The international trade has increased manifold with infrastructural advancements i.e. transportation from ships, railroads, automobiles to airplanes. With influx of international trade, the bilateral and multilateral trade agreements have increased and so the disputes arising thereof. The disputes arising therein have always been preferred to be resolved through arbitration rather than the routine course of litigation. The parties to the international trade prefer arbitration for dispute resolution. However, there are several conventions and treaties which regulate and enable the enforcement of a foreign award in a signatory country.
A. Historical background and evolution of recognition and enforcement of foreign arbitral award in India
While tracing down the path of development in the field of “enforcement” and “recognition” of foreign arbitral award, India had two statutes i.e. the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 to deal with it. The Arbitration (Protocol and Convention) Act, 1937 was an offspring of the Geneva Protocol, 1923 and the Geneva Convention, 1927. Whereas, the Foreign Awards (Recognition and Enforcement) Act, 1961 came into picture as a result of the New York Convention, 1958. After the First World War, the need to have a robust mechanism to resolve the disputes arising out of the international trade across the countries was very strongly felt. The International Chamber of Commerce (ICC) formulated an International Convention for smooth implementation of arbitration clause which used to be mentioned in definitive agreements. Thereafter, the Protocol on Arbitration Clauses was ratified by 30 countries on 24-9-1923 which categorically dealt with the arbitral procedure and execution of arbitral awards. Article I of the Protocol provided for recognition with respect to the international agreements between the countries, which were part of the Protocol which shall ensue that any future differences were to be resolved by arbitration.
The Government of India adhered to the Geneva Protocol on Arbitration Clauses, 1923 and the International Convention on the Execution of Foreign Arbitral Awards, 1927. The idea was to be included among the countries, which adhered to the abovementioned Protocol and Convention, in order to enable the resolution of commercial disputes through arbitration arising out of various underlying international agreements. However, subsequent to the implementation of the Geneva Protocol on Arbitral Clauses, there were few predicaments which came into light for instance; the beneficiary of the award was required to show to the executing court that award has attained finality in the country in which it was made in the first place. The said procedure was not very effective and was not in lines with the spirit and objective with which the Convention came into picture i.e. speedy and smooth enforcement of an arbitral award.
After several rounds of deliberations, a new International Convention on recognition came into picture for the recognition and enforcement of foreign arbitral awards i.e. the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention, 1958). The Indian Legislature adopted the New York Convention, 1958 and enacted the Foreign Awards (Recognition and Enforcement) Act, 1961, which was enacted with an objective to put in place a robust mechanism, wherein the commercial disputes of contracting countries can be referred to arbitration. It aimed at providing an effective and speedy disposal and consequent smooth enforcement of the foreign awards. The Arbitration (Protocol and Convention) Act, 1937 incorporated the Geneva Protocol and Geneva Convention as First and Second Schedules. The Foreign Awards (Recognition and Enforcement) Act, 1961 similarly embodied the Schedules of the New York Convention, 1958.
The United Nation Convention on the Recognition and Enforcement of Foreign Arbitral Awards was ratified by India on 13-7-1960. After the enactment of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act, 1996”), the two Acts i.e. the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 were repealed. The Arbitration Act, 1996 was enacted in consonance with the UNCITRAL Model Law and Rules. Note that Part II of the Arbitration Act, 1996, deals with enforcement of a foreign award in India.
B. Definition of “enforcement” and “recognition”
The term “recognition” is more of a defensive mode to secure an arbitral award. The “recognition” secures protection to an arbitral award if the same parties to a convention go for a subsequent arbitration. The contesting party may seek recognition of an arbitral award to set off any other claim qua arbitration between the parties within whom the issues arising therein have already been settled. However, at the same time if, there are new issues which have arisen and which were not a part of earlier round(s) of arbitration, then those issues may be looked into and the very idea to set off while getting the award recognised arrives to a standstill.
“Enforcement” on the other hand is more on an offensive front. A party seeking enforcement of an award not only intends to get the award recognised but also to enforce the same by using appropriate legal sanctions. One may argue that “recognition” and “enforcement” are contemporaries and they act in tandem.
In Brace Transport Corpn. of Monrovia v. Orient Middle East Lines Ltd., the Supreme Court held that:
- … An award may be recognised, without being enforced; but if it is enforced then it is necessarily recognised. Recognition alone may be asked for as a shield against re-agitation of issues with which the award deals. Where a court is asked to enforce an award, it must recognise not only the legal effect of the award but must use legal sanctions to ensure that it is carried out.
