As world trade began to expand outstandingly in the 1960s, national Governments began to understand the need for a global set of standards and rules to harmonize national and regional regulations. Consequently, the United Nations Commission on International Trade Law (UNCITRAL) was established by the General Assembly in 1966. At its 1st session in 1968, UNCITRAL incorporated international commercial arbitration as a priority area as a result of which on 28th April 1976, a set of procedural laws for the conduct of international commercial arbitration were approved known as UNCITRAL Arbitration Laws. But there were still problems with the laws of different countries and this developed various uncertainties. Therefore, for the harmonization of national arbitration statutes, the UNCITRAL on 21st June, 1985 adopted UNCITRAL Model Law (herein referred to as ‘Model Law’) on International Commercial Arbitration.
International Commercial Arbitration has been witnessing its eruptive success in the since past century however enforcement of its awards turned out to be a rather peculiar & complex scheme. Attempt to address the issue was first made in International forum through League of Nation whereby Geneva Convention was enacted in 1927 (1). Then subsequently in 1958, the second attempt to address this issue by made by UNCITRAL (United Nations Commission on International Trade Law) where New York Convention was enacted. Consequently, these Conventions were ratified and effected by the India by enacting separate statutes. Therefore, before the 1996 Act, domestic regime consisted of three statues namely the Arbitration and Conciliation Act 1940, Arbitration (Protocol and Convention) Act, 1937; Foreign Awards (Recognition and Enforcement) Act, 1961. The 1996 Act sought to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, enforcement of foreign arbitral awards, and to define the law relating to conciliation, taking into account the UNCITRAL Model Rules (2).
Now, the conflicts arise when the question of enforcement of this foreign award comes into question.
Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 lays down the definition of International Commercial Arbitration. The dissection of same shows that in order to constitute ‘International Commercial Arbitration’ following elements are required: – (i) Arbitration relates to disputes arising out of legal relationships whether contractual or not (ii) dispute must be commercial under the law in force in India (iii) at least one of the parties is not an Indian national/resident/body corporate.
Therefore, from the definition it is apparent that three types of Awards are covered under the 1996 Act. Firstly, purely domestic awards where both the parties are Indian nationals and the award is made in India, secondly, awards passed in International Commercial Arbitration seated in India, thirdly, awards passed in International Commercial Arbitration seated outside India.
The present paper deals with issues arising in enforcement of awards passed in foreign seated International Commercial Arbitration.
1. LEGISLATIVE PROVISIONS AND ISSUES
International Commercial Arbitration has brought about revolutionary change and certainty in International trade & finance, albeit the humungous growth world commerce has witnessed because of it, the very nature of International Commercial Arbitration though intended to provide simplicity to international commercial disputes, is riddled with complexities which sometimes defeats the very purpose of the whole proceedings. Since the very nature of International Commercial Arbitration involves multiple-jurisdictions, the issues with respect to the enforcement of these awards are multifarious.
1.1. JUDICIAL INTERPRETATION OF SECTION 48
Both the Geneva Convention and New York Convention provides for limited grounds on which the recognition & enforcement of an award can be refused. Some of the common grounds inter-alia are: –
a. That the agreement/submission on which the arbitration proceedings were initiated and award passed was valid under the law applicable to it.(3)
b. That the arbitral award passed is against the public policy of the country where the said award is to be enforced.(4)
c. That the arbitral award is not capable of settlement under the law of the country where the said award is intended to be enforced.(5)
Similarly, these grounds have been incorporated into the 1996 Act under the respective headings. (6)
1.1.1 PUBLIC POLICY UNDER SECTION 48(2)(B)
The most controverted and notorious of all the grounds specified in the Conventions and subsequently incorporated in the 1996 Act is the ground of refusal to enforce the arbitral award if the same is against the public policy of the country where it is sought to be enforced. This wide, unfettered and vague liberty given to the countries has left the enforcement of arbitral award at the mercy of the judicial set-up of the country where the said award is sought to be enforced. The concept of public policy is highly dynamic as it changes in matters of months. What may be acceptable in a country today may be highly objectionable to the same public after three months. Different countries have different culture, different political outlook, different approach to economic activities and similarly different perceptions of justice & morality. It is on the culmination of these perceptions that a public policy of a country is skeletonised. Therefore, it is quite possible that a particular award may be enforced in one country and at the same time may be refused in another on the ground of public policy. The volksgeist or the common conscience of the people of a country creates and shapes its public policy. This creates a problem in the process of getting a foreign award recognized and enforced because it is not easy to comprehend whether an award in a country would be according to its public policy. Moreover, these perceptions coupled with the judge’s own notions of fairness and justice creates prejudice in the mind of Courts against a foreign decree or judgment. Resultantly, judges end up adopting a parochial view. So, in the interest of the parties, it is essential that uniformity in the interpretation of public policy is established.
