to different aspects of arbitration, it is for the first time, the Supreme Court got the opportunity to adjudicate whether party autonomy under the Arbitration Act is unfettered so as to permit two Indian parties to choose a foreign seat for arbitration. This judgment will have a far-reaching impact as there are several matters pending before the Supreme Court and High Court, which involve similar issue.

Although in the first glance, the judgment appears to be detailed, touching upon various issues in support of its conclusion, however, on a deeper reading, it appears that certain fundamental issues were notarised by the parties and not dealt with by the Court. The Supreme Court ought to have examined whether two Indian entities in respect of a contract executed in India and wholly performed in India can adopt foreign law and confer jurisdiction on foreign courts/tribunals especially when the foreign court/tribunal otherwise would not have jurisdiction and whether such an agreement by Indian entities would be opposed to the sovereignty of Indian State.

It is a settled position of law that judicial functions and judicial powers are one of the essential attributes of a sovereign State. The tribunals, just like the courts in India discharge the State’s inherent judicial function44to adjudicate the disputes arising between its citizens or its entities in exercise of the judicial power of the State. Similarly, the arbitrator appointed by the parties also exercise the judicial power of the State.45

That conferment of jurisdiction is a legislative function, and it cannot be conferred with the consent of the parties.46 The Arbitration Act only provides a limited party autonomy which is to get the disputes arising between Indian citizens/entities resolved by an alternative dispute resolution method viz. arbitration.  However, the party autonomy is not unfettered. Therefore, under the guise of party autonomy it is not open to Indian citizens/Indian entities who are otherwise subject to the Indian judicial system, to contract out of the same, with respect to purely domestic transactions/disputes sans foreign element. Any such attempt would impinge upon the sovereign judicial power of the State to adjudicate the disputes arising between its citizens with respect to domestic transactions.

In the opinion of the authors, had the Supreme Court dealt with the aforesaid aspects of the matter, the issue of two India parties choosing a foreign seat would have been settled once and for all.

*Advocate, Supreme Court of India, LLM,  National University of Singapore.

**Advocate, Supreme Court of India.

12021 SCC OnLine SC 331.

2 Arbitration and Conciliation Act, 1996. http://www.scconline.com/DocumentLink/QWdt5a4f.

3 Companies Act, 1956. http://www.scconline.com/DocumentLink/pm3Rt2A0.

6 Contract Act, 1872. http://www.scconline.com/DocumentLink/dsJF0yn9.

10Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.,(2012) 9 SCC 552.

13(2014) 5 SCC 1.

14(2014) 5 SCC 1.

15 Section 2(2) of the Arbitration Act. http://www.scconline.com/DocumentLink/TA0St4w3.

16 Arbitration and Conciliation (Amendment) Act, 2015. http://www.scconline.com/DocumentLink/9ajA4z9b.

20(2002) 4 SCC 105.

21(2012) 9 SCC 552.

22Pieter Sanders, New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Netherlands International Law Review, Vol. 6, Issue 1, March 1959).

23Gary B. Born, International Commercial Arbitration (Wolters Kluwer, 3rd Edn., 2021.

24 Geneva Convention on the Execution of Foreign Arbitral Awards, 1927.

25E.g. Atlas Export Industries v. Kotak & Co., (1999) 7 SCC 61; Reliance Industries Ltd. v. Union of India, (2014) 7 SCC 603; Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.,(2016) 4 SCC 126; Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd., (2017) 2 SCC 228.

26(1999) 7 SCC 61.

27 Foreign Awards (Recognition and Enforcement) Act, 1961. http://www.scconline.com/DocumentLink/Ye3wnUO3.

28(2008) 14 SCC 271.

29Sah Petroleums Ltd. v. Sah Petroleums Ltd., 2012 SCC OnLine Bom 910 and Addhar Mercantile (P) Ltd. v. Shree Jagadamba Agrico Exports (P) Ltd., 2015 SCC OnLine Bom 7752.

30(2015) 1 SCC 32.

31(2008) 14 SCC 271.

33Followed by High Court of Madhya Pradesh in Sasan Power Ltd. v. North American Coal Corpn. (India) (P) Ltd., 2015 SCC OnLine MP 7417 and the Delhi High Court in GMR Energy Ltd. v. Doosan Power Systems India (P) Ltd., 2017 SCC OnLine Del 11625.

34(2012) 9 SCC 552.

35(2017) 2 SCC 228.

