In the recent past, Arbitration has become an integral part of the Justice System, especially since it makes up for the lack of party autonomy associated with the judicial process, by offering the parties a lot of leeway and flexibility with respect to the resolution of their disputes. Such Alternate Dispute Resolution (ADR) Mechanisms have, therefore, become extremely commonplace between parties as a mechanism for resolving their disputes.
With an increasingly globalised world, as well as taking into consideration the prevailing shortcomings of a Judicial System (especially from the point of view of parties to a dispute), the Legislature has taken several steps to lead to a culmination of the rising need for legislation(s) that would promote a pro-Arbitration Jurisdiction.
In line with this goal, the Arbitration Amendment Act, 2015 introduced several key changes in the Arbitration & Conciliation Act, 1996 (the Act) that would help pave the way for more autonomous Arbitral Proceedings. However, an issue that continues to persist is that of an excessive interference of Courts in the Arbitral Proceedings especially pertaining to the enforcement of Arbitral Awards. These issues only seem to get more convoluted when the concerned Arbitral Award is a Foreign Award as under the Act.
FRAMEWORK CONCERNING ENFORCEMENT AND RECOGNITION OF FOREIGN AWARDS
India being a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York Convention) and the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (Geneva Convention), the Courts have to consider the International practices while rendering any decision pertaining to the Foreign Award.
The New York Convention provides a comprehensive structure for the enforcement of International/Foreign Arbitral Awards. The country in which an Award is made, or the Arbitration Law under which it is made, is considered to have primary jurisdiction over the Arbitral Award under the New York Convention. In such an event, the other States would enjoy secondary jurisdiction.
Section 48 of the Act deals with the enforcement of the Foreign Arbitral Award in India. It is also a key provision which emphasises that the role of the Courts to intervene in the Arbitrations conducted under the Model Law is limited strictly to such matters as are specifically provided for in the Law itself. This is recognised as the doctrine of ‘Minimal Court Intervention’.
It establishes a presumption against the intervention of National Courts in matters concerning International Arbitration. In order to ensure that this doctrine is properly implemented, the Hon’ble Supreme Court (SC) is making every possible effort to bring the Arbitration regime in India in line with the best international practices.
The major impediments pertaining to the Foreign Awards are the grounds on which such enforcement is prevented.
Under Section 48(2) of the Act, enforcement of a Foreign Award may be refused if the Court finds that:
- The subject-matter is not arbitrable under the laws of India.
- The enforcement is contrary to the Public Policy of India.
The reasons for refusing recognition under Indian Law are similar to those set forth in Article V of the New York Convention.
THE PARADOX OF ‘PUBLIC POLICY’
Section 48(2)(b) of the Act is an exception under which the Indian Courts are prevented from enforcing Foreign Awards. It states that enforcement of an Arbitral Award may also be refused if the Court finds that “the enforcement of the Award would be contrary to the public policy of India”.
In order to claim such exception, it is very important to interpret the scope and application of the term ‘Public Policy’ with reference to Section 48 of the Act. The origin of the provision can be traced back to Section 7(1)(b)(ii) of the Foreign Awards (Recognition & Enforcement) Act, 1961.
In Shri Lal Mahal Ltd. v. Progetto Grano Spa [(2014) 2 SCC 433], while determining the scope of review of a Foreign Arbitral Award, the SC held that the term ‘Public Policy’ of India under Section 48 of the Act should be construed narrowly, whereas the same could be given a wider meaning under Section 34 of the Act. From this case, it was clear that there exists a clear demarcation in the application of the term ‘Public Policy’ between the enforcement of a Domestic Award and that of a Foreign Award.
However, the ambiguity still persists as there are still several prevailing interpretations of the term ‘Public Policy’. In the case of Associate Builders v. Delhi Development Authority [2014 (4) ARBLR 307 (SC)], the Court held that “the concept of the fundamental policy of Indian Law to mean
(1) compliance of the statutes and judicial precedence,
(2) need for judicial approach,
(3) natural justice compliance, and
(4) standards of reasonableness.”
