Enforcement of Foreign Arbitral Awards under Indian Arbitration Law

The Arbitration and Conciliation Act, 1996 makes provision for Domestic Award as set out in Section 2(7) of the Act of 1996 as well as recognition and enforcement of New York Convention Awards (Chapter I, Part II) and Geneva Convention Award (Chapter II, Part II). Preamble to the Act of 1996 unlike the Arbitration Act, 1940 makes it clear from the preamble that it has been enacted on the basis of recommendations whereby the General Assembly of United Nations, U.N. enacted Model Law and Rules etc., with the object of establishment of unified legal framework in International Commercial relations. With the growth of Global Trade and International Commercial transactions, the scope and ambit of International Commercial Arbitration has increased much more than it was originally expected. If the Arbitration proceedings are held in India, Section 2(2) of the Act will apply subject to proviso appended thereto inserted by the Act 3 of 2016. In case of Foreign Seated Arbitrations, substantive law (proper law) for the time being in force in India applies to this extent. The validity of Arbitration Agreement is governed by Arbitration Law applicable thereto. The arbitration proceedings are governed by curial law. Section 28 of the Act specifies category of applicable law for deciding the substance of dispute, in case of International Commercial Arbitration – category of law designated by the parties as applicable to the substance of dispute etc. as more particularly set out in the said section and the relevant sub-section. An Arbitral Award is final and binding on the parties and persons claiming under or them subject to provisions contained in Section 35 of the Act in case of Domestic Award and Section 46 in case of Foreign Awards. A valid award is executable and enforceable in the countries which have adopted New York Convention or Geneva Convention to the extent provided in Part II of the Act. The valid Foreign Award may be relied upon by the party in whose favour the Award is made by way of defence, set off or otherwise in any legal proceedings in India. The expression “Foreign Award” is defined for the purpose of interpreting and applying New York Convention Award by Section 44 of the Act. For the sake of brevity the said section is not reproduced here. The text of New York Convention is appended to the Act in the first Schedule. Similarly in case of Geneva Convention Award, the expression “Foreign Award” is required to be interpreted with reference to Section 53 of the Act read with the protocol set forth in the Second Schedule appended to the Act. It happens sometimes that notwithstanding Arbitration Agreement which is valid and binding, parties resort to judicial proceedings before a Judicial Authority in order to circumvent the arbitration clause or on taking of certain technical and legal contentions. In case of Arbitration Agreement covered by Sections 44 and 53 of the Act, in all such cases the Judicial Authority is bound to refer parties to Arbitration as already agreed upon unless it finds that the arbitration Agreement is null and void, inoperative or incapable of being performed. It has been held by the Hon’ble Supreme Court of India in case of Sasan Power Limited v. North American Coal Corporation India Pvt. Ltd., by a reported judgment reported in 2017(2) Arbitration Law Reporter 86 that the scope of enquiry under Section 45 of the Act is confined only to the question whether the Arbitration Agreement is “null and void, inoperative of incapable of being performed but not the legality and validity of the substantive contract”. In this case it was argued that two Indian parties could not enter into an Agreement of Arbitration to be governed by the laws of other country. However, this question was not decided by the Apex Court having regard to the finding of fact reported therein and conclusion that the agreement therein was between three parties and not between five Indian parties. It was held that here the contract was between three companies and one of them was a Foreign Company. It was held that an order was already passed in this case under Section 45 of the Act providing for Reference of Arbitral Dispute in according with the laws of United Kingdom and thus it was not necessary to decide as to whether two Indian parties could refer disputes to arbitrate to be governed under Foreign law. Thus, it was obvious that the Order of Reference was valid and the scope of enquiry under Section 45 of the Act was appropriate and the question as to whether two Indian Companies could enter into Agreement to be governed by the Laws of another country would not arise in this case for decision of the Hon’ble Apex Court. When an Foreign Award governed by New York Convention Award or Geneva Convention Award is sought to be enforced, an Application is required to be made before the Hon’ble Court concerned for enforcement of Foreign Award by producing before the Hon’ble Court original Award or copy thereof duly authenticated, original Agreement for Arbitration or duly certified copy thereof or such evidence as may be necessary to prove that the said Award was a Foreign Award and, no suit was required to be filed for enforcement of Foreign Award. All the procedural and other provisions