Recognition and Enforcement of Foreign Arbitral Award

This blog is inscribed by Sarthak Kaushal.

Introduction

Enforcement of foreign awards has been subject to changes in the judicial ruling paradigm.[1] The evolution of recognition and enforcement of a foreign arbitral award in India have always been subject to judicial rulings on the doctrine of public policy. Considering the lacunas in the Indian Arbitral System, it is evident that India is a less feasible place for Arbitration and thus, several firms choose London, Paris, or Singapore as the place of arbitration instead of resolving disputes in India.

Before the enactment of the Arbitration and Conciliation Act, 1996 Act (hereinafter referred to as the Act), three enactments were governing the Arbitration Law, namely the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The sole reason to enact the Act was to improvise the law relating to Arbitration in India.

There are two avenues available for the enforcement of foreign awards in India under the Act, viz., the New York Convention and the Geneva Convention.[2]

Enforcement under the New York Convention

The terms “recognition” and “enforcement” are not duly defined under the Convention and case law interpreting these terms are also scarce[3]. According to one of the few reported cases, “recognition” concerns recognizing the legal force and effect of an award, while “enforcement” concerns the forced execution of an award previously recognized by the same State.[4]

The term “arbitral awards” is also not adequately defined under the Convention, however, during the negotiation of Article I, an Austrian delegate noted that “it will depend on the law of the State in which an award is to be enforced whether a particular decision is to be regarded as an arbitral award”.[5]

Foreign awards passed under the New York Convention are dealt with under Sections 44 to 52 of the Act.

Under the New York Convention awards, Chapter-I Part-II of the Act, “foreign award” 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- 

  1. In pursuance of an agreement in writing for arbitration to which the Convention outlined in the First Schedule applies, and
  2. In one of such territories as the Central Government notified to be territory under the Convention.[6]

Thus, we can say that the rudiments for enforcement of foreign awards under the New York Convention are that, firstly the country must be a signatory to the Convention and; that the award shall be made in the territory of another contracting state which is a reciprocating territory and notified as such by the Central Government.

At the time of application, the applicant applying for enforcement of a foreign award shall produce the following documents in the court;

  1. the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;
  2. the original agreement for arbitration or a duly certified copy thereof; and
  3. such evidence as may be necessary to prove that the award is foreign.[7]

Any arbitral award can be set aside following the provisions of the Act. An award can be set aside if the applicant is under some incompetency; if the arbitration agreement lacks legal validity; if proper notice has not been served by the applicant regarding the appointment of Arbitrator or Arbitration proceeding; decisions on matters beyond the scope of the submission to arbitration; composition or procedure of arbitration proceeding was not following the agreement; a critical subject matter which cannot be solved by arbitration; lastly, when the arbitral award conflicts with the public policy of India.[8]  

Enforcement under the Geneva Convention

Foreign awards passed under the Geneva Convention are dealt with under Sections 53 to 60 of the Act.

Under the Geneva Convention awards, Chapter-II Part-II of the Act, “foreign award” means an arbitral award on differences relating to matters considered as commercial under the law in force in India made after the 28th day of July 1924,-

  1. in pursuance of an agreement for arbitration to which the Protocol outlined in the Second Schedule applies, and
  2. between persons of whom one is subject to the jurisdiction of someone of such Powers as the Central Government may notify, and
  3. in one of such territories as the Central Government may declare to be a territory under the Convention by Notification, an award may not be deemed final if it is pending in any other country.[9]

Article 4 of the Convention is duly adopted in the Act by clearly specifying in the provisions that at the time of application, the applicant applying for enforcement of a foreign award shall produce the following documents in the court;

  1. the original award or a copy thereof duly authenticated in the manner required by the law of the country in which it was made;            
  2. evidence proving that the award has become final; and
  3. such evidence as may be necessary to prove that the conditions mentioned in clauses (a) and (c) of sub-section (1) of section 57 are satisfied.[10]

The conditions for enforcement of foreign awards under Chapter II, Part II of the Act are as follows:

  1. Valid Arbitration Agreement.
  2. The capability of the subject matter to be settled by Arbitration under the law of India.
  3. Constitution or the procedure of Arbitration aligns with the manner agreed upon by both the parties.
  4. The award has become final in the Country in which it has been made.
  5. Enforcement of awards is not contrary to Public Policy.[11]

The Awards, however, can be annulled under Section 34of the Act as stated above.

Public Policy

The lacuna in the definition of the phrase “public policy” made it asubject to judicial interpretation. The suggestions by the Law Commission of India were made in the year 2001 and meanwhile, the Supreme Court of India had also criticized the working of the 1996 Act in Bhatia International Ltd[12]. However, the suggestions were not acted upon because of the withdrawal of the Bill.  

