Enforcement of Foreign Arbitral Awards

by Contributed Papers | November 9, 2010 2:00 pm

Enforcement of Foreign Awards


TABLE OF CONTENTS

Title Page No.
Table of Cases 1
Table of Statutes and Instruments 2
Introduction 3
Research Methodology 5
Chapter 1: A Brief History of the Convention and an Overview of the Relevant Sections 7
Chapter 2: A Few Important Aspects of the Definition 13
Chapter 3: Essential Considerations for the Enforcement of Foreign Awards 16
Conclusion 25
Bibliography 26


TABLE OF CASES

  1. Atiabari Tea Co. Ltd. v. State of Assam, AIR 1961 SC 232.
  2. Central Inland Water Transport Co. Ltd. v. Brojo Nath Ganguly, AIR 1986 SC 1571.
  3. European Grain and Shipping Ltd. v. Bombay Extractions Pvt. Ltd, AIR 1983 Bom 36.
  4. Fatehchand Himmatlal v. State of Maharashtra, AIR 1977 SC 1825.
  5. Fuerst Day Lawson Ltd. v. Jindal Export Ltd., AIR 2001 SC 2293.
  6. Gas Authority of India Ltd. v. SPIE CAPAG, SA (1994) 1 Comp. L.J. 374 (Delhi).
  7. Harendra Mehta v. Mukesh Mehta, AIR 1999 SC 2054.
  8. Josef Meisaner GMBR v. Kanoria Chemicals & Industries Ltd., AIR 1986 Cal 45.
  9. Kosh Navigation Inc. v. Hindustan Petroleum Corporation Ltd., AIR 1989 SC 2198.

10.  Mukesh H. Mehta v. Harendra H. Mehta, (1995) 5 Comp L.J. 517 (Bom).

11.  Orma Impex Pvt. Ltd. v. Nissai Asb Pvt. Ltd., AIR 1999 SC 2871.

12.  R.M. Investment & Trading Co. Pvt. Ltd. v. Boeing Co., AIR 1994 SC 1136.

13.  Renusagar Power Co. v. General Electric Co., AIR 1986 Del 8.

TABLE OF STATUTES AND INSTRUMENTS

STATUTES

  1. Arbitration (Protocol and Convention) Act, 1937.
  2. Arbitration and Conciliation Act, 1940.
  3. Arbitration and Conciliation Act, 1996.
  4. Code of Civil Procedure, 1908.
  5. Foreign Awards (Recognition and Enforcement) Act, 1961.

INTERNATIONAL INSTRUMENTS

  1. Convention on the Execution of Foreign Arbitral Awards, 1927.
  2. New International Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.

INTRODUCTION

Conflict between partners in trade has existed ever since the beginning of trade itself and so have

methods of resolution of such disputes. As a means of resolving disputes, arbitration has been used for centuries[i]. There have been a number of attempts to define arbitration but this has always been considered problematic. However, the following definition might be taken for the purposes of this paper:

” Arbitration is a reference to the decision of one or more persons, either with or without an umpire, of some matter or matters in difference between parties to commercial transactions.”

Arbitration helps to improve international economic relations by providing a mechanism that reduces the risk of transactional commerce. While entering into a business relationship, the business houses do hope that there would be no failure of agreements, but the fear of a dispute is never too distant. This fear gets accentuated when the businessman is not sure of the reliability, pragmatism, promptness as well as the fairness of the dispute resolution mechanism.  This would result in the increase of prices to compensate for the additional hazard.

It is thus clear that the presence of effective methods of dispute resolution is a major step forward in the direction of facilitation of trade and commerce.  The main attraction of a proceeding like arbitration is the fact that it provides the parties a neutral forum in which they can solve their disputes and is speedy in its dispensation of a result. In order to retain this attraction the arbitration proceedings should avoid getting into the courts as far as possible.

The arbitrator/s hear the parties and pronounce their verdict in the form of an “award”. Since the parties chose to arbitrate and they appointed the arbitrator by mutual consent, they usually abide by the award as well. However, there are always some persons who will not adhere to the award. Just because the parties to arbitration took the dispute out of the court’s hands does not mean that the court will not step in to redress the grievances of the aggrieved party in such situations. The court has the power to enforce the award, within its own jurisdiction, as though it were executing one of its own decrees. This sort of judicial execution of an arbitral award is usually called “enforcement’.

A process like arbitration assumes special importance for a developing country like India. In the early 1990s, foreign exchange reserves were frighteningly low and foreign capital was only trickling in. In order to encourage more foreign investment, security of investment and a speedy and just dispute resolution process were two of the basic requirements. Hence, India adopted the policy of liberalisation. At the same time, India began to hard-sell arbitration as a form of dispute resolution to its domestic businessmen. Arbitration was already a major form of dispute resolution among commercial circles in developed countries. If India could develop a strong arbitration base, then that would take care of the speedy disposal of cases; thus encouraging foreign investment. As a useful starting point, India was already a party to both the New York and Geneva Conventions on arbitration. However, the domestic law was inadequate to meet the demand. Hence, in 1995, India passed an ordinance based on the UNCITRAL Model law on arbitration; and this subsequently became legislation in 1996. This opened the floodgates for arbitration for Indian entrepreneurs. However, one trend that was noticed was that most arbitration involving Indian businesses took place in foreign countries, although the award was to be enforced here. Hence, the area of enforcement of these foreign awards assumed special importance in India.

