Prior to 1937, foreign awards and foreign judgments based on foreign awards were enforceable in British India on the same grounds and in the same circumstances as they were in England under the common law, on the grounds of justice, equity and good conscience. In 1937 the Arbitration (Protocol and Convention) Act 1937 was enacted to give effect to the Geneva Protocol on Arbitration Clauses 1923 and the New York Convention on execution of Foreign Arbitral Awards 1958, enabling them to become operative in India.
The way foreign arbitral award was defined in the 1937 Act and the 1996 Act were however not much different. Both emphasizes on the dispute being commercial in nature further Section 4(2) of the Act says
“Any foreign award which would be enforceable under this Act shall be treated as binding for all purposes on the persons as between whom it was made and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceeding in [India], and any references in this Act to enforcing a foreign award shall be construed as including references to relying on an award.”
Further, on satisfaction about the enforceability of the award, the Court shall order the award to be filed and shall proceed to pronounce judgment according to the award.
During the 1937s there were certain local Arbitration Laws in effect as well, which the parties were free to choose. However post enactment of the 1937 Act, the issue whether a matter was governed under the local Arbitration Act or the Arbitration (Protocol and Convention) Act 1937 became a question of law and could not be determined by the conduct of the parties. Now, the provisions of the 1937 Act have also been repealed by the Arbitration and Conciliation Act 1996 except that they still apply in relation to arbitral proceedings which commenced before the 1996 Act that came into force unless otherwise agreed upon by the parties.
The present Act deals with enforcement of foreign arbitral award under part II. Although due to a recent Supreme Court decision the difference between Part II and Part I have become blurred. The provisions of part II gives effect to the New York and the Geneva conventions (although the provisions of the Geneva Conventions are literally otiose now) India is not a party to the ICSID convention or any other conventions pertaining to enforcement of foreign arbitral awards.
Effect Of Foreign Awards:
Subject to the statutory restrictions, a foreign award is enforceable in India as if it were an award made on a matter referred to arbitration in India. Any foreign award which would be enforceable under the Foreign Awards (Recognition and Enforcement) Act 1961 is to be treated as binding for all purposes on the persons as between whom it is made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in India and any references in the 1961 Act to enforcing a foreign award are to be construed as including references to relying on an award. If a foreign award is enforced it is necessarily recognized. It is open to a party to apply only for recognition as a shield against re-agitation of issues with which the award deals.
Comparison Of Foreign And Domestic Enforcement Regime:
The difference between Foreign Award and Domestic Award are two fold in nature. Firstly, in terms of procedure of execution of award. In case of domestic award there is no requirement for separate execution of award. Once an award is made and objections are rejected, the award automatically gets executed and there is no requirement for application of enforcement of an award. A foreign award is required to be enforced. Once the court is satisfied that a foreign award is enforceable the award becomes decree of the court and executable as such.
Another significant difference between the domestic and foreign award is that (unlike domestic awards) foreign awards cannot be set aside. A party seeking to enforce a foreign award has to make an application for the same and the court can either accept it or reject it but the court can never set aside the award. But on close observation, we find that there is an apparent lacuna in this mechanism because under circumstances where the foreign award was made based on an arbitration agreement which was not valid or where proper notice was not duly served to the parties etc, the parties would be, more often than not left with no viable recourse. This problem was however settled in the case of Venture Global wherein the court held that even Indian Courts can set aside foreign arbitral awards using the machinery laid down under section 34 of the Arbitration and Conciliation Act 1996.
Conditions For Enforcement Of Award
The enforcement of ‘foreign Award’ under Part II Chapter I is a three phase process. First the party seeking to enforce the award has to make an application under s 47 to the court along with the evidence, as required in it. Secondly, the party against whom the award is invoked, desiring to resist the enforcement, is required to furnish proof to the court of the existence of one or more of the defences set forth in s 48. Finally the court may enforce the award as a decree of the court under section 49 if it is satisfied that the award is enforceable.
