According to the Indian Arbitration and Conciliation Act, 1996 (section 44) Foreign Awards can be defined as 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. The Arbitration (protocol and convention) Act 1937 and the Foreign Awards (Recognition and enforcement) Act, 1961 dealt with Foreign Awards. Part II of this act includes special provisions for the enforcement of ‘Foreign Awards’.

The evolution jump started with UNCITRAL evolving conventions and model law overriding Geneva Convention of 1927 and corresponding Arbitration (Protocol and Convention) Act, 1937.

The Model Law was developed to address disparities between various municipal laws on arbitration. The constant need for improvement as well as harmonization of such laws was based on findings that various municipal laws were sometimes particularly inappropriate for international cases. India adopted the model law by enacting the Arbitration and Conciliation Act, 1996 with modification to suit its municipal needs as per the wisdom of its legislature. It contains two main parts wherein part I pertains to Arbitration, part II deals with enforcement of foreign awards- New York convention award and Geneva convention awards, the other two parts (III & IV) pertain to Conciliation, and Supplementary Provisions.¹

According to the Act of 1937, the party which pursues recognition and enforced foreign award in India was required to establish grounds of qualification for an award to be recognised and enforced, which were two-fold.

 Firstly, it had to be established that the award was made pursuant to an arbitration agreement to which the Geneva Protocol and Geneva Convention applied. Secondly, it also had to be established that the parties were “Subject to Jurisdiction” of one of the contracting states to Geneva Protocol and the Geneva Convention. Under the Foreign Award Act, 1961, an award made in any state was to be recognised and enforced, as long as it satisfied the basic conditions set down in the Act of 1961. The party seeking recognition and enforcement was required to produce to the relevant court, the award and the arbitration agreement under which it was made and the necessary evidence to prove that it was a foreign award as per the Act, 1961. When the enforcing court is satisfied that an award was a foreign award under the Act, it had to enforce it. Unless it is embraced by one of the provisions of Section 7 of the Act which had afforded several grounds on which an award could be refused by the enforcing court. However, the object of these enactments was to encourage parties to arbitration agreement to abide by their undertaking contained therein. To achieve this goal, three measures were adopted. Firstly, they recognised the validity of arbitral awards rendered by foreign arbitral tribunal in foreign land, provided it fulfilled certain conditions prescribed by these enactments. Secondly, they provided legal machinery for enforcement of foreign arbitral awards in India.

DIFFERENCES BETWEEN FOREIGN AWARD AND DOMESTIC AWARD

In broad terms the basic difference between Foreign Award and Domestic Award is two-fold. Firstly, regarding procedure of the execution of award- In case of domestic award, there is no requirement for separate execution of award. Once an award is made and objections are rejected, the award automatically gets executed and there is no requirement for application of enforcement of an award. On the other hand, foreign award is required to be enforced. Once the court is satisfied that a foreign award is enforceable the award becomes decree of the court and executable as such. Another significant difference between them is that (unlike domestic awards) foreign awards cannot be set aside. A party seeking to enforce a foreign award has to make an application for the same and the court can either accept it or reject it but the court can never set aside the award.

PUBLIC POLICY PARADOX IN ENFORCEMENT OF FOREIGN AWARDS

In case of adversarial litigation, arbitration has emerged as a mode for resolution of international commercial disputes. It is mainly caused to the judicial practice in certain jurisdictions to refuse the enforcement of international arbitral awards for their failure to meet the test of public policy of the concerned state. Global monetary flows are principally based on trust in the decisiveness of the arbitral awards. This issue is significant for the emerging economies of countries which constitute BRICS. The ones who strive to attract global capital to restructure their economies. Along with a robust in legal and judicial framework these also need uniformity in the approach to establish international credibility.²

The first time the issue of whether public policy can be considered as an exception for enforcement of foreign awards was raised in the case of Renusagar Power Electric co v. General Electric Co. This particular case dealt with enforcement of an ICC award.  This case took place before 1996 and hence it was decided under the Arbitration Act of 1961.