pertaining to enforcement of New York Convention Award are set out in Chapter I of Part II of the Act (Sections 44 to 52). Similarly all the provisions relating to enforcement of Geneva Convention Awards are set out in Sections 53 to 60 of the Act. In one of the decided cases a question arose in the judgment in the case of Integrated Sales Services Ltd. v. Arundev Upadhyaya as to whether the Foreign Award could be enforced against a party who was a non-signatory to the Agreement but who was party to the Award and was thus statutorily recognized. It was held by the Hon’ble High Court of Bombay that on the basis of available precedents, the doctrine of alter ego was required to be applied. It was held that the expression “Public Policy of India” must be interpreted so as to consider as to whether there was a lack of judicial approach on the part of Arbitral Tribunal and thus there was contravention of ‘Public Policy’ of India. It was held that the Foreign Award was enforceable and the Chapter 1 of Part II of the Act in terms of provisions of Section 49 of the Act and the Foreign Award therein must be deemed to be a decree of the court. Section 47 of the Act prescribes the list of documents required to be produced by the party applying for enforcement of Foreign Award. The words “having regard to the object of the Act and even though all the documents were not produced along with the application, the same could be produced later on”. Section 48 of the Act 1996 prescribes condition for enforcement of Foreign Award. For the time being I am restricting my study to Section 48(2) and Section 34(2-a) of the Act. Section 34 (2-a) of the Act excludes the applicability of doctrine of patent illegality for challenging International Commercial Award. Section 48(1) of the Act provides that enforcement of the Foreign Award may be refused if the award totally furnishes to the court proofs of any of the matters mentioned therein e.g. incapacity of the parties to enter into the Agreement, no proper notice, decision by the arbitral on the document not submitted etc., Section 48(2) of the Act reads as under :— “48(2). Enforcement of an Arbitral Award may also be refused if the Court finds that –  The subject-matter of the difference is not capable of settlement by arbitration under the law of India; or Enforcement of the Awards would be contrary to the public policy of India. Explanation 1 :— For the avoidance of any doubt, it is clarified that an Award is conflict with the public policy of India only if :—  Making of the Award was induced or affected by fraud or corruption was in violation of Section 75 or Section 81 ; or It is in contravention of the fundamental policy of Indian law or It is in conflict with most basic motion of morality on justice. Explanation 2 : For the avoidance of doubt, the test as to whether there is contravention with the fundamental policy of Indian Law shall not entail a review on merits of the dispute”  Explanation 1 and Explanation 2 were substituted in the said sub-section of Section 22 of Act 3 of 2016. Thus the scope and ambit of concept of Public Policy of India as a ground for setting aside the Foreign Award is very much restricted and narrowed down by Explanation I and is further restricted by clarificatory Explanation 2. In brief, if the Foreign Award is induced or affected by fraud or corruption or is in violation of Section 75 of Section 81 of the Act like purporting to admit evidence in conciliation proceedings which is inadmissible, the Award shall be considered as being in conflict with Public Policy of India. By Explanation 2 it is clarified that whether there is a contravention with the fundamental policy of Indian Law shall not entail review on merits of the dispute. Identical restrictions on the applicability of the ground of award being conflict of public policy as a defence is provided by Explanations 1 and 2 substituted at the foot of Section 57 (e) of the Act. It must be clarified here and now that the expression “fundamental policy of Indian Law” does not mean mere error if law and even the ground of ‘patent illegality’ is segregated and further narrowed down from the ground of opposed to public policy. It means lack of judicial approach. As far as basic notion of morality or justice is concerned, in one of the cases which were observed that it would perhaps mean sexual immorality. I respectfully disagree. The language used is wide enough. In this context a reference must be made to the earlier judgment of the Hon’ble Supreme Court of India in the case of Renusagar Power Co. Ltd. v. General Electric Company and General Electric Company v. Renusagar Power Co. Ltd., reported in AIR 1994 SCC 860. In this case it was held that expression “Public Policy of India” in the context or Foreign Award must be construed to mean only Public Policy of India and the enforcement of a Foreign Award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to – Fundamental Policy of Indian Law; or Interest of India ; or Justice or morality. The grounds like fundamental policy of Indian Law contrary to justice or morality are incorporated in the amended legislate word by word in Explanations (ii) and (iii) Appended to Section 48(2) of the Act in case of New York Convention Award and sub-clauses (ii) and (iii) forming part of Explanation 1 appended to Section 57 in case of Geneva Convention Award. It was held in ONGC Ltd. v. Saw Pipes Limited that the external Public Policy of India must be widely construed for the purpose of interpreting and applying Section 34 of the Act. This view has been overruled legislatively as indicated in substituted provisions. It was also held in Renusagar’s case that provision for allowing compound interest was not opposed to Public Policy of India. It was further held that breach of Foreign Exchange Regulation Act 1973 shall amount to contravention of Public Policy of India as the Foreign Exchange Regulation Act was enacted to safeguarding economic interest of India but in Renusagar’s case, no breach of Foreign Exchange Law was present.  