In this project, the researcher studies the enforcement mechanism regarding these foreign awards in the light of the purpose behind the modern law of arbitration in India. At the same time, the researcher also examines whether the steps taken by India as far as enforcement of foreign awards is concerned is enough to fulfil the goals of a liberalised economy.

RESEARCH METHODOLOGY

Scope and Limitations

The topic for this project is “Enforcement of foreign arbitral awards”.  The crux of this project is to study the mechanism for enforcement of awards declared by arbitral tribunals in international commercial arbitrations. The researcher will study the provisions of the Arbitration and Conciliation Act, 1996 and wherever possible, he will refer to the procedure under the old enactments in this area and try to analyse the advantages of the new enactment over the older ones. However, the researcher limits the scope of this project to the enforcement of foreign awards by Indian courts9 with only glancing references to foreign jurisdictions.  A detailed examination of the grounds of accepting or rejecting such awards is also not undertaken due to practical constraints. Further, the researcher has not made a detailed study of the provisions of the New York and Geneva Conventions, keeping in mind the precise scope of this project.

Research Objectives

q  To understand the existing mechanism for the enforcement of foreign arbitral awards in India.

q  To appreciate the relevance of this area of law in an emerging liberalized economy like India.

Research Questions

The researcher will answer the following questions during the course of this project

  1. What is the meaning of “foreign award” as per the Arbitration and Conciliation Act, 1996?
  2. What is the mechanism for the enforcement of awards made under the New York Convention?
  3. What is the mechanism for the enforcement of awards made under the Geneva Convention?
  4. What is the mechanism for the enforcement of awards made in other international arbitrations?
  5. What are the grounds of accepting or rejecting such awards?
  6. What are the defenses available against the enforcement of foreign awards?
  7. How does public policy affect the enforcement of foreign awards?

Sources

The researcher has referred to treatises and commentaries written by eminent authors in this field. The researcher has also referred to relevant case law and articles written by noted scholars. The researcher has also used the Internet for the purpose of gathering the required information for this project.  Further the researcher has attempted to gain some practical insight into the topic with discussions with Mr. Hiroo Advani (Senior Partner), Advani & Co., a prominent firm in Bombay, which specialises in international arbitration.

Method of Analysis

Primarily, the researcher has used a descriptive method for this project. The focus of the project being a study of the enforcement mechanism for foreign arbitral awards, the researcher has described this mechanism in detail. However, wherever possible, the researcher has provided some analysis of the issues involved therein.

Mode of Citation

A uniform mode of citation has been followed throughout this project.

Chapterisation

The project has been divided into the following chapters:

Chapter 1: A Brief History of the Conventions and an Overview of the Relevant Sections

In this chapter, the researcher first provides a brief background to both the New York and Geneva Conventions. This helps to understand the relevance of these Conventions better. Then the researcher proceeds to examining the statutory provisions regarding enforcement of awards in India.

Chapter 2: A Few Important Aspects of the Definition

In this chapter, the researcher will study the important aspects involved in the interpretation of the definition of “foreign awards” and related considerations

Chapter 3: Essential Considerations for the Enforcement of Foreign Awards

In this chapter, the researcher will study the conditions for enforcement of awards, the grounds for accepting or rejecting them, the defenses available, and a detailed analysis of the public policy clause.

CHAPTER 1

A BRIEF HISTORY OF THE CONVENTIONS & OVERVIEW OF THE RELEVANT SECTIONS OF THE ACT

Background to the New York Convention[ii]

After the First World War, international trade increased and at the same time, there was also an increase in the use of international commercial arbitration for the resolution of disputes relating to this international trade. A need was felt for providing proper arbitral machinery for the resolution of disputes in this manner, subject to the jurisdiction of different States. In this regard, the ICC promoted an international convention for removal of impediments to the enforcement of the arbitral awards.[iii]

The first serious effort in this direction was made under the auspices of the League of Nations. These efforts resulted in the Protocol on Arbitration Clauses, which was ratified by 30 States on 24th September 1923. This Protocol also provided a procedure for conducting arbitration and a mechanism for execution of the same. Article 2 of the Protocol gave the parties the freedom to choose the constitution of the Arbitral Tribunal and the freedom to conduct the arbitration in a country of their choice. However, the Protocol’s major shortcoming was present in Article 3. Due to the construction of this Article, only domestic awards could be enforced by the Courts of the member States.[iv]

In order to overcome this deficiency, inter alia, inherent in the above Protocol, the League of Nations pushed for the drafting of another better treaty. The new Convention was concluded in Geneva on 26th September 1927 and was christened the Convention on the Execution of Foreign Arbitral Awards, for short the “Geneva Convention”. This Convention rectified the major errors of the old Protocol and was ratified by 27 States. As per the Geneva Convention, each contracting State was required to recognize and enforce an arbitration award made in another contracting State pursuant to an agreement covered by the 1923 Protocol.[v]

India was a party to the Protocol and the Geneva Convention, subject to the reservation of limiting India’s obligations in respect thereof to contracts which were considered as commercial under the laws of India. For implementing and giving effect to the Protocol and the Geneva Convention, the Arbitration (Protocol and Convention) Act, 1937 was enacted.[vi]

Whatever the plus points of the Geneva Convention, India’s experience showed that the Convention was not conducive to the speedy enforcement of foreign arbitral awards. The most important reason for this was that the beneficiary of the award was required to show to the Court before which the matter came for enforcement that the award had become final in the country in which it was made. The Convention also laid too much emphasis on the remedies that were open to the parties to invoke the law of the country where the award was made, for the purposes of setting aside of the same.[vii]

These shortcomings were noticed not only by India, but also by the Economic and Social Council (ECOSOC) of the United Nations. The ECOSOC held extensive discussions and prepared a draft of a new convention for the enforcement of international arbitral awards. Finally on 10th June 1958, the ECOSOC passed a resolution and the New International Convention on the Recognition and Enforcement of Foreign Arbitral Awards, for short the New York Convention, was adopted.[viii]

In order to give effect to the New York Convention, the Indian Parliament passed the Foreign Awards (Recognition and Enforcement) Act, 196. However, this Act was repealed by the Arbitration and Conciliation Act, 1996. The new Act lays down in detail provisions relating to recognition and enforcement of both Geneva and New York Convention Awards.