In the case of ONGC v. Saw Pipes it was clarified that an arbitral award could be challenged as being ‘patently illegal’, in instances of the award being opposed to substantive provisions of law or being opposed to the Act or even being opposed to the terms of the contract. After this judgement, the review under section 34 shows testing an award on the compliance with substantive law and the terms of the contract to determine whether the award violates public policy. The Hon’ble Supreme Court while interpreting the ground of ‘Public Policy’ introduced first time a sub- ground known as ‘Patent Illegality’ in ONGC Ltd. v. Saw Pipes Ltd. It can be understood that if the award is patently against the statutory provisions of substantive law which is in force in India or is passed without giving an opportunity of hearing to the parties as per section 24 or without giving any reason in a case where parties have not agreed that no reasons are to be recorded, it would be against the statutory provisions. In all such cases, the award is required to be set aside on the ground of “Patent Illegality” In Saw Pipes, the Supreme Court interpreted ‘public policy’ in light of principles underlying 1996 Act, Indian Contract Act 1872 (India) and Constitutional provisions.8 The Court found that public policy concerns public good and public interest matters and not the policies of a particular government

PROBLEMS UNDER THE ACT OF 1937

Enforcement of foreign award in India under the Act of 1937 posed some difficulties. The statement of objects of the Act of 1961, itself revealed legislative intention and highlighted a few prominent drawbacks of the Protocol Act, 1937, which has been inherited from the Geneva Convention.

The Act of 1937 placed undue emphasis on the law of the land where the arbitration was to take place. It also laid down much emphasis on remedies that were available to the parties to invoke the law of the country, wherever the enforcement was sought for the purpose of setting aside the award. Difficulty arises only when an award is passed in a country other than the one where it is sought to be enforced. The Act of 1937 could not escape from such complexity. The Act imposed an obligation on the party seeking enforcement of a foreign award to establish the validity and finality of it in the country where it was passed as well as in a country also where its enforcement was sought. The onus of proof on plaintiff to establish the finality and validity of award rendered in a different country was considered a great hurdle in meeting the growing intensity of international economic relations. In practice the finality of an award could be proved only by producing an exequatur (leave for enforcement) from the country in which it is made. The party was also required to obtain a leave for enforcement from a court of a country in which he sought the enforcement of a foreign award. The problem of double exequatur emerged. The system of double exequatur explained a situation where the beneficiary of an award was not only obliged, inter alia, to demonstrate the finality of the award in the country of its origin, but also in the country in which he sought its enforcement, usually entailing the institution of a costly, time-consuming and otherwise unnecessary proceeding for judicial enforcement order.

One major problem that emerged under this act was that as to the law applicable in a situation where arbitration agreement was valid according to the law of one country but invalid under the law of another country. Arbitration agreement is generally rendered invalid on the ground usually described as violative of public policy and the law of the country where the award is sought to be enforced. There existed no indication for the law governing the validity of an agreement in situation. Owing to the diversity and complexity of national laws and the rules of the conflict of laws, it was not easy to a party seeking enforcement of an award, to prove the conformity of the procedure followed by the arbitral tribunal of a country where the award was made, with the “public policy’ and “principle of law’ of a country where award was sought to be enforced. This condition in fact provided an opportunity to the reluctant party to attack on an award on the ground that it offended the law of the ‘Forum State’. The “public policy’ and ‘principle of laws’ have not been subjected to varied interpretation. The nature and attitude of the court in respect of these two concepts have been discussed at length in the ensuing chapter.

PROBLEMS OF ENFORCEMENT OF FOREIGN AWARDS UNDER THE ACT OF 1961

The Foreign Awards Act, 1961 following had some defects concerning the enforcement of foreign arbitral awards in India. Like the Act of 1937, the Act of 1961 also did not facilitate the quick resolution of disputes through arbitration. That is why Multinational Companies like Enron preferred arbitration in London under international regulation than to be bound to the Indian law.