Now, before going any further, let us try to understand the meaning of “foreign award”. The term “foreign award” is defined under Section 44 of the Arbitration Act, 1996. It states that “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 day of October, 1960—
- in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and
- in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette.”
The New York Convention, 1958 defined an “arbitral award” as “The term ‘arbitral award’ shall include not only awards made by arbitrators appointed for each case but also those made by permanent arbitral bodies to which parties have submitted.”
The High Court of Calcutta in Serajuddin & Co. v. Michael Golodetz observed that the term “foreign arbitration” would also include arbitrations where one of the parties belongs to a country which has not ratified the Geneva Convention. The Court went on to examine the decisions where the terms “foreign arbitration” and “foreign award” were used and concluded that they were used in connection with the following:
- arbitrations in foreign lands;
- foreign arbitrators;
- application of foreign law; and
- foreign nationals.
The Court observed that the countries that have ratified the Geneva Conventions have included certain class of such arbitrations and awards within the definitions under the Arbitration (Protocol and Convention) provisions, however, the definitions were not exhaustive. In this case where one party was Indian and the other US citizens, the Court was of the view that even though the arbitration did not fall within the ambit of the Indian Arbitration (Protocol and Convention) Act, 1937 and American laws were applicable, it satisfied all the characteristics of foreign arbitration as aforementioned.
The Delhi High Court in GAILv. Spie Capage SA has very beautifully dealt with the evolution of “enforcement” and “recognition” of foreign award as per the provisions of two primitive Acts i.e. the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961.
Procedure of “recognition” and “enforcement” of an arbitral award under the Arbitration and Conciliation Act, 1996
The procedure for enforcement and execution of decrees in India is governed by the Code of Civil Procedure, 1908 (CPC, 1908) while, arbitral awards in India is primarily governed by the Arbitration Act, 1996. There are specific provisions i.e. Sections 44 and 49 dealing with “recognition” and “enforcement” of arbitral awards under the Arbitration Act, 1996.
India is a signatory to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York Convention, 1958) as well as the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (Geneva Convention, 1927). If a country, which is a party to any of the Conventions, receives an award to be enforced, then the recognition and enforcement is governed by that particular Convention.
The process of enforcement of a foreign award is basically a three-stage process. Firstly, the party which is seeking to enforce the award shall make an application under Section 47 of the Arbitration Act, 1996 to the court having appropriate jurisdiction. The party or the judgment- debtor thereafter may challenge the enforcement before the court under the grounds such as the agreement not having a valid arbitration clause or failure to give proper notice of the appointment of an arbitrator or the Arbitral Tribunal committed a mistake of law or fact. As it has been held in plethora of judgments that Part I of the Arbitration Act, 1996 is not applicable to foreign-seated arbitrations and therefore, grounds of challenge available under Section 34 of the Arbitration Act, 1996 cannot be availed to challenge a foreign award.
The award before getting enforced has to fulfil the essential conditions as enshrined under the Arbitration Act, 1996. Once, the award fulfils the essential conditions of the Arbitration Act, 1996, it gets executed just like a court decree under CPC, 1908. The essentials for the enforcement of an award are enshrined under Section 47 of the Act, 1996. The award shall be in original or in the manner as required by the laws of the country in which it is intended to be enforced. Secondly, the agreement out of which the dispute had arisen shall accompany and the agreement shall be in original or a certified copy along with such evidence as may be necessary to prove that the award is a “foreign award”. However, in order to create a more pro-enforcement environment, the Supreme Court in PEC Ltd. v. Austbulk Shipping Sdn. Bhd. held that the word “shall” under Section 47 read as “may” must be restricted only to the initial stage of filing of the application. It means that the applicant might not be necessarily required to file the required documents at the time of making the application. The Court observed that certain courts have taken a strict view with respect to the filing of documents while others have held that non-filling of documents does not necessarily call for ejection of the application.
The requirement of an award being appropriately stamped while executing an award has been a contentious issue. However, as far as stamping of the awards is concerned, the Supreme Court inShriram EPC Ltd.v. Rioglass Solar SA very categorically held that, the stamping in not a mandatory condition. The Supreme Court also held that there is also no such requirement of registration and the award can be enforced as a court decree.