In case of foreign arbitral awards, the only condition under which the court finds an award not enforceable is if the court dealing with the same is convinced that (a) the award has been annulled in the country in which it is made (b) party against whom the award is to be enforced was not given notice for the proceedings in sufficient time to enable him to present his case or was under some legal incapacity and was not properly represented. (c) If the award does not deal with all the questions in dispute involved or the decisions on matters beyond the scope of the agreement for arbitration. Besides, the court can also make Suo motu decision of not enforcing an award if (a) the subject matter of the dispute is not capable of settlement by arbitration under the law of India. (b) is against public policy.
In all these cases the court can always postpone the enforcement subject to fulfillment of certain conditions as it may deem fit or it may simply refuse to enforce the award stating adequate reasons. However it is interesting to note that except in the case of ONGC v Saw Pipes the Indian Courts have narrowly construed public policy in relation to foreign arbitral awards. For example in Renu Sagar Power Co Ltd v. General Electric Co while dealing with the 1996 Act, s 48(2) the Supreme Court in clear terms have stated that public policy as manifested under s 7(1)(b)(ii) of Foreign Awards (Recognition And Enforcement) Act, 1961 has to be interpreted in a narrow sense. The parties in order to attract public policy against enforcement of an award must invoke something more than mere violation of law in India. Therefore we can safely say that this move is made by the courts to maintain the enforceability of the foreign awards in Indian soil.
On the question whether the award requires further execution on the terms of O XIX of the Code of Civil Procedure 1908 even after the court is satisfied that it is enforceable under this chapter and has become a decree of the court under s 49, there has been a divergence of opinion in the Gujarat and the Bombay High Courts.
In Western Shipbreaking Corporation v. Clare Haven Ltd (UK)The Gujarat High Court (single judge) held that the expression ‘enforcement’ as used in s 47 is nothing other than ‘execution’ as contemplated under O XXI of the Code of civil Procedure 1908.
However in Toepfer International Asia Pvt Ltd v. Thapar Ispat Ltd the Bombay High Court (Single Judge) differed from the above view and held that s 49 of the Act merely empowers the court to declare that the ‘foreign award’ is enforceable under the Act. Once shall award is granted it will merely be a decree of the court and would need to go through a separate execution process.
However the attention of both these high courts have no been drawn to an already existing judgment of the Supreme Court that settles the law in this respect in Brace Transport Corporation of Monrovia, Bermuda v. Orient Middle East Lines Ltd, Saudia Arabia Bharucha J, unequivocally said:
Where a court is asked to enforce an award it must recognize not only the legal effect of the award but must use legal sanctions to ensure that it is carried out…Since the purpose of enforcement proceedings is to try to ensure compliance with an award by the legal attachment or siezure of defaulting party’s assets, legal proceedings of some kind are necessary to obtain title to the assets seized or their proceeds of sale.
Besides the Supreme Court in Fuerest Day Lawson Ltd v. Jindal Exports Ltd also affirmed the view taken by the Gujarat High Court and The Supreme Court, speaking for the Court, Shivaraj Patil J said,
there is no need to take separate proceedings, one for deciding the enforceability of the award… and the other to take up execution thereafter…if the argument advanced on behalf of the respondent is accepted, the very purpose of the Act in regard to speedy and effective execution of foreign award will be defeated.
Therefore because of these judgments the requirement of filing separate application for enforcement of award under section 47 of the 1996 Act is now done away with. Now no separate application needs be filed for execution of the award. A single application for enforcement of award would undergo a two-stage process. In the first stage, the enforceability of the award, having regard to the requirements of the Act (New York Convention grounds) would be determined. Once the court decides that the foreign award is enforceable, it shall proceed to take further steps for execution of the same. This can be said to have liberalized the enforcement process to a large extent.
The New York Convention Awards
Chapter I of Part II of the Arbitration and Conciliation Act, 1996 lays down the provisions with regard to enforcement of New York Convention Awards. “Foreign award” under New York Convention 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 the 11th day of October, 1960
- In pursuance of an agreement in writing for arbitration to which the convention applies
- In such territories which the Central Government may by notification declare to be territories to which the said convention applies.
