India: Enforcement Of Arbitration Awards In India (Part 2)

Last Updated: 24 July 2008
Article by Sumeet Kachwaha
This article is part of a series: Click Enforcement Of Arbitration Awards In India (Part 1) for the previous article.

1. Conditions for enforcement:

a. Foreign award defined:

In order to be considered as a foreign award, (for the purposes of the Act) the same must fulfil two requirements. First it must deal with differences arising out of a legal relationship (whether contractual or not) considered as commercial under the laws in force in India. The expression "commercial relationship" has been very widely interpreted by Indian courts. The Supreme Court in the case of R.M. Investments Trading Co. Pvt. Ltd. v. Boeing Co. & Anr.35 while construing the expression "commercial relationship" held:

"The term "commercial" should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not..."

The second requirement is more significant and that is that the country where the award has been issued must be a country notified by the Indian Government to be a country to which the New York Convention applies. 36Only a few countries have been notified so far and only awards rendered therein are recognised as foreign awards and enforceable as such in India. The countries which have been notified are:

Austria, Belgium, Botswana, Bulgaria, Central African Republic, Chile, Cuba, Czechoslovak Socialist Republic, Denmark, Ecuador, Arab Republic of Egypt, Finland, France, German Democratic Republic, Federal Republic of Germany, Ghana, Greece, Hungary, Italy, Japan, Kuwait, Republic of Korea, Malagasy Republic, Mexico, Morocco, Nigeria, The Netherlands, Norway, Philippines, Poland, Romania, San Marino, Singapore, Spain, Sweden, Switzerland, Syrian, Arab Republic, Thailand, Trinidad and Tobago, Tunisia, Union of Soviet Socialist Republics, United Kingdom, United Republic of Tanzania, and United States of America.

An interesting issue came up before the Supreme Court as to what would happen in a case where a Country has been notified but subsequently it divides or disintegrated into separate political entities. This came up for consideration in the case of Transocean Shipping Agency Pvt. Ltd. v. Black Sea Shipping & Ors.37 Here the venue of arbitration was Ukraine which was then a part of the USSR a Country recognized and notified by the Government of India as one to which the New York Convention would apply. However by the time disputes arose between the parties the USSR had disintegrated and the dispute came to be arbitrated in Ukraine (which was not notified). The question arose whether an award rendered in Ukraine would be enforceable in India notwithstanding the fact it was not a notified country. Both the High Court of Bombay (where the matter came up initially) and the Supreme Court of India in appeal, held that the creation of a new political entity would not make any difference to the enforceability of the award rendered in a territory which was initially a part of a notified territory. On this basis the Court recognized and upheld the award. This decision is of considerable significance as it expands the lists of countries notified by the Government by bringing in a host of new political entities and giving them recognition in their new avtar also. At another level the judgment demonstrates the willingness of Indian courts to overcome technicalities and lean in favour of enforcement.

2. Comparison with domestic enforcement regime:

There are two fundamental differences between enforcement of a foreign award and a domestic award. As noted above, a domestic award does not require any application for enforcement. Once objections (if any) are rejected, the award is by itself capable of execution as a decree. A foreign award however, is required to go through an enforcement procedure. The party seeking enforcement has to make an application for the said purpose. Once the Court is satisfied that the foreign award is enforceable, the award becomes a decree of the Court and executable as such.

The other difference between the domestic and foreign regime is that (unlike for domestic awards) there is no provision to set aside a foreign award. In relation to a foreign award, the Indian Courts may only enforce it on refuse to enforce it - they cannot set it aside. This "lacuna" was sought to be plugged by the Supreme Court in the recent decision of Venture Global Engineering v. Satyam Computer Services38 (discussed further below) where the Court held that it is permissible to set aside a foreign award in India applying the provisions of Section 34 of Part I of the Act.