C. Forum for enforcement of foreign award
The Supreme Court in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. held that while enforcing a foreign award there in no such requirement under the statute to initiate separate proceeding seeking an order to file execution of a foreign award. Relying upon the Supreme Court judgment, the Bombay High Court in Noy Velissina Engineering Spa v. Jindal Drugs Ltd. held that a person seeking execution of a foreign award can execute it as a decree of the court.
The term “court” is defined under the Arbitration Act, 1996 under Section 2(1)(e) as:
- (1)(e).…(i) in the case of an arbitration other than international commercial arbitration, the Principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court, or any Court of Small Causes;
(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court.
It was held by the Supreme Court in State of Maharashtra v. Atlanta Ltd. that the award-holder shall file the application for enforcement of a foreign arbitral award before the competent court in whose jurisdiction the assets of the judgment-debtor are located. Also, if in a situation, where assets of the judgment-debtor are located within territorial jurisdiction of multiple courts, the application for execution of the award can be filed simultaneously in all such courts having jurisdiction.
Moreover, the Supreme Court in Sundaram Finance Ltd. v. Abdul Samad while providing some clarity as to the appropriate court to approach for enforcement of a foreign award held that a foreign award-holder can initiate execution of the award before any court in India having territorial jurisdiction where the assets are located. It is important to note that, after the establishment of commercial courts under the Commercial Courts Act, 2015 if the foreign award is of a specified value, the designated commercial court of the appropriate court having the territorial and pecuniary jurisdiction shall have the jurisdiction to enforce the award.
For the awards arising out of India seated arbitration although being an international commercial arbitration, after the introduction of the Commercial Courts Act, 2015 and Arbitration and Conciliation (Amendment) Act, 2015, the jurisdiction lies with the Commercial Division of the particular High Court, where assets of the judgment-debtor is situated.
D. Enforcement in case of award passed in reciprocating and non-reciprocating countries
Section 2(6) CPC, 1908 defines “foreign judgment” as “foreign judgment means the judgment of a foreign court”. Therefore, any court which is outside the territorial jurisdiction of India and a judgment passed by it shall be deemed to be a “foreign judgment”. The perplexity occurs for a party who is intending to enforce a foreign award in two situations, one when the award is passed by a reciprocating country and one when the award is passed by a non-reciprocating country.
A party seeking enforcement of an award passed by a reciprocating country may do so by filing an execution petition just like an execution of a decree under the court having appropriate jurisdiction under Section 44-A CPC, 1908. As explained above, the execution is filed in a court under whose jurisdiction the assets of the judgment-debtor are located. Also, after the establishment of commercial divisions in various high courts of the country, the execution shall be filed accordingly in the appropriate high court if there is money/claim which is to be realised out of the award passed. Otherwise, place of execution will depend on the location of the assets of the judgment-debtor.
On the other hand, if a party seeking enforcement of an award passed by a non-reciprocating country has to file a fresh suit in the court having appropriate jurisdiction in terms of Orders 5, 6 and 7 CPC, 1908. Thereafter, the suit will run like a routine civil suit wherein written statement would be filed as per Order 8 CPC, 1908, after completion of pleadings the issues would be framed as per Order 9 CPC, 1908 followed by evidence stage i.e. recording of evidence. After hearing the parties, the court will pass a judgment and within 15 days of passing, the court draws a decree. Note that, the limitation period for filing for enforcement in the appropriate court is three years from the date on which the award was made. It is to be further noted that upon filing of a fresh suit, the foreign award annexed with the suit shall be treated as evidence by the court in terms with Section 86 of the Evidence Act, 1872.
It is of paramount importance to remember that in both the cases, the execution or suit has to fulfil the essential criteria under Section 13 CPC, 1908, which postulates certain conditions which are to be fulfilled in order to hold the foreign judgment to be conclusive. Those conditions are as below:
- Where it has not been pronounced by a court of competent jurisdiction?
- Where it has not been given on the merits of the case?
- Where it appears on the face of the proceedings to be founded on an incorrect view of incorrect view of international law or a refusal to recognise the law of India in cases in which such law is applicable?
- Where the proceedings in which the judgment was obtained are opposed to natural justice?
- Where it has been obtained by fraud?
- Where it sustains a claim founded on a breach of any law in force in India?
