{"id":195577,"date":"2018-05-05T13:24:04","date_gmt":"2018-05-05T07:54:04","guid":{"rendered":"http:\/\/www.scconline.com\/blog\/?p=195577"},"modified":"2020-07-20T17:01:27","modified_gmt":"2020-07-20T11:31:27","slug":"enforceability-of-arbitral-awards-and-how-india-can-be-made-an-arbitration-hub","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2018\/05\/05\/enforceability-of-arbitral-awards-and-how-india-can-be-made-an-arbitration-hub\/","title":{"rendered":"Enforceability of arbitral awards and how India can be made an arbitration hub"},"content":{"rendered":"

I. Introduction\"\"<\/em><\/strong><\/p>\n

Arbitration is a device whereby the settlement of a question, which is of interest for two or more persons, is entrusted to one or more other persons named arbitrator or arbitrators, who derive their powers from a private agreement, not from the authorities of a State, and who are to proceed and decide the case on the basis of such an agreement.<\/p>\n

Halsbury\u2019s Laws of England<\/em> notes that the term \u201carbitration\u201d as the process by which a dispute or difference between two or more parties as to their mutual legal rights and liabilities is referred to and determined judicially and with binding effect by the application of law by one or more persons constituting the \u201cArbitral Tribunal\u201d instead of by a court of law.<\/p>\n

A concise definition of \u201carbitral award\u201d may be as follows: \u201cAn arbitral award is a decision made under an arbitration agreement by an Arbitral Tribunal, to which the parties have granted the task to decide a dispute of arbitrable nature.\u201d<\/p>\n

Arbitration is considered to be extremely important in modern legal thought. This is due to multiple factors such as time and convenience. Due to large pendency of cases in courts, as well as the very real perception that cases in courts take too much time to be disposed, arbitration is considered to be a better choice as it ensures speedy delivery of justice. Furthermore, the parties to the dispute are free to agree how their disputes are resolved (seat, venue, etc.) subject only to such safeguards as are necessary in public interest. Therefore, it is important to recognise arbitration as a dynamic dispute resolution mechanism and to encourage parties to opt for such mechanisms.\"\"<\/p>\n

Party autonomy is the ultimate power determining the form, structure, system and other details of the arbitration. Most laws are largely permissive and aim to support and enforce the agreement to arbitrate, rather than to intervene. The parties to the arbitration should have accepted that not only will arbitration be the form of dispute settlement, but also that they will accept and give effect to the arbitration award.<\/p>\n

Due to the advantages discussed above, in principle arbitration was seen as an alternative to court proceedings which would render fair resolution of disputes by an impartial tribunal without \u201cunnecessary delay or expense\u201d. However arbitration has been frequently administered in such a way that although it could be short and economical, it has become a long and expensive procedure, and is also perceived as such.<\/p>\n

It is to be noted that the awards rendered by these Tribunals are considered to be final and binding<\/em>, and no appeal is allowed from an Arbitral Tribunal to the courts. This is in order to provide finality and certainty to the awards and to ensure their proper enforcement, but there are various problems regarding the enforceability of such awards as many jurisdictions, including India, have provisions for parties to approach courts for the setting aside of such awards.<\/p>\n

This paper shall focus on this, and many other aspects involving the enforceability of awards and attempt to put forward suggestions to improve enforceability and actions that can be taken to make India an arbitration hub.<\/p>\n

II. Enforceability of awards in India<\/em><\/strong><\/p>\n

In India, arbitration proceedings are regulated as per the Arbitration and Conciliation Act of 1996 (as amended in the year 2015). The Act provides that when the time for making an application to set aside the arbitral award has expired, or when such application has been made and rejected, the award would be enforced under the Code of Civil Procedure, 1908 as if it were a decree of the civil court.[1]<\/a> The Act also declares that all arbitral awards shall be final and binding on the parties and those claiming under them.[2]<\/a><\/p>\n

