ISSUES RELATING TO ENFORCEMENT OF FOREIGN SEATED ARBITRATION AWARDS IN INDIA -By Kamya Sharma Abstract In India, the scheme for enforcement of certain foreign arbitral awards is provided in Part – II of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act”). Section 44 of the Arbitration Act defines a foreign award as “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”. For an arbitral award to be considered as a foreign award under Section 44 of the Arbitration Act, the said award is required to be made in pursuance of an agreement in writing to which the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“NYC”) applies and in a country that the Central Government has notified under Section 44. While India has adopted a pro-enforcement approach with foreign arbitral awards, in this article, we will also be discussing the legislative background and the development of law over the years since 1923. Our analysis includes the judgment passed by the Supreme Court on 22 April 2020 in National Agricultural Cooperative Marketing Federation of India vs. Alimenta S.A. (“NAFED”). Keywords: Section 44, foreign award, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 1. Introduction The ever-growing and rapid development of trade and commerce has witnessed a consistent and uninterrupted increase in cross-border transactions. As a result of this surge in cross border trade and transactions there has also been a correlative and corresponding rise in cross borders disputes. This growth in international cross-border disputes required the creation of an efficient and effective method for their resolution. It was found that there was a broad consensus amongst industry leaders and jurist scholars that the answer to the conundrum posed by the increase in the number of disputes lay in international commercial arbitrations. The acceptance of international commercial arbitration was further strengthened as parties involved in cross-border disputes were usually unwilling to have matters resolved by the court systems of another disputing party. However, the setting up of a dispute resolution mechanism and passing of an award is only half the battle, the true success of international commercial arbitration as a method for dispute resolution can only be adjudged by the effective execution of the award in the territory where the subject matter of the dispute is located. If awards cannot be executed to put an end to ongoing disputes by securing the interests or assets of successful parties, the practical effect would be the failure of international commercial arbitration as a method for cross border disputes. Thus, enforcement of an award is as important a part of any international commercial arbitration as the arbitral proceedings themselves. 2. Historic Position of Arbitration Law in India The Geneva Protocol of 1923 was drawn up on the initiative of the International Chamber of Commerce (“ICC”) under the auspices of the League of Nations. Until 1996, the law governing arbitration in India was contained in mainly of three statutes: the Arbitration (Protocol and Convention) Act 1937, the Indian Arbitration Act 1940, and the Foreign Awards (Recognition and Enforcement) Act 1961. The 1940 Act was the general law governing arbitration in India along the lines of the English Arbitration Act of 1934. Both the 1937 and the 1961 Acts were designed to enforce foreign arbitral awards (the 1961 Act implemented the New York Convention of 1958). In order to modernize the outdated 1940 Act, the government enacted the Arbitration and Conciliation Act, 1996 (hereinafter the Act). The Act is a comprehensive piece of legislation modelled on the lines of the UNCITRAL Model Law on International Commercial Arbitration. It repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act). Its primary purpose was to encourage arbitration as a cost effective and quick mechanism for the settlement of commercial disputes. The 1940 Act covered only domestic arbitration and while it was perceived to be a good piece of legislation in its actual operation and implementation by all concerned - the parties, arbitrators, lawyers and the courts, it proved to be ineffective and was widely felt to have become outdated. The present Act is unique in two respects. First, it applies both to international and domestic arbitrations unlike the UNCITRAL Model Law, which was designed to apply only to international commercial arbitrations. Secondly, it goes beyond the UNCITRAL Model Law in the area of minimizing judicial intervention.1 In National Thermal Power Corporation Ltd v. Singer Co.2 where the law which governs the contract was law in force in India and the courts of Delhi have the jurisdiction in all the matters arising under the Contract. The question for determinatio1n is “whether or not an award made in London by the arbitrator appointed by ICC is domestic or foreign Award” as there is no expressed statement as regard the law governing the arbitration agreement. The council for the respondent contended that „the arbitration being a collateral contract and procedural in nature, it is not necessarily bound by the proper law of the contract, but the law applicable to it must be determined with reference to others factors. The respondent referred to Dicey & Morris in “The Conflict of Laws”. 