E. Public policy and its evolution through various precedents
The concept of “public policy” has been a contentious issue lately in the Indian judicial diaspora. It is used as one of the grounds for refusal for enforcing an arbitral award. However, in a landmark decision in Bharat Aluminum Co. v. Kaiser Aluminium Technical Services Inc. (Balco) came as a silver lining in the regime of Indian jurisprudence bringing together the age of “pro-enforcement stance”. The Bench of five Judges in Balco case while drawing a clear line between vires of a domestic and foreign-seated arbitration held that Part I of the Arbitration Act, 1996 would not be applicable to foreign-seated arbitration. The judgment also while limiting the quantum of judicial interference, held that a foreign award cannot be challenged under Section 34(2) of the Act, 1996. While, again applying a little restrained approach, the Supreme Court in Renusagar Power Co. Ltd.v. General Electric Co., held that merely a violation of Indian laws would not attract refusal to enforce an award under the ground of “public policy”.
The Supreme Court later on while deviating from a “pro-enforcement stance”, in ONGC v. Saw Pipes Ltd. expanded the test of “public policy” and held that such awards which violate the Indian laws would be held to be “patently illegal” and the same would be held to be against the “public policy” of India. Such an interpretation opened up a Pandora’s box for the contesting party to contest the issues involved in the arbitration again and thereby delaying the entire process of enforcement of the award.
Furthermore, in Phulchand Exports Ltd. v. O.O.O. Patriot the Supreme Court again went ahead and expanded the purview of “public policy” under Section 48 of the Arbitration Act, 1996 and interpreted the purview in consonance with Section 34. The Supreme Court after Saw Pipes went two steps backward with the judgment in Phulchand and provided an opportunity to the contesting parties to challenge the finality of the award on merits.
The Supreme Court in ONGC v. Western Geco International Ltd. held that:
- …What is important in the context of the case at hand is that if on facts proved before them the arbitrators fail to draw an inference which ought to have been drawn or if they have drawn an inference which is on the face of it, untenable resulting in miscarriage of justice, the adjudication even when made by an arbitral tribunal that enjoys considerable latitude and play at the joints in making awards will be open to challenge and may be cast away or modified depending upon whether the offending part is or is not severable from the rest.
The judgment in Associate Builders v. DDA followed the preposition set forth in ONGCand held that the term “public policy” shall be interpreted broadly. These judgments were passed with a regressive approach as the Supreme Court conjointly interpreted Sections 48 and 34 of the Act, 1996 thereby allowing the parties to go into the merits of the arbitral award.
Very recently, the Delhi High Court in Campos Brother Farms v. Matru Bhumi Supply Chain (P) Ltd. refused to enforce a foreign arbitral award under the Arbitration Act, 1996. The Court held that, if the arbitrator while passing the award had missed to consider a material issue relating to the maintainability of the arbitral proceedings then such an issue can be a ground to refuse the enforcement of an arbitral award under the ground of “public policy”. It was considered by the court that such an approach would violate the basic principles of justice.
The Supreme Court in National Agricultural Coop. Mktg. Federation of India v. Alimenta SA, observed that enforcement of a foreign arbitral award is subject to the “public policy of India” test. The case can be adjudged to be homage to the parochial attitude regarding quantum of interference in the enforcement of a foreign arbitral award. However, the aforementioned judgment was a major divergence from its earlier judgment in Vijay Karia v. Prysmian Cavi E Sistemi SRL which canvassed a pro-arbitration stance from the Supreme Court.
F. The silver lining in the enforcement of a foreign award: The public policy conundrum
In Shri Lal Mahal Ltd. v. Progetto Grano Spa, the Supreme Court brought the purview of “public policy” in lines with the New York Convention, 1958 and overruled the preposition set forth in the judgment of Phulchand. In Shri Lal Mahal, the award was challenged under Section 48 of the Act, 1996 on the ground of it being “patently illegal” and thereby violating the Indian laws. The Court held that the ground of the award being “patently illegal” cannot be entailed within the purview of Section 48 of the Act, 1996 and such a ground will only be limited within the purview of Section 34 of the Arbitration Act, 1996. The Court held that while deciding upon the enforcement of a foreign award, the role of the court is very limited and Section 48 of the Arbitration Act, 1996 does not afford an opportunity to review the award on merits.
In the year 2015 by way of an amendment, a Second Explanation was added to sub-clause (b) to sub-section (1) of Section 48, which states that, within the purview of evaluating the prospects of “public policy”, the opportunity given to the enforcing court shall be very minimal. It can very well have understood from the nomenclature used in the said Explanation which stated:
“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.”