In the following pages, the researcher will examine those provisions of the Arbitration and Conciliation Act, 1996 which are relevant to this project and which have provoked discussion among the commentators upon the subject.

An Overview of the relevant sections

Section 44 of the Arbitration and Conciliation Act, 1996 (corresponding to Section 2 of the Foreign Awards (Recognition and Enforcement) Act, 1961) reads thus:

“In this chapter, unless the context otherwise requires, “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 –

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.”

By an analysis of this definition, the ingredients of a ‘foreign award’ are:

  1. The difference must arise out of a legal relationship considered as commercial.
  2. The award must have been made on or after 11th October 1960.
  3. The Award must be made in pursuance of an agreement in writing for arbitration.
  4. The arbitration agreement is subject to the applicability of the New York Convention set forth in the First Schedule of the Act.
  5. The award must be made in one of the reciprocating States notified by the Central Government.

Most of the above conditions are self-explanatory, but one leaves some scope for interpretation and consideration.

Section 45 lays down that one of the parties to an arbitration agreement may approach a judicial authority and have the dispute referred for arbitration. An analysis of this section is beyond the scope of this project, as it, strictly speaking, does not deal with enforcement of foreign arbitral awards.

Section 46 states that any foreign award that is enforceable as per the provisions of the Act will be binding as regards the parties to the award. Therefore, this section provides for the recognition of a foreign award by an Indian court, as enforcement necessarily contains recognition.

Section 47 provides a list of documents to be produced before the enforcing court as evidence of the foreign award. It also provides that in case the award is available in a language other than English, a translation in English must be placed before the Court. The explanation to the section states that only the principal civil court in the district having original jurisdiction is competent to enforce a foreign arbitral award and it specifically excludes subordinate civil courts from enforcing these awards.

Section 48 enlists conditions under which the court may refuse enforcement of foreign awards. In other words, all foreign awards are enforceable by the courts, unless they fall into any of the categories mentioned in Section 48. The party against whom a foreign award is invoked can produce proof regarding these grounds. In short, enforcement of a foreign arbitral award may be refused, if

  1. The parties to the agreement referred to in Section 44 were under some incapacity;
  2. The agreement was not valid under the law to which it was subjected or under the law where the award was made;
  3. The party applying for refusal of enforcement was not given proper notice of the appointment of the arbitrator;
  4. The party was not given proper notice of the arbitration proceedings;
  5. The party was otherwise unable to present its case before the arbitral tribunal;
  6. The arbitral tribunal has exceeded its jurisdiction in making the award;
  7. The composition of the arbitral tribunal was not in accordance with the agreement between the parties, or was not in accordance with the law of the country where the arbitration took place;
  8. The arbitral procedure followed by the tribunal was not in accordance with the agreement between the parties, or was not in accordance with the law of the country where the arbitration took place;
  9. The award has not become binding on the parties under the law of the country in which it was made;

10.  The award has been set aside or suspended by a competent authority of the country in which the award was made;

11.  The subject-matter of the dispute was not capable of settlement by arbitration under the law of India;

12.  The enforcement of the award would be contrary to the public policy of India; or

13.  The award was obtained by fraud or corruption.

The wording of the section makes it clear that the above grounds are exhaustive. So a party applying for setting aside the award must satisfy the enforcing court that the award was tainted by one of the above grounds only.

Section 49 states that if a foreign award is enforceable by the court, it shall enforce it as if it were a decree of the court. This is a change from the 1961 Act, where the award had to be first filed in court for enforcement; then the court was required to pronounce judgement in accordance therewith. This cumbersome procedure has been done away with in the 1996 Act, where the court enforces the award as if it were its own decree. Therefore, in this respect, ‘enforcement of a foreign award’ is the same thing as ‘execution of a decree’ as per Order 21 of the C.P.C.[ix] Further, the court has to execute the award as it is and is not allowed to alter or modify the award. However, in the case of ambiguity in the award, the court can determine what it means.[x]

Section 50 states that if a court passes an order refusing to enforce a foreign award under section 48, then the aggrieved party has the right to appeal against that order. The appeal lies to a single judge of the High Court.[xi] However, the parties are forbidden from entering into a second appeal against such orders by virtue of section 50(2) of the Act.

Sections 53 to 60 deal with the enforcement of arbitral awards made under the Convention on the Execution of Foreign Arbitral Awards, 1923 (”Geneva Convention” for short). In many ways, the provisions under this chapter are very similar to the chapter on enforcement of New York Convention Awards.

Section 53 defines “foreign award” for the purposes of this chapter. Many of the phrases used in this section are similar to the ones used in Section 44. Section 53 also states that a foreign award is an arbitral award relating to a dispute involving matters considered as commercial under the law in force in India. The interpretation of this phrase is the same as for Section 44.[xii] Section 53 states that the award must have been made after 28th July 1924 for it to be recognised as a “foreign award” under this chapter. The dispute must be between two persons, one of whom is subject to jurisdiction of some one of such power as the Central Government may declare to be parties to the Convention and the other is subject to the jurisdiction of some other of the said powers, and the arbitration takes place in one of the territories as the Central Government may declare to be territories to which the Convention applies.