In Re: Saw Pipes[13]: Supreme Court interpreted the phrase “public policy of India” as:

(a) the fundamental policy of Indian law; or

(b) the interests of India; or

(c) justice or morality, or

(d) Patently Legal.[14]

In McDermott International Inc. v. Burn Standard Coal Company[15] and Centrotrade Minerals & Metals Inc. v. Hindustan Copper Limited[16], Supreme Court has acknowledged the criticism against the interpretation provided in the Saw Pipes Case. However, they chose to abide by the said decision as the same was binding upon them.[17]

After considering the interpretation provided to the phrase “public policy” by the Supreme Court of India, the Law Commission of India in its 246th report proposed to amend Section 34 of the Act to restrain its interpretation by providing a stringent explanation to the said phrase.[18] And the same was done by the Amendment Act of 2015 which restricted the scope of public policy to set aside any award as:

  1. Fraud or corruption or in violation of Section 75 or Section 81; or
  2. In contravention with the fundamental policy of Indian law
  3. In conflict with the most basic notions of morality or justice.[19]

Conclusion

At this point, it shall be acknowledged that the procedure for enforcement of foreign arbitral awards exists in India, though it shall be criticized for not being a smooth and efficient one. Major criticism behind the process is that an award cannot be enforced speedily and quickly as it is stipulated by the Act that an award shall be enforced only when the time available by the court for striking down the award has been passed. This is an extremely inconvenient situation for the parties and eventually leads to inordinate delays in the enforcement of the arbitral award. Another issue is the involvement of courts in the process which is considered to be an alternative to the traditional judicial system; this issue is also a bone of contention for concerned parties.

In India, procuring an award or a final judgment from the courts is only half the way covered in the path of justice, the design of the new Act is based on the premise that it will provide an efficient and swift method of dispute resolution for investors, still, we can see there are several lacunas in the currently established statute which concludes for a reason that why India is not a preferable place for arbitration and why companies or corporate bodies prefer countries like Singapore for conducting a feasible dispute resolution. However, to change the existing scenario, a major need is to establish dedicated authority for enforcement of the Foreign Arbitral Award to make India a more feasible place for Dispute Resolution.


[1] Uttam Hathi, Enforcement of Foreign Awards in India – Application of Public Policy, SSRN – https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2317733

[2] Yaman Kumar, Enforcement of Foreign Awards in India, Singhania & Partners LLP – https://singhania.in/wp-content/uploads/2017/08/Enforcement-of-Foreign-Awards-in-India.pdf

[3] Explanatory Note, Secretariat on the Convention on the Recognition and Enforcement of Foreign Arbitral Award, UNICTRAL, at 9  (2016) – https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/2016_guide_on_the_convention.pdf

[4] Drummond Ltd. v. Ferrovias en Liquidación, Ferrocariles Nacionales de Colombia S.A. (FENOCO), 11001-0203-000-2008-01760-00 (Supreme Court of Justice, Colombia: 2011); Pavan s.r.l. v. Leng d’Or, S.A., 584/06, XXXV Y.B. Com. Arb. 444 (Court of First Instance, Spain: 2010)

[5] Explanatory Note, supra note 3, at 11.

[6] The Arbitration and Conciliation Act, § 44 of the Act (1996)

[7] The Arbitration and Conciliation Act, § 47 of the Act (1996)

[8] The Arbitration and Conciliation Act, § 34 of the Act (1996)

[9] The Arbitration and Conciliation Act, § 53 (1996)

[10] The Arbitration and Conciliation Act, § 56 (1996)

[11] The Arbitration and Conciliation Act, § 57 (1996)

[12]  Bhatia International v. Bulk Trading S.A. & Another, 4 SCC 105 (Supreme Court of India: 2002)

[13] Oil and Natural Gas Corporation Limited v. Saw Pipes Limited; 5 SCC 705 ( Supreme Court of India: 2003)

[14] Id. at para. 31

[15] McDermott International Inc. v. Burn Standard Coal Company, 11 SCC 181, (Supreme Court of India: 2006)

[16] Centrotrade Minerals & Metals Inc. v. Hindustan Copper Limited, 11 SCC 245 (Supreme Court of India: 2006)

[17] Anup Koushik Karavadi, Arbitration Ordinance, 2015 – ‘Public Policy’ defined, Lakshmikumaran & Sridharan Attorneys,- https://www.lakshmisri.com/insights/articles/arbitration-ordinance-2015-public-policy-defined/

[18] Law Commission, Amendments to the Arbitration and Conciliation Act, 1996 (Law Com No. 246: 2014)

[19] The Arbitration and Conciliation Act, § 34 (1996)

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