11th edn., Vol.11 ('Dicey'), Rule 180. The court stated that there is no need to draw any inference about the intention of the parties or to impute any intention to them, for they have clearly and categorically stipulated that their contract, made in India to be performed in India, is to be governed by the 'laws in force in India' and the courts in Delhi are to 'have exclusive jurisdiction in all matters arising under this contract' (Clause 7). Replying on the question of “Conflict of laws”, court reasoned that in an arbitration agreement where the parties had agreed that matters of procedure should be governed by a different system of law, the court would give effect to the choice of a procedural law other than the proper law of the contract, but if there is no expressed statement as regard the law governing the arbitration agreement, and Indian Law governs the contract the laws of India would undoubtedly govern the validity, interpretation and effect of all clauses including the arbitration clause in the contract as well as the scope of the arbitrators' jurisdiction. The cardinal test suggested by Dicey in Rule 180 is thus fully satisfied.3 The Apex court held that an award made on an arbitration agreement governed by law of India, though rendered outside India, was attracted by the saving clause (b) in sec 9 of 1961 Act, and was therefore not considered in India as “Foreign Award”. Following the decision in Sumitomo Heavy Industries Ltd. V. ONGC4 it was head that an award under an agreement governed by the laws of India was not a foreign award even if it was made in foreign country. In Gas Authority of India V. SPIE CAPAG SA5 the court added that the 1961 Act will be applicable if contract with foreign enterprise includes the arbitration clause. In a subsequent litigation between the same parties, reference to arbitration was not allowed to be claimed in respect to matters not covered by the arbitration clause. The court stated that in such condition Indian law will be 1 S K Dholakia, Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill, 2003, 39 ICA?S ARB. QUAT. 3 (2005). 2 (1992) 2 Arb LR 154: AIR 1993 SC 998: (1992) 3 SCC 511. 3 See para 19 of National Thermal Power Corporation Ltd v. Singer Co 4 1998 AIR 825, 1997( 6 )Suppl.SCR 186, 1998( 1 )SCC 305, 1997( 7 ) SCALE338 , 1997( 9 )JT 666. applicable and that the arbitration was a domestic one and not the foreign Award (Recognition and Enforcement) act 1961 and that the court could stay judicial proceedings in the foreign country on the matter. 3. Awards which qualify for enforcement under ACA 1996 Section 2(1)(e) of the Act defines 'Court' and Section 42 determines the jurisdiction of the Court to which all applications under Part I of the Act are made during or after arbitral proceedings. 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. However, there is no section in the Act, which contemplates that the Arbitral Tribunal is equal to a Court of law, which passed the Decree. There is also no provision in the Act, which gives power to an Arbitral Tribunal to execute its own Award. Certainly, the Arbitral award has to be brought for execution before a competent Court of law. As per the Code, the Court which passes the decree or where the Judgment Debtor is having immovable property or residing or carrying on his business can execute a decree. However, the Act is special law and therefore it prevails over the general provisions of the Code6 . The Hon'ble Supreme Court7 while interpreting these provisions held that “the expression with respect to an arbitration agreement' widens the scope of Section 42 to include all matters which directly or indirectly pertain to an arbitration agreement.” 4. Enforcement of foreign awards 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”). The arbitral award would be enforceable in India, if the courts in India receive an arbitral award from a country, which has signed the Geneva Convention or New York Convention, and the award is made in a territory, which has been notified as a convention country by India. The central government has notifies only 48 countries as reciprocating countries out of 196 countries in the world with Mauritius Being the most recent addition. The enforcement of a foreign award in India is initiated by filing an execution petition and is a two-stage process. In the first stage a competent court would determine the adhered of the award to the requirements of the Act, the second stage being to enforce that award like a decree of that court. However, the award debtor may take up delaying tactics such as frivolous objections and requirements such as filing authenticated or original copy of the award and the underlying agreement before the court. Therefore, an award must fulfill two requirements in order to be called as a “foreign award”. First that under the laws of India, it 6 Consolidated Engineering Enterprises v. Principal Sec. Irrigation Dept., MANU/SC/7460/2008 : (2008) 7 SCC 169 : (AIR 2009 SC (Supp) 396) and Union of India v. Popular Construction Co., MANU/SC/0613/2001 : (2001) 8 SCC 470 : (AIR 2001 SC 4010) 7 State of West Bengal v. Associated Contractors, AIR 2015 SC 260. 