Emerging Judicial Trends in the Enforceability of International Arbitral Awards in India

27 Feb 2018

With the advent of globalization, the commercial world has seen an exponential increase in cross border trade and commerce. However, at the same time this increase in the trade and commerce has been accompanied with the increase in the number of commercial disputes as well. Owing to the different jurisdictions and the various complexities arising therein, it comes as no surprise to see that the business world has always been reluctant to litigate in the courts for adjudicating their complex transactional disputes. It is due to this complexity, International arbitration has become the preferred remedy for adjudicating the disputes. Other factors that influence the success and the preference of arbitration over other methods of dispute adjudication are party autonomy and the Arbitral Tribunal’s inherent power to determine the questions raised on jurisdiction.

Excessive intervention by the national courts, generally defeats the aim of the arbitration procedure which is to provide speedy adjudication of the commercial disputes.

In India, the first law on Arbitration was enacted in 1940, however the Act suffered from many maladies such as a lot of court intervention in the arbitral proceedings apart from the fact that the erstwhile arbitration act of 1940 did not directly deal with the enforcement of foreign arbitral awards. As a consequence of the aforesaid, and with the view to bring the Indian arbitration regime in line with the international best practices and standards, and to consolidate the law pertaining to domestic arbitration, international arbitration and the enforcement of a foreign arbitral award, the Arbitration and Conciliation Act, 1996 (hereinafter to be referred as, “Arbitration Act” ) was enacted which was based on the 1985 United Nations International Commission on International Trade Law model law and rules. The underlying principle behind the enactment of the Arbitration Act was to, “minimize the supervisory role of the courts in the arbitral process".

Enforceability of Foreign Arbitral Award under the Indian Regime

For a foreign arbitral award to be enforceable in the territory of India, it is required that the parties have received their binding awards from countries which are signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (hereinafter referred to as the “New York Convention” ) or the Execution of Foreign Arbitral Awards, 1927 ( hereinafter referred to as the “Geneva Convention”) and the award is made in a country that has been notified as a convention country by India. India is a signatory to both the New York and Geneva Conventions. Under the Arbitration Act, the procedure for the enforcement of foreign arbitral awards to which both the New York and Geneva Convention applies is provided under Part II of the Act.

Part II of the Act pertains to the enforcement of ‘certain’ foreign awards, it has been divided in two chapters. Chapter 1 deals with New York Convention awards. Foreign award is defined under Section 44 of the Arbitration Act as, “foreign award means an arbitral award on the differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India”. Section 46 of the Arbitration Act provides the conditions as to when a foreign arbitral award shall be held to be binding upon the parties. Section 48 of the Arbitration Act is very important as it states as to the conditions for enforcement of foreign awards, it is a negatively worded section wherein it gives out the conditions as to when the enforcement of a foreign award may be refused at the request of the party against whom it is invoked, only if that party furnishes to the court proof about the existence of any one or more grounds mentioned in clauses (a) to (e) of sub-section (1), further such enforcement can also be refused if the court finds any of the grounds mentioned in clauses (a) and (b) of subsection (2) of section 48 of the Act. As per section 49, if the court is satisfied that a foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that court and the court has to proceed further to execute the foreign award.

The recent amendment made to the Arbitration Act in 2015 has also guided the courts to follow the minimum intervention doctrine very seriously and the as the next section of the paper clearly enunciates that the courts consistently have undertaken in various cases to not interfere with the arbitration process unnecessarily.

Recent Judicial Trends

This section of the paper looks at how the Indian judiciary has looked at the enforcement of the foreign arbitral award in recent cases. World over in order to usher in a pro arbitration regime, the focus of the national courts across jurisdictions has been to uphold party autonomy and limiting the role of the courts in the arbitral process. The situation is same in India wherein the courts have constantly been upholding the doctrines of minimum interference and party autonomy in all stages of the arbitration. In India, the party can approach the court in all three stages of the arbitration. Indian courts have always made the parties arbitrate their disputes if the same had been envisaged in their agreement, rather than litigate the disputes in the national courts. The aforementioned assertion is made in the view of the fact that courts in the country have constantly refused anti arbitration injunctions and have also refused to interfere with the enforcement of the foreign arbitral awards as well.