Due to the vagueness of the term ‘Public Policy’ particularly in India, it is the interpretation of the term by the judiciary which decides the fate of the award. In, as back as 1824, J. Burrough in ‘Richardson v. Mellish’ (7) rightly described public policy as “a very unruly horse and when once you get astride it you never know where it will carry you. It may lead you from sound law. It is never argued at all, but when other points fail”
In order to attract foreign investment and foster bilateral trade it is pertinent that a country has a pro-arbitration legal system. Therefore, to establish an arbitration friendly environment it is imperative for the Courts and law of the country to be have a non-obtrusive and non-interfering approach with respect to foreign arbitral awards. The Courts interpreting the provision of these Conventions and Statute play a very pivotal role. They are required to de horse the litigation mind-set imbibed in them and give impetus to the arbitration keeping in view the economic implications and furthering the legislative intent of the statute. However, the interpretation accorded by the Indian Courts in few of its landmarks judgment reveals a contrary approach.
One of the very first and landmark judgment pronounced by the Hon’ble Supreme Court of India was in ‘Renusagar Power Electric Ltd.v. General Electric‘ (8) (hereinafter referred to as’ Renusagar’) wherein a two-faceted objection was raised against the award passed by the arbitral tribunal, firstly that the Renusagar was unable to present its case and secondly that the enforcement of the award would be against the Public Policy. One of the bizarre contention with respect to the second objection was that the term “Public policy” has to be interpreted in a liberal sense so as to include not only the Public Policy of India but also the Public policy of the country which governs the contract. Fortunately, this argument was rejected by the Apex Court. It is quite apparent from the judgment in Renusagar that up till that point, the judiciary was well acquainted with the outlook with which it was supposed to approach the field of public policy. In this case, the Apex Court settled the controversy by enunciating that a narrow interpretation is to be accorded to the term public policy so far as it related to foreign award and thus specified a different standard for international public policy. The Court in its ratio laid down the criteria for refusal of enforcement on the ground of public policy, that if the same is against: (i) Fundamental policy of India law (ii) Interests of India (iii) Justice or Morality.
The jurisprudence established by Renusagar saw its first modification in ‘Oil and Natural Gas Corporation v. SAW Pipes ltd.’ (9) (hereinafter referred to as ‘ONGC case’)wherein the ambit and scope of Court’s jurisdiction in case where award passed by the Arbitral Tribunal is challenged under Section 34 of the 1996 Act was under consideration. In adjudication of the same, the Court brought a distinction between enforcement of an award which has attained finality and challenging the validity of the award and thus in case of latter it enlarged under the scope of ‘public policy’ under Section 34 of the 1996 Act, empowering Courts with wide power of judicial review and thus advocated that narrow meaning should not be assigned to the term ‘public policy’ instead a wide interpretation should be bestowed. This led the Court to modify the ratio laid down in Renusagar whereby it introduced a new ground to the list propounded in list enumerated in Renusagar, i.e. refusal to enforce is the same is patently illegal. Ground of Patent illegality as propounded in this case included violation of statutory provisions or violation of express provisions of contract. This judgment virtually allowed the parties to challenge the entire award on merits and re-argue the case, thus frustrating the entire purpose of arbitration (10). The Court erred in not realising that the ratio laid down in Renusagar was with respect to foreign awards only keeping in view the standard public policy in private international law.
