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The enforcement of arbitral awards in India has frequently intersected with regulatory regimes beyond the Arbitration and Conciliation Act, 1996 ("Act") more persistently than foreign exchange control under the Foreign Exchange Management Act, 1999 ("FEMA"). One recurring issue has been whether satisfaction of an arbitral award involving payment to a non-resident requires prior approval from the Reserve Bank of India ("RBI") particularly where such payment could be characterised as a capital account transaction. In a recent decision, the Supreme Court has clarified that RBI approval under FEMA is not a prerequisite for satisfying arbitral awards marking an important development in India's arbitration and enforcement landscape. The ruling resolves a line of conflicting High Court decisions and removes a significant practical impediment to award enforcement, particularly in cross-border disputes.
Regulatory Context
FEMA governs foreign exchange transactions in India and distinguishes between current account transactions and capital account transactions. While current account transactions are generally permitted unless specifically restricted, capital account transactions are regulated and often require compliance with RBI regulations or approvals. Payments pursuant to arbitral awards particularly those involving non-resident award creditors have historically triggered debate over whether they constitute capital account transactions requiring prior RBI approval. This uncertainty has been aggravated by the absence of express statutory provisions in FEMA dealing specifically with arbitral awards. In practice, this ambiguity allowed judgment debtors to resist or delay enforcement by invoking foreign exchange regulations, even where the arbitral award had otherwise attained finality under the Act.
Early Judicial Approaches and the Emergence of Conflicting Views
Indian court initially adopted divergent approaches to this issue. In Cruz City 1 Mauritius Holdings v. Unitech Ltd.1, the Delhi High Court observed that while enforcement of a foreign award could proceed remittance of funds might require compliance with FEMA and RBI permissions. This reasoning was often relied upon by award debtors to resist immediate satisfaction of awards. By contrast, in NTT Docomo Inc. v. Tata Sons Ltd.2, the Delhi High Court distinguished between voluntary capital transactions and court-mandated payments. The Court held that damages awarded under an arbitral award did not amount to a prohibited capital account transaction and that RBI approval was not required to satisfy such an award. This decision introduced an important conceptual distinction that later jurisprudence would build upon.
Supreme Court's Pro-Enforcement Turn
The Supreme Court's pro-enforcement approach to foreign arbitral awards had already begun crystallising prior to the present clarification. In Renusagar Power Co. Ltd. v. General Electric Co.3, the Court laid down a narrow conception of public policy confining it to fundamental policy of Indian law, interests of India and justice or morality. This restrictive approach was reaffirmed and strengthened in Vijay Karia v. Prysmian Cavi E Sistemi SRL4 where the Supreme Court held that alleged violations of FEMA do not per se constitute a ground to refuse enforcement of a foreign award under Section 48. The Court observed that FEMA is a regulatory statute that permits post-facto regularisation and that allowing FEMA objections to defeat enforcement would undermine India's obligations under the New York Convention.
Building on this jurisprudence, the Supreme Court has now expressly clarified that prior RBI approval is not required to satisfy arbitral awards whether domestic or foreign. The Court emphasised that enforcement of an arbitral award is a judicial act flowing from adjudication not a consensual or commercial transaction requiring regulatory pre-clearance. The Court rejected the argument that FEMA could be used to interdict enforcement at the execution stage holding that such an approach would allow regulatory law to override the finality accorded to arbitral awards under the Act. This reasoning aligns squarely with the principles articulated in Vijay Karia where the Court cautioned against expanding regulatory non-compliance into a public policy defence.
A significant doctrinal contribution of the judgment lies in its clear separation of the underlying transaction from the obligation to satisfy an arbitral award. While the original transaction may have involved foreign exchange considerations, the Court held that once an arbitral tribunal has adjudicated the dispute and the award has survived challenge, the payment obligation is autonomous. This approach prevents FEMA from being used as a surrogate appellate mechanism against arbitral awards, a concern expressly flagged by the Supreme Court in Vijay Karia where it deprecated creative resistance to enforcement. The Supreme Court reiterated that regulatory infractions do not automatically implicate Indian public policy. This position is consistent with Shri Lal Mahal Ltd. v. Progetto Grano Spa5, where the Court held that enforcement courts cannot review the merits of an award or expand public policy beyond its narrow contours. Allowing FEMA compliance to become a condition precedent to enforcement would effectively reintroduce merits review at the execution stage, an outcome the Court has consistently resisted.
Conclusion
The immediate effect of the ruling is to eliminate a frequently invoked delay tactic. Award creditors are no longer required to await regulatory approvals before executing awards while award debtors cannot invoke FEMA as a shield against enforcement. From a systemic perspective, the decision reinforces India's image as an arbitration-friendly jurisdiction and aligns enforcement practice with international norms where regulatory compliance issues are addressed separately from award execution.
By holding that RBI approval under FEMA is not required to satisfy arbitral awards, the Supreme Court has decisively settled a contentious issue at the intersection of arbitration and foreign exchange regulation. The decision draws on a consistent line of pro-enforcement jurisprudence and ensures that regulatory statutes do not erode the finality of arbitral awards. For parties involved in cross-border arbitrations with an Indian nexus, the position is now clear: once an arbitral award is enforceable, regulatory approvals cannot stand in the way of its satisfaction.
Footnotes
1. 2017 SCC OnLine Del 7810
2. 2017 SCC OnLine Del 8078
3. 1994 Supp (1) SCC 644
4. (2020) 11 SCC 1
5. (2014) 2 SCC 433
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