36(2015) 2 SCC 52.

372015 SCC OnLine MP 7417.

38Sasan Power Ltd.v. North American Coal Corpn.(India)(P) Ltd., (2016) 10 SCC 813.

392021 SCC OnLine SC 331.

40(1999) 7 SCC 61.

41Sasan Power Ltd.v. North American Coal Corpn.(India)(P) Ltd., (2016) 10 SCC 813.

422021 SCC OnLine SC 331.

432021 SCC OnLine SC 331.

44Associated Cement Companies Ltd. v. P N Sharma, AIR 1965 SC 1595; M.V. Elisabeth v. Harwan Investment and Trading (P) Ltd., 1993 Supp (2) SCC 433.

45Sherbanubai Jafferbhoy v. Hooseinbhoy Abdoolabhoy, 1947 SCC OnLine Bom 59; Kihoto Hollohan v. Zachillhu,1992 Supp (2) SCC 651; Rohtas Industries Ltd. v. Rohtas Industries Staff Union,(1976) 2 SCC 82; Jaswant Sugar Mills Ltd. v. Lakshmi Chand, AIR 1963 SC 677; Union of India v. R. Gandhi, (2010) 11 SCC 1.

46Jagmittar Sain Bhagat v. Director, Health Services, (2013) 10 SCC 136.

Case BriefsSupreme Court

Supreme Court:  The 3-judge bench of SA Nazeer, Indu Malhotra and Aniruddha Bose, JJ has dismissed Central Government’s plea against enforcement of a 2011 foreign award passed in favour of Vedanta Limited in a dispute arising out of a contract for exploring and developing the petroleum resources in the Ravva Gas and Oil Fields. The Court held,

“the enforcement of the foreign award does not contravene the public policy of India, or that it is contrary to the basic notions of justice.”

On 19 February 2020 the Delhi High Court had directed the enforcement of the foreign award by the Vedanta Limited.

On applicability of amended Section 48 of the Arbitration & Conciliation Act, 1996

In Renusagar Power Co. v General Electric Co., 1994 Supp (1) SCC 644, this Court held that “public policy” comprised of (1) the fundamental policy of Indian law; (2) interests of India; and (3) justice or morality.

Section 48 of the Arbitration and Conciliation Act, 1996 was amended by Act 3 of 2016. By this amendment, the public policy ground was given a narrow and specific construction by statute, by the insertion of two Explanations. The 2016 Amendment has dropped the clause “interests of India,” which was expounded by the Renusagar judgment

“The two Explanations in Section 48 begin with the words “For the avoidance of any doubt.” It cannot, however, be presumed to be clarificatory and retrospective, since the substituted Explanation 1 has introduced new sub-clauses, which have brought about a material and substantive change in the section. A new Explanation 2 has been inserted which states that the test as to whether there is a contravention with the fundamental policy of Indian law, shall not entail a review on the merits of the dispute.”

The Court, hence, held that since the amendments have introduced specific criteria for the first time, it must be considered to be prospective, irrespective of the usage of the phrase “for the removal of doubts.”

It was, hence, held that the amended Section 48 would not be applicable to the present case, since the court proceedings for enforcement were filed by the Respondents-Claimants on 14.10.2014 i.e. prior to the 2016 Amendment having come into force on 23.10.2015.

Whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the foreign award?

The Court held that the Malaysian Courts being the seat courts were justified in applying the Malaysian Act to the public policy challenge raised by the Government of India. The enforcement court would, however, examine the challenge to the award in accordance with the grounds available under Section 48 of the Act, without being constrained by the findings of the Malaysian Courts.

“Merely because the Malaysian Courts have upheld the award, it would not be an impediment for the Indian courts to examine whether the award was opposed to the public policy of India under Section 48 of the Indian Arbitration Act, 1996.”

If the award is found to be violative of the public policy of India, it would not be enforced by the Indian courts. The enforcement court would however not second-guess or review the correctness of the judgment of the Seat Courts, while deciding the challenge to the award.

Whether the foreign award is in conflict with the Public Policy of India?

Rejecting the contention that the award may not be enforced, since it is contrary to the basic notions of justice, the Court noticed that the Government has neither been able to prove that the violation of procedural due process in the conduct of the arbitral proceedings nor have they been able to prove that the award is in conflict with the basic notions of justice, or in violation of the substantive public policy of India.