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 & Another8 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 second requirement being that the country where the award has been issued must is a country notified by the central government to be a reciprocating country. 5. Appropriate forum for Enforcement of arbitral awards Two Judge bench of the Hon'ble Supreme Court of India in Sundaram Finance v Abdul Samad & Anr9 , has clarified the inconsistency which existed with regard to the appropriate jurisdiction for enforcement of an arbitral award by holding that for execution and enforcement of an Arbitral Award under the Arbitration and Conciliation Act, 1996 (Act), a party may file in any jurisdiction in the country, where such decree is capable of being executed. The Supreme Court went on to hold that there is no requirement to obtain a transfer decree from the court which has jurisdiction over the arbitration proceedings. In case the subject matter of the arbitration is of a specified value,10 commercial courts established under the Commercial Division, Commercial Courts and Commercial Appellate Division of High Courts Act 2015 (“Commercial Courts Act”) would have jurisdiction. In the case of Brace Transport Corp of Monrovia v Orient Middle East Lines Ltd11.The Apex court quoted a passage from Redfern and Hunter on Law and Practice of International Commercial Arbitration, inter alia, as follows: “A party seeking to enforce an award in an international commercial arbitration may have a choice of country in which to do so; as it is sometimes expressed, the party may be able to go forum shopping. This depends upon the location of the assets of the losing party. Since the purpose of enforcement proceedings is to try to ensure compliance with an award by the legal a achment or seizure of the defaulting party?s assets, legal proceedings of some kind are necessary to obtain title to the assets seized or their proceeds of sale. These legal proceedings must be taken in the state or states in which the property or other assets of the losing party are located.” In case of money award, the jurisdiction will be with the Commercial Division of any High Court in India where assets of the opposite party. In case of any other award, Commercial Division of a High Court would have jurisdiction as if the subject matter of the award was a subject matter of a suit before the High Court. 8 1994 (4) SCC 541. 9 (Civil Appeal No 1650 of 2018) 10 Commercial Courts Act, s 2(1)(i), “Specified Value”, in relation to a commercial dispute, shall mean the value of the subject-matter in respect of a suit as determined in accordance with section 12 which shall not be less than one crore rupees or such higher value, as may be notified by the Central Government 11 1995 Supp (2) SCC 280. 6. Limitation period for Enforcement of awards Various High Courts have different views and interpretations on the limitation period within which a party may enforce an award. The Bombay High Court12 has held that a foreign award would undergo a two-step process as it is not a decree per se and would not be binding on parties unless a competent court record it as enforceable. Therefore, the limitation period would be three years, as the application for enforcement of a foreign award would fall within the residuary provision of the Schedule to the Limitation Act. Thereafter when a competent court recognizing the award as a decree, the limitation period would then be twelve years for execution of such decree. The Madras High Court held that, “the foreign award is already stamped as a decree and the party having a foreign award can straight away apply for enforcement of it and in such circumstances, the party having a foreign award has got 12 years time like that of a decree holder.” Therefore the recognition of foreign awards as deemed decrees the corresponding limitation period would be twelve years. The Act however provides that prior to enforcement of a foreign award some conditions have to be assessed and the award shall be deemed to be a decree of that court13, only when the court is satisfied that the foreign award is enforceable. The High Court of Bombay held that the right to apply would accrue when the applicant receives the award.14 As a matter of fact the Act does not prescribe any limitation period for enforcement of a foreign award. However, the Supreme Court in M/s. Fuerst Day Lawson Ltd v. Jindal Exports Ltd15 , Observed that, “In one proceeding there may be different stages. In the first stage the Court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the court decides that foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award as a rule of court/decree