Under the Act of 1961, the supervisory role of the court was maximum in arbitral process. An arbitral award could not be enforced, unless the court of the country, where its enforcement was sought, made it a ‘rule of court’.

There was no provision for direct enforcement. The conversion of the award into a ‘rule of court’ was considered to be a great hurdle and was time consuming in its enforcement in India. Arbitration clause could be rendered in operative by filing a suit in the municipal court by one of the parties to the agreement, thus, preventing the arbitrator to arbitrate. To discourage this practice, the courts were empowered to grant ‘stay’ of local action under the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Award (Recognition and Enforcement) Act, 1961. It hampered the speedy resolution of the dispute through arbitration and led to the foreign companies to form a biased opinion against conducting arbitration in India pursuant to the local Act of 1940.

Under the Act of 1961, there were five grounds on which recognition and enforcement of an award could be refused at the request of the party against whom it was sought to be enforced. The burden of proving the grounds of refusal vested in the party against whom the award was invoked. Like the Act of 1937, the Act of 1961 also prescribed two additional grounds which could be raised by the relevant court on its own motion. They were, the compatibility of the obligations imposed by the foreign award with that of ‘public policy’ of India and capability of dispute to be settled through arbitration under the law in force in India. There were grave uncertainties as to what constitutes ‘public policy’ of India and discretion granted to the court for determining the arbitrabi1ity of a dispute under the law in force in India. There was also uncertainty as to the content of the term “foreign award’. India had ratified the New York Convention subject to the reservation that it would apply it only to the contract of commercial nature. This finally invited another controversy as to which contracts could be considered to be ‘commercial’. There existed no guideline for determination of a contract considered to be “Commercial’ in both the Acts of 1937 and of 1961.

ENFORCEMENT OF FOREIGN ARBITRAL AWARDS AFTER THE ACT OF 1937

 India complied to the Geneva Protocol on Arbitration Clause of 1923 and the Geneva Convention on Execution of Foreign Arbitral Awards of 1927. It also became party to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958. It enacted the Arbitration 12 (Protocol and Convention) Act, 1937 to give effect to the Geneva Protocol and Geneva Convention. It also gave effect to the New York Convention by enacting the Foreign Awards 13 (Recognition and Enforcement) Act, 1961. The Act of 1937 did not govern the awards made after 11th October 1960 arising out of the countries which were the signatories to the 1958 Convention. This Act adopted the practice of arbitration and enforcement of the awards as embodied in the Geneva Convention and Geneva Protocol.

The Foreign Awards Act, 1961 ensured recognition and enforcement of foreign award in India in accordance to the procedure and scheme evolved under New York Convention. Both the Acts were made on the same line. However, differed in respect to burden of proof relating to the cases involving enforcement of foreign arbitral awards. The Act of 1937 under section (7)(l)(d) imposed on the party seeking enforcement of foreign award a duty to establish the validity of award and its finality in the country in which it was made. The Act of 1937 and of 1961, were simultaneously operative in respect of the enforcement of a foreign award in India. The reasons were two fold. Firstly, India being a State signatory to the Geneva Convention and Protocol on which the Act of 1937 was based, the obligation undertaken thereunder continued to bind India with regard to the award resultant of disputes between the member States of the said Convention and the Protocol. Secondly, since India had also ratified the New York Convention, 1958 and given effect to it by enacting the Act of 1961, its obligation also continued to bind India with reference to the awards coming out of the arbitration held on a dispute between the contracting states to the New York Convention 1958. A foreign award may have worldwide recognition in respect of its nature but different legal systems on account of their policies take different view as to its legal effect. Lack of specific provisions with regard to enforcement of foreign award in India coupled with the discretionary power of granting stay of a legal proceeding by the court by virtue of interpretation of the then existing statutes were considered great obstruction in the enforcement of foreign arbitral award in India prior to 1937.