The Court noticed that the  enforcement may be refused only if it violates the enforcement State’s most basic notions of morality and justice, which has been  interpreted to mean that there should be great hesitation in refusing enforcement, unless it is obtained through “corruption or fraud, or undue means.”

On limitation for filing an enforcement/execution petition of a foreign award under Section 47 of the 1996 Act

The Court held that the period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49, would be governed by Article 137 of the Limitation Act, 1963 which prescribes a period of three years from when the right to apply accrues.

The Court noticed:

  • The limitation period for filing the enforcement / execution petition for enforcement of a foreign award in India, would be governed by Indian law. The Indian Arbitration Act, 1996 does not specify any period of limitation for filing an application for enforcement/execution of a foreign award. Section 43 however provides that the Limitation Act, 1963 shall apply to arbitrations, as it applies to proceedings in court.
  • The Limitation Act, 1963 does not contain any specific provision for enforcement of a foreign award. Articles 136 and 137 fall in the Third Division of the Schedule to the Limitation Act. Article 136 provides that the period of limitation for the execution of any decree or order of a “civil court” is twelve years from the date when the decree or order becomes enforceable.
  • Article 137 is the residuary provision in the Limitation Act which provides that the period of limitation for any application where no period of limitation is provided in the Act, would be three years from “when the right to apply accrues”.
  • The legislature has omitted reference to “foreign decrees” under Article 136 of the Limitation Act. The intention of the legislature was to confine Article 136 to the decrees of a civil court in India. The application for execution of a foreign decree would be an application not covered under any other Article of the Limitation Act, and would be covered by Article 137 of the Limitation Act.
  • Foreign awards are not decrees of an Indian civil court. By a legal fiction, Section 49 provides that a foreign award, after it is granted recognition and enforcement under Section 48, would be deemed to be a decree of “that Court” for the limited purpose of enforcement. The phrase “that Court” refers to the Court which has adjudicated upon the petition filed under Sections 47 and 49 for enforcement of the foreign award. Hence,

“Article 136 of the Limitation Act would not be applicable for the enforcement/execution of a foreign award, since it is not a decree of a civil court in India.”

  • The enforcement of a foreign award as a deemed decree of the concerned High Court [as per the amended Explanation to Section 47 by Act 3 of 2016 confers exclusive jurisdiction on the High Court for execution of foreign awards] would be covered by the residuary provision i.e. Article 137 of the Limitation Act.

On the Scheme of the 1996 Act for enforcement of New York Convention awards

The enforcement Court cannot set aside a foreign award, even if the conditions under Section 48 are made out. The power to set aside a foreign award vests only with the court at the seat of arbitration, since the supervisory or primary jurisdiction is exercised by the curial courts at the seat of arbitration.

“The enforcement court may “refuse” enforcement of a foreign award, if the conditions contained in Section 48 are made out. This would be evident from the language of the Section itself, which provides that enforcement of a foreign award may be “refused” only if the applicant furnishes proof of any of the conditions contained in Section 48 of the Act.”

Further, the enforcement court is not to correct the errors in the award under Section 48, or undertake a review on the merits of the award, but is conferred with the limited power to “refuse” enforcement, if the grounds are made out.

If the Court is satisfied that the application under Section 48 is without merit, and the foreign award is found to be enforceable, then under Section 49, the award shall be deemed to be a decree of “that Court”.

“The limited purpose of the legal fiction is for the purpose of the enforcement of the foreign award. The concerned High Court would then enforce the award by taking recourse to the provisions of Order XXI of the CPC.”

[Government of India v. Vedanta Limited, 2020 SCC OnLine SC 749, decided on 16.09.2020]

Op EdsOP. ED.

A. INTRODUCTION

1. Part II of the Arbitration and Conciliation Act, 1996[1] (“the Act”) defines a foreign award and provides the manner/mode for the execution of a foreign award. Depending on the Convention and the framework agreed upon, foreign awards are separately defined under  Section 44 and Section 53, both of which are dealt with under Chapter I and Chapter II of Part II of the Act.

2. As per Section 44, (which is governed under the New York Convention[2]) foreign award is defined as follows:

“44. Definition.– In this Chapter, unless the context otherwise requires, “foreign award” means an award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law force in India, made on or after the 11th day of October, 1960 –

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.”