3. Conditions for enforcement:

The conditions for enforcement of a foreign award are as per the New York Convention. The only addition being an "Explanation" to the ground of public policy which states that an award shall be deemed to be in conflict with the public policy of India if it was induced or affected by fraud or corruption.39

Indian Courts have narrowly construed the ground of public policy in relation to foreign awards (unlike domestic awards where Saw Pipes (supra) 40has construed it widely). In Renusagar Power Co. v. General Electrical Corporation41 the Supreme Court construed the expression "public policy" in relation to foreign awards as follows:

"This would mean that "public policy" in Section 7 (1) (b) (ii) has been used in narrower sense and in order to attract to bar of public policy the enforcement of the award must invoke something more than the violation of the law of India..... Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality."

4. Judicially created new procedure and new ground for challenge to foreign award.

As noticed above, there is no statutory provision to set aside a foreign award under the Act. Foreign awards may be set aside or suspended in the country in which or under the laws of the award was made (Section 48 (1) (e) of the Act, corresponding to Article V (e) of the New York Convention) but there is no provision to set aside a foreign award in India. This fundamental distinction between a foreign and a domestic award has been altered by the Supreme Court in the recent case of Venture Global Engineering v. Satyam Computer Services Ltd.42 (Venture Global). Here the Supreme Court was concerned with a situation where a foreign award rendered in London under the Rules of the LCIA was sought to be enforced by the successful party (an Indian company) in the District Court, Michigan, USA. The dispute arose out of a joint venture agreement between the parties. The respondent alleged that the appellant had committed an "event of default" under the shareholders agreement and as per the said agreement exercised its option to purchase the appellant's shares in the joint venture company at book value. The sole arbitrator appointed by the LCIA passed an award directing the appellant to transfer its shares to the respondent. The respondent sought to enforce this award in the USA.43 The appellant filed a civil suit in an Indian District Court seeking to set aside the award. The District Court, followed by the High Court, in appeal, dismissed the suit holding that there was no such procedure envisaged under Indian law. However, the Supreme Court in appeal, following its earlier decision in the case of Bhatia International v. Bulk Trading 44held that even though there was no provision in Part II of the Act providing for challenge to a foreign award, a petition to set aside the same would lie under Section 34 Part I of the Act (i.e. it applied the domestic award provisions to foreign awards). The Court held that the property in question (shares in an Indian company) are situated in India and necessarily Indian law would need to be followed to execute the award. In such a situation the award must be validated on the touchstone of public policy of India and the Indian public policy cannot be given a go by through the device of the award being enforced on foreign shores. Going further the Court held that a challenge to a foreign award in India would have to meet the expanded scope of public policy as laid down in Saw Pipes (supra) (i.e. meet a challenge on merits contending that the award is "patently illegal").

The Venture Global case is far reaching for it creates a new procedure and a new ground for challenge to a foreign award (not envisaged under the Act). The new procedure is that a person seeking to enforce a foreign award has not only to file an application for enforcement under Section 48 of the Act, it has to meet an application under Section 34 of the Act seeking to set aside the award. The new ground is that not only must the award pass the New York Convention grounds incorporated in Section 48, it must pass the expanded "public policy" ground created under Section 34 of the Act. In practice, the statutorily enacted procedure for enforcement of a foreign award would be rendered superfluous till the application for setting aside the same (under Section 34) is decided. The statutorily envisaged grounds for challenge to the award would also be rendered superfluous as notwithstanding the success of the applicant on the New York Convention grounds, the award would still have to meet the expanded "public policy" ground (and virtually have to meet a challenge to the award on merits). The Venture Global case thus largely renders superfluous the statutorily envisaged mechanism for enforcement of foreign awards and substitutes it with judge made law. The Judgement thus (in my respectful view) is erroneous. Moreover, in so far as the Judgment permits a challenge to a foreign award on the expanded interpretation of public policy is per incuriam as a larger, three Bench decision in the case of Renu Sagar (supra) holds to the contrary. Further Saw Pipes (on which Venture Global relies for this proposition) had clearly confined its expanded interpretation of public policy to domestic awards alone (lest it fall foul of the Renu Sagar case which had interpreted the expression narrowly). The Supreme Court in Venture Global did not notice this self-created limitation in Saw Pipes nor did it notice the narrower interpretation of public policy in Renu Sagar and therefore application of the expanded interpretation of public policy to foreign awards is clearly per incuriam.