While dealing with this part the Supreme Court has categorically stated that any award made on an arbitration agreement governed by law of India although rendered outside India would not be a foreign award. Moreover as far as the meaning and extent of the term ‘commercial’ goes, the expression ‘commercial’ is to be construed literally in the light of its literal and grammatical sense keeping in mind that the purpose is to facilitate international trade by speedy dispute resolution. Also, while interpreting ‘commercial relationship’, aid can be taken of the UNCETRAL model laws.Commercial as a term is also given the widest possible interpretation by the Supreme Court. Therefore includes relationship that takes within its ambit all relationships which arise out of or are ancillary and incidental to the business dealings between citizens of the two states.
The Geneva Convention On Awards
Prior to 1937, foreign awards and foreign judgments based on awards were enforceable in British India on the same grounds and in the same circumstances as they were in England under the common law, on the grounds of justice, equity and good conscience. In 1937 the Arbitration (Protocol and Convention) Act 1937 was enacted to give effect to the Geneva Protocol on Arbitration Clauses 1923 and the convention on the execution of foreign Arbitral awards 1927 enabling them to become operative in India.
The Geneva Convention Awards is incorporated under the 1996 Act in s. 53; section 57 lays down the conditions for enforcement of award. Accordingly a foreign award may be enforceable under Chapter II Part II of the Act, if it satisfies the following conditions:
Non Convention Awards – Can They Be Enforced?
Its clear from the above paragraphs that foreign awards passed by countries that are signatory to the above two conventions are clearly enforceable under Part II of the Arbitration and Conciliation Act. But the enforceability with respect to foreign arbitral awards from non convention countries was a bit unclear. In the year 2002, the Supreme Court in Bhatia International v. Bulk Trading S.A finally cleared the air by stating that
Section 2(f) that defines International Commercial Arbitration makes no distinction between arbitrations held in India or outside India. An international commercial arbitration may be held in a country which is a signatory to either the New York Convention or the Geneva Convention. An international commercial arbitration may (also) be held in a non-convention country.
The reason for this being, since Part II does not specifically exclude the enforceability of non-convention awards therefore even non convention awards are enforceable in India.
The court, in this case further went on to say that even Part I will be applicable to arbitrations which take place outside India. The court reasoned it by saying that
If Part I was to only apply to arbitrations which take place in India the term “Court” would have been used in Sections 5 and 8 of the said Act. The Legislature was aware that, in international commercial arbitrations, a matter may be taken before a judicial authority outside India. As Part I was also to apply to international commercial arbitrations held outside India the term “judicial authority” has been used in Sections 5 and 8.
Secondly, the specific mention of non-obstante clause in Sections 45 and 54(Part II) of the act which reads as “not withstanding anything contained in Part I” proves that Part I is otherwise generally applicable to Part II of the Act as well.
This observation also becomes quite significant in that case because we can use the same corollary to apply section 34 and 37 of the Arbitration Act to foreign Arbitral awards also.
OP Malhotra, notes that
Though an arbitral award does not have the status of a court judgment, it will be enforceable under the law of contract in the country where it was made. It is also enforceable in other countries on the principle of comity if it possesses the essential judicial attribute of a judgment – that is finality.
In Order For A Convention Or A Non-Convention Award To Be Enforced The Award Must Attain Finality
In Badat & Co. v. East India Trading Co the question before the Apex Court was whether a foreign award followed by another judgment from that jurisdiction recognizing that award makes it final for the purpose of enforcement. Supreme Court was divided in this respect the minority judgment given by Subba Rao J said that the position was same both in England and India which is that where the award is followed by a judgment in a proceedings which is not merely formal but which permits of objections being taken to the validity of the award by the party against whom judgment is sought, the judgment will be enforceable.
As a justification for enforcing foreign awards, court held that,
“It would be impossible to carry on the business of the world if courts refused to act upon what has been done by other courts of competent jurisdiction.”
The only precondition that the court added while enforcing an award is that of finality. Where an award has no finality till the entire procedure is gone through such an award cannot be enforced.