Section 54 is analogous to Section 45. It states that one of the parties to whom Section 53 applies approaches a judicial authority to make a reference of the dispute for arbitration, the authority shall refer the dispute for arbitration as per the agreement between the parties. Its provisions are very similar to Section 45.

Section 55 is analogous to Section 46. It states that an award enforceable under this chapter will be binding as regards the parties to the award.

Section 56 is analogous to Section 47. It enlists the documents to be produced in the enforcing court as evidence of the award.

Section 57 is analogous to Section 48. It enumerates the conditions under which the enforcing court may refuse to enforce an award made under the Geneva Convention.[xiii]

Section 58 states that if an award is enforceable as per Section 57, the court will enforce it as if it were its own decree. This is analogous to Section 49.

Section 59 states that an order of the court refusing to enforce an award is an appealable order. The appeal lies to a single judge of the High Court.[xiv] This section is analogous to Section 50.

CHAPTER 2

A FEW IMPORTANT ASPECTS OF THE DEFINITION

Definition of “foreign award”

Part 2 of the Arbitration and Conciliation Act, 1996 deals with the enforcement of arbitral awards made under the New York Convention and the Geneva Convention. Sections 44 and 53 define which awards can be enforced under this part as “foreign awards”.   A few aspects of these definitions elicit a discussion.

“Legal relationship considered as commercial”: The definition of ‘foreign award’ in section 44 refers to “legal relationships… considered as commercial under the law in force in India”. The New York Convention made reference to the ‘national law’ and the declaration of accession to the New York Convention by India made reference to “the law of India”.[xv] What is the importance of “law in force in India” and “transactions which are considered as commercial”? One commentator believes that these words are of such wide import that they will envelop the entire body of laws which are effective or operative in India.[xvi] He says that with several kinds of transactions which may be considered as ‘commercial’ on the facts of each case, it is obvious that when the Parliament referred to the legal relationship considered as commercial under the law in force in India, it had in mind the general body of laws with reference to which the nature of the transactions would be considered.[xvii] The Bombay High Court in European Grain and Shipping Ltd. v. Bombay Extractions Pvt. Ltd.[xviii], considered the scope of Section 2 of the Foreign Awards (Recognition and Enforcement), 1961, which is similar to section 44 of the new Act, said:

“If the nature of the transaction between the parties is one which partakes of commerce or which is in the nature of commerce, then inevitably the relation between the parties to the contract or parties to the transaction will be clearly a commercial relationship. The nature of the relationship will depend on the nature of the transaction and whether the nature of the transaction is commercial or not will have to be determined with reference to generally to the law in force in the country inclusive of the operative legal principle in force in India. The mere use of the word “under” preceding the words “law in force in India” would not necessarily mean that you have to find a statutory provision or a provision of law which specifically deals with the subject of particular legal relationship being commercial in nature.”

In other words, the Court was trying not to confine the term “commercial” by defining it or by referring to particular types of transactions, but to keep the scope of the section as wide as possible. This policy was clear even in a later decision of the Supreme Court.[xix] In the submission of the researcher, this view taken by the courts is correct, as narrowing the scope of the section would mean that certain awards may not be enforceable merely because of a technicality. This would be against the spirit of free international trade, which can be considered to be part of public policy today.

Further, the researcher draws attention to the dictum of the Supreme Court in Atiabari Tea Co. Ltd. v. State of Assam[xx]. In this case, the Court interpreted the term “trade and commerce” used in Article 301 of the Constitution. Even in this case, the Court has not restricted the words “trade and commerce” to mean any specific activities alone, but to include all activities wherein some commodities are exchanged for money or such-like commodities. Therefore, it is submitted that the public policy on this aspect is clear – “commercial” must be given as wide an interpretation as possible. Several other cases have also used this approach.[xxi]

However, not all foreign arbitral awards are covered under these definitions. There are other foreign awards, which cannot be classified under either Section 44 or Section 53. Firstly, the researcher will see how certain awards cannot fall under the definitions available in Part 2 of the Act.

  1. The Central Government notifies which countries are parties to the New York and Geneva Conventions for the purpose of enforcement of awards made in arbitrations held in these countries. However, not all international commercial arbitrations take place in these countries. Further, traders from India trade with people from countries, which are not parties to either Convention. They might have arbitration clauses in their contracts. In any of these cases, the award announced by the arbitral tribunal cannot be enforced under Part 2 of the Act, as they do not qualify for the definition of “foreign award” under Sections 44 and 53.

2. Although there is a wide interpretation given to the scope of “commercial” used in the definition of ‘foreign award’, there are many disputes which are not of commercial nature. Further, there are arbitrations which take place in foreign countries which are not commercial arbitrations. Awards announced in these arbitrations are not enforceable under Part 2 of the Act.


CHAPTER 3

ESSENTIAL CONSIDERATIONS FOR THE ENFORCEMENT OF FOREIGN AWARDS

Enforcement of Awards

Keeping in mind the two reasons discussed in the previous chapter regarding the inadequacy of Part 2 of the Act for the enforcement of foreign awards, one needs to look at the avenues available for the enforcement of foreign arbitral awards. Sometimes it so happens that a person may require a process other than that specified in Part 2 of the Act for enforcing even Convention awards. In the researcher’s opinion, all arbitral awards, even foreign awards covered under Part 2, are enforceable through Section 36 of the Act.

