Enforcement of Foreign Arbitral Award

Table of Content :-

  1. Introduction
  2. Historical background
  3. Enforcement of Arbitral Award
  4. Procedure
  5. Jurisdiction
  6. Forum for Enforcement of Foreign Award
  7. Time Limit
  8. Conclusion

Introduction

An arbitral award refers to the decision of an arbitral tribunal, whether in a domestic or international arbitration, including any interim awards thereunder. In India, enforcement and execution of arbitral awards are governed both by the Arbitration and Conciliation Act, 1996 and the Code of Civil Procedure, 1908. This article aims to look at the manner and procedure by which these arbitral awards, which are passed or laid down outside our territorial limits, are enforced in India. The process for the same is one that is mired in complexities and takes a lot of time to be enforced and as shall be seen below, been muddled by judicial decisions on the matter. 

The primary framework as regards the enforcement of arbitral awards is the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention. The Convention facilitates the enforcement of arbitral awards in all the contracting states, that is, those nations which are a party to and are signatories to the Convention, one among which is India. Prior to the New York Convention, enforcement of arbitral awards of another country in the jurisdiction of another State was provided for in the Geneva Protocol on Arbitration Clauses, 1924 as well as the Geneva Convention on the Enforcement of Awards of 1927. 

The laws of India, as a result of India being a signatory to both the New York as well as the Geneva Conventions, have primarily always provided for enforcement, within the local territory of India, of foreign arbitral awards. Examples of these include the laws such as the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 which were in tune with the Geneva and New York Convention, in that they provided for enforcement of foreign arbitral awards in India, provided that the parties have consented to the dispute being settled in the as per the law of the place chosen for the proceeding. However, today, the law that is in force is the Arbitration and Conciliation Act of 1996, enacted both on the UNCITRAL Model Law on Arbitration as well as to revamp and replace the 1937 and 1961 laws on the same. Thus, today, it is the 1996 Act that provides for the enforcement of foreign arbitral awards in India. 

Historical background

While tracing down the path of development in the field of “enforcement” and “recognition” of foreign arbitral award, India had two statutes i.e. the Arbitration (Protocol and Convention) Act, 1937[1]and the Foreign Awards (Recognition and Enforcement) Act, 1961[2] to deal with it. The Arbitration (Protocol and Convention) Act, 1937 was an offspring of the Geneva Protocol, 1923 and the Geneva Convention, 1927. Whereas, the Foreign Awards (Recognition and Enforcement) Act, 1961 came into picture as a result of the New York Convention, 1958. After the First World War, the need to have a robust mechanism to resolve the disputes arising out of the international trade across the countries was very strongly felt.

The International Chamber of Commerce (ICC) formulated an International Convention for smooth implementation of arbitration clause which used to be mentioned in definitive agreements. Thereafter, the Protocol on Arbitration Clauses was ratified by 30 countries on 24-9-1923 which categorically dealt with the arbitral procedure and execution of arbitral awards. Article I of the Protocol provided for recognition with respect to the international agreements between the countries, which were part of the Protocol which shall ensue that any future differences were to be resolved by arbitration[3].

The Government of India adhered to the Geneva Protocol on Arbitration Clauses, 1923 and the International Convention on the Execution of Foreign Arbitral Awards, 1927. The idea was to be included among the countries, which adhered to the abovementioned Protocol and Convention, in order to enable the resolution of commercial disputes through arbitration arising out of various underlying international agreements. However, subsequent to the implementation of the Geneva Protocol on Arbitral Clauses, there were few predicaments which came into light for instance; the beneficiary of the award was required to show to the executing court that award has attained finality in the country in which it was made in the first place. The said procedure was not very effective and was not in lines with the spirit and objective with which the Convention came into picture i.e. speedy and smooth enforcement of an arbitral award.

After several rounds of deliberations, a new International Convention on recognition came into picture for the recognition and enforcement of foreign arbitral awards i.e. the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention, 1958). The Indian Legislature adopted the New York Convention, 1958 and enacted the Foreign Awards (Recognition and Enforcement) Act, 1961, which was enacted with an objective to put in place a robust mechanism, wherein the commercial disputes of contracting countries can be referred to arbitration. It aimed at providing an effective and speedy disposal and consequent smooth enforcement of the foreign awards[4]. The Arbitration (Protocol and Convention) Act, 1937 incorporated the Geneva Protocol and Geneva Convention as First and Second Schedules. The Foreign Awards (Recognition and Enforcement) Act, 1961 similarly embodied the Schedules of the New York Convention, 1958[5].

The United Nation Convention on the Recognition and Enforcement of Foreign Arbitral Awards was ratified by India on 13-7-1960. After the enactment of the Arbitration and Conciliation Act, 1996[6] (“the Arbitration Act, 1996”), the two Acts i.e. the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961 were repealed. The Arbitration Act, 1996 was enacted in consonance with the UNCITRAL Model Law and Rules. Note that Part II of the Arbitration Act, 1996, deals with enforcement of a foreign award in India.