The judgment in ONGC although rightly criticised for its adverse effect on domestic arbitrations, it is however often mis-read and mis-understood for its implications on foreign awards. The judgment, if read in isolation, has no bearing on the awards passed by Foreign Arbitral Tribunal and therefore as such the ground of patent illegality is not only by the virtue of the judgment in ONGC applicable to foreign awards. However, the issue arises when this judgment is read with the ratio laid down by the Hon’ble Supreme Court in ‘Bhatia International v. Bulk Trading SA’ (11) (hereinafter referred to as ‘Bhatia’s case’), wherein it was held that Part -I of the 1996 Act is applicable to all the arbitrations irrespective of the place of arbitration unless the parties by agreement, express or implied, choose to exclude all or any of the provisions of Part- I. In this scenario, if the party apparently fails to exclude the provisions of Part I then the foreign arbitral award can be subjected to the wide test of Public Policy under Section 34 including the ground of patent illegality. The ruling in Bhatia’s case was followed by the Courts in many subsequent judgments (12) and subsequently led to ‘Venture Global Engineering v. Satyam Complex Services Ltd.’ (13) (hereinafter referred to as ‘Venture Global’). The catastrophic judgment in Venture Global, where the Hon’ble Court after considering the judgment in Bhatia’s case, endorsed the same by further propounding that foreign awards can be challenged in India under Section 34 and that the same is not inconsistent with Section 48 of the Act. The thought process of the court behind the same is abundantly clear from the judgment wherein the Court observed that the broader/extended test of public policy under Section 34 which includes the ground of patent illegality has to be made applicable to foreign awards. Similar trend continued till the judgment in ‘Phulchand Exports Ltd. v. O.O.O Patriot’ (14) (hereinafter referred to as ‘Phulchand’) wherein the Supreme Court completely diminished the already fading line between Section 34 and Section 48 of the Act with respect to public policy and brought the two at the same pedestal. The Court expressly held that the ratio laid down in ONGC is also applicable to foreign awards. The ratio of Renusagar was overruled to the extent that narrow meaning is to be given to ‘Public policy’ under Section 48. It was held that wide meaning has to be given and that the award could be set aside. Phulchand was culminationof series of judgments which deviated from Renusagar.
Before venturing into the later decision which have fortunately over-ruled the above-mentioned case law, it is crucial to first dissect and divulge into the chaotic position of law created by the co-joint reading of the judgments in ONGC, Bhatia, Venture Global and Phulchand.
Firstly, the decision in Bhatia it correct to the extent of its concern towards the awards passed in countries not party to the convention and to identify that there indeed is lacuna on behalf of the legislature in not providing for the same. Although it’s a different debate whether the legislature actually intended the enforcement of awards passed in a non-convention country. However, the same couldn’t have been corrected by subjecting all the awards passed in International Commercial Arbitrations to the Part-I of the 1996 Act including those passed by countries party to the Conventions. As the scheme of Part-I of the 1996 Act is wide and in comparison, to Part- II more regulatory and controlling in nature.
Secondly, an important aspect which the Hon’ble Court in Bhatia and Venture Global missed was that in Renusagar the ratio was laid down by the Court after identifying the distinction between the application of ‘Public policy’ test in domestic matters and in cases involving foreign element/ conflict of laws. Although the concept of public policy is the same in nature in these two spheres of law i.e. municipal and in conflicts on law, its application differs in degree and occasion, corresponding to the fact that transactions containing a foreign element may constitute a less serious threat to municipal institutions than would purely local transactions (15). The same is manifest in ONGC judgment as the Court recognized this distinction and was careful so as to confine the extended test of public policy (Patent illegality) to domestic awards only although the whole point of extending the same was erroneous but still it was not read into Section 48 but only confined to Section 34.