Section 36 of the Act states that an arbitral award is enforceable by a civil court of competent jurisdiction in the same manner as the court executes its own decrees. In other words, all arbitral awards are enforceable by a court as though they are decrees passed by the court itself. Further, Sections 52 and 60 state that the provisions of Part 2 are not exhaustive for the enforcement of awards made under the two Conventions – the parties can take recourse to any mechanism afforded by the law to enforce arbitral awards. Extending the same logic to the non-Convention awards, the researcher submits that non-Convention awards passed during an international arbitration are enforceable

An interesting aspect of Section 36 is that it gives the status of decree to arbitral awards. Some commentators refer to this as a “deemed decree”, although the researcher submits that this would be a misnomer. According to Section 36, a court of competent jurisdiction will enforce an arbitral award, as though the award was a decree that had been passed by it. Therefore, as far as enforcement of an arbitral award is concerned, there is no difference between the award and a decree of the court. However, the term “deemed decree” seems to indicate that the award is in fact a decree of the court. This is not true, because the court has not heard the parties, the court knows nothing about the merits of the dispute, it has not applied its mind while resolving the matter; therefore, there is no way that the award will be regarded as a decree of the court. What the section provides is that the court will execute the arbitral award in the same manner as it would execute one of its own decrees.

Hence, a foreign arbitral award, which cannot be enforced under Part 2 of the Act, can be enforced under Section 36 of the same Act. Further, under Sections 52 and 60, even awards which can be enforced under Part 2 can be enforced with the help of Section 36 instead.

Defenses Against Enforcement under the Convention {Article V(1)}

The following are the defenses to the enforcement of awards found in Article V in the Convention. The first five defenses are those that must be raised by a party, and the party that raises them has the burden of proof to establish those.

Lack of Capacity, Lack of Agreement

The first defense is incapacity of the party or a lack of a valid arbitration agreement. One might be concerned about incapacity if there was arbitration in a dispute with a governmental entity; in other words, the question might be whether that entity had the capacity to enter into the arbitration agreement because the entity lacks authority to bind itself to arbitrate. This issue is also relevant in domestic arbitrations while dealing with the government.[xxii]

The other issue is the lack of a valid arbitration agreement. This issue should not pose great obstacles because generally such matters would be explored in the course of the arbitration as potential defenses to enforcement of the contract.

Inadequate Notice and Opportunity to Present Case

The second defense is inadequate notice or opportunity to be heard. It is interesting to note that in the Convention itself there is no differentiation between a contested and default award. This contrasts with the situation in the enforcement of foreign judgments, where, in the case of a default judgment, courts are more willing to look at what actually occurred in the case itself.

In the enforcement of arbitral awards under the Convention, the focus of the courts is more on whether the losing party had notice of the proceeding and an opportunity to attend conferences and hearings, submit briefs, etc. If the party had those opportunities and failed to avail itself of them, courts do not have a great deal of sympathy and proceed to enforce foreign arbitral awards.[xxiii]

Waiver

In arbitration cases it is very common that, when there are party-appointed arbitrators, they make appropriate disclosures at the outset that someone can perhaps raise issues of bias, conflict of interest, etc. So even if there are procedural deficiencies that may, theoretically, provide for a refusal of enforcement, if there is no objection made in the course of the arbitration, it will be regarded by the courts as having been waived.[xxiv]

Awards Exceeds Arbitrators Authority

The third ground, which is in Article V(1)(c), is that the award exceeds the scope of the arbitrator’s authority. This, too, is very narrowly construed by courts, which do not want to get involved in analyzing the merits or the decision making process undertaken by the arbitrators. In fact, if courts see that there were extensive hearings and submissions and that a fairly thorough decision was rendered, they will not refuse to enforce. A good example is the Fertilizer Corporation of India case, where the contract explicitly said that consequential damages were not to be available. Notwithstanding that provision, there was an award in India under Indian law that included consequential damages, and the US court upheld that award.[xxv]

Composition of Tribunal

The fourth ground, found under Article V(1)(d), is irregularity in the composition of the arbitration panel or procedure. Essentially there has to have been a violation of the procedures set forth in the arbitration agreement, such as for the appointment of arbitrators, discovery, or exchange of pleadings. Arbitration agreements are often specific in this regard. Procedures may also be mandated under the law of the place where the arbitration was held.[xxvi]

Was the Award Binding, Set Aside, or Suspended?

The last ground under Article V is that the award was binding or was set aside or suspended. Obviously, if that were the situation the court would refuse to enforce the award. And “binding” under the Convention only means that it’s not subject to further arbitral procedures. It could be subject to court challenges, but that would not change the fact that the award is binding.

Grounds

Two additional grounds, which are under Article V(2) of the Convention, can be raised by either a party or by the court on its own initiative.

Arbitrability

The first is that the subject matter of the dispute is not arbitrable under the law of the country where enforcement is sought. Obviously, in view of the developments in this country in terms of the extension of arbitrability, particularly in the international arena, there are very few areas in fact that this would provide a basis for avoiding enforcement of an award.[xxvii]

Public Policy

The final ground for non-enforcement of an award is that enforcement would violate public policy. This ground has not been used with much success, although it has been attempted in numerous cases. Of course, every attempt to deny enforcement of an award always has the public policy ground inherent in it, either independently or as a backdrop to the main arguments against enforcement.