Be that as it may, till the decision is clarified or modified, it has clearly muddied the waters and the enforcement mechanism of foreign awards has become clumsy, uncertain and inefficient.

5. Procedural requirements

A party applying for enforcement of a foreign award is required to produce before the Court:

(a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;

(b) the original agreement for arbitration or a duly certified copy thereof; and

(c) such evidence as may be necessary to prove that the award is a foreign award. 45

a. The relevant court:

The Indian Supreme Court has accepted the principle that enforcement proceedings can be brought wherever the property of the losing party may be situated. This was in the case of Brace Transport Corporation of Monrovia v. Orient Middle East Lines Ltd.46 The Court here quoted a passage from Redfern and Hunter on Law & Practice of International Commercial Arbitration (1986 Edn.) 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. Since the purpose of enforcement proceedings is to try to ensure compliance with an award by the legal attachment or seizure of the defaulting party's assets, legal proceedings of some kind are necessary to obtain title to the assets seized or their proceeds of sale. These legal proceedings must be taken in the State or States in which the property or other assets of the losing party are located."

b. Time limit:

The Act does not prescribe any time limit within which a foreign award must be applied to be enforced. However various High Courts have held that the period of limitation would be governed by the residual provision under the Limitation Act i.e. the period would be three years from the date when the right to apply for enforcement accrues. The High Court of Bombay has held that the right to apply would accrue when the award is received by the applicant.47

6. Post enforcement formalities:

The Supreme Court has held that once the court determines that a foreign award is enforceable it can straight away be executed as a decree. In other words, no other application is required to convert the judgment into a decree. This was so held in the case of Fuerst Day Lawson ltd. v. Jindal Exports Ltd.48 where the Court stated:

"Once the Court decides that 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 as a rule of Court / decree again. If the object and purpose can be served in the same proceedings, in our view, there is no need to take two separate proceedings resulting in multiplicity of litigation. It is also clear from objectives contained in para 4 of the Statement of Objects and Reasons, Sections 47 to 49 and Scheme of the Act that every final arbitral awards is to be enforced as if it were a decree of the Court.... In our opinion, for enforcement of foreign award there is no need to take separate proceedings, one for deciding the enforceability of the award to make rule of the Court or decree and the other to take up execution thereafter. In one proceeding, as already stated above, the Court enforcing a foreign award can deal with the entire matter."

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.

G: Enforcement Statistics:

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:

High Court and Supreme Court (1996 to September 2007)

(Foreign Awards)

S.No.

Grounds

Total No. of Challenges

Allowed

Rejected

Modified

1.

Jurisdiction

5

29.41%

-

5

2.

Public Policy

3

17.64%

2

1

3

Technical Grounds

(Petition to be made under section 48 not under section 34)

3

17.64%

-

3

4.

Requirement of separate execution proceedings

2

-

2

5.

No grounds or reasons in award

1

-

1

6.

Petition filed for winding up on the basis of foreign award

1

-

1

7.

No Arbitration Agreement

1

1

-

8.

1996 Act does not apply

1

-

1



The Institution wise break up of challenges is as follows:

S.No.

Institutions

Total No. of Challenges

Allowed

Rejected

Modified

1.

Adhoc

10

-

10

2.

ICC

2

-

1

1

3.

LCIA

2

-

2

4.

IGPA (International General Produce Association)

1

-

1

5.

ICA

1

-

1

6

Korean Commercial Arbitration Board

1

1

-

-

Total

17

1

5.88%

15

88.23%

1

5.88%



H: Conclusion:

Viewed in its totality, India does not come across as a jurisdiction which carries an anti - arbitration bias or more significantly which carries an anti - foreigner bias. The figures show that notwithstanding the interventionist instincts and expanded judicial review, Indian courts do restrain themselves in interfering with arbitral awards.