Thirdly, the reason why only limited grounds were given in New York and Geneva Convention for refusal to enforce an award, which were subsequently incorporated into the 1996 Act, was that these grounds were intended to provide minimum resistance against foreign awards and as such the intent of the legislature was to facilitate the growth and development of International trade and Commerce. “The essence of the theory of transnational arbitration is that the institution of international commercial arbitration is an autonomous juristic entity which is independent of all national courts and all national systems of law” (16). Therefore, in order to properly encapsulate the intent of the legislature an interpretation which facilitates the enforcement of a foreign award ought to be accorded to the provisions of Part-II. Thus, Part-II cannot be read together with Part-I instead it has to be read in isolation. The purpose of consolidating all three acts and enacting 1996 Act was limited to the extent of having a comprehensive legislation. Both the parts cater to different class of arbitrations therefore both are amenable to their respective provisions only. While a domestic award can be set aside in India a foreign award can only be set aside in the country where it has been passed (17). Thus, the role of the enforcement Court is very limited in this regard. Therefore, the Court in Venture Global ignored the very essence behind the special purpose of Part-II.
Subsequently, the landmark judgment of the Hon’ble Supreme Court in ‘Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.’ (18)(hereinafter referred to as ‘Balco’) straightened out the deviations and brought the position of law in sync with the legislative intent. In this case although the interpretation of the term ‘public policy’ was not under consideration before the Court. Instead the issue was whether the Part-I is applicable to foreign seated International Commercial Arbitration. Answering the same in negative the Hon’ble Supreme Court rightly propounded that both Part I and Part II or the Act are mutually exclusive. It acknowledged the existence of territorial principle in the UNICTRL Model Law which forms the basis of 1996 Act and thus seat of the arbitration determines the supervisory jurisdictions of the Courts on them. The Court over-ruled the ratio laid down in Bhatia and in Venture Global.
Finally, in Shri Lal Mahal Ltd. v. Progetto Grano SPA (19) (hereinafter referred to as ‘Lal Mahal’) the three-judge bench of the Hon’ble Supreme Court laid the controversy with regard to public policy to rest by confirming and reiterating Renusagar’s interpretation of ‘Public Policy’. It was held that the scope of public policy under Section 48 is limited and thus although the expression ‘public policy’ is same in both Section 34 and 48, its application is different and as such in case of former wider meaning as given in ONGC case and in case of latter a narrow and strict meaning has to be given and therefore Court endorsed the test of public policy as originally conceived in Renusagar. Commenting on Section 48 the Court further limited its scope by expressly barring any “second look” or review of the award under Section 48.
The implications of Balco judgment read with Lal Mahal with respect to public policy is that a foreign award cannot be set aside under Section 34 and thus is excluded from being challenged under its wide provisions more particularly from the wide ambit of public policy. Moreover, when enforcement of a foreign award is challenged under Section 48(2)(b) the Court only has to see whether the award is against (i) fundamental policy of Indian Law (ii)interest of India (iii) justice and morality.
These judgments particularly Balco ushered a new era in Arbitration law in India and significantly helped in casting aside Indian judiciary’s anti-arbitration reputation worldwide.
1.1.2. POSITION IN DIFFERENT COUNTRIES
Since the UNCITRAL Model Law as well as the respective conventions have been adopted by most of the states in the world. The domestic statutes of these contracting states also have similar provision of public policy. In most of the developing and developed economies there is minimal court intervention in foreign awards as well as a very narrow and strict approach towards the doctrine of public policy.
In Singapore, the courts have consistently accorded a very strict and narrow interpretation to the term ‘public policy’ as is evident from the landmark judgments such as PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA (20),in the para 59 of the judgment the Hon’ble Court correctly stated that public policy encompasses a very narrow scope. In the preceding paragraph the Court also considered the decision of Indian Supreme Court in ONGC and criticised the same as the Court considered the view taken by Indian Supreme Court in ONGC inconsistent with the legislative intent of the Act. Similar view has been reiterated in later judgments of the Court of Appeal (21).