Conditions for enforcement under the Indian Law

The grounds mentioned in section 48 are exhaustive.  Enforcement may be refused only if the objector can prove one of the grounds given in sub section (1) or if the Court finds existence of a ground listed in sub-section (2). As a general rule of interpretation the grounds under section 48 for refusal are to be construed narrowly.

The Courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness.  They do not close their doors unless help would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal.[xxviii]

The grounds listed in sub-section (1) of section 48 of the 1996 Act for refusal of enforcement of the award are to be proved by the party against whom it is invoked (hereinafter also ‘the respondent’).  The burden of proof to the show existence of the grounds for refusal is on the respondent.  These grounds can be invoked only by an application of the respondent.

Under the scheme of section 7 of the 1937 Act the plaintiffs had to prove that the award was enforceable under the Act and in that connection the plaintiffs had to prove what is referred to in detail in clause (a), (b), (c), (d) and (e) of section 7(l) of the 1937 Act.  The plaintiffs would have further to prove that “the enforcement of the award is not contrary to the public policy or the law of India.[xxix]

Enforcement of a foreign award may be refused

Sub-sections (1) and (2) of section 48 of the 1996 Act have used Permissive expression that the enforcement of a foreign award “may” be refused instead of mandatory expression of “shall”.  The Court has discretion to overrule the defence put up by the respondent even if he has proved the existence of one of the grounds listed in this section.  The Court may use discretion in cases where it finds the objector is estopped from invoking any of the grounds listed in section 48 of the 1996 Act or that the “public policy” violation involved is not such as to prevent enforcement of the award.

Scope of the enquiry

Under the Geneva Convention, in order to obtain recognition or enforcement of a foreign arbitral award, the requirements of clauses (a) to (e) of Article 1 had                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     to be fulfilled and in Article 2, it was prescribed that even if the conditions laid down in Article I were fulfilled recognition and enforcement of the award would be refused if the Court was satisfied in respect of matters mentioned in clauses (a), (b) and (c).  The principles, which apply to recognition and enforcement of foreign awards, are in substance, similar to those adopted by the English Courts.[xxx] With regard to enforcement of foreign judgments, the position at common law is that a foreign judgment which is final and conclusive cannot be impeached for any error either of fact or of law and is impeachable on limited grounds, namely, the Court of the foreign country did not, in the circumstances of case, have jurisdiction to give the judgment in the view of English law; the judgment is vitiated by fraud on part of the party in whose favor the judgment is given or fraud on the part of the Court which pronounced the judgment; the enforcement or recognition of the judgment would be contrary to public policy; the proceedings in which the judgment was obtained were opposed to natural justice.[xxxi] In the matter of enforcement of foreign arbitral awards at common law a foreign award is enforceable if the award is in accordance with the agreement to arbitrate which is valid by its proper law and the award is valid and final according to the arbitration law governing the proceedings.  The award would not be recognized or enforced if, under the submission agreement and the law applicable thereto, the arbitrators have no justification to make it, or it was obtained by fraud or its recognition or enforcement would be contrary to public policy or the proceedings in which it was obtained were opposed to natural justice.[xxxii] The English Courts would not refuse to recognize or enforce a foreign award merely because the arbitrators (in its view) applied the wrong law to the dispute or misapplied the right law.[xxxiii]

It is a generally accepted interpretation of the New York Convention that the Court before whom the enforcement of the foreign award is sought may not review the merits of the award.  The main reason is that the exhaustive list of grounds for refusal of enforcement enumerated in Article V does not include a mistake in fact or law by the arbitrator.  Furthermore, under the New York Convention the task of the enforcement judge is a limited one.  The control exercised by him is limited to verifying whether an objection of a respondent on the basis of the grounds for refusal of Article V(I) is justified and whether the enforcement of the award would violate, the pubic policy of the law of his country.  This limitation must be seen in the light of the principle of international commercial arbitration that a national Court should not interfere with the substance of the arbitration.[xxxiv]

The New York Convention does not permit any review on the merits of an award to which to the Convention applies and in this respect, therefore, differs from the provisions of some systems of national law governing the challenge of an award, where an appeal to the Courts on points of law may be permitted.[xxxv]

In proceedings for enforcement of a foreign award under the 1961 Act the scope of enquiry before the Court in which award is sought to be enforced is limited to grounds mentioned in section 7 of the 1961 Act and does not enable a party to the said proceedings to impeach the award on merits.[xxxvi]

Meaning of ‘enforcement’

In Pratabmill v. K.C. Sethia Ltd.[xxxvii], it was submitted that the agreement and the award were against pubic policy of India and the expression; “enforcement thereof” means execution of the foreign award under section 7 of the 1961 Act.  Calcutta High Court has observed-

“It is said that the awards in this case only direct the appellant to pay a certain sum of money as damages.  As such, on the face of it, it cannot be said that the awards are against any public policy.  The difficulty of accepting this argument is the narrow meaning it attributes to the word, “enforcement”.  Enforcement is not merely the technical part of execution.  Enforcement includes the whole process of getting an award as well as its execution.  We are, therefore, not prepared to limit the word, “enforcement”, in section 7(i) of the Act to the mere technical part of its execution.”

