Pro-Enforcement Trend of Foreign Arbitral Awards in India: A Critical Analysis

Introduction

The effectiveness of any arbitral process is determined by the effective execution of an arbitration award. Part II of the Arbitration and Conciliation Act, 1996¹ specifies the guidelines for enforcing international awards in India. The Government of India passed the said Act in 1996 to align the Arbitration Act with the UNCITRAL Model Law on Arbitration².

Parties are ready and willing to enter an arbitration award for its speedy resolution of the dispute as compared to the traditional method. However, if the arbitration awards are not enforced in the country, then the whole exercise of arbitration becomes futile. Without the proper and timely enforcement of the foreign arbitration award, the parties will prefer approaching traditional courts to resolve their disputes. The enforcement of arbitration awards depends upon the legislature and the courts that interpret the legislations. There have been many instances in which the enforcement of foreign arbitration awards is not duly carried out.

The object of this article is to provide a brief description of the pro-enforcement of international arbitration awards in India; to analyse the enforcement mechanism of foreign arbitral awards; to analyse the judicial consistency in the enforcement of international arbitration awards with help of various case laws; and to understand the procedural challenges in the enforcement of international commercial arbitration.

Arbitral award

An arbitral award is defined as the decision delivered by an arbitration tribunal during the course of arbitration proceeding. The decision delivered by an Arbitral Tribunal is equivalent to a decision delivered by a traditional court of law.³ The different arbitral award includes, injunctive relief, the clear performance of a contract, rectification, cancellation of a deed, payment of money, declaration on a matter that is to be decided in the arbitration proceeding and setting aside a deed. According to the Section 2(1)(c)⁴ of the Arbitration and Conciliation Act an arbitral award is defined as, “one that includes an interim award. It can be understood as a decree or order passed by the court of law and the decision is entirely based on the merits of the case”.⁵

A foreign arbitral award is defined as an award delivered during a foreign arbitration and not a domestic arbitration. In Serajuddin and Co. v. Michael Golodetz⁶, the necessary elements for a foreign arbitral award delivered during foreign arbitration were laid down i.e.

1. “Arbitration should have been held in foreign lands.

2. By foreign arbitrator(s).

3. Arbitration by applying foreign laws.

4. A foreign national is involved as a party.”

According to Section 44⁷ of the Arbitration and Conciliation Act, 1996 a foreign award is defined as, “an arbitral award on differences that are related to the matters which are deemed commercial under the Indian law”. The two essentials for an award to be a foreign award are, firstly, it should resolve the discrepancies which result from a commercial legal relationship or a relationship that is considered commercial under the Indian law. Secondly, the country that is issuing the award must be a country that has been designated by the Indian Government as a country in which the New York Convention⁸ is made applicable. Hence only such arbitral awards are considered and implemented as foreign arbitral awards⁹.

Historical development of enforcement of arbitral award in India

The enforcement mechanism of the arbitral award in India traces down to two major statutes i.e. the Arbitration (Protocol and Convention) Act, 1937¹⁰ and the Foreign Awards (Recognition and Enforcement) Act, 1961¹¹. The Arbitration Act, 1937 finds its genesis in the Geneva Protocol, 1923, and the Geneva Convention, 1927¹². Similarly, the Foreign Awards (Recognition and Enforcement) Act, 1961 finds its root in the New York Convention, 1958¹³.

Concerning the arbitration clauses and the execution of the foreign arbitral award, the Indian Government placed reliance on Geneva Protocol and international Conventions. The aim for such adherence was to be included in the group of countries that adhere to the protocols and conventions related to alternative dispute resolution mechanisms for the speedy resolution of matters arising out of the international commercial agreements.¹⁴

After a series of discussions, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention, 1958) was framed for smooth and effective enforcement of the arbitral award. This Convention was adopted in the Indian arbitration regime by the way of the Foreign Awards (Recognition and Enforcement) Act, 1961.

India adopted the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 13-7-1960. The two Acts, the Arbitration (Protocol and Convention) Act, 1937, and the Foreign Awards (Recognition and Enforcement) Act, 1961, were abolished with the introduction of the Arbitration and Conciliation Act, 1996. The UNCITRAL Model Law and Rules were used to develop the Arbitration Act of 1996.¹⁵

Enforcement of foreign arbitral award in India

The Code of Civil Procedure and the Arbitration and Conciliation Act, 1996 governs the “enforcement of the arbitral awards in India”. It is provided under the Indian mechanism that the party who has the arbitral award delivered in its favour has to wait for three months before moving an application for the execution of the arbitral award. According to Section 34 of the Arbitration and Conciliation Act, the other party must contest the award within three months. After these three months have expired, the award can be submitted for its execution in the proper court. After this, there is no further provision to make an appeal for the award if the award is enforced at the execution point by the court. Order 21 CPC provides for the enactment of a decree and the limitation period for such execution is 12 years.¹⁶