Enforcement of Arbitral Award

“Enforcement” on the other hand is more on an offensive front. A party seeking enforcement of an award not only intends to get the award recognised but also to enforce the same by using appropriate legal sanctions. One may argue that “recognition” and “enforcement” are contemporaries and they act in tandem.

In Brace Transport Corpn. of Monrovia v. Orient Middle East Lines Ltd.[7], the Supreme Court held that:

  1. … An award may be recognised, without being enforced; but if it is enforced then it is necessarily recognised. Recognition alone may be asked for as a shield against re-agitation of issues with which the award deals. Where a court is asked to enforce an award, it must recognise not only the legal effect of the award but must use legal sanctions to ensure that it is carried out.

Now, before going any further, let us try to understand the meaning of “foreign award”. The term “foreign award is defined under Section 44 of the Arbitration Act, 1996[8]. It states that “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 11th day of October, 1960—

  • in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and
  • in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette.”

As the Arbitration and Conciliation Act of 1996 (hereinafter referred to as the ‘Act’), is the prime legislation behind the enforcement of foreign awards, it is essential to understand how the awards are enforced under the Act. One of the declared objectives of the Arbitration and Conciliation Act, 1996 is that every final award is to be enforced in the same manner as the decree of the Indian court would be.

The Act has two parts- Part I and Part II, each of which deal with the enforcement of different type of foreign arbitral awards. Part I, modelled on the UNCITRAL Model Law, provides for the enforcement of arbitral awards that are not covered under the ambit of either the New York or the Geneva Conventions. As laid down by the apex Court, Part I of the Act applies to foreign awards that are governed neither by the New York nor the Geneva Convention. Such enforcement of awards can be challenged in cases wherein the award is contrary to either the fundamental policy or interest of India or is patently illegal. 

Part II of the Act is in tune with the provisions of the New York Convention. As per Section 46 of the Act, the provisions of Part II applies if the arbitral award is in pursuance of arbitration agreement under the Convention and the award is made in those States or in within the territorial limits of such place that has been notified by the Government of India. Such recognition of a foreign State is done through means of a notification by the Government of India that arbitral awards in those places are eligible to be enforced in India with respect to the parties to the agreement. 

However, there are certain circumstances where even if the agreement is one that is valid as per Indian law and meets the requirements, it shall not be enforced on the following grounds if the Court is satisfied that:- 

  • Parties to the agreement either are incapable of being parties to the agreement for reasons such as law applicable for the award vis a vis the Indian law.
  • Party was not given adequate notice to present his case as regards the arbitration proceedings or the appointment of the arbiter. 
  • Award deals with matters beyond the scope of the arbitration agreement. 
  • Composition of the Arbitral Authority or Procedure was not in conformity with the agreement of the parties or the law of the land where the arbitration took place.  
  • Award is not binding on the parties or has been set aside by a competent authority where the award was made. 

Further, as regards the Geneva Convention. Part II of the Act still contains provisions from the 1937 Act which provide for enforcement of awards under the Geneva Convention, in the same manner, as the New York Convention. 

Procedure for Enforcement of Arbitral Award

At the outset, it is upon the losing party to object to the arbitral award and file an application for setting it aside. However, if the objections to the award are not sustained or if no objections are filed within the time limit, the award itself becomes enforceable as a decree of the court.

An award can be challenged and set aside only by way of an application under Section 36 of the Act and only the basis of the circumstances listed under it. An application for setting aside an award must be made within three months of receipt of the award by the applicant subject to a further extension of 30 days on sufficient cause being shown. An application beyond this period is time-barred and further delay cannot be condoned. The party, after the expiry of the time for setting aside the arbitral award, as mentioned above, can file an application for execution before the court of the competent jurisdiction for the enforcement of the arbitral award

The different types of awards which are enforceable include Money Award, Award Containing Injunction and a Declaratory Award.  

Jurisdiction

For the purposes of the Arbitration and Conciliation Act, 1996, ‘court’ means the principal Civil Court having original jurisdiction to decide the question forming the subject matter of the arbitration if the same were a subject matter of a suit. The aggrieved party can, thus, bring its application to set aside the award before the court where the successful party has its office or where the cause of action in whole or in part arose or where the arbitration took place.

Forum For Enforcement of Foreign Award

The Supreme Court in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd.[9] held that while enforcing a foreign award there in no such requirement under the statute to initiate separate proceeding seeking an order to file execution of a foreign award. Relying upon the Supreme Court judgment, the Bombay High Court in Noy Velissina Engineering Spa v. Jindal Drugs Ltd.[10] held that a person seeking execution of a foreign award can execute it as a decree of the court.