Judged on this touchstone, India qualifies as an arbitration friendly jurisdiction.

Footnotes:

1 The Arbitration Act, 1940 (10 of 1940) (1940 Act)

2 The Arbitration (Protocol & Convention) Act, 1937 (6 of 1937) (1937 Act)

3 Geneva Convention on the Execution of Foreign Arbitral Awards 1927. India became a signatory to this on 23rd October 1937 (one amongst six Asian nations to become a signatory).

4 Foreign Awards (Recognition &Enforcement) Act, 1961 (45 of 1961)

5 International Convention on Recognition & Enforcement of Foreign Awards done at New York on 10th June 1958. India became a signatory on 13th July, 1960.

6 Section 30 (a) of the 1940 Act.

7 (1994) 6 SCC 485

8 (2003) 7 SCC 396

9 The Arbitration & Conciliation Act, 1996 (26 of 1996)

10 Section 85 of the Act.

11 United Nations Commission on International Trade Law Model Law on International Commercial Arbitration, General Assembly Resolution 40/72, adopted on 21st June 1985 (Model Law).

12 Arbitration Rules of the United Nations Commission on International Trade Law 1976: General Assembly Resolution 31/98, adopted on 15th December 1976 (UNCITRAL Rules).

13 Section 13 (2)

14 Section 13 (4)

15 Article 13 (3) of the Model Law.

16 Section 16 (5) of the Act.

17 (2003) 5 SCC 705 (Saw Pipes)

18 (1994) Suppl (1) SCC 644

19 However see Supra, E' - A recent decision of the Supreme Court in the case of Venture Global Engineering v. Satyam Computer Services has held that the wider interpretation of "public policy" would apply to foreign awards as well.

20 See for instance, Chapter titled Judicial Supervision and Intervention by Mr. Fali S. Nariman; Asia Leading Arbitrators' Guide to International Arbitration, JurisNet 2007 at page 353.

21 (2006) 11 SCC 181 at 208

22 at 211

23 2004 (3) Arb LR 568

24 at 573 and 574

25 Daelim Industrial Co. v. Numaligarh Refinery Ltd (Arbitration Appeal No. 1 of 2002 dated 24th Aug 2006

26 Statement of Objects and Reasons to the Act para 4 (vii)

27 Section 36 of the Act

28 Section 2 (1) (e) of the Act

29 Section 34 (3)

30 (2005) 4 SCC 239

31 Section 17 and 49 of the Arbitration Act.

32 2003 (8) SCC 565

33 Venture Global Engineering v. Satyam Computer Services dated 10th January 2008, in C.A. No. 309 of 2008.

34 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 (Washington convention)

35 (1994) 4 SCC 541

36 Section 44 (b) of the Act.

37 (1998) 2 SCC 281

38 Judgment dated 10th January 2008, in C.A. No. 309 of 2008

39 Section 48 (2) of the Act

40 Supra

41 (1994) Suppl (1) SCC 644

42 decision dated 10th January 2008 in Civil Appeal No. 209 of 2008 (Venture Global)

43 A somewhat strange move considering that the shares were in an Indian company and various Indian regulatory steps and authorities would be involved for transfer of shares. The Respondents move was perhaps influenced by the fact that the governing law under the Agreement was the law of the State of Michigan and the appellant was situated in the USA. The Respondent thus attempted to bypass the natural forum (India) hoping to enforce the award through the contempt of court mechanism of the U.S. Courts. This did not go well with the Indian Supreme Court.

44 2002 4 SCC 105

45 Section 47 (1) of the Act

46 (1995) Supp (2) SCC 280

47 2007 (1) RAJ 339 (Bom) and AIR 1986 Gujarat 62

48 (2001) 6 SCC 356

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