For the compliance of a foreign arbitral award, a three-step procedure is followed which includes firstly that the party who is the award holder along with all supporting documents shall move an application under Section 47¹⁷ of the Arbitration Act. The second step includes the raising of a defense by the opposite party under Section 48¹⁸ of the Act along with providing all the relevant facts. Lastly, the court shall execute the award under Section 49¹⁹ if the court believes that the award passed is enforceable with regard to all the facts placed before the court by the parties.²⁰

The grounds under which the foreign award can be made unenforceable are provided under Section 34²¹ of the Act. In Venture Global Engg. v. Satyam Computer Services Ltd.²², the Supreme Court observed that,

“If the subject-matter of the foreign award is money then the Commercial Division of the High Court will have the jurisdiction in whose jurisdiction the properties of the opposing party is located. If the award's subject-matter is not otherwise, the Commercial Division of the High Court that would have jurisdiction if the award were the subject of a suit would have jurisdiction.”²³

Pro-Enforcement of foreign arbitral awards in India

In order to act in conformity with the international practices of enforcement of the arbitral award, the Indian courts have been adopting a positive and flexible approach to the execution of the awards. The judgments delivered by the Indian courts express the positive attitude of the courts to shift toward a “pro-enforcement mechanism” with reliance on the principle of non-interference with the execution of arbitration awards. The Indian courts and legislation have taken significant initiatives to promote efficient execution of arbitral rulings, strengthening India's reputation as an arbitration-friendly jurisdiction.²⁴

By the ruling of BALCO Employees’ Union v. Union of India²⁵ judgment, the procedure for pro-enforcement was adopted by the Supreme Court by stating that, Part I of the Act only applies to arbitrations seated within India. It was also held that foreign arbitral awards are only subject to the jurisdiction of Indian courts when they are to be enforced in India under the limited jurisdiction provided in Part II of the Act. This judgment acted as a catalyst for a noticeable shift in judicial attitude, as well as a transformation in India's present status as an enforcement-friendly country.²⁶

In NTT Docomo Inc. v. Tata Sons Ltd.,²⁷ it was held that, India respects finality of international awards and is a foreign investment friendly country. In this case, the objection raised by Reserve Bank of India to resist enforcement of an international arbitration award on the ground that the mutual settlement between the companies permitting the transfer of funds violated provisions of the Foreign Exchange Management Act, 1999²⁸ and a compromise under the Civil Procedure Code, 1908²⁹ cannot be taken on record by the court when it was hit by Section 23³⁰ of Contract Act, 1872³¹ and was rejected by the Delhi High Court.

In Unitech Ltd. v. Cruz City I Mauritius Holdings,³² the Delhi High Court opined that, the public policy defense is to be construed narrowly, and foreign awards will only be held unenforceable if they contravene the basic rationale, values, and principles which underpin Indian laws. It further held that an alleged contravention of a provision of Indian law is not synonymous with contravention of the fundamental policy of India. In the judgment delivered, the Court placed reliance on the landmark judgment of Renusagar Power Co. Ltd. v. General Electric Co.³³

The recent judgment of the Supreme Court of India by a three-Judge Bench in Vijay Karia v. Prysmian Cavi E Sistemi SRL³⁴ highlights the Indian courts’ trend toward a more pro-enforcement regime. The Supreme Court in its ruling encouraged the Indian courts to adhere to the principle of non-interference while executing the foreign arbitral awards in the domestic regime. The Supreme Court has outlined the extent of “appropriate” defences available to the parties under Article 48 of the Act and confirmed the pro-enforcement mechanism.

Vedanta judgment

The case of Govt. of India v. Vedanta Ltd.,³⁵ was the turning point as it led to the acknowledgment of enforcement of foreign awards by the Indian courts. Prior to this case, it was considered that the court had a conservative approach toward the mechanism for the enforcement of the foreign arbitral award as ruled in the judgment of National Agricultural Coop. Mktg. Federation of India v. Alimenta SA³⁶ and Venture Global Engg. LLC v. Tech Mahindra Ltd.³⁷

The relevant facts of the case are that a product sharing agreement was signed between the Government and Cairn India Ltd. (later acquired by Vedanta) to separate oil and gas from the facility. A dispute arose regarding the cost and around $499 million was recovered by the Government from Vedanta. In 2011, the dispute came before the Malaysian Tribunal i.e. shifted to an international arbitration forum. The Tribunal ruled an award in favour of Vedanta. Appeals were filed in Delhi High Court with regard to the issue of “enforcement of the foreign award” in 2018.³⁸ Later the matter came before the Supreme Court wherein it was held that, foreign award on the ground that the Government has failed to establish that the enforcement of the award would be against the public policy of the country. The Supreme Court had categorically mentioned that the courts should be reluctant in not enforcing the arbitration award and should try to reduce the intervention of the judiciary.³⁹