Similarly, Australian Courts have also emphasised for the requirement of a pro-arbitration bias in landmark cases like ESCO Corporation v Bradken Resources Pty Ltd (22), and Uganda Telecom Limited v Hi-Tech Telecom Pty Ltd.(23). In France, the public policy has been given two levels of interpretation, one for domestic matter and another for international consideration, a narrow interpretation is given to the latter. American Courts also necessitates that a pro-arbitration bias has to be followed.(24)
1.1.3. 20TH LAW COMMISSION REPORT AND SUBSEQUENT ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2015
The 20th Law Commission in its 246th report titled ‘Amendment to the Arbitration and Conciliation Act 1996’ (25) proposed significant amendments to the 1996 Act. With respect to the term ‘Public Policy’ the Commission after considering the reasoning laid down in Renusagar, ONGC and Lal Mahal further opined to curtail the ambit of ‘Public policy’ under both Section 34 & 48 by proposing to amend the ratio of Renusagar to the extent of deleting the ground of “Interest of India”. The commission proposed insertion of an explanation to both these sections whereby the scope of public policy is limited to (i)fundamental policy of Indian law (ii) basic notions of morality or justice. Instead of retaining the ground of patent illegality under the tern ‘Public policy’ the Commission proposed insertion of Section 34(2A) whereby the only the purely domestic awards are made subject to the test of patent illegality.
These proposals of the Law Commission were duly incorporated in the Arbitration and Conciliation (Amendment) Act, 2015 and subsequently Sub-Section 2A was inserted in Section 34 along with respective explanations to Public Policy in both Section 34 and Section 48.
Thus, the Arbitration and Conciliation Act as is currently drafted limits the scope of public policy under Section 48.
2.2. AWARDS PASSED IN NON-CONVENTION & NON-RECIPROCATING COUNTRIES
From the above discussion it is conclusive enough that Part-I of the Act applies to purely domestic awards and awards passed in India seated International Commercial Arbitrations whereas Part-II of the Act is confined to New York Convention awards and Geneva Convention awards. However, the 1996 Act is silent as to the treatment of an award where the seat of the arbitration is not party to either of the above-mentioned Conventions.
Furthermore, another complexity that arises is that New-York Convention gives the liberty to the contracting parties to opt for the inter-alia reciprocity reservation (26).This reciprocity reservation gives the party liberty to make the convention applicable only to the territory of the State party to the Convention. While this reservation is optional in case of New York Convention the same is obligatory in case of Geneva Convention (27). India has incorporated this reciprocity clause with respect to both the Conventions in the 1996 Act.(28) Thus, even though 142 countries are signatory to the New York Convention, its application in India will be limited to the States which are notified by the Central Government in the official Gazette. So far only 48 countries have been notified in the official gazette by the Central Government.(29)
In case of awards passed in Non-Convention countries there have been varying judicial decision. A landmark decision on this issue can be traced back to the Supreme Court judgment in Bhatia wherein the Court observed that there were lacunae in the legislation as the legislature failed to provide for the enforcement of these awards. Thus, the Court held that since Part-II is strictly applicable to awards passed in Convention, for the purpose of enforcement, the awards passed in Non-Convention countries will be considered domestic awards and as such will be covered under Part-I of the Act.
Whilst the judgment in Bhatia faced severe criticism particularly for exposing foreign awards to the provisions of Part-I. This particular aspect of judgment though later over-ruled, provided remedy to parties holding awards made in Non-Convention countries.
Later in Balco, a five-judge constitution bench over-ruled this law sub-planted in Bhatia by along with its entire ratio. The Court observed that the very fact the legislature did not provide for the enforcement of awards made in Non-Convention countries does not ipso facto means that there is lacuna in the Act. Court held that the Act has not provided for the treatment of these awards then it means that the parliament intended that these awards should not be enforced.
Thus, after the judgment in Balco it is clear that the 1996 Act as it is drafted now, does not provide for the enforcement of these awards. However, in another case law much prior to Bhatia where the provision of Arbitration Protocol and Convention Act 1937 were under consideration the Supreme Court held that the awards passed in Non-Convention country can be enforced in India on the same grounds as in English Common Law i.e. on the ground of equity, justice and good conscience (30). The correctness & applicability of this case law is still uncertain.
Therefore as of now, until parliament comes to rescue, there is no remedy for the awards passed in Non-Convention Countries.