While comparing between a judgment on an award and an enforcement order he observed that:
On principle I cannot see why a distinction should be made between the two categories of cases. An enforcement order as well as a judgment on an award serves the same purpose: they are two different procedures prescribed for enforcing an award. In the case of an enforcement order a party applies to a court for leave, the award; and on the granting of such leave, the award can be enforced as if it were a decree of a court
But the majority (MC Mudholkar and Raghubar Dayal JJ) differed from Subba Rao J, on the technical ground that the cause of action for the suit that was based in New York must be said to have arisen at that place. Hence, the cause of action, in so far as it rested on the judgment, did not arise within the limits of the High Court and a suit for execution of such a judgment before the High Court was therefore beyond the jurisdiction of the High Court. The majority further said the claim that award itself be enforced must also fail because according to the New York law, an award does not become final until a judgment has been obtained on the basis of the award.
Thus, even in case of Non conventional awards, the Supreme Court has upheld that such Non-conventional award will be enforceable in India under the common law on grounds of justice, equity and good conscience
It is submitted that the dissenting view of Subba Rao J upholding the decision of the High Court, reflects the correct law.
In Brace Transport corporation case the Indian Supreme Court has accepted the principle that enforcement proceedings can be carried out wherever the property of the losing party is situated. The Court quotes a passage from Hunter on Law of International Commercial Arbitration inter alia as follows.
A party seeking to enforce an award in an international commercial arbitration may have a choice of country in which to do so; as it is some times expressed, the party may be able to go forum shopping. This depends upon the location of the assets of the losing party.
Lastly, one may examine the enforcement statistics (including grounds for challenge) in relation to foreign awards. Here one would notice that the courts have distinctly leaned in favour of enforcement and save for a lone case, foreign awards have invariably been upheld and enforced. The statistics (on the basis of reported cases) are as follows:
Viewed in its totality, India does not come across as a jurisdiction which carries an anti-arbitration bias or more significantly which carries an antiforeigner bias. The figures show that notwithstanding the interventionist instincts and expanded judicial review, Indian courts do restrain themselves from interfering with arbitral awards. Judged on this touchstone, India qualities as an arbitration-friendly jurisdiction.
- G.K.Kwatra, Arbitration and Conciliation Law of India, Universal Publication (2008)
- Halsbury’s Laws of India, Vol 2, Arbitration
- H.C. Johari, “Difficulties in enforcement of foreign Awards under Indian law and in India Courts” 1992 ArbLR Vol 35 (JS)8
- Dr. Sanjeev Kumar, “Enforcement of foreign judgments and foreign arbitral awards in India”. Chartered Sectrtary, 2004, Vol 34, Issue 4, p. 472
- Sumeet Kachwaha, Enforcement of Arbitration Awards in India, (2008)4 AIAJ 64
- URL:http://www.kaplegal.com/articles/AIAJ_V4_N1_2008_Book_%28Sumeet_Kachwaha%29.pdf Last visited: 7/4/2010
- Vijay Kumar Dungarwal, Enforcement of Foreign Awards and judgments in India,
- URL:http://www.kaplegal.com/articles/AIAJ_V4_N1_2008_Book_%28Sumeet_Kachwaha%29.pdf Last visited: 7/4/2010
List of Cases
- Mury Exportation v. D Khaitan AIR 1956 Cal 644, Para 7
- Ludwig Wunshe & Co v. Raunaq International Ltd AIR 1983 Del 247
- Venture Global Engineering v. Satyam Computer Services, AIR 2008 SC 1061
- Brace Transport Corporation of Monrovia, Bermuda v. Orient Middle East Lines Ltd
- AIR 1994 SC 1715
- ONGC v Saw Pipes 2003(5)SCC705
- Sagar Power Co Ltd v. General Electric Co 1994 Supp (1) SCC 644
- Western Shipbreaking Corporation v. Clare Haven Ltd (UK) 1998(Supp)Arb LR 53 (Guj)
- However in Toepfer International Asia Pvt Ltd v. Thapar Ispat Ltd 2000(1)Arb Lr 230 (Bom)
- Brace Transport Corporation of Monrovia, Bermuda v. Orient Middle East Lines Ltd, Saudia Arabia AIR 1994 SC 1715
- Fuerest Day Lawson Ltd v. Jindal Exports Ltd (2001)6 SCC 356
- Bhatia International v. Bulk Trading S.A AIR 2002 SC 1432
- Badat & Co. v. East India Trading Co AIR 1964 SC 538