The important point to be noted is that the award becomes enforceable under the Act only if the time for making an application to the court to set aside the award has expired, or if such application has been made and rejected by the court. Therefore, it is important to examine the provision regarding application to set aside the award i.e. Section 34 of the Act.<\/p>\n

Section 34 provides that no application can be made after the expiry of 3 months from the date of receipt of award by the party, subject to a 30-day relief period that may be granted by the court at its discretion. The Act also provides that the application may be made by a party only if he furnishes proof of the grounds specified in Section 34(2)(a<\/em>) of the Act or if the court finds that the subject-matter of the dispute is not arbitrable or if the award was against the public policy of India.<\/p>\n

At this juncture, it is crucial to examine how courts have interpreted the provision and the powers it has granted them, in order to see if the courts of India have taken a pro-arbitration stance or have engaged in unnecessary interference which renders the enforcement of such awards difficult.<\/p>\n

Perhaps the most controversial decision on this aspect would be the Supreme Court\u2019s decision in ONGC<\/em> v. Saw Pipes Ltd.<\/em>[3]<\/a> (Saw Pipes <\/em>judgment), where the Court held that in addition to the grounds mentioned in Section 34, an award could also be challenged if it contravenes the provisions of the Arbitration Act, or \u201cany other substantive law governing the parties\u201d. It also expanded the scope of \u201cpublic policy\u201d to state that an award could be set aside if it was \u201cpatently illegal\u201d.<\/p>\n

In our view, the decision in this case is incorrect as the Supreme Court through its judgment in this case, allows a court to sit on appeal on the merits of the award, thereby going against the very principle and object of arbitration. Fortunately, in subsequent cases like McDermott International Inc.<\/em> v. Burn Standard Co. Ltd.<\/em>[4]<\/a>, the Supreme Court tried to limit the effect of its previous decision by explicitly holding that the intervention of courts is envisaged only in few circumstances and stating that \u201cthe Court cannot correct the errors of the arbitrators. It can only quash the award leaving parties free to begin arbitration again, if required\u201d. The Bombay High Court went one step further and held that a literal interpretation of the Saw Pipes <\/em>judgment[5]<\/a> \u201cwould be to radically alter the statutorily and judicially circumscribed limits to the court\u2019s jurisdiction to interfere with arbitration awards. It would indeed confer a first appellate court\u2019s power on a court exercising jurisdiction under Section 34 of the 1996 Act. There is nothing in the 1996 Act which indicates such an intention on the part of the legislature.\u201d[6]<\/a><\/p>\n

Therefore, it is evident that courts have tried to reverse the effect of the Saw Pipes<\/em> judgment[7]<\/a> and move towards a more arbitration-friendly approach. It is the hope of the authors that the Supreme Court expressly overrules the Saw Pipes<\/em> judgment[8]<\/a> at the earliest opportunity.<\/p>\n

However, the judgment that truly cemented India\u2019s position as an arbitration-friendly nation was the judgment of the Supreme Court in Enercon (India)<\/em> Ltd.<\/em> v. Enercon GmbH<\/em>[9]<\/a> (Enercon<\/em> judgment) in 2014, where the Court answered multiple important questions with regard to arbitration and applicable law.<\/p>\n

Firstly, the Court held that an arbitration agreement could not be avoided on the ground that the substantial contract was not concluded. Simply put, the Court held that the arbitration clause in a contract is severable from the underlying contract and held that the arbitration agreement and the substantive agreement formed two separate contracts, and that the invalidity of one would not affect the other. The Court held that the distinction between the two could be found in the Arbitration Act itself[10]<\/a>, making it clear that as long as there was a clear intention to arbitrate by both parties, arbitration proceedings could not be avoided on such grounds. In fact, whether the substantive contract was concluded or not in itself would have to be determined by the Arbitral Tribunal as per the Court.<\/p>\n