2.3. DOCTRINE OF DOUBLE EXEQUATUR
The Geneva Convention, 1923, had a very peculiar feature, opposed to the idea promulgated in the New York Convention. It stated that the burden to make the enforcement of the foreign award lay upon the shoulders of the party seeking such an enforcement. In other words, the concept of exequatur had to be satisfied i.e. the party seeking such an enforcement had to confirm the award from the competent authority of the country in which the award is made final.
The proved to be extremely cumbersome and fraught with structural defects, as some countries, pursuance of same, required a written order from the court of the country where the award has been passed, along with the consent of the country in which the award is to be made enforceable, subsequently resulting in the anomaly of ‘double exequatur’.
This confusion and multiplicity of proceedings that ensued were a menace in the interest of justice, and as a preventive measure, the New York Convention, 1958, was enacted with a view to achieve two goals, namely i) to eliminate the requirement of the double exequatur, and ii) to shift the burden of proof upon the party that pleads to refuse the enforcement, as the enforcement should be the norm, and the refusal, a dire exception.
The New York Convention, vide Article V(1)(e), vehemently moved to eradicate the existence of ‘double exequatur’ by replacing the word ‘final’ with the word ‘binding’, as a stoic effort to indicate that the enforcement of an award doesn’t necessitate the exequatur of the country in which the award has been passed. As a consequent ramification, a foreign award under the New York Convention becomes enforceable immediately, unless it is vilified or overruled as per Article V(1)(e) of the Convention, or Article 48(2) of the 1996 Act.
The first time these changes were recognised in the Indian context was by the Delhi High Court in Universal Tractor Holdings V. Escorts Limited (31), where the question arose as to the binding nature of a foreign award, where no prior consent was taken from the competent authority of the country passing the award, in lieu of double exequatur.
The Delhi High Court, in this landmark judgment, put its weight behind the New York Convention, and categorically stated that it is not necessary for the party seeking the aforesaid enforcement to show leave from the country passing such an award. The court further recognised three aspects of the New York Convention, namely;
- The concept of double exequatur was disregarded
- The term ‘final’ was replaced with ‘binding’ when it came to enforcement of foreign awards
- The burden was shifted from the party seeking enforcement to the party pleading for a refusal.
The judgement debtors, aggrieved by the order being in favour of the decree holder, filed an appeal in the Supreme Court vide Escorts Ltd. v. Universal Tractor Holdings (32). The apex court reiterated the decision of the Delhi Court and stated specifically, as a ratio, that it is not necessary to take leave from the country where the award was passed, thereby abrogating double exequatur.
In Dicey and Morris (33), it is stated as follows:
“…The Private International Law Committee in their Fifth Report suggest that an Award is “binding” if no further recourse may be had to another arbitral tribunal (e.g. an appeals tribunal); and that the fact that recourse may be had to a Court of law does not prevent the Award from being ‘binding’. One thing seems clear: the Conference which approved the New York Convention wished to avoid a double exequatur of arbitration Awards, one in the country where the Award was made and the other in the country where it is sought to be enforced.”
The question regarding double exequatur isn’t novel to the Indian jurisprudential and judicial circles. Prior to the Universal Tractor case, it has come up in a catena of judgements such as Oil and Natural Gas Commission v. Western Company of North America and Smita Conductors Ltd. v. Euro Alloys Ltd.(34)
2.4. POINT OF DEPRTURE IN JURISDICTIONAL CONTEXT
An arbitral award may be set aside if it is found that the tribunal by which it was passed did not have adequate jurisdiction to pass the award. Jurisdictional grounds include matters where the validity of the arbitration agreement itself comes into question. These grounds also include matters in which the issues whether the tribunal was properly constituted and whether the matters submitted to the tribunal under the agreement are arbitrable have been raised. An award may be challenged if the constitution of the arbitral tribunal is of an irregular nature. If it is found that a party lacked the capacity to enter into an arbitration agreement, the agreement is to be considered as void.