3. As per Section 53, (which is governed under the Geneva Convention) foreign award is defined as follows:

“53. Interpretation.— In this Chapter “foreign award” means an arbitral award on differences relating to matters considered as commercial under the law in force in India made after the 28th day of July, 1924,—

(a) in pursuance of an agreement for arbitration to which the Protocol set forth in the Second Schedule applies, and

(b) between persons of whom one is subject to the jurisdiction of some one of such powers as the Central Government, being satisfied that reciprocal provisions have been made, may, by notification in the Official Gazette, declare to be parties to the Convention set forth in the Third Schedule, and of whom the other is subject to the jurisdiction of some other of the Powers aforesaid, and

(c) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, may, by like notification, declare to be territories to which the said Convention applies, and for the purposes of this Chapter an award shall not be deemed to be final if any proceedings for the purpose of contesting the validity of the award are pending in the country in which it was made….”

4. According to Section 44 of Chapter I of the Act, a foreign award means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after 11th October, 1960 in pursuance of an agreement in writing for arbitration. The award has to be passed in one such territory with which India has a reciprocal treaty. Similar conditions are specified under Section 53 for the Geneva Convention Awards. The said Awards can be executed as if it was a decree passed by the civil court of original jurisdiction in India as envisaged under Section 36 of the Act. For execution of the award the format laid down in Order 21 Rule 11 (2) of the Code of Civil Procedure, 1908 for execution of decree is required to be followed.

5. Section 48 of the Act lays down conditions for the enforcement of foreign award. Section 48 of the Act reads as follows:

“48. Conditions for enforcement of foreign awards.—(1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that—

(a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

(2) Enforcement of an arbitral award may also be refused if the court finds that—

(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

(b) the enforcement of the award would be contrary to the public policy of India.

Explanation 1.– For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,–

(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2. — For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

(3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also , on the application of the party claiming enforcement of the award, order the other party to give suitable security.”

6. The grounds mentioned in Section 48 are watertight i.e. no grounds outside Section 48 can be looked at. The enforcement of a foreign award under Section 48 of the Act may 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 grounds for resisting enforcement of foreign award under Section 48 may be classified into three grounds – (i) grounds which affect the jurisdiction of the arbitration proceedings; (ii) grounds which affect party interest alone; and (iii) grounds which go to the public policy of India, as explained by Explanation to Section 48(2).

7. Through the present article, the author has analysed/discussed the ruling of the Supreme Court in  Vijay Karia  v. Prysmain Cavi E Sistemi SRL[3] , wherein the Court has discussed/dealt with the enforcement of foreign award under Section 48 of the Act.

B. BRIEF FACTS

8. The brief facts of this case are as follows:

8.1 Appellant 1 i.e. Vijay Karia and Appellants 2 to 39 (who are represented by Appellant 1) (collectively referred to as “the appellants”) were non-cooperative shareholders of Ravin Cables Ltd. (“Ravin”). On January 19, 2010, the appellants and Ravin entered into a Joint Venture Agreement with Respondent 1 i.e. Prysmian Cavi E Sistermi SRL (“Respondent 1”) (a company registered under the laws of Italy). By virtue of the JVA, Respondent 1 acquired a majority shareholding of Ravin’s share capital. Clause 27 of the JVA provided for dispute resolution, under which any dispute arising under the agreement, would be settled exclusively under the Rules of Arbitration of the London Court of International Arbitration (“LCIA”) and the seat of the Arbitration shall be London, United Kingdom.

8.2 On the same day, under a separate ‘Control Premium Agreement’ Respondent 1 (claimant in the arbitration) paid substantial consideration to the appellant (respondent in the arbitration) as ‘control premium’ towards the acquisition of the share capital of Ravin. As per the terms of the JVA, until the expiry of the integration period, Ravin was to be jointly managed by the CEO & Managing Director and after the efflux of the integration period, Managing Director was solely responsible for managing Ravin. However, during the integration period the existing CEO (earlier appointed by Respondent 1) was removed and replaced by the Board of Directors (at the instance of the appellants). Thereafter, the appellants’ directors opposed the appointment of a CFO whose appointment was assented to by Respondent 1. The interference in the management and control of Ravin led to disputes between the parties.

8.3 As a result, in February 2012, Respondent 1  invoked arbitration proceedings against the appellants, alleging that there have been material breaches committed under the JVA. As a result, the LCIA appointed a sole arbitrator to adjudicate the disputes between the parties. The parties filed their respective claims/counter-claims before the  sole arbitrator.