Secondly, the Court held that when an arbitration agreement is seemingly unworkable, the courts must adopt a pragmatic, reasonable business person\u2019s approach and seek to overcome the lacunae by constructing the agreement in such a manner that arbitration becomes workable. The Court held that it must play a supportive role in encouraging arbitration and not allow the proceedings to come to a halt. In case there existed an omission in the agreement that would be obvious to the bystander, the Court has the power to make good the omission to give force to the agreement.[11]<\/a><\/p>\n

Finally, the Court also relied upon its judgment in Bharat Aluminium Co.<\/em> v. Kaiser Aluminium Technical Services, Inc.<\/em>[12]<\/a> and applied the \u201cclosest connection test\u201d to decide on the seat of arbitration. In the case, even though the venue was decided as London, the Court held that since the law governing the arbitration agreement was agreed to be Indian law, the law governing the substantive contract and the conduct of the arbitration was also Indian, the Court held that the applicable law would be Indian law and hence, seat of arbitration would be India.<\/p>\n

The authors feel that the approach taken by the Supreme Court in the instant case has been extremely pragmatic and is appreciable. The Court has clearly expressed the viewpoint that the court\u2019s role must be one of minimal interference and support to arbitration so that the awards of Arbitral Tribunals may be enforced without any undue delay.<\/p>\n

Though the Enercon<\/em> judgment[13]<\/a> positions India as arbitration friendly, the authors feel that there is more to be done in emerging areas such as two-tier arbitrations and multiparty arbitrations and would discuss this in the coming chapters of this paper.<\/p>\n

Further, it is pertinent to note the limitation period within which an arbitral award can be enforced:<\/p>\n

(i<\/em>) Domestic awards<\/em>.\u2014 Since arbitral awards are deemed as decrees for the purposes of enforcement[14]<\/a> and the Limitation Act, 1963 applies to arbitrations, the limitation period for enforcement of such an award is twelve years.<\/p>\n

(ii<\/em>) Foreign awards<\/em>.\u2014 Various High Courts have given varying interpretations on the limitation period within which a party may enforce an award. However, the Supreme Court in Fuerst Day Lawson Ltd.<\/em> v. Jindal Exports Ltd.<\/em>[15]<\/a>, held that under the Act a foreign award is already stamped as the decree. It observed that,<\/p>\n

31<\/em>. \u2026 In one proceeding there may be different stages. In the first stage the court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the court decides that the foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award a rule of court\/decree again.<\/p>\n

Hence, the party having a foreign award has got twelve years time like that of a decree-holder.<\/p>\n

III.<\/strong> Suggestions for legislative action for two-tier arbitrations<\/em><\/strong><\/p>\n

It has been the global practice to allow parties to have appellate arbitration in order to ensure that the errors of facts and law are corrected.\u00a0In Union of India<\/em> v. U.P. State Bridge Corpn. Ltd.<\/em>[16]<\/a>,\u00a0the Supreme Court of India opined that there are two fundamental principles that govern the 1996 Act \u2014 first is the principle of fair, speedy and inexpensive trial by an Arbitral Tribunal, and second is the principle of party autonomy in the choice of procedure. Thus, the elementary position is that the parties to an arbitration agreement have autonomy to decide not only the procedural law to be followed but also the substantive law. The choice of jurisdiction is left to the contracting parties. Thus, in case the parties to the contract agree on a two-tier arbitration system with the construction of the contract to be made in accordance with the laws of India, nothing erroneous can be found with it.<\/p>\n

The Supreme Court has reaffirmed the above stance in Centrotrade Minerals & Metals Inc.<\/em> v. Hindustan Copper Ltd.<\/em>[17]<\/a> by holding that there is no explicit or implicit prohibition on two-tier arbitrations in the Arbitration and Conciliation Act, 1996, but there remains a lot of confusion regarding the same in the Indian context due to lack of statutory regulations. There are also no judicial pronouncements clarifying the procedure on the same.<\/p>\n

