Recent judicial pronouncements on the subject of enforcement of foreign arbitral awards have shed light on the need for a consistent approach from the courts in defining the scope of interference under public policy for denying the enforcement of the same. This article is an attempt to explain and elaborate on the prevailing legal position with reference to the recent Supreme Court and Delhi High Court judgments on this subject. Section 48(2)(b) of Arbitration and Conciliation Act 1996 (hereinafter A&C Act) which is modelled on the lines of Article V of the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958 (hereafter New York Convention) is an enabling provision which takes a pro-enforcement bias towards the foreign awards. However, the recent judgment of Supreme Court in NAFED v. Alimenta SA (2020 SCCOnline SC 381), is a step taken in the opposite direction. Before addressing the inherent fallacies of the judgment, the Supreme Court in Vijay Karia v. Prysmian Cavi, (2020 SCCOnline SC 177), analyzed the elements of public policy defence available for denying enforcement of a foreign award. It noted that while the courts in the country of arbitral situs have the jurisdiction to set aside the arbitral award, the courts of secondary jurisdiction i.e., for the purposes of enforcement, may refuse to do so only on the grounds mentioned in Article V of the New York Convention. Thus, it interpreted the usage of 'may' in Section 48(1) and (2) to connote the discretion with the court to enforce an award which must be exercised, only if the resisting party is able to furnish proof based on the conditions mentioned in the provision.
The parameters prescribed insofar as enforcement of foreign arbitral awards by the Supreme Court were drawn from its judgment in Renusagar v. General Electric Co., (1994 Supp (1) SCC 644) and later on confirmed in Shri Lal Mahal v. Progetto Grano ((2014) 2 SCC 433). Both judgments postulate the conditions prescribed in under Part II of the Act that warrant interference, are very limited i.e., a) fundamental policy of Indian law; or b) the interests of India; or c) justice or morality. It clarified that the interpretation of scope of public policy for setting aside of an award does not apply in its true import and its usage in Section 48 has a narrow connotation. The distinguishing factor being the opportunity afforded to the parties to have a second look at the award at the enforcement stage. Explanation 2 to the provision, codifies the parameters prescribed in Renusagar case to conclude that a contravention with the fundamental policy of Indian law does not allow the court to review the award on merits. In Vijay Karia's case the court recognized and distinguished two distinct scenarios - firstly, where the arbitral tribunal fails to address a core or material issue which goes to the root of the matter and secondly, where an arbitral tribunal addresses the material issue, but its reasoning on merits appears to be flawed or poor. In the event of former, Section 48(2)(b) can be invoked whereas the defence is not permitted in the case of latter. Contrary to the legal position, the Supreme Court in NAFED v. Alimenta SA, consciously ventured into examining the award on merits despite operation of constructive res judicata against the parties opposing the enforcement. A review of the award on merits contravenes the overall object of Section 48 in Part II and the pro enforcement bias under Article V of New York Convention. Since, the primary objective for a party to approach under Part II is securing enforcement, the courts ought to show restraint and not be inclined to interfere, regardless of the reasons rendered by tribunal in the award. The court is limited to act on the narrow set of exceptions prescribed under Section 48 and under no circumstance justified in examining the merits.
Incidentally, the questions framed for determining enforceability of the foreign award were beyond the scope of applicable provision of law i.e., Section 7 of the Foreign Awards (Recognition and Enforcement) Act 1961. Needless to say, the Court ventured into a detailed enquiry on substantive aspects of the award. On merits, the Court arrived at a conclusion that the export obligations of NAFED under its contract with Alimenta could not fulfilled as it was unable to secure the requisite approval from the authorities and this consequently amounted to frustration of contract under Section 56 of Indian Contract Act. The absence of requisite permission and operation of a legal bar from fulfilling its export obligations cannot adversely affect the interests of NAFED. Hence, the Court concluded that such an enforcement of arbitral award would be in violation of public policy of India.
In this instance, the Court drew reference to the public policy test laid down in Renusagar's case and noted that a mere contravention would not be sufficient for refusing enforcement and something more than contravention of law is necessary warranting interference. Nevertheless, the end result turned to be an aberration as it eventually refused enforcement of the arbitral award by impeaching it on merits. By doing so, the Court rendered the award which was passed in 1989 and arbitration proceedings which commenced nearly four decades ago as unenforceable.
Although this judgment may open the doors for an expansive interpretation of awards, the recent judgment of Supreme Court in Centrotrade Limited v. HCL Ltd., reported in (2020 SCCOnline SC 479) and the Delhi High Court judgment in Glencore Industries Limited v. Hindustan Zinc Limited (25 June 2020) helps in restoring a positive sentiment to the foreign award holders by adopting a pro enforcement stance by exhibiting restraint in its approach.
In Centrotrade Limited v. HCL Ltd., the Supreme Court put to rest nearly two decades of litigation between the parties and allowed the foreign award to be enforced. It upheld the two tier arbitration mechanism and the validity of the award rendered by the ICC Arbitral Tribunal/Appellate Body located in London. The Appellate Body overturned the award rendered by the first tier arbitration mechanism located in India. Adding further, the Supreme Court relied on its earlier judgment in Vijay Karia's case to emphasize the restricted parameters under Section 48(1)(b) for interference with the enforcement of a foreign award. Given the object of the provision is to enable enforcement of the foreign award, denying the award holder to realize the benefits of the award would be an antithesis to the legislative intent.
Similarly, the Delhi High Court, in its recent judgment in Glencore Industries Limited v. Hindustan Zinc Limited, examined the issue of territorial jurisdiction for enforcing a foreign arbitral award. The award rendered by the Arbitral Tribunal was challenged before the Rajasthan High Court by the judgment debtor which was pending adjudication. Meanwhile, the decreeholder/Glencore sought to enforce the award in Delhi based on the existence of bank accounts belonging to the judgment debtor in Delhi. The preliminary objection on maintainability taken by the judgment debtor was the absence of any assets within the territorial jurisdiction and lack of cause of action. Notwithstanding the same, the judgment debtor contended the pendency of enforcement proceedings in Rajasthan where its assets are located barred it from instituting another proceeding in Delhi. The Court remarked that such proceedings do not act as a bar for instituting alternate proceeding for realization of dues under the foreign award. The only relevant factor for the court is existence of judgment debtor's assets within the territorial limits of place of enforcement. At the stage of enforcement, the court is concerned only with the subject matter of the award and the presence of assets at the place of enforcement. Parallel enforcement proceedings, if any or proceedings to set aside an award do not prevent the award holder from pursuing enforcement in alternate locations.
The recent developments show signs of restraint from courts in their approach towards interfering with the enforcement of foreign arbitral awards. The narrow exceptions are to be construed with an eye on ensuring the award holder is able to realize the fruits of the award without stretching the timeline and not allowing the judgment debtor to have second bite at the cherry. Thus, a consistent approach by the courts towards foreign arbitral awards is essential for building confidence in the international arbitration regime in India. The Supreme Court's interpretation in NAFED v. Alimenta SA can be seen as nothing more than an exception to its general stance towards proenforcement. We anticipate the courts to exercise inherent discretion cautiously without prejudicing the award holder's rights.
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