8.4 Considering the various issues were raised by the respective parties at different stages, the  sole arbitrator passed three (3) Interim arbitral awards and one (1) final arbitral award. After considering the facts and the pleadings, the  sole arbitrator passed the final arbitral award in favour of  Respondent 1 (claimant in the arbitration) and rejected the counter-claims of the appellants. The Arbitral Tribunal allowed all the reliefs sought by Respondent 1 and directed the appellants to transfer 10,252,275 shares held by them to  Respondent 1. The appellants were further directed to reimburse the legal costs of the arbitration as determined by the LCIA Court.

8.5 The final award was never assailed by the appellants before the English Courts and only when the award-holder brought the arbitral award to India for the purpose of its enforcement, the appellants raised certain objections under Section 48 of the Act. The  Single Judge of the  Bombay High Court after dealing with the objections raised by the appellants, stated that the final arbitral award must be recognised and enforced, and the objections raised by the appellants do not fall under the pigeonholes contained in Section 48 of the Act. Since Section 50 of the Act, does not provide an appeal when a foreign award is recognised and enforced by a judgment of a  Single Judge of a High Court, the appellants filed an appeal before the Supreme Court under Section 136 of the Constitution of India.

C. ISSUES RAISED

9. The appellants’ contentions can be categorised broadly into the three ‘pigeonhole’ grounds (para 25) viz. 

(i) that the party was unable to present its case before the Tribunal,

(ii) that the Tribunal failed to deal with the contentions raised by the appellants [under Section 48(1)(b)],

(iii) that the foreign award is against the public policy of India [under Section 48(2)(b)] in two respects viz. (a) that it would be in contravention to the fundamental policy of Indian law; and (b) that it would violate the most basic notions of justice.

10. The issues raised by the appellants were dealt/answered by the Supreme Court as follows –

I. Exercise of power under Article 136 while dealing with an order enforcing the foreign award (para 24):

i Section 37 of the Arbitration Act, which is contained in Part I of the said Act, 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’ arbitration awards is that an appeal is provided against a judgment refusing to recognise and enforce a foreign award. The Act does not provide for an appeal against an order recognising and enforcing an award.

ii 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. This is in consonance with the fact that India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“the New York Convention”) and intends – through this legislation – to ensure that a person who belongs to a Convention country, and who, in most cases, has gone through a challenge procedure to the said award in the country of its origin, must then be able to get such award recognised and enforced in India as soon as possible.

iii Bearing this in mind, it is important to remember that the Supreme Court’s jurisdiction under Article 136 should not be used to circumvent the legislative policy so contained. The Court should be very slow in interfering with such judgments, and should entertain an appeal only with a view to settle the law if some new or unique point is raised which has not been answered by the Supreme Court before, so that the Supreme Court judgment may then be used to guide the course of future litigation in this regard. Also, it would only be in a very exceptional case of a blatant disregard of Section 48 of the Arbitration Act that the Supreme Court would interfere with a judgment which recognises and enforces a foreign award however, inelegantly drafted the judgment may be.

II. Public policy post 2015 Amendment (paras 37- 40):

i. By the 2015 Amendment Act[4], Section 48 was amended to delete the ground of “contrary to the interest of India”. Also, what was important was to reiterate Renusagar Power Co. Ltd. v. General Electric Co.[5] position, that the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute [vide Explanation 2 to Section 48(2)].

ii. It will be noticed that in the context of challenge to domestic awards, Section 34 of the Arbitration Act differentiates between international commercial arbitrations held in India and other arbitrations held in India. So far as “the public policy of India” ground is concerned, both Sections 34 and 48 are now identical, so that in an international commercial arbitration conducted in India, the ground of challenge relating to “public policy of India” would be the same as the ground of resisting enforcement of a foreign award in India.

iii. Why it is important to advert to this feature of the 2015 Amendment Act is that all grounds relating to patent illegality appearing on the face of the award are outside the scope of interference with international commercial arbitration awards made in India and foreign awards whose enforcement is resisted in India[6]. This statement of the law applies equally to Section 48 of the Arbitration Act.

iv. Indeed, this approach has commended itself in other jurisdictions as well. Thus, in Sui Southern Gas Co. Ltd. v. Habibullah Coastal Power Co.[7], the Singapore High Court, after setting out the legislative policy of the Model Law that the ‘public policy’ exception is to be narrowly viewed and that an arbitral award that shocks the conscience alone would be set aside.