In the light of Section 35 of the Act, the crucial question is as to whether the award of the first-tier Arbitral Tribunal will be considered a \u201cfinal award\u201d. If it is so, then that would leave open the option to file a petition under Section 34 to both parties. This would create a legal conundrum as one party may file a petition to the court for setting aside of the arbitral award, while the other party may file an appeal against the award to the second?tier\/Appellate Tribunal. In such a scenario, or even otherwise, it becomes important to have a clear set of rules and regulations that would govern two?tier arbitrations and the enforceability of such awards in order to provide legal certainty regarding the same.<\/p>\n

It is the suggestion of the authors that the following procedure may be adopted in order to have effectiveness in, and clarity about the enforcement of awards from 2-tier arbitration process.<\/p>\n

(A) All arbitration agreements that prescribe a two-tier arbitration process shall specify a time period within which either of the parties may prefer an appeal to the second tier\/Appellate Tribunal. As arbitration is supposed to be a speedy dispute resolution process, if the parties fail tomention any such period, it shall be deemed that the parties have 90 days to approach the Appellate Tribunal. A delay in filing the appeal may be condoned by the second tier at its discretion for a maximum period of 30 days. No application shall be made to the court for setting aside of the award of the first tier during the pendency of this time period.<\/p>\n

(B) If the time period provided to file an appeal to the second tier lapses with neither of the parties preferring an appeal, the award of the first tier would be considered final for the purposes of the Act. The limitation period of 120 days to file an application to set aside an award under Section 34 (inclusive of the maximum delay to be condoned) would commence on the day the time for filing an appeal to the Appellate Tribunal lapses.<\/p>\n

(C) In case an appeal is preferred by one of the parties to the second tier\/Appellate Tribunal, then whatever the award of the second-tier Tribunal, it shall be considered to be the final award which shall merge with the earlier award and therefore, would be enforceable as a decree of the court for the purposes of the Act. This means that the 120-day time period for filing an application to set aside the award of the Arbitral Tribunal under Section 34 of the Act would commence on the day the Appellate Tribunal passes its award.<\/p>\n

Such a system would ensure minimal court interference in the middle of the 2-tier process and eliminates the risk of an award passed by the first-tier Arbitral Tribunal becoming a decree during the pendency of the appeal proceedings before the second tier. It is the submission of the authors that the very reason the parties would opt for a two-tier structure of arbitration is to provide themselves with the option of appeal against the order of the Arbitral Tribunal. The authors feel that it would go against the very idea of a two-tier structure and party autonomy to allow the court to get involved in the process without giving the opportunity to the parties to avail them of the remedy in the arbitration agreement.<\/p>\n

Hence, this system will provide a clear procedure with respect to two-tier arbitrations and will also make enforceability of awards from such bodies much easier and with minimal interference of the courts, which would encourage parties to choose India as the seat of arbitration.<\/p>\n

IV. Intricacies in enforcing multiparty arbitral awards in India<\/em><\/strong><\/p>\n

A multiparty arbitration is an arbitration that includes more than two parties: usually including parties to the original arbitration agreement. These parties can be joined into the arbitration in certain circumstances. The most obvious circumstance would be when an arbitral proceeding between 2 parties affects the rights and liabilities of the third parties. In this case, the third parties may be joined in the proceeding so that all matters relating to the proceeding are heard together and in order to avoid further litigation regarding the same matter. For similar reasons, in cases where there is one substantive contract between two parties (a \u201cmother agreement\u201d) under which multiple contracts with multiple parties exist (spiderweb contracts), and an arbitral proceeding is initiated between the two parties, other parties may be joined in the arbitration due to the fact that they are related to the contract.<\/p>\n

Multiparty arbitrations have been recognised as valid by the Supreme Court in Chloro Controls India (P) Ltd.<\/em> v. Severn Trent Water Purification Inc.<\/em>[18]<\/em><\/a>, in which the Supreme Court recognised the \u201cgroup of companies doctrine\u201d, which allows the extension of an arbitration agreement which was signed by only one or some of the companies belonging to a group of companies, to the non-signatory companies which are also a part of the same group, under certain conditions.<\/p>\n