“Public Policy”

As all arbitration practitioners and scholars know, violation of public policy of the enforcing State has long been a ground for refusing recognition/enforcement of foreign judgments and awards. This principle is enshrined in Article V.2 of the New York Convention and Article 36 of the UNCITRAL Model Law. The public policy exception to enforcement is an acknowledgement of the right of the State and its courts to exercise ultimate control over the arbitral process. There is a tension, however, which the legislature and the courts must resolve between: on the one hand, not wishing to lend the State’s authority to enforcement of awards which contravene domestic laws and values; and, on the other hand, the desire to respect the finality of foreign awards. In seeking to resolve this tension, some legislatures and courts have decided that a narrower concept of public policy should apply to foreign awards than is applied to domestic awards. This narrower concept is often referred to as international public policy. This name suggests that it is in some way a supra-national principle; however, in practice it is no more than public policy as applied to foreign awards and its content and application remains subjective to each State.

As is always the case when the term is used, there was some doubt as to the scope of “public policy” used in Section 48. What considerations must weigh on the court’s mind before it can declare that an award is not enforceable because it is contrary to public policy? This question was considered in Renusagar Power Co. v. General Electric Co.[xxxviii]. The court held that mere contravention of law would not attract bar of public policy, but the award must be contrary to (i) fundamental policy of Indian law, or (ii) the interests of India, or (iii) justice or morality. The researcher submits that the decision of the court in the above case has not cleared the ambiguity regarding the term because it has also used vague and general terms such as “fundamental policy” and “national interest” and “justice”. In this regard, the dictum of the Supreme Court in Central Inland Water Transport Co. Ltd. v. Brojo Nath Ganguly[xxxix] is noteworthy:

“Public policy connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time.”[xl]

The above paragraph from this judgement makes it clear that public policy is a subjective term, which has to be determined keeping in mind the social, economic and political status of the country and also the facts and circumstances of the case on hand. As an aid to interpretation of the term ‘public policy’, the Explanation to Section 48 states that an award obtained by fraud or corruption is also contrary to public policy.

In another recent decision by the Bombay High Court, the point that arose for consideration is the circumstances under which a foreign award may be regarded as unenforceable in India, on the ground of being contrary to public policy.

The case relates to a contract under which Ruchi International, an Indian Company, was to sell soybean meal from India to a French buyer. The terms and conditions of the contract were governed by the GAFTA General Conditions of Contract and Arbitration Rules. GAFTA is an international chamber of commerce dealing with matters relating to food and grain trade. The buyer alleged breach of contract by the seller and invoked the arbitral clause under GAFTA rules, and an award was passed in favour of the claimant buyer.

In the appeal, it transpired that the claimant, which was under liquidation, had assigned its rights in the claim in the arbitration to a third party (the “assignee”). The Appellate Forum held the assignment to be valid under the applicable laws as it was done with notice to the contesting party. The objection that the arbitration agreement had failed was rejected. The assignee was permitted to contest the appeal on substitution of the name of the parties, and the appeal was rejected on merits.

The assignee filed a petition in the Indian court for enforcement of the award under the Indian Arbitration and Conciliation Act (“Arbitration Act”), 1996, where it was resisted on the ground of being opposed to public policy in view of Section 6(e) of the Transfer of Property Act.

Under Section 6(e) of the TP Act, a mere right to sue cannot be transferred/assigned. The assignment in the present case took place in appeal proceedings and was held valid under the applicable laws. Once the assignment was accepted as valid and the award passed, the question arising for consideration is whether the enforcing court could treat the award as being opposed to public policy.

The GAFTA award is a “foreign award” within the meaning of the Arbitration Act. The question is of whether Section 6(e) of the TP Act would extend to a foreign award. The Supreme Court in the case of Renusagar Power Co Vs General Electric had held the areas covered by public policy and the law of the land are not necessarily coextensive. A foreign award would be refused enforcement on being contrary to public policy, if its enforcement is against the fundamental policy of India law or the interests, justice or morality of India.

What had to be considered by the enforcing court is that assignment was not of the right to sue but of the award, on the passing of which a debt came into existence. Is then an award based on an assignable right unenforceable, because if the assignee had sued in India his case would be barred under Section 6(e) of the TP Act? The award cannot be said to be opposed to justice when the appellate forum had considered and decided the issue of assignment. By no stretch of imagination can the award be regarded being opposed to morality. Transfer of a right to sue could interpreted as being against morality, if the purpose is gambling or betting. But if such law is valid in the country where the award is made, then the enforcing court cannot refuse execution on such grounds. There are several pronouncements of English courts in similar situations.

On these grounds, the Bombay High Court permitted the enforcement of the award. The division bench has concurred, clarifying that Section 6(e) would have been applicable only, if the assignee had filed its claim for damages in India on the basis of the assignment. The court has therefore adopted the international approach towards enforcement of foreign awards, instead of creating technicalities — an indication that the Indian judiciary has expressed its attunement with a globalised commercial world instead of taking a jingoistic position.

CONCLUSION

BIBLIOGRAPHY

ARTICLES

  1. Dhyan Chinnappa, Enforcement of Arbitral Awards (2002) 8 SCC (Jour) 39.
  2. Kenneth R. Davis, “Unconventional Wisdom: A New Look At Articles V And VII Of The Convention On The Recognition And Enforcement Of Foreign Arbitral Awards “, 37 Tex. Int’l L.J. 43.
  3. Pelagia Ivanova, “Forum Non Conveniens And Personal Jurisdiction: Procedural Limitations On The Enforcement Of Foreign Arbitral Awards Under The New York Convention”, 83 B.U. L. Rev. 899,
  4. S.K. Dholakia, Case Comment: Bhatia International v. Bulk Trading S.A., (2003) 5 SCC (Jour) 22.