again.16” Therefore, the apex court held that a foreign award is already stamped as the decree under the Act. 7. Grounds of resistance to Enforcement A foreign award will not be enforced in India if it is proved by the party against whom it is sought to be enforced that the parties to the agreement were, under the law applicable to them, under some incapacity, or, the agreement was not valid under the law to which the parties have subjected it, or, in the absence of any indication thereon, under the law of the place of arbitration; or there was no due compliance with the rules of fair hearing; or “the award exceeded the scope of the submission to 12 Noy Vallesina v Jindal Drugs Limited 2006 (5) BomCR 155 13 The Arbitration and Conciliation Act 1996, section- 49 14 2007 (1) RAJ 339 (Bom), AIR 1986 Gujarat 62. 15 2001 (6) SCC 356. 16 M/s. Fuerst Day Lawson Pvt. Ltd v. Jindal Exports Pvt. Ltd. 2001 (6) SCC 356. arbitration; or the composition of the arbitral authority or its procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the place of arbitration; or the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made”. The award will not be enforced by a court in India if it is satisfied that the subject-matter of the award is not capable of settlement by arbitration under Indian law or the enforcement of the award is contrary to the public policy. It is for the party against whom a foreign award is sought to be enforced, to prove to the court dealing with the case that the composition of the arbitral authority or the arbitral procedure was not in accordance with the law of the country where the arbitration took place. If the respondent?s reply to the application for enforcement contains ground(s) mentioned in sub-section (1) of section 48, the respondent would be called upon to furnish to the court proof of the existence of any one or more such grounds as mentioned in clauses (a) to (e) of sub-section (1) of section 48 of the Act. The word „proof? would necessarily imply the establishment of the alleged fact by evidence. The evidence can be oral as well as documentary evidence produced by a party or depositions of witnesses in relation to matters of fact under inquiry. The proceedings under Part II of the Act will not be treated as a suit. However, a party requesting the court to refuse the enforcement of foreign award will be entitled to lead evidence in support of the grounds. 8. Public Policy Doctrine in India In the case of BALCO v Kaiser Aluminium17, the Bhatia International case was overruled by the Indian Supreme court on the ground that the Arbitration and Conciliation Act, 1996 lay emphasis on the principle of territory and therefore, Part I of Arbitration and Conciliation Act, 1996 would not be applied if the arbitration has a foreign seat. Hence, an arbitration award which was not seated in India can no longer be challenged on the ground that it violates section 34 of Arbitration and Conciliation Act, 1996. This decision was of utmost importance as it helped foreign parties restore their confidence to invest in India. However, even after the Judgement of Supreme court in BALCO v Kaiser Aluminium,18 the question as to whether a foreign arbitral award can be denied on the basis of patent illegality as held in the Phulchand Exports case remained unsolved. However, this question was addressed in Shri Lal Mahal v Progetto Grana SpA19 . In this particular case, a foreign arbitral tribunal passed an award passed under Grain and Feed Trade Association Rules, which was upheld by U.K. courts and its enforcement was sought in India. The 17 BALCO v. Kaiser Aluminum, (2012) 9 SCC 552. 18 Ibid 19 CIVIL APPEAL NO. 5085 OF 2013 defendants argued in Indian courts that the particular award is patently illegal and in violation of the country?s public policy, and therefore the award should not be enforced. The Indian Supreme Court stated that the term „public policy? as provided under section 48 of Arbitration and Conciliation Act, 1996 does not specify the ground of patent illegality. In addition, such basis is restricted to section 34 of Arbitration and Conciliation Act, 1996 which mainly deals with setting aside of an order. The Court stated that the public policy doctrine is comparatively restricted in cases which involve foreign matter such as seat of arbitration outside India or conflict of laws etc. The court also observed that the term, public policy of India? provided under Section 34 of Arbitration and Conciliation Act, 1996 was required to be interpreted as per the court?s jurisdiction before the award becomes conclusive and executable. In addition, Indian Supreme Court stated that Section 48 of Arbitration and Conciliation Act, 1996 does not cover reviewing the award for merits at the enforcement stage. Accordingly, the Indian Supreme Court held that Section 48 of Arbitration and Conciliation Act, 1996 is restricted to fundamental policy of India, justice and morality.20 8. Appeal against enforcement of Award There is no scope for an appeal against an order of the court for the