The problem, however, with such a doctrine is that the right or obligation to attend arbitral proceedings is contractual. An arbitration agreement is the fundamental basis for an arbitral award and hence, questions may arise as to how awards can bind those who are not parties to the original agreement. Even the New York Convention[19]<\/a> explicitly talks about awards only in the context of the parties, and therefore, it is reasonable to assume that there are intricacies and difficulties in enforcing awards against those who are third parties to the arbitral award.<\/p>\n

However, the recognition and support for multiparty arbitration is necessary. The reason parties opt for arbitration is for quick and speedy disposal of cases with minimal interference. If multiparty arbitrations are not allowed, it could lead to the third parties filing separate suits in court which would interfere with the arbitral proceeding and could lead to multiplicity of suits, adding to the confusion.<\/p>\n

Hence, various international agreements and conventions have now begun dealing with the specific question of multiparty arbitrations. The most recent development is the issuance of the Draft Arbitration Rules, 2017, by the Stockholm Chamber of Commerce (SCC). The Draft Rules allows the SCC Board of Directors to join one or more additional parties to the arbitration on the request of an existing party.[20]<\/a> The Rules also allow for consolidation of a new arbitral proceeding with an existing proceeding.[21]<\/a><\/p>\n

However, various rules issued by different organisations are in contrast to the Draft Rules of the SCC including rules of the London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), the Hong Kong International Arbitration Centre, and the Singapore International Arbitration Centre. For the purposes of this paper, the rules of the LCIA are most pertinent.<\/p>\n

The LCIA allows the Tribunal to join additional parties to the arbitration on application of a party provided that all parties are given a reasonable opportunity to state their views and that the applicant and the additional party\/parties give their consent to the joinder in writing.[22]<\/a> Similarly, the LCIA Tribunal can consolidate to one or more arbitral proceedings provided that all parties to the arbitration give their consent in writing.[23]<\/a><\/p>\n

In order to solve this issue of consent in multiparty arbitrations, especially in India, the authors have the following suggestions to make enforcement against third parties legally sound:<\/p>\n

(1) No third party may be joined in the arbitral proceeding without its consent. Such consent shall either be recorded and submitted in writing as per the LCIA Rules, or recognised and referred to by the Tribunal in interim or preliminary orders so that an official record of the consent remains, in case written consent is not obtained.<\/p>\n

(2) No third party may be joined in the arbitral proceeding without the consent of the parties to the arbitration. This requirement may differ from the LCIA Rules to the extent that as per the LCIA Rules, only the written consent of the applicant party is required. It may be made mandatory for all existing parties to the arbitration to consent to the joinder, in order to prevent further issues from arising in the future. Such consent may either be explicitly recorded and submitted to the court, recognised and referred to by the Tribunal in interim or preliminary orders or may be implied consent i.e. the parties have agreed to conduct the arbitration under certain rules, which allow for multiparty arbitration.<\/p>\n

(3) There must not be any requirement of the additional party being a party to the same arbitration agreement. This can allow for joinder of parties even in multi-contract situations.<\/p>\n

If this is the case, then no party can later complain that the multiparty arbitral proceeding has violated their rights, as they would have consented to take part in the proceeding.<\/p>\n

V. Conclusion<\/em><\/strong><\/p>\n

The authors have hereby attempted to provide suggestions to ensure the enforceability of arbitral awards in India which would go a long way in ensuring that India can be made an arbitration hub. The most important issue that the authors have tried to tackle is the issue of party autonomy.<\/p>\n

Further, the authors have included various suggestions on 2-tier and multiparty arbitrations. These are still developing areas in the global arbitration scenario and it is the hope of the authors that India can capitalise on these growing fields and serve as an effective arbitration hub in the future.<\/p>\n

 <\/p>\n

*<\/strong> Vth year student, BBA LLB (Hons.), School of Law, Sastra Deemed University.<\/p>\n