 The term “court” is defined under the Arbitration Act, 1996 under Section 2(1)(e)[11] as:

  • (1)(e).…(i) in the case of an arbitration other than international commercial arbitration, the Principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court, or any Court of Small Causes;

(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court.

It was held by the Supreme Court in State of Maharashtra v. Atlanta Ltd.[12] that the award-holder shall file the application for enforcement of a foreign arbitral award before the competent court in whose jurisdiction the assets of the judgment-debtor are located. Also, if in a situation, where assets of the judgment-debtor are located within territorial jurisdiction of multiple courts, the application for execution of the award can be filed simultaneously in all such courts having jurisdiction.

Moreover, the Supreme Court in Sundaram Finance Ltd. v. Abdul Samad[13]  while providing some clarity as to the appropriate court to approach for enforcement of a foreign award held that a foreign award-holder can initiate execution of the award before any court in India having territorial jurisdiction where the assets are located. It is important to note that, after the establishment of commercial courts under the Commercial Courts Act, 2015[14] if the foreign award is of a specified value, the designated commercial court of the appropriate court having the territorial and pecuniary jurisdiction shall have the jurisdiction to enforce the award.

For the awards arising out of India seated arbitration although being an international commercial arbitration, after the introduction of the Commercial Courts Act, 2015 and Arbitration and Conciliation (Amendment) Act, 2015[15], the jurisdiction lies with the Commercial Division of the particular High Court, where assets of the judgment-debtor is situated.

Time Limit

Any application filed under Section 34 of the Act for setting aside the award must be made within 3 months from receipt of the same. This period can be extended by the court by a further period of 30 days on a sufficient cause being shown, but not thereafter. The court normally allows a wide scope to the meaning of what constitutes ‘sufficient cause’ and if it is convinced of the genuineness of the delay in filing an, the delay is condoned.

Conclusion

At this juncture, it must be understood that although there exists a procedure for the enforcement of foreign arbitral awards in India, such is not a smooth and efficient one and has come in for severe criticism. One of the main criticisms is the fact that it is not at all possible to be enforced in a quick and speedy manner as the Act stipulates that the award can be enforced only once the time available for the Court to strike down the award has passed. This is extremely inconvenient and one that leads to inordinate delays in the enforcement of arbitration agreements as concerns Indian Parties. Further, the significant role that the Courts play in what is essentially an alternative to the traditional judicial system is also a bone of contention for many.   

To conclude, it can be stated that the Indian Legal System does indeed have a well laid down and established the procedure for the enforcement of foreign awards in India. However, there is a rising need to reform the same in order to make it more business-friendly and lessen the burden on our already overworked judiciary. 


[1] Arbitration (Protocol and Convention) Act, 1937. http://www.scconline.com/DocumentLink/b6djW2F4.

[2] Foreign Awards (Recognition and Enforcement) Act, 1961. http://www.scconline.com/DocumentLink/Ye3wnUO3.

[3] Chapter  6.– Enforcement of Arbitral Awards in India; available at <https://shodhganga.inflibnet.ac.in/bitstream/10603/110130/16/16_chapter%206.pdf> (accessed on 27-5-2020).

[4] Recent Developments in Enforcement of New York Convention Awards in India, by Sahil Tagotra and Ishita Mishra; available at<http://arbitrationblog.kluwerarbitration.com/2020/07/06/recent-developments-in-the-enforcement-of-new-york-convention-awards-in-india/?doing_wp_cron=1598853711.0668098926544189453125> (accessed on 27-5-2020)/

[5] Report and the India Resolutions for the 1958 Convention on the Recognition and Enforcement of Foreign Awards by Fali Nariman andMarike Paulsson; available at <https://www.arbitration-icca.org/media/7/92930493591493/indiaresolutions16formatted.pdf>  (accessed on 27-5-2020).

[6] Arbitration and Conciliation Act, 1996. http://www.scconline.com/DocumentLink/QWdt5a4f.

[7] 1995 Supp (2) SCC 280, 287.

[8] Section 44, Arbitration  & Conciliation Act, 1996. http://www.scconline.com/DocumentLink/6WVZQ7Gd.

[9] (2001) 6 SCC 356.

[10] 2006 SCC OnLine Bom 545.  http://www.scconline.com/DocumentLink/Z547En23

[11] Section 2, Arbitration & Conciliation Act, 1996.  http://www.scconline.com/DocumentLink/TA0St4w3

[12] (2014) 11 SCC 619.

[13] (2018) 3 SCC 662.

[14] Commercial Courts Act, 2015. http://www.scconline.com/DocumentLink/7566Y3w5.

[15] Arbitration and Conciliation (Amendment) Act, 2015. http://www.scconline.com/DocumentLink/9ajA4z9b.

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