When an arbitral award is made in pursuance of international commercial arbitration proceedings, it must conform to certain standards and requirements before it can be recognised and enforced in India. An award must first be recognised – and to be recognised, it must fall within the ambit of the definition of a ‘foreign award’.
There are three types of awards that may be made pursuant to international commercial arbitration proceedings.
1. The arbitral award may be a New York Convention award. This means that the award is made as a result of an arbitration agreement to which the New York Convention applies.
2. The award may be a Geneva Convention award made in pursuance of an agreement for arbitration to which the Geneva Convention applies.
3. An award may be made pursuant to an arbitration agreement wherein parties referred to international commercial arbitration, but such an agreement is not subjected to either of the above conventions.
Section 44 defines a foreign award under the New York Convention and Section 53 provides the definition of a foreign award under the Geneva Convention. The recognition and enforcement of New York Convention awards is dealt with under Chapter I of Part II of the Arbitration and Conciliation Act, 1996 (1996 Act). The recognition and enforcement of the Geneva Convention awards is dealt with under Chapter II of Part II of the 1996 Act.
Requirements for a Foreign Award
The requirements for a valid foreign award under both provisions are similar,
1. The arbitral award must be made upon the differences between persons arising out of the legal relationship, regardless of whether it is contractual or not.
2. The legal relationship between the parties, whether contractual or not, must be considered as ‘commercial’ under the law in force in India.
3. The arbitral award must be made pursuant to an agreement in writing.
4. The arbitral award must be made in pursuance of an agreement on which either the New York or Geneva Convention applies.
5. The award must be made in a country recognised as a ‘convention country’ by the Central Government.
It may thereafter be enforced in India if it fulfils the preconditions for the enforcement of a foreign award.
In Escorts Ltd. v Universal Tractor Holding LCC,[i] the question before the court was whether a foreign award must be confirmed in the jurisdiction where it was passed before it can be recognised and enforced in India. This requirement, which was once prevalent under the law before the 1996 Act came into force, is also known as the ‘double exequatur’ which loosely translates to double acceptance or recognition by two competent authorities. The 1996 Act which incorporates the New York Convention brought in a changed law which did away with the rule of double exequatur. It is, therefore, not material for the purpose of enforcement a foreign award that the award in any other country other than India is made enforceable by a judgment.
Once a foreign award has been recognised under Indian law, it may be enforced subject to the fulfilment of certain conditions.
New York Convention
The conditions for the enforcement of a New York Convention award are found in Section 48. They are as follows:
1. A foreign award will be enforceable unless the parties to the arbitration agreement were under some incapacity.
2. A foreign award will be enforceable unless the arbitration agreement is invalid when tested against the body of law which governs its recognition and enforcement.
3. A foreign award will be enforceable unless the party against whom the award has been made can show that they were not properly made aware of the appointment of the arbitrators or of the conduct of arbitration proceedings. They must be able to show that they were not given a proper opportunity to present their case before the arbitral tribunal.
4. A foreign award will be enforceable unless the decision contained in the award is made on a question or a dispute that is different from the one placed before the tribunal. The tribunal must have arrived at a decision over an issue that was not submitted to it for its decision.
5. A foreign award will be enforceable unless the manner in which the arbitral tribunal was set up or the manner in which the proceedings were conducted was contrary to the terms of the agreement between the parties or is in violation of the law chosen to govern the arbitration proceedings.
6. A foreign award will be enforceable unless it has not yet become binding on the parties. Therefore, if the time allowed before an award becomes binding has not passed or a precondition to the enforcement of the award has not been satisfied, the award cannot be enforced.
7. A foreign award will be enforceable unless the award has been set aside or found to be ineffective by a court or authority that has the power to rightly make such a decision.
8. A foreign award will be enforceable unless the subject-matter of the dispute pursuant to which the award was passed is not subject-matter that is capable of being resolved by arbitration under Indian law.
9. A foreign award will be enforceable unless the enforcement of such an award would be contrary to the public policy of India.
Under Section 49, once a foreign award made pursuant to the New York Convention is enforceable, it may be treated as a decree of the court and enforced as such.
The conditions for enforcement of a Geneva Convention award are found under Section 57. They are as follows- A foreign award will be enforceable only if
1. The arbitration agreement by which the dispute is submitted to arbitration has been found to be valid when tested against the law governing its enforcement and recognition.
2. The subject-matter of the dispute pursuant to which the award was passed is subject-matter that is capable of being resolved by arbitration under Indian law.