**<\/strong> Vth year student BBA LLB (Hons.), School of Law, Sastra Deemed University.<\/p>\n

[1]<\/a>\u00a0 S. 36,\u00a0 Arbitration and Conciliation Act, 1996.<\/p>\n

[2]<\/a>\u00a0 S. 35, Arbitration and Conciliation Act, 1996.<\/p>\n

[3]<\/a>\u00a0 (2003) 5 SCC 705 : AIR 2003 SC 2629<\/a>.<\/p>\n

[4]<\/a>\u00a0 (2006) 11 SCC 181<\/a>.<\/p>\n

[5]<\/a>\u00a0 (2003) 5 SCC 705 : AIR 2003 SC 2629<\/a>.<\/p>\n

[6]<\/a>\u00a0 Indian Oil Corpn. Ltd.<\/em> v. Langkawi Shipping Ltd.<\/em>, 2004 SCC OnLine Bom 460 : (2004) 3 Arb LR 568<\/a>.<\/p>\n

[7]<\/a>\u00a0 (2003) 5 SCC 705 : AIR 2003 SC 2629<\/a>.<\/p>\n

[8]<\/a>\u00a0 (2003) 5 SCC 705 : AIR 2003 SC 2629<\/a>.<\/p>\n

[9]<\/a>\u00a0 (2014) 5 SCC 1<\/a>.<\/p>\n

[10]<\/a>\u00a0 S. 16, Arbitration and Conciliation Act, 1996.<\/p>\n

[11]<\/a>\u00a0 In this case, the agreement stated that there would be 3 arbitrators, with each party appointing one arbitrator. The Court made good the unworkability of this agreement (since there were only 2 parties), by holding that the 2 arbitrators appointed by the party could appoint the 3rd arbitrator together, and that he would serve as the umpire of the Bench.<\/p>\n

[12]<\/a>\u00a0 (2012) 9 SCC 552<\/a>.<\/p>\n

[13]<\/a>\u00a0 (2014) 5 SCC 1<\/a>.<\/p>\n

[14]<\/a>\u00a0 Umesh Goel<\/em> v. H.P. Coop. Group Housing Society<\/em>, (2016) 11 SCC 313<\/a>.<\/p>\n

[15]<\/a>\u00a0 (2001) 6 SCC 356 at p. 371<\/a>.<\/p>\n

[16]<\/a>\u00a0 (2015) 2 SCC 52<\/a>.<\/p>\n

[17]<\/a>\u00a0 (2006) 11 SCC 245<\/a>.<\/p>\n

[18]<\/a>\u00a0 (2013) 1 SCC 641<\/a>.<\/p>\n

[19]<\/a>\u00a0 Convention on the Recognition and Enforcement of Foreign Arbitral Awards.<\/p>\n

[20]<\/a>\u00a0 Art. 13, SCC Draft Arbitration Rules, 2017.<\/p>\n

[21]<\/a>\u00a0 Art. 15, SCC Draft Arbitration Rules, 2017.<\/p>\n

[22]<\/a>\u00a0 Art. 22(viii<\/em>), LCIA Rules.<\/p>\n

[23]<\/a>\u00a0 Art. 22(ix<\/em>), LCIA Rules.<\/p>\n","protected":false},"excerpt":{"rendered":"

by Surya Teja S.S. Nalla* and Vikas Bhuvana Muralidharan**<\/p>\n","protected":false},"author":91,"featured_media":169614,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[42503,1191],"tags":[30066,30068,30067],"class_list":["post-195577","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-legal-analysis","category-op-ed","tag-arbitral-awards","tag-arbitration-hub","tag-enforceability"],"yoast_head":"\nEnforceability of arbitral awards and how India can be made an arbitration hub | SCC Times<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2018\/05\/05\/enforceability-of-arbitral-awards-and-how-india-can-be-made-an-arbitration-hub\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Enforceability of arbitral awards and how India can be made an arbitration hub\" \/>\n<meta property=\"og:description\" content=\"by Surya Teja S.S. 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