However, it is very important to note that this inclusion of ‘compliance of statutes and judicial precedence’ must only be restricted to the application of Section 34 and must not create unnecessary hindrance surrounding the enforcement of the Foreign Arbitral Award. It is for this reason that the judgment of Venture Global v Satyam Computer Services (2017 SCC Online SC 1272) wherein the Court annulled a Foreign Arbitral Award based on pure domestic notions of public policy was adjudged as “bad in law”.
Subsequently, the Arbitration and Conciliation (Amendment) Act, 2015 (the Amendment Act), brought about in consonance with the provisions of the Geneva Convention, inserted an Explanation to Section 48(2)(b) wherein it was clarified that the term ‘Public Policy’, for the purposes of Section 48 of the Act, is limited to:
- The Award was tainted by fraud or corruption or was in violation of Section 75 or Section 81 of the Evidence Act, 1872;
- It is in violation of the fundamental policy of Indian Law; or
- It is in conflict with the basic notions of morality or justice.
Furthermore, the Amendment Act, 2015 also clarifies that the determination of the fundamental policy in Indian Law shall not entail a review on the merits of the dispute.
In the case of Vijay Karia v Prysmian Cavi E Sistemi SRL (2020 SCC Online SC 177) (Vijay Karia Case) that the SC laid down the correct position of law. While upholding the idea of minimum interference in enforcing Foreign Awards, the SC held that “A Foreign Award must only be set aside if it were to overtake the most basic notion of justice”.
Despite the Indian Judiciary’s reluctance to interfere with International Arbitral Awards, in the case of National Agricultural Cooperative Marketing Federation of India v Alimenta SA [(2020) SCC Online SC 381] (Alimenta Case), the SC refused to execute the Foreign Award because it was in violation of Export Policy which was deemed to be in violation of Indian public policy.
RECENT TRENDS PERTAINING TO THE ENFORCEMENT OF FOREIGN AWARDS
Recent decisions confirm that the Indian Courts have taken a pro-Enforcement stance while strictly adhering to the concept of minimal interference with Arbitral Awards, more particularly Foreign Arbitral Awards. The Indian Judiciary, along with the Legislature, has taken significant steps to facilitate the prompt execution of Arbitral Awards, in an ongoing attempt to enhance India as an Arbitration-friendly Jurisdiction.
Amidst a series of diverging decisions by the High Courts when it comes to enforcing Foreign Arbitral Awards, the SC, in the Vijay Karia Case, has cautioned the Courts against actively interfering with the enforcement of Foreign Arbitral Awards. However, the SC’s decision in the Alimenta Case may have perplexed Foreign Investors because it runs counter to the evolving judicial discourse.
It is a well-known fact that Indian Courts play a significant role in resolving disputes, yet, their intervention in the enforcement of the Foreign Arbitral Award creates impediments for the parties to the Arbitration. Despite the changes brought about by the Amendment Act, 2015 several loopholes and ambiguities still exist, thereby, reducing the benefits and value of Arbitral Proceedings.
In the recent past, India has considerably improved its stance on the execution and enforcement of Foreign Arbitral Awards which has only been possible because of the joint efforts of the Judiciary and the Legislature. Only in certain circumstances on extremely constricted grounds, the Courts have the authority to restrict the enforcement of a Foreign Arbitral Award.
The SC’s recent judgement in the Vijay Karia Case stands out as the most significant one so far. The judgement, inter alia, clarifies the restrictive scope of a party’s right to raise objections to a Foreign Arbitral Award under Section 48 of the Act. That being said, India still has a lot of ground to cover for becoming one of the most preferred ‘Arbitration Friendly Jurisdictions’ globally.
– Team AMLEGALS, assisted by Mr Ayush Yadav (Intern)
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