The judgment of the Hon’ble High Court of Delhi in the case of NTT Docomo v. Tata Sons Limited (2016) has settled an important issue on the enforcement of foreign arbitration awards in India. The court was faced with a situation where a foreign arbitral tribunal interpreted the foreign exchange laws of India in a particular way, the enforcement was resisted by the Indian party. Interestingly the enforcement was also resisted by the Reserve Bank of India (The Central Bank), which has been conferred with the power of enacting delegated legislations (i.e. circulars, rules and regulations) for the working of Foreign Exchange law, i.e. the Foreign Exchange Management Act, 1999. The permission of Reserve Bank of India was required for performance of an obligation which was not granted. The Reserve Bank of India held the view that the enforcement of the foreign award will violate the foreign exchange laws and thus sought intervention in the matter, to oppose the enforcement of the award. It was ultimately held that entities which are not parties to an award have no locus standi to intervene in enforcement proceedings. The binding nature of the interpretation of laws by Arbitral Tribunals once the award is enforced by Court was also recognised, along with the need to consider the impact of FDI’s inflow and reputation of the country while considering the issue of the award being consistent with public policy. The judgment is a positive step in recognition and enforcement of foreign arbitration awards and answers the important question of the extent of intervention that entities which are not a party to an award have Enforcement proceedings or in proceedings challenging an award. The Arbitral Tribunal finally passed an award in favour of the petitioner (Docomo). In the award the Foreign Exchange Management Act was analysed and it was among other things held that the permission of Reserve Bank of India was not required and the Foreign Exchange laws of India does not contain any prohibition that would obstruct the enforcement of this award. ⁴

Enforceability

Part II of the Act does not set out any time after which the foreign award would become automatically enforceable which is unlike domestic arbitral awards. The whole enforcement process of a foreign award can be summed down to two major parts being firstly, under section 48 the Court determines the enforceability of the foreign award by giving a chance to the award debtor, the right to challenge the enforcement of the foreign award on the basis of the grounds set out therein. Once the Court is satisfied that the award is enforceable then according to section 49 of the Act, it is executed in the same manner as a decree of the Court. However, the objections can only be raised under section 48 of the Act in a reactionary manner by the party against whom the award has been passed after the creditor seeks enforcement. The application for enforcement is made under Section 47 and 49 of the Act. Where section 47 deals with the formal requirements necessary for making an application.

Appeal

If the Court refuses to enforce a foreign award under Section 48 of the Act. The Award holder has a right under Section 50 of the Act to file an appeal. Whereas no such remedy is available under the Act for award Debtor to file an appeal. However, Calcutta High Court has held that the award debtor is permitted to file a Letters Patent Appeal under the High Court Rules against the enforcement of the award. This decision was based on the Court’s observation that Part II of the Act is not a self – contained code, and thus the provisions of the Court rules which provide for such appeal operate to override Section 50.

Jurisdiction

According to the explanation of Section 47 of the Act, High Court has original jurisdiction to decide the questions forming the subject matter of the arbitral award if the same had been the subject matter of the suit, and in rest of the cases the High Court has the jurisdiction to hear appeals from the decrees of its subordinate courts. The Hon’ble Supreme Court has held that in case the subject- matter is money, then the execution petition must be filed before a Court within whose jurisdiction the money is held. Accordingly, the application for enforcement of a foreign award may be filed before a Court in whose jurisdiction the award debtor has its office or is carrying on its business,20or where the assets of the award debtor are present.

Time Period

The Act does not provide for any period of limitation for filing an application for enforcement of a foreign award. However, the High Court of Bombay held that since the enforcement of foreign awards required that an application is to be made before a civil court, the provisions of the limitation Act would be applicable Also, it was held that since foreign award goes through two distinct stages i.e., determination and execution, different provisions of the Limitation Act would apply to each stage. The Madras High Court on the other hand, has taken a contrary view on this, it held that since the foreign award is to be enforced in a combined proceeding involving enforcement and execution, only Article 136 of the Limitation Act would be applicable, setting out the time period of twelve years from the date on which the foreign award was rendered