In Cruz City Mauritius Holdings v. Unitech Ltd. a balancing test to determine the issue of refusal of enforcement of a foreign arbitral award was laid down by the Delhi High Court. It further held that the scope of discretion to refuse a foreign arbitral award is narrow and limited but the same can be done if sufficient grounds exist.
Similarly in Govt. of India v. Vedanta Ltd. a three-Judge Bench of the Supreme Court discarded the regressive stance taken by the Supreme Court in Alimenta case and held that minimal interference shall be exercised by the courts in enforcing foreign arbitral awards.
The Supreme Court in Vijay Karia referred to the “pro-enforcement bias” of the New York Convention, 1958 on which Section 48 of the Act, 1996 was based in its entirety. It was held that under the guise of “public policy”, the enforcing courts cannot enjoy the leeway to interfere with the merits of the award and there should be a narrow scope of interference as contained in the New York Convention, 1958.
Moreover, the Supreme Court in Centrotrade Minerals and Metals Inc. v. Hindustan Copper Ltd., while allowing the enforcement of an award passed under the rules of the International Chamber of Commerce interpreted Section 48(1)(b) of the Act, 1996. The Supreme Court held that the word “otherwise” cannot be read and interpreted “ejusdem generis” and held that a narrower meaning and interpretation should be afforded keeping in mind the primary object of Section 48(1)(b) i.e. enforcement of a foreign award.
G. Parting thoughts
Indian jurisprudence, especially with respect to dispute resolution has been under perennial evolution. Indian courts have evolved with the change in circumstances owing to opening up of economy, considerable enhancement in international trade and foreign direct investments. For any country which intends to invest in India, the process and feasibility of commercial dispute resolution is of paramount significance. An effective dispute resolution mechanism of a country instils confidence in the foreign investors. A dilapidated and regressive system will only make the entire resolution mechanism crippled.
From the advent of Arbitration and Conciliation Act, 1899 till the present statute i.e. the Arbitration Act, 1996, Indian jurisprudence have had different interpretation of “recognition” and “enforcement” which converged into an attempt of the judiciary to make it work on the lines of the New York Convention, 1958. Despite many judgments passed by the Supreme Court and various High Courts of the country, in our view the battle is only half won. India is still not considered as among the favoured nations when it comes to “recognition” and “enforcement” of a foreign arbitral award.
There has always been a debate over the quantum of interference that the Indian judiciary ought to make while enforcing a foreign arbitral award. There have been judgments where the Indian judiciary has gone into the merits of the award thereby, rehearing the case all over again and compromising the entire process of smooth “recognition” and “enforcement”. Such an act brings back the regressive attitude which was in place when the Arbitration Act, 1940 used to govern the dispute resolution mechanism. Also, there is a common problem of various High Courts holding views and passing judgments on the same question of law and facts arising thereby from Arbitration Act, 1996 which further complicates the enforcement process.
The purpose of Section 48 of the Arbitration Act, 1996 is nothing but enabling a smooth enforcement process. It may be noted that Section 48 is in parity with Article V of the New York Convention, 1958. It is important to note that in Section 48 and Article V of the New York Convention, 1958, the words “may be” have been used for refusing the enforcement of an award thereby, making the intention and objective of the section very clear. The judgments passed by various High Courts of India show that the grounds for refusing the enforcement of an award shall be construed narrowly, yet sometimes, the courts have overstepped the guarded wall of interference.
We have tried to summarise the history of commercial dispute resolution in India and the process involved therein in the enforcement of a foreign arbitral award in India. It may not be out of place to state that with modest efforts being made by the Indian judiciary, the entire process of recognition and enforcement is eased down a bit. However, India as a country has to work towards building a pro-enforcement regime while working in consonance with the spirit of Article V of the New York Convention, 1958. The recent decisions in Vijay Karia and Centrotrade are a step forward towards having a more conducive enforcement mechanism in place. Yet, the decisions like National Agricultural Coop. Mktg. Federation of India was an attempt to again dismantle the progress that the Indian judiciary has made to make India a pro-enforcement destination thereby, compelling the “recognition” and “enforcement” mechanism to trawl down in search of a formidable shore.
* Advocate, New Delhi. Author can be reached at email@example.com
**Vth year student, ICFAI Law School, Hyderabad.
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