III. Pro-enforcement Bias (para 47):

i.  US cases show that given the “pro-enforcement bias” of the New York Convention, which has been adopted in Section 48 of the Arbitration Act, 1996 – the burden of proof on parties seeking enforcement has now been placed on parties objecting to enforcement. In the guise of public policy of the country involved, foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties; the challenge procedure in the primary jurisdiction gives more leeway to the Courts to interfere with an award than the narrow restrictive grounds contained in the New York Convention when a foreign award’s enforcement is resisted.

IV. Discretion of the Court to enforce foreign awards (paras 48, 49, 50, 52, 55, 56):

i. Enforcement of a foreign award under Section 48 of the Arbitration Act may 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. Also, the expression used in Section 48 is “may”.

ii. When the grounds for resisting enforcement of a foreign award under Section 48 are seen, they may be classified into three groups – (i) grounds which affect the jurisdiction of the arbitration proceedings; (ii) grounds which affect party interest alone; and (iii) grounds which go to the public policy of India, as explained by Explanation 1 to Section 48(2).

iii. Where a ground to resist enforcement is made out, by which the very jurisdiction of the tribunal is questioned – such as the arbitration agreement itself not being valid under the law to which the parties have subjected it, or where the subject-matter of difference is not capable of settlement by arbitration under the law of India, it is obvious that there can be no discretion in these matters. 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. In simpler words, if an objection made to the jurisdiction of the Arbitral Tribunal, and the parties are able to satisfy that the award was made without the Arbitral Tribunal having jurisdiction, then the Courts have said that they will not exercise its discretion to enforce an award.

iv. On the other hand, 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.

v. When it comes to the “public policy of India” ground, again, 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.

vi. 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. What is clear is that the width of this discretion is limited to the circumstances pointed out herein above, in which case a balancing act may be performed by the Court while enforcing a foreign award “or was otherwise unable to present his case”, natural justice under Section 48 and failure to determine a material issue would fall under public policy (para 84).

vii. The 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. Read along with the first part of Section 48(1)(b), it is clear that this expression would apply at the hearing stage and not after the award has been delivered, as has been held in Ssangyong[8] (supra).

viii. A good working test for determining whether a party has been unable to present his case is to see whether the factors outside the party’s control have combined to deny the party a fair hearing. Thus, where no opportunity was given to deal with an argument which goes to the root of the case or findings based on evidence which go behind the back of the party and which results in a denial of justice to the prejudice of the party; or additional or new evidence is taken which forms the basis of the award on which a party has been given no opportunity of rebuttal, would, on the facts of a given case, render a foreign award liable to be set aside on the ground that a party has been unable to present his case. This must, of course, be with the caveat that such breach be clearly made out on the facts of a given case, and that awards must always be read supportively with an inclination to uphold rather than destroy, given the minimal interference possible with foreign awards under Section 48.

ix. 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, as was done by the Delhi High Court in Campos Brothers Farm v. Matru Bhumi Supply Chain Pvt. Ltd.[9] on the ground of violation of the public policy of India, in that it would then offend a most basic notion of justice in this country.

x. It must always be remembered that poor reasoning, by which a material issue or claim is rejected, can never fall in this class of cases. Also, issues that the tribunal considered essential and has addressed must be given their due weight – it often happens that the tribunal considers a particular issue as essential and answers it, which by implication would mean that the other issue or issues raised have been implicitly rejected.

xi. For example, two parties may both allege that the other is in breach. A finding that one party is in breach, without expressly stating that the other party is not in breach, would amount to a decision on both a claim and a counterclaim, as to which party is in breach. Similarly, after hearing the parties, a certain sum may be awarded as damages and an issue as to interest may not be answered at all. This again may, on the facts of a given case, amount to an implied rejection of the claim for interest.

xii. The most important point to be considered is that 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 counterclaims of the parties, enforcement must follow.

