ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN INDIA

March 3, 2021, 8:37 a.m.   SamarthLuthra  
Economics and Law   Pens of Law students    


Profile of the Author - Suryatanu Dey is a final year B.A. LL.B. (Hons.) student at School of Law, UPES, Dehradun. He is specialising in Energy Law.


INTRODUCTION

International commerce has grown exponentially in the last few decades owing to ease of communication as well as commuting but at the same time has resulted in an increased number of disputes in international commercial transactions. International commercial transactions or contracts involve agreements between parties of more than one country. Since there is the involvement of legislation of different countries, it is time consuming, complicated and expensive to settle any dispute through normal judicial practices. Most parties to commercial business agreements prefer to settle their legal disputes through arbitration and the inclusion of an arbitration clause in the agreement is the preferred choice. [1]

Arbitration refers to a form of alternative dispute resolution mechanism where the disputes of commercial nature are decided by one or several individuals based on evidence and arguments of the parties involved and are enforced by a court of law. Arbitration, as a way of dispute settlement, has gained popularity among the international business community due to its quick and simple proceedings and legal standing.[2]

Opening up of the Indian economy in the 1990s and simplification of foreign investment procedures has resulted in the systematic increase in foreign investment in India. To make India investor friendly, it was necessary to adhere to simplified legal procedures regarding enforcement of foreign arbitral awards. The fundamental principle of enforcement of foreign arbitral awards in India is based on reduced judicial intervention. [3]


ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

The enforcement of foreign arbitral awards in India is governed by the “Arbitration and Conciliation Act,1996” [hereinafter called “the Act”] through “the Recognition and Enforcement of Foreign Arbitral Awards,1958” [ The New York Convention] and “the Execution of Foreign Arbitral Awards,1927” [The Geneva Convention] as India is a signatory to both the Conventions. A foreign arbitral award will be enforceable in India if the party receives a binding award from an arbitration tribunal seated in a country that is a signatory to the Geneva and New York Conventions and that country has been notified as reciprocating territory by the Indian government.

Prior to the enactment of the Arbitration and Conciliation Act, 1996, enforcement of arbitration awards in India was based on the Arbitration Act, 1940 [for domestic awards], the Arbitration (Protocol and Convention) Act, 1937 [for arbitral awards based on Geneva convention] and the “Foreign Awards (Recognition and Enforcement) Act,1961 [for arbitral awards based on New York Convention].

In 1996, India enacted the Arbitration and Conciliation Act, 1996, repealing all the three previous statutes of 1937, 1940 and 1961. [4]

The Act of 1996 has four parts:

Ø Part I provides for enforcement of awards on arbitration conducted in India; and

Ø Part II provides for enforcement of foreign arbitral awards to which Geneva and NewYork Conventions apply.

Part III and Part IV deal with Conciliation and Supplementary provisions and do not hold much relevance for the subject at hand.

Foreign Award - Defined.

Under Section 44 of Part II of the “Arbitration and Conciliation Act,1996”, 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 in pursuance to an agreement in writing for arbitration and is awarded in a country to which Geneva and New York Conventions apply and is notified by the Government of India.[5]

Procedure for Enforcement

Enforcement of foreign arbitral awards in India is a two-stage process. The first step for enforcement is to file an execution petition under section 48 of the Act accompanied by the original award or an authenticated copy thereof and the original arbitration agreement or a copy of such agreement. Where the award is declared enforceable, the Court can order the execution by a decree under the Code of Civil Procedure,1908. [6] The requirement that the award has been issued in a country notified by the Government of India to which New York and Geneva Conventions apply is very important. The creation of a new political entity by the disintegration of an existing country would not make any difference to the enforceability of an award in a territory that was earlier a part of a notified territory. This decision by the Hon’ble Supreme Court of India in the case of Transoceanic Shipping Agency Pvt. Limited v Black Sea Shipping and Others, 1998 (2) SCC 281 is significant as it considerably expands the list of countries notified by the Government and at the same time demonstrates the Indian Court's willingness to enforce foreign arbitral awards.

Section 48(1), 48(2) and 57 of Part II of the Arbitration and Conciliation Act, 1996 provides the conditions under which a foreign award cannot be enforced in India.