CONCLUSION

It would be seen that the enactment governing the enforcement of foreign arbitral awards in India were fraught with several loopholes and practical impediments. Prior to 1937, the Indian Court used to take recourse to such a statute which even did not contain any provision in respect of enforcement of foreign awards in India. The courts devised short term remedies by way of interpretation of the then existing statute namely the Indian Arbitration Act, 1889, whenever they were approached to decide cases concerning enforcement of foreign awards in India. The use of such a statute which was no way concerned with the problems dealt with, consequently brought discretion in the hand of the courts to decide the cases of the said nature, by extracting the authority by way of interpretation of the Indian Arbitration Act, 1889. The parties to foreign agreements taking advantage of the said discretion of the courts could have easily taken the stay of legal proceeding” concerning enforcement of foreign awards, even in the cases where under the term of contract parties had agreed upon to refer all their disputes to the court of a particular country. Lack of any specific provision with regard to meet the widely expressed desire of the commercial world that India should ensure effective recognition and protection of foreign arbitration agreement, so that international mercantile community could establish trade relations with India. Both the Acts were accordingly made applicable only to a foreign award arising out of matters, which, by the law in force in India, were considered ‘commercial’. At the same time there existed no explanation to the term ‘commercial’ under the said enactments which consequently, led to a great difficulty to comprehend the exact content of the term ‘foreign award’ as a sole ground to make the Act of 1937 and of 1961 applicable in respect of enforcement of foreign awards in India. Growing intensity of modern international trade and resort to arbitration as a forum of settlement of international commercial disputes have exposed several inbuilt weaknesses and consequential practical impediments of the Act of 1937 and of 1961 in respect of enforcement of foreign arbitral awards in India.

The arbitration laws in India are very much at its crossroads. Today, arbitration is poised to effect great changes to the ways in which dispute resolution is conducted. It brings with it the solemnity and finality of the judicial process and along with the procedural flexibilities of alternate dispute resolution methods. However, there is an equally pressing need to recognize that much more can and should be done in order to improve the conduct of arbitral proceedings in India but most importantly, we feel that there is a need to bring a change in perceptions. As our nation moves towards increasing litigiousness, alternative methods of dispute resolution might just provide the key to resolving the problems of overburdened caseloads, long pendency of cases and an all too frequent case of justice being delayed. For long, the problem plaguing the effective implementation of ADR methods has been their perception as being subordinate to the court process- a perception shared and fostered by lawyers and people alike. It is imperative, that this be changed and this can only be achieved if there is active engagement from all the stakeholders in this process. Certainly, there are some disputes inherently unsuited for alternative channels but there are so many more which fit perfectly within the vision envisaged for a system of rendering justice that runs concurrent to the Courts. m. As our country grows and flowers, taking wing on issues unimagined before, it is time also for our dispute resolution systems, the undisputed backbone of our nation, to follow suit. At the end of the day arbitration would see the day light of reality and true success when people would start accepting the arbitral award and its finality as that of a judgment by the Supreme Court not because it is justice always but because it is final always, having no further appeal.

CITATIONS AND REFERENCES

1.Kachwaha, S., 2008. Enforcement of Arbitration Awards in India. Asian Int’l Arb. J., 4, p.64.

2.Bansal, C.L. and Aggarwal, S., 2017. Public policy paradox in enforcement of Foreign Arbitral Awards in BRICS countries. International Journal of Law and Management.

3.Ansari, A.T., 1995. Enforcement of Foreign Arbitral Awards in India-An Analytical Study with Special Reference to Arbitration and Conciliation Ordinance, 1996 (Doctoral dissertation, Aligarh Muslim University).

4.Hashmi, S., 2020. The Impact of NTT Docomo INC v. Tata Sons Limited on the Enforcement of Foreign Awards in India. Tata Sons Limited on the Enforcement of Foreign Awards in India (March 8, 2020).

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http://www.legalservicesindia.com/article/941/Enforcement-of-Foreign-Awards.html

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