With international trade and commerce growing rapidly across continents and borders, international commercial arbitration flows naturally. This is the need of the hour as lengthy litigation would inevitably prove as a barrier in maintaining business efficiency.
The Arbitration and Conciliation Act, 1996 is the law that governs arbitrations in India. It is based on the United Nations Commission on International Trade Law (UNICATRAL) model law on International Commercial Arbitration. India is also a signatory to the New York Convention (1960) and the Geneva Convention (1924). The Arbitration and Conciliation Act can be a tricky legislation as practical judicial interpretation is of great significance in its applicability.
There have been many cases in the recent past where foreign clients have found it difficult to enforce awards which they have judicially won outside India. This makes it essential for foreign clients and investors to understand the intricacies involved in this process. An understanding of recent developments and interpretation given to the Arbitration and Conciliation Act proves that judicial decisions play a far greater role than the actual text of the Act.
Legal Position in India
Part I of the Act applies to Domestic awards whereas Part II of the Act deals with the Enforcement of foreign awards. However, the Hon'ble Supreme Court of India in "Bhatia International v Bulk Trading SA1", interpreted the scope of Part I of the Act to apply to arbitrations held outside India and in turn applied Sec. 9 (interim relief) in support of arbitrations seated outside India. The court held that where such arbitration is held in India the provisions of Part I would compulsorily apply. In cases of international commercial arbitrations held outside India, the provisions of Part I would apply unless the Parties by agreement, express or implied, excluded all or any of its provisions. In that case, the laws or rules chosen by the Parties would prevail. Any provision of Part I specifically excluded will not apply. It is noteworthy that this judgment was delivered to fill the lacunae that existed in the Act. Parties aggrieved in foreign arbitrations can now apply for interim relief in India.
After Bhatia International's case, the Supreme Court went a step further in Venture Global Engineering vs. Satyam Computer Services,2and held :
"The provisions of Part I of the Act would apply to all arbitrations including international commercial arbitrations and where such arbitrations are held in India, the provisions of Part I would be compulsorily applied to the extent permitted by the provisions of Part I. It is also clear that even in the case of international commercial arbitration held out of India provisions of Part I would apply unless the Parties by Agreement, express or implied, exclude all or any of its provisions. We are also of the view that such an interpretation does not lead to any conflict between any of the provisions of the Act and there is no lacuna as such."
Another interesting provision is section 34 of the Act which contains the grounds for setting aside the award. It states that the grounds contained therein are the "only" grounds on which an award may be set aside. However, in the case of ONGC vs. Saw Pipes3, the Supreme Court held that an award shown to be suffering from 'patent error of law' could also be challenged under the head "award being in conflict with public policy of India" thereby expanding the grounds for setting aside of a foreign award.
In the case of Phulchand Exports Ltd. vs. OOO Patriot4, the Supreme Court has affirmed this decision and further held that there is no distinction between the interpretation of the term 'public policy' under S.34 or 48. Therefore, the rule set out in ONGC vs. Saw Pipes continues to be applicable to the Enforcement of Foreign Awards in India.
The court stated in Phulchand Exports Ltd :
"In a case where judgment and decree is challenged before the appellate court or the court exercising revisional jurisdiction, the jurisdiction of such court would be wider. Therefore, in a case where validity of an award is challenged there is no necessity of giving a narrower meaning to the term public policy of India."
Execution of the award
Amid much controversy, it is noteworthy that the Chief Justice of India has referred Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc5. to a fivemember constitutional bench to enable the court to reconsider the ruling in Bhatia and overrule it, if necessary. The case has been before the Supreme Court since 10th January, 2012.
At the moment, a person who intends to enforce a foreign arbitral award must apply to the court and produce the original award or certified/authenticated copy of the same, agreement for arbitration and evidence as may be necessary to prove the award is a foreign award. The only requirement of the court at that stage is to see if the award is enforceable under Section 49 of the Act and the award shall be deemed to be a decree of that court and that court shall proceed further to execute the foreign award as a decree of that court.
One interesting feature of enforcement of a foreign award is that there is no statutory appeal provided against any decision of the court rejecting objections to the award. An appeal shall lie only if the court holds the award to be non-enforceable. Hence, a decision upholding the award cannot be appealed against. However a discretionary appeal would lie to the Supreme Court of India under Article 136 of the Constitution of India. Such appeals are entertained only if the Court feels that they raise a question of fundamental importance or public interest. This is a positive approach adopted as it allows fewer opportunities to a judgment debtor to delay the enforcement of an award, much to the relief of many foreign clients.
The law governing arbitration proceedings in India is a controversial legislation and the Supreme Court will review the Bharat Aluminium Co. case this year which promises to settle all confusions. This is an encouraging signal as the Arbitration and Conciliation Act has received wide criticism in the past. A positive and reliable interpretation from the apex court is eagerly awaited by all.
1 AIR 2002 SC 1432
2 AIR 2008 SC 1061
3 AIR 2003 SC 2629
4 2012(2) ALD 133 (SC)
5 AIR 2005 Chh 21
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.