The conditions include[7]:

Of all the conditions, the condition that an award will not be enforced if it is in contravention to the Public Policy of India is most significant. The Indian courts have narrowly interpreted the meaning of ‘Public Policy’ concerning foreign awards [Reusage Power Company Limited v General Electric Co 1994 Supp (1) SCC 644]. In this landmark judgement, the Court interpreted that the term 'public policy’ in a narrow sense that in order to rely on it an award’s enforcement must be more than just a violation of Indian law. It was further clarified that a foreign award’s enforcement will be refused on the grounds of public policy if such enforcement is: [8]

Ø contrary to the fundamental policy of Indian law ;

Ø contrary to the interests of India; and

Ø contravenes justice or morality.

This interpretation ensured a balance between the wide ambit of Public Policy and minimal judicial intervention. By the amendment to the Act in 2015, two explanations to Section 48(2) were incorporated to regulate the interpretation of public policy by the Courts. According to the first explanation, a foreign award will be in conflict with the public policy if [9],

Ø it was induced by fraud or corruption;

Ø contravenes the fundamental policy of law;

Ø contravenes the basic notions of morality and justice.

The second explanation to section 48(2) states that a contravention of the fundamental policy of Indian law will not entail a review on the merits of the dispute.

Limitation period

The limitation period of enforcement of foreign awards is the same as the limitation period of execution period of a decree as provided under Schedule I- item 136 of Limitation Act, 1963 which is 12 years from when the decree or order becomes enforceable.


CHALLENGE TO ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

Unlike domestic awards, there is no provision in the Act to set aside a foreign arbitral award. Indian courts may agree to or refuse to enforce a foreign arbitral award but they cannot set it aside. This drawback has been removed from the verdict of the Hon'ble Supreme Court in the case of Venture Global Engineering v Satyam Computer Services Limited and Ors, (2008) 4 SCC 190 where it was held that foreign awards may be challenged in India under Part I of the Act under section 34. This judgement has far-reaching consequences as it created new grounds for challenging foreign awards not contemplated earlier or provided for in the Act.


CONCLUSION

Thus, it can be ascertained that there exists a thorough procedure of enforcement of foreign arbitral awards in India but the procedure for enforcement needs to be quickened as the Act stipulates that an award can only be enforced when the time to strike down the award by the courts expires. This leads to inordinate delays in enforcements. The Indian courts have envisioned a minimal judicial intervention concerning cases of foreign arbitral awards and have refused enforcement minimally. It may be deduced that India is not anti-arbitration. The Arbitration and Conciliation Act of 1996 comprehensively covers international commercial arbitration and enforcement of foreign arbitral awards. The Act has been amended as and when required keeping in trend with the changes in international commercial business but more reforms in relation to speedy enforcement is recommended.


References -

[1] Swati Nargotra, Validity of Foreign Arbitral Awards in India www.legalservicesindia.com, http://www.legalservicesindia.com (last visited Feb 22, 2021).

[2] Id.

[3] Atul Shankar Mathur, Priya Singh & Vivek Mathur, Enforcement of foreign arbitral awards and scope of judicial intervention: a minimalist approach www.lexology.com (2020), https://www.lexology.com/library/detail.aspx? (last visited Feb 22, 2021).

[4] Id.

[5] Id.

[6] Shreyas Chandrashekhar G, Enforcement of Foreign arbitral awards In India blog.ipleaders.in, https://blog.ipleaders.in/enforcement-foreign-arbitral-awards-india/amp/ (last visited Feb 22, 2021).

[7] Rahul Jain, Khusboo Rupani & Mahafrin Meheta, India: Execution Of Foreign Award in India www.mondaq.com (2020), https://www.mondaq.com/india/arbitration-dispute-resolution/985768/execution-of-foreign-award-in-india (last visited Feb 22, 2021).

[8] Moazzam Khan, Payal Chatterjee & Shewta Sahu, Enforcement of Arbitral awards and Decrees In India www.nishitHdesai.com (2020), https://nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Enforcement_of_Arbitral_Awards.pdf (last visited Feb 22, 2021).

[9] supra note 3


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