V. Violation of FEMA Rules and fundamental policy of Indian Law (paras 91, 93):

i. Based on the Non-Debt Instrument Rules[10], it was argued that that the transfer of shares from the Karias (appellants), who are persons resident in India, to  Respondent 1, who is a person resident outside India, cannot be less than the valuation of such shares as done by a duly certified Chartered Accountant, Merchant Banker or Cost Accountant, and, as the sale of such shares at a discount of 10% would violate Rule 21(2)(b)(iii), the fundamental policy of Indian Law contained in the aforesaid Rules would be breached; as a result of which the award cannot be enforced.

ii. The Supreme Court upheld the Delhi High Court judgment in Cruz City Mauritius Holdings v. Unitech Limited[11], wherein the Delhi High Court held that a contravention of a provision of law is insufficient to invoke the defence of public policy when it comes to enforcement of a foreign award. Contravention of any provision of an enactment is not synonymous to contravention of fundamental policy of Indian Law. The expression fundamental policy of Indian Law refers to the principles and the legislative policy on which Indian statutes and laws are founded. The expression “fundamental policy” connotes the basic and substratal rationale, values and principles which form the bedrock of laws in our country. 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. The expression “fundamental policy of law” must be interpreted in that perspective and must mean only the fundamental and substratal legislative policy, not a provision of any enactment. The contention that enforcement of the award against Unitech must be refused on the ground that it violates any one or the other provision of FEMA, cannot be accepted; but, any remittance of the money recovered from Unitech in enforcement of the award would necessarily require compliance of regulatory provisions and/or permissions.

iii. The Supreme Court held (paras 91 and 93) that first and foremost, FEMA – unlike FERA – refers to the nation’s policy of managing foreign exchange instead of policing foreign exchange, the policeman being  Reserve Bank of India under FERA. It is important to remember that Section 47 of FERA no longer exists in FEMA, so that transactions that violate FEMA cannot be held to be void. Also, if a particular act violates any provision of FEMA or the Rules framed thereunder, permission of Reserve Bank of India may be obtained post-facto if such violation can be condoned.

iv. Neither the award, nor the agreement being enforced by the award, can, therefore, be held to be of no effect in law. This being the case, a rectifiable breach under FEMA can never be held to be a violation of the fundamental policy of Indian Law. Even assuming that Rule 21 of the Non-Debt Instrument Rules requires that the shares be sold by a resident of India to a non-resident at a sum which shall not be less than the market value of the shares, and a foreign award directs that such shares be sold at a sum less than the market value,  Reserve Bank of India may choose to step in and direct that the aforesaid shares be sold only at the market value and not at the discounted value, or may choose to condone such breach.

v. Further, even if Reserve Bank of India were to take action under FEMA, the non-enforcement of a foreign award on the ground of violation of   FEMA Regulations or Rules would not arise as the award does not become void on that count.

vi. The fundamental policy of Indian Law, as has been held in Renusagar [12](supra), must amount to a breach of some legal principle or legislation which is so basic to Indian Law that it is not susceptible of being compromised. “Fundamental Policy” refers to the core values of India’s public policy as a nation, which may find expression not only in statutes but also time-honoured, hallowed principles which are followed by the Courts. Judged from this point of view, it is clear that resistance to the enforcement of a foreign award cannot be made on this ground.

D. CONCLUSION

11. After considering the facts and pleading, the Supreme Court confirmed the ruling of the sole arbitrator and dismissed the appeals with heavy costs. The Court stated that their jurisdiction under Article 136 of the Constitution is very limited.

12. On a conjoint reading of the objective of Article V of the New York Convention along with the objectives of the Act, the Supreme Court through the present judgment, has ironed the wrinkles under Section 48 of the Act. The Supreme Court took a holistic view by not just limiting its scope of enquiry to the Indian judgments but has also relied on judgments of various other jurisdictions to arrive at a global consensus on various issues involved in challenging the enforcement of a foreign award. The Supreme Court has adopted a balanced approach while dealing with the scope of judicial interference at the time of enforcement of foreign award and exercising its jurisdiction under Article 136 of the Constitution.

*Alumni (2012-2017) of Government Law College, Mumbai, practicing Advocate at High Court at Mumbai and maybe reached out vatsalapant94@gmail.com. The views expressed herein are personal and do not represent views of any organisation. 

[1] Arbitration and Conciliation Act, 1996 

[2] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)

[3] 2020 SCC OnLine SC 177  

[4] Arbitration and Conciliation (Amendment) Act, 2015 

[5] 1994 Supp (1) SCC 644

[6] Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131 (paras 30 & 43)

[7] [2010] 3 SLR 1 : (2010) SGHC 62

[8] (2019) 15 SCC 131

[9] 2019 SCC OnLine Del 8350

[10] Foreign Exchange Management (Non-debt Instruments) Rules, 2019 

[11] 2017 SCC OnLine Del 7810  

[12] 1994 Supp (1) SCC 644

Case BriefsSupreme Court

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]