International Trade and commerce has always held an important place in the economy of any country, hence exchange of contract between inter-state parties is the norm. It becomes tricky to hold other parties liable for not fulfilling their obligations when it comes to litigation in a foreign court. Therefore the existence of arbitration agreement in contracts is a new trend. However even today, the arbitration law is mostly national. There are existence of international laws of arbitration but those are not largely binding. In order to implement such laws throughout the world community, the New York convention came into existence in June 1959.
India is a signatory to the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (“Geneva Convention”) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”). If the courts in India receive an arbitral award from a country which has ratified the Geneva Convention or the New York Convention and the award is made in a territory which has been notified by India as a convention country, the arbitral award will be enforceable in India. Only 48 countries are notified by the central government as reciprocating countries out of 196 countries in the world, with Mauritius being the latest addition.
The enforcement of a foreign arbitral award in India is founded on the fundamental principle of minimal judicial intervention in order to further India’s pro-arbitration and consequently pro-foreign investment climate.
Principle of minimal intervention by court
Since the Act aimed at attracting parties to arbitration instead of the traditional route of litigation, it made sure to incorporate provisions limiting judicial interference which would be a time-consuming process that would inhibit the speedy resolution that Alternate Dispute Resolution offer section
Section 34 of the Arbitration and Conciliation Act, 1996 specifies that judicial intervention by a court is prohibited except under certain special circumstances where an arbitral award can be set aside by a court and these circumstances are enumerated below:
- Either party to arbitration is under some incapacity
- The arbitration agreement in not valid under the Law
- Party making the application for arbitration was given improper notice of appointment of arbitrator
- The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration
- The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties
- The Court finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force or Award is in conflict with the Public Policy of India
Section 8 of the Arbitration and Conciliation Act, 1996 eliminates the scope of judicial intervention in matters regarding disputes on the interpretation of the arbitration agreement. Section 8 states that if parties to a dispute face a conflict regarding the arbitration agreement itself and approach the court for interpretation, the court must refer the parties to arbitration immediately and have them sort the dispute out through the arbitration proceeding. Hence, the Act itself provides for minimal court intervention which allows parties that have an arbitration agreement or an arbitration clause in their contract to settle their disputes, especially commercial disputes, through arbitration.
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.
Another recent decision by the Supreme Court, in Government of India v Vedanta Ltd (Formerly Cairn India Ltd) and Others, highlights the Indian judiciary’s continued stance in exercising minimal interference so far as enforcement of foreign awards is concerned. The Court has, in the instant matter, made a very notable observation that the enforcement court cannot set aside a foreign award, even if the conditions under section 48 of the Act are made out. The power to set aside a foreign award vests only with the court at the seat of arbitration since primary jurisdiction is exercised by the curial courts at the seat of arbitration.
Provision of the act
In India enforcement of foreign awards is a two stage process which is initiated by filing a petition for execution, where the national court would determine whether the international award is fulfilling the requirements of The Indian Arbitration and Conciliation Act 1996. Once the award is found enforceable, it is executed through a decree.
Section 36 of the Act says that an Arbitral Award is equal to a Decree of the Civil Court and contemplates it to be executed straightaway and realize the amount. Detailed provisions and the manner by which an application for execution of a Decree will be entertained, decided and dealt with is provided in Order XXI of the Code of Civil Procedure, 1908.
The Foreign Awards (Recognition & Enforcement) Act was followed by the Arbitration and Conciliation Act, Section 48 of which provides for the enforcement of foreign arbitral awards. Section 48 of The Arbitration and Conciliation Act 1996, which corresponds with Section 7(1) of the Foreign Awards (Recognition & Enforcement) Act, deals with conditions for enforcement of foreign awards. The party enforcing a foreign award can not challenge it, but can only resist enforcement. Section 48 of the Act largely mirrors Article V of the New York Convention.
Therefore an award must fulfill two requirements in order to be called a “foreign award”.
- Under the laws of India, it must deal with differences arising out of a legal relationship which can be considered as commercial. The expression ‘commercial relationship’ has been very widely interpreted by Indian courts. The Supreme Court in the case of RM Investments Trading Co Pvt Ltd v Boeing Co & Another 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 country where the award has been issued must be a country notified by the central government to be a reciprocating country.
Requirements for enforcement of foreign awards
- Original or a duly certified copy of the award passed by the Arbitral Tribunal
- Original or duly authenticated copy of the agreement.
- Evidence required proving the existence of a foreign award.
By amending the Arbitration and Conciliation Act, the anomaly regarding the enforcement of international awards was remedied in 2015. The amendment added to the existing Section 48(2) of the Act two new explanations, which sought to restrict the discretion available to the courts when interpreting the terms ‘public policy ‘and’ ‘fundamental policy of Indian law’. According to the first explanation, a foreign award will conflict with public policy only if it:
- was induced by fraud or corruption;
- contravenes the fundamental policy of Indian law; or
- contravenes the basic notions of morality and justice.
Furthermore, the 2015 amendment introduced a second explanation, clarifying that a violation of the fundamental policy of Indian law would not require an examination of the merits of the conflict.
In Daiichi Sankyo Company Limited v Malvinder Mohan SinghThe Delhi High Court held that, under Explanation 2 of Section 48(2)(b) of the Arbitration and Conciliation Act, the ‘fundamental policy of India’ does not mean provisions of Indian statutes, but rather the substantive principles on which Indian law is based.
Author: Puhumi Aditya. She can be followed on LinkedIn.
The views expressed by the author are personal.
Limited Scope for Judicial Intervention in Arbitral Awards: Time for a Change
CIVIL APPEAL NO. 1661-1663 OF 2018 @ SLP(CIVIL) No. 28582- 28584 of 2017
 Civil Appeal No 3185 of 2020, decided on 16 September 2020.
1994 (4) SCC 541
2019 SCC OnLine Del 7836