The expression “interest of India” as one of the grounds referred to in paragraph 66 of the judgment in Renusagar’s case makes no difference as if the Award is in contravention of Interest of India it is bound to be treated as contrary to fundamental principles of justice or morality or fundamental policy of Indian Law and adding of this ground in so many words would make no difference. It must however, be stated that one more ground has been added by Explanation 1 Appended to Section 34(2)(b), in addition to Explanation 1 appended to Section 48(2) of the Act and Explanation 1 appended to Section 57(e) of the Act directly or indirectly. It means that if the Award is procured or induced or affected by fraud or corruption, it would be treated as opposed to public policy. It further means that if Award is in violation of Section 75 or 81 of the Act provide for confidentiality of conciliation proceedings and inadmissibility of evidence or justice made during the course of conciliation in other proceedings is also ground of treating the award as opposed to public policy. I shall now refer to the judgment of the Hon’ble High Court of Madras in the case of Tehaicom Public Company Ltd. v. Raj Television Network Limited, reported in 2017(2) Arbitration Law Reporter 321 where the expression “Public Policy of India” was interpreted or applied in context of fundamental policy of Indian Law. It was the case of Arbitration held in Singapore the claim was within time according to the Arbitral Tribunal. When the Award was sought to be enforced in India it was sought to be argued that according to the Indian Law limitation of 3 years would apply for making an application for enforcement of Award and the Award could not have been validly made at Singapore ignoring three years of Law of Limitation prescribed by Indian Law of Limitation. This argument was rejected by the Hon’ble High Court of Madras on the ground that fundamental policy of Indian Law was required to be interpreted in contexts of judgment of Apex Court in the case of Shree Lalmahal Ltd. v. Progetto Grano Spa, reported in AIROnline 2013 SC 191 that wider interpretation of the expression ‘Public Policy” in case of Domestic Award was not applicable in case of enforcement or enforcement of Foreign Award. Earlier judgment of the Hon’ble Supreme Court of India in the case of Phulchand Exports Ltd. v. OOO Patriot, reported in 2012 AIR SCW 30 was overruled. There cannot be second inning on a law point involved once again before the court before which Award was sought to be enforced under Section 48 of the Act. Section 45 of the Act clearly provides the Reference to Arbitration was mandatory unless the Agreement was null and void or inoperative or incapable of being performed. It was held that Indian Limitation Act cannot be invoked before the Learned Arbitrator and the Learned Arbitrator was justified in applying Singapore Law in view of the Order of Reference under Section 45 of the Act. Thus it was held that the Agreement of Arbitration was lawful and was neither null and void nor inoperative or incapable of performed. The Award was upheld. It was held that Limitation was a part and procedural law and it would necessarily involve application of Law of Limitation which was closest to the Seat of arbitration i.e. in this case the Singaporian Law. Thus in my humble opinion the amendment made by adding Explanations 1 and 2 to Section 48(2) of the Act rightly reduced the ground of challenge in respect of Foreign Award. By and large if international investors are to be persuaded to go ahead with the global trade, scope for challenging International Awards or Foreign Awards should be minimum and award should be treated as final both on facts as well as on law unless it was in breach of natural justice, without jurisdiction, oppose to public policy or patent illegality. As far as patent illegalities are concerned, the said ground is now separated from the ground of Public Policy as obvious from Section 34(2-A) of the Act. In other words the award arising from International Commercial Arbitration cannot be set aside on the ground of patent illegality even if it so appears on the face of the Award unless the patent illegality is in respect of serious economic offence like contravention of FERA as held in Renusagar’s case. For the sake of brevity, I say, no more. The march of law is in right direction and must be appreciated by all of us by and large, the Awards must be honoured and the judicial intervention must be bared minimum.

Author Name: Hon’ble Justice D. R. Dhanuka