In the case of, “Shri Lal Mahal Ltd. v. Progetto Grano Spa”, the Hon’ble Supreme Court passed a landmark ruling on its own decision and significantly curtailed the scope of the expression, “public policy” as present under Section 48(2) (b) of the Arbitration Act and thereby limited the scope of the challenge to enforcement of the foreign arbitral awards in the country. It is important to note that previously the national courts were giving a very wide import to the word “public policy” to interfere with the foreign arbitral awards. The court had observed that Section 48 of the Arbitration Act does not in any way offer an opportunity to have a second look at the foreign award at the enforcement stage. The court affirmed that section 48 does not permit review of the award on merits and that the procedural defects in course of foreign arbitration do not necessarily imply that foreign award would be unenforceable.

Further in the case of, “Cruz City 1 Mauritius Holdings v. Unitech Limited” the Delhi High Court refused to intervene in the award wherein one of the challenge to enforcement of foreign arbitral award was that the same is in violation of the foreign exchange laws of India, and it held that “122. Even if it is accepted that the Keepwell Agreement was designed to induce Cruz City to make investments by offering assured returns, Unitech cannot escape its liability to Cruz City. Cruz City had invested in Kerrush on the assurances held out by Unitech and notwithstanding that Unitech may be liable to be proceeded against for violation of provisions of FEMA, the enforcement of the Award cannot be declined.” “123....
And thirdly, if Cruz City has been induced to make an investment on a false assurance of the Keepwell Agreement being legal and valid, Unitech must bear the consequences of violating the provisions of Law, but cannot be permitted to escape their liability under the Award”

In another recent case of “Zee Sports Ltd. v. Nimbus Media Pvt. Ltd”. the Bombay High Court refused to interfere with the arbitral award on merits and relied on the judgement in “McDermott International Inc. v. Burn Standard Co. Ltd”, where in the Supreme Court had observed that as under: “52 The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.”.

The Hon’ble Kerala High Court in the case of, “Emmanuel Cashew Industries v. CHI Commodities Handlers Inc”, while dealing with challenge to an arbitral award, observed that the mere filing of objections to the foreign award under Section 48 was not enough and the objector has to furnish “proof” of circumstances to satisfy any of the conditions mentioned in Section 48 of the Arbitration Act to refuse enforcement of the foreign award.

The Delhi High Court in the very recent judgment passed on 31 January 2018, in the case of Daiichi Sankyo vs. Malvinder Mohan Singh has refused to intervene in the foreign arbitral award passed in the favour of Daiichi Sankyo and it observed that under Section 48(2)(b) of the Act, the enforcement could be refused only if the award was contrary to the (i) fundamental policy of India (ii) interest of India and (iii) justice or morality. Further, the Delhi High Court affirmed that an award could not be said to be against the fundamental policy of Indian law in case there was violation of provisions of a statute but only if there was a breach of a substantial principle on which is Indian law is based upon.

Lastly in a very recent judgment, passed in the case of, “Kandla Export vs. Oci Export Corporation” the Hon’ble Supreme Court had the opportunity to interpret the scope of Section 13 of the Commercial Courts Act and Section 50 of the Arbitration Act in light of the challenge to the execution of the foreign award under Section 13 of the Commercial Courts Act. The Hon’ble Supreme Court took a very pro-arbitration stand and refused to intervene by holding that appeals in respect of the arbitration proceedings are exclusively governed by the Arbitration Act and thereby the appeal provision of the Commercial Courts Act cannot be used be to circumvent the provisions of the Arbitration Act if no appeal is provided under the provisions of the Arbitration Act. In Line with the Fuerst Lawson Ltd. vs Jindal Exports judgment, it was observed that the Arbitration Act was a self-contained code and thereby the amended Section 37 would hold precedence over the general provision contained in Section 13(1) of the Commercial Courts Act. The Hon’ble Supreme Court emphasized that interpretation given in the case was in consonance with the objective of the Arbitration Act, which is to ensure the speedy resolution of the disputes.

These judgments affirm the fact that the Indian courts have taken a very strict adherence to the principle of non-interference with foreign arbitral awards and have taken proactive steps to ensure their speedy execution, and thereby bolstering India’s credentials as an arbitration friendly regime which is generally characterized by minimal intervention by the national courts and the speedy resolution of the arbitration

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