3. The manner in which the tribunal was set up or the manner in which the proceedings were conducted was in keeping with the terms of the agreement between the parties or is in conformity with the law chosen to govern the arbitration proceedings.
4. The award has attained finality, which means the validity of the award is no longer open to challenge.
5. The enforcement of the award will not be opposed to the public policy of India.
6. The award has not been annulled in the country where it was made.
7. The party against whom the award was passed was given a fair opportunity to present his case before the arbitral tribunal. He must have been properly informed of the conduct of the proceedings and have been given a reasonable amount of time to prepare his case.
8. The decisions contained in the award is made on a question or a dispute that has been correctly placed before the tribunal. The tribunal must have arrived at a decision concerning only those issues which were submitted to it for its decision.
Under Section 58, once a foreign award is made pursuant to the Geneva Convention, it is enforceable and may be treating as a decree of the court and enforced as such.
Foreign Awards and ‘Public Policy’
In the Renusagar case,[ii] which dealt with the principles governing the ambit of the term “public policy of India’ under Section 7(1)(b)(ii) in its application to foreign awards, ‘public policy’ was defined as follows –
1. Fundamental policy of Indian law
2. The interests of India, and
3. Justice and morality.
Thus, the scope of challenge to a foreign award on the grounds of public policy was substantially narrow. The case of Saw Pipes[iii] can be said to have no application to the enforcement of foreign awards since it is a case under Section 34 of the 1996 Act. Thus, the expanded scope of ‘public policy of India’ laid down in that case has no bearing on the enforcement of foreign awards under Section 48(2)(b) of the 1996 Act. In Phulchand Exports Ltd. v OOO Patriot,[iv] the court, however, considered the scope of the term ‘public policy’ in the Saw Pipes case and saw fit to give the expression ‘public policy of India’ as found in Section 34(2)(b)(ii) and its application to the recognition and enforcement of foreign awards, a wider ambit.
However, later in Shri Lal Mahal Ltd. v Progetto Grano SPA,[v] the Supreme Court once again had the opportunity to consider the scope of ‘public policy’ as it applied to foreign awards. The appellant argued that in light to the two decisions in Saw Pipes and Phulchand , the court may refuse to enforce a foreign award if it is contrary to the contract between the parties or if it is patently illegal. It was argued that the scope of ‘public policy’ in Section 48(2)(b) of the 1996 Act is of wider import than the expression ‘public policy’ in Section 7(1)(b)(ii) of the 1961 Act (repealed). The expansive construction given to the terms ‘public policy’ of India in Saw Pipes must also be applied to the recognition and enforcement of foreign awards as opposed to the narrower definition of the term in Renusagar case. The court disagreed and held that the narrower interpretation in the Renusagar case must apply and the wider import of the Saw Pipes judgment cannot be applied to foreign awards. When the holding in the Phulchand case was pointing out, the court expressly overruled the finding contained therein. The court concluded that in respect of foreign awards the scope of the term ‘public policy of India’ under Section 48(2)(b) must be read narrowly as it used to be under Section 7(I)(b)(ii) of the 1961 Act and cannot be given a broader understanding by applying the Saw Pipes judgment.
The design of the new Act is based on the premise that “it will provide an efficient and swift method of dispute resolution for both the domestic as well as international investors”.[vi] It is apposite to quote Sir LJ Earl Warren, “It is the spirit and not the form of law that keeps the justice alive“. Although there have been judgements which have disturbed the calm waters of the arbitration, the “cumulative endeavor should be to preserve the spirit underlying the Act which is precisely the objective of the new amendment Act”.[vii] With a surge in the business opportunities and entrepreneurship in India, it is only proper to anticipate “proper implementation of the Act in harmony with the UNCITRAL Arbitration Rules which forms the foundation of the Act”.[viii]
[i] (2013) 10 SCC 717: (2013) 177 Comp Cas 523.
[ii] Renusagar power Co. Ltd. v General Electric Co., (1984) 4 SCC 679: AIR 1985 SC 1156.
[iii] ONGC Ltd. v Saw Pipes Ltd. (2003) 5 SCC 705: AIR 2003 SC 2629.
[iv] (2011) 10 SCC 300: (2012) 1 SCC (Civ) 131.
[v] (2014) 2 SCC 433: (2014) 2 SCC (Civ) 1.
[vi]Enforcement of Foreign Awards in India, (Feb. 12, 2019, 4.39 PM), http://www.mondaq.com/india/x/514290/Arbitration+Dispute+Resolution/Enforcement+Of+Foreign+Awards+In+India.