enforcement of a foreign award. If the court is satisfied that the foreign award is enforceable, the award itself would be deemed to be a decree of the court. The procedural formality for the court to pronounce judgment and a decree to follow on that basis is omitted. Further, the possibility of the decree being in excess of, or not in accordance with the award is also removed. It is for this reason that section 50(1)(b) of the Act provides for an appeal only against an order refusing to enforce a foreign award under section 48. Section 50(1)(b) of the Act provides for an appeal only against an order refusing to enforce a foreign award under section 48. No letters patent appeal will lie against an order which is not appealable under section 50 of the Act. The scheme of sections 49 and 50 of the Act is devised specially to exclude even the limited ground. The Letters Patent is only indicative of the forum to which an appeal against an order of the Single Judge would lie. It does not confer an additional right to file an appeal. 9. Consequential drawbacks in enforcement of Foreign Awards The root cause of all the delays in enforcement/challenging the awards has been the ever-widening powers of the court to review the awards, be it domestic or international. Excessive judicial interference resulting in admission of large number of cases which should never be entertained in the first place is yet another evil that hampers the settlement of commercial disputes in turn retarding the growth and development of the economy. 20 Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC 433. Indian courts have so grossly misinterpreted the Act to suit their whims and fancies that it is impossible to achieve results conducive to healthy business with Indian companies. The innumerable errors on the part of the courts to pass decisions in accordance with the Conventions is not only frustrating but also setting a negative trend, possibly discouraging parties from opting for arbitration as a means of dispute settlement in India Other very prominent criticisms that are identified to be flowing from the interpretation of the Act is that the time period for the enforcement of the arbitral award is not provided, which is indeed counterproductive. By not setting a time limit for the enforcement of the awards one finds that the inordinate delays in arbitral proceeding are no different from that of the innumerable pending court cases, thus defeating the very provisions of the Act. The parties and arbitrators, who are mostly retired judges, treat arbitration as a long standing litigation process and bank on the long and frequent adjournments, to delay the process as much as possible. Further, the reason why arbitration was picked over litigation as the ultimate legal procedure to be followed, the reason why it held such an appeal for the masses was its cost-effectiveness. Traditional litigation cost a humungous amount primarily because it was excruciatingly time consuming. Although conceived as a cheaper alternative to litigation, arbitration has become quite expensive now. The first occasion for considering any question of jurisdiction does not normally arise until the arbitral tribunal has issued at least six adjournments.21 It must be noted that arbitral process proves to be inexpensive only when the number of arbitration proceedings is limited. Thus, issues of speed and cost-efficiency are the hallmarks of the procedure, and are often identified as the core reasons why arbitration very clearly surpasses litigation as a suitable choice for dispute resolution, especially with respect to commercial disputes. It must be remembered that these shortcomings are capable of hindering the progress of international trade and commercial arbitration, and with the constant inflow of business this might in effect hamper our economy. One way to mitigate the risk of court intervention is to provide for an appointing authority, since this limits the ability of the parties to apply to the local courts under Part I of the Act for the appointment of arbitrators in default of the agreed process.22 10. Conclusion In the present era, public policy is used as a weapon by Indian courts to interfere in international arbitration matters. This is because there are no fixed parameters for the expression, public policy? and it differs from state to state. Therefore, its interpretation has been wavering. It is true that public policy 21 Law Commission of India, 176TH REPORT ON ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2001, at 68. 22 Frances Van Eupen, Reach of Judicial Review of arbitral award, INT. A.L.R., N-75 (2008). is similar to an unruly horse, but countries like U.S.A, France and U.K have remained successful in taming this, as explained in the preceding paragraphs. If India follows this correct approach and takes inspiration from France, U.S.A and England, it will soon become the most favourable arbitration seat in South East Asia. This can be demonstrated by a change in the government?s approach towards arbitrational disputes.