Further, the application of Article 136 of the Limitation Act, 1963⁴⁰ was considered irrelevant with regard to the enforcement of the award as it was a declaration of the common court and would be covered under the ambit of Article 137⁴¹ and thereby a time period of three years shall be provided to the party. As a result, in Vedanta⁴² judgment, the Supreme Court took a step toward ensuring the seamless enforcement of the foreign judgment by eliminating loopholes in the existing legal framework and adopting a pro-enforcement bias approach.⁴³

Challenges in enforcement of foreign arbitral awards in India

The Indian mechanism of enforcement provides for grounds where the foreign award is rejected for execution if any of the adequate grounds are satisfied which are provided under Section 48(1) of the act by the party against whom the award is enforced. Section 48 provides for grounds such as:

1. One of the parties is under some incapacity i.e. if any of the parties to the arbitration proceeding are incompetent as per the existing laws, then the award can be set aside. Incapacity includes “involuntary incapacity, undue control, deception, duress, or misrepresentation.”

2. Arbitral award is beyond the scope of arbitration i.e. the scope of the Tribunal is limited to only that extent which is submitted as the jurisdiction of the Tribunal. The Tribunal has the competence to delve only into those matters submitted and cannot discuss questions beyond that jurisdiction. An award that goes outside the limits of arbitration is likely to be overturned by the courts.

3. The legality of the procedure of an arbitration tribunal i.e. an arbitral award can be set aside in case the Tribunal was not formed with the consent of the parties or was not in accordance with the agreement made by the parties.

4. In case notice is not provided to any of the parties about the appointment of the arbitrator or conduct of arbitration proceeding such a practice would be a breach of natural justice.

5. Public policy i.e. an award given in breach of the country's public policy shall be unenforceable. Awards made in breach of public policy may be a shield against its compliance. The Indian courts are obliged to deny the execution of an award that is contrary to the Indian public policy.

6. If an award is set aside by the competent authority of the country where the arbitral award is delivered, then such an arbitral award shall not be binding on the parties and would not be enforceable in the Indian regime. ⁴⁴

Analysis

It can be analysed that the Indian courts by combined efforts of the judiciary and the legislature have improved their position regarding the enforcement mechanism of the foreign awards. Innovative and effective policies are implemented by the Government to cater to the needs of the corporates and society.

It can be analysed that considering the current justice-delivery system, the arbitration mechanism of India should be improved, and innovative policies must be developed to cater the needs of the society. The ruling in Vijay Karia⁴⁵ and Vedanta⁴⁶ is the most significant judgment with regard to the enforcement and has provided clarity to the parties regarding the different procedure for the execution.

Furthermore, the conduct of litigating parties approving numerous attempts to obstruct the implementation of foreign judgments will be minimised to the greatest degree possible, as ruled in Vijay Karia⁴⁷ case where heavy costs were imposed on the parties infringing the procedure. Finally, the Supreme Court has bolstered India's status as an arbitration-friendly State by finding that the courts have the discretion to implement a foreign arbitral judgment even if specific reasons for refusing enforcement are shown. Even still, India has a long way to go in being the friendliest of nations when it comes to arbitration.

Thus, the recent decisions suggest that the courts in India have taken a pro-enforcement position while maintaining strict reliance on the concept of “non-interference with arbitral awards”. Indian courts and legislators have been ensuring that strong initiatives to promote prompt enforcement of arbitral rulings are formulated in order to bolster India's reputation as an arbitration-friendly jurisdiction.

Conclusion

It can be concluded that speedy and effective enforcement of the arbitral award is essential for a smooth arbitration proceeding. In case of delay in effective implementation, the parties shall resort to the traditional means of resolving the dispute. Time is the essence of the contract and timely enforcement of the arbitration award is the essence of the arbitration proceedings. The importance of effective and timely enforcement of an international arbitration award has been recognised by the judiciary, which has gradually adopted a pro-arbitration stance and is executing the international award when no conflict of law exists.

In Vedanta⁴⁸, the Supreme Court reiterated the need of adapting to pro-enforcement of the arbitral awards and reducing judicial intrusion in order to achieve efficient enforcement. There are many issues and challenges in the enforcement of the arbitration award, and some of which have been discussed in this paper. However, there are several potential proposals and recommendations for improved enforcement of the arbitration ruling. The necessity to reform the arbitration institution, as well as the requirement of court assistance, are some of the suggestions and alternatives. Implementing these proposals and suggestions might result in improved international arbitration award enforcement, and India could be deemed a pro-arbitration country.