BOOKS

  1. Justice B.P. Saraf & Justice S.M. Jhunjhunwala, Law of Arbitration and Conciliation (2nd ed. Mumbai: Snow White Publications Pvt. Ltd. 2000).
  2. K.K. Venugopal, et al. (eds.), Justice R.S. Bachawat’s Law of Arbitration and Conciliation (3rd ed. Nagpur: Wadhwa & Co. 1999).
  3. P. Chandrasekhara Rao, The Arbitration and Conciliation Act, 1996: A Commentary (New Delhi: Universal Law Publishing Co. 1997).
  4. P.C. Markanda, Law Relating to Arbitration and Conciliation (2nd ed. Nagpur: Wadhwa & Co. 1997).
  5. Sudipto Sarkar & V.R. Manohar (eds.), Sarkar’s Law of Civil Procedure (10th ed. Nagpur: Wadhwa & Co. 2002).
  6. Surendra Malik, Supreme Court on Arbitration (Lucknow: Eastern Book Co. 2001).

WEBSITES

  1. www.manupatra.com[1]
  2. www.westlaw.com[2]
[i] David St John Sutton, John Kendall, Judith Gill, Russell on Arbitration, 21st ed., Sweet and Maxwell, London, 1997, p.3.

[ii] The Delhi High Court in one case traced the history and background to the New York Convention and India’s role in the same: Gas Authority of India Ltd. v. SPIE CAPAG, SA (1994) 1 Comp. L.J. 374, at 383-385 (Delhi).

[iii] K.K. Venugopal, et al. (eds.), Justice R.S. Bachawat’s Law of Arbitration and Conciliation (3rd ed. Nagpur: Wadhwa & Co. 1999), at 974.

[iv] Id.

[v] Ibid, at 975.

[vi] Supra note 1, at 383.

[vii] Supra note 2, at 975.

[viii] Ibid, at 976.

[ix] Fuerst Day Lawson Ltd. v. Jindal Export Ltd., AIR 2001 SC 2293.

[x] Kosh Navigation Inc. v. Hindustan Petroleum Corporation Ltd., AIR 1989 SC 2198.

[xi] Orma Impex Pvt. Ltd. v. Nissai Asb Pvt. Ltd., AIR 1999 SC 2871.

[xii] Supra note 8, at 368.

[xiii] For discussion on these grounds, see Pg. 12-14, supra.

[xiv] Supra note 20.

[xv] Justice B.P. Saraf & Justice S.M. Jhunjhunwala, Law of Arbitration and Conciliation (2nd ed. Mumbai: Snow White Publishers Pvt. Ltd. 2000), at 336.

[xvi] Id.

[xvii] Id.

[xviii] AIR 1983 Bom 36.

[xix] R.M. Investment & Trading Co. Pvt. Ltd. v. Boeing Co., AIR 1994 SC 1136.

[xx] AIR 1961 SC 232.

[xxi] See Fatehchand Himmatlal v. State of Maharashtra, AIR 1977 SC 1825, Mukesh H. Mehta v. Harendra H. Mehta, (1995) 5 Comp L.J. 517 (Bom), Josef Meisaner GMBR v. Kanoria Chemicals & Industries Ltd., AIR 1986 Cal 45.

[xxii] Pelagia Ivanova, “Forum Non Conveniens And Personal Jurisdiction: Procedural Limitations On The Enforcement Of Foreign Arbitral Awards Under The New York Convention”, 83 B.U. L. Rev. 899,

[xxiii] Kenneth R. Davis, “Unconventional Wisdom: A New Look At Articles V And VII Of The Convention On The Recognition And Enforcement Of Foreign Arbitral Awards “, 37 Tex. Int’l L.J. 43.

[xxiv] Pelagia Ivanova, “Forum Non Conveniens And Personal Jurisdiction: Procedural Limitations On The Enforcement Of Foreign Arbitral Awards Under The New York Convention”, 83 B.U. L. Rev. 899,

[xxv] Kenneth R. Davis, “Unconventional Wisdom: A New Look At Articles V And VII Of The Convention On The Recognition And Enforcement Of Foreign Arbitral Awards “, 37 Tex. Int’l L.J. 43.

[xxvi] Id.

[xxvii] Pelagia Ivanova, “Forum Non Conveniens And Personal Jurisdiction: Procedural Limitations On The Enforcement Of Foreign Arbitral Awards Under The New York Convention”, 83 B.U. L. Rev. 899,

[xxviii] Louchs v. Standard Oil Co. of New York, (1 918) 224 NY 99 (11).

[xxix] Se.Se.Oit v. Gorakhram,1960 Bom. Law Reporter Vol.64, p.113.

[xxx] Dicey and Morris , The Conflict of Laws, 11th Edn. , Vol. 1, p. 578.

[xxxi] Dicey and Morris, The Conflict of Laws, 11th Edn.  Rules 42 to 46, pp. 464 to 476; Cheshire and North, Private International Law, 12th Edn. pp., 368 to 392.

[xxxii]Ibid., pp. 446-447.

[xxxiii] Ibid, p. 565.

[xxxiv] The New York Convention of 1958 – Towards a Uniform Judicial Interpretation by Albert Jan van den Berg p.269.

[xxxv] Redfem and Hunter, Law and Practice of International Commercial Arbitration 2nd Edn., p.461.

[xxxvi] Renusagar Power Co. Ltd. v. General Electric Co., AIR 1994 SC 860 (881).

[xxxvii] AIR 1960 Cal 702 (708).

[xxxviii] AIR 1986 Del 8.

[xxxix] AIR 1986 SC 1571.

[xl] Ibid, at 1612.

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Endnotes:
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  2. www.westlaw.com: http://www.westlaw.com

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