Usually, challenges under the ground of incapacity are made at the beginning of the arbitration proceedings. In Republic of Poland v. Saar Papier Vertriebs GmbH (35), it was held that if a party does not raise an objection to the lack of capacity at the outset of the arbitration, it risks losing its right to challenge at a subsequent date. An award may also be challenged on the grounds of irregularity in the conduct of arbitral proceedings. For example, a proceeding in which a proper notice of appointment of the arbitrators or of the commencement of the arbitration proceedings is not given to a party, or a proceeding in which a party was not given the opportunity to present its case is an irregular proceeding. However, mere irregularity in proceedings is not enough to make the award subject to challenge. The challenging party must prove that such procedural irregularity has violated its rights and has caused an injustice. If the procedural errors committed by the arbitrators have led to a mistake of facts but not a mistake of law, the award passed by such erroneous proceedings cannot be challenged (36).
2.5. COMPETENCE-COMPETENCE DOCTRINE
The essence of an arbitration proceeding lies in the principle of party-autonomy and the doctrine of competence-competence. Both these doctrines personify the entire purpose behind the process of arbitration. Therefore, if these sacrosanct doctrines are not given their due regard by the Courts then the whole idea behind the alternative dispute redressal gets frustrated.
The competence-competence doctrine garnered recognition due to its empowering nature. The text, quite literally, translates to the statement that ‘a court is competent to decide its own competence’. This doctrine states, as a general principle of international commercial arbitration, that every tribunal has the authority to demarcate its own jurisdiction. This empowers them to determine the jurisdiction of the substantive disputes they deal with. This principle has been incorporated under Section 16 as well as Section 45 of the 1996 Act.
However, in accordance with the much-celebrated belief, absolute discretion is constitutional blasphemy, and thus it mustn’t be mistaken as the sole authority for the same. This doctrine, most certainly, does not abrogate the right of an enforcing court which isn’t at the seat of arbitration to review the decision of the tribunal. Fouchard Gaillard and Goldman, in their book on International Commercial Arbitration, categorically state that;
“Arbitrators cannot be sole judges of their jurisdiction. That would be neither logical nor acceptable. In fact, the real purpose of the competence-competence rule is in no way to leave the question of the arbitrators’ jurisdiction in the hands of the arbitrators alone. Their jurisdiction must instead be reviewed by the courts if an action is brought to set aside or to enforce the award.” (37)
The main issue lies in the judicial approach towards the doctrine. If the intent of the legislature is to establish a pro-arbitration environment then the ideal judicial approach should be aimed towards the minimum curtailment of the Arbitral Tribunal’s autonomy. Thus the over-zealous Courts in order to foster International Trade and finance should ensure minimal supervisory intervention under Section 45.
Section 45 mandates the judicial authority to compulsorily refer the matter for arbitration (38) unless if the agreement is null and void, inoperative of being performed. This conditional Compulsion given under Section 45 is not to be understood so as to be conferring the judicial authority power to review the legality of the entire agreement altogether. An inquiry into the legality of the substantive contract under the guise of Section 45 is not permissible.(39) The scope of inspection under Section 45 is minimum. The standard of review by a Court should be limited to ascertaining if the agreement prima facie is not null and void or there is nothing patently or fundamentally illegal on the fact of it. (40)
DISTINCTION BETWEEN RECOGNITION AND ENFORCEMENT WITH RESPECT TO PERIOD OF LIMITATION FOR ENFORCING A FOREIGN AWARD
It is essential that a reasonable period of time is prescribed in each country during which a foreign award can be recognized and enforced. In many countries, the period of limitation in this regard is so long that the parties do not apply for the enforcement of the award whereas in others, the period of limitation is short, compelling the parties to get their awards enforced in due time. For instance, in Canada, the period of limitation in this regard is two years (41). This period is sufficient enough to compel the parties to apply for the recognition and enforcement of their awards.
In India, the law of limitation is ambiguous in this regard. Different High Courts have given different opinions. These conflicting opinions are result of the confusion surrounding the nature of the awards i.e. whether an award is to be first recognised as a decree and then enforced or it is a deemed decree and thus directly liable to be enforced. The Part -II of the Act only uses the expression ‘enforcement’ and does not use the expression ‘recognition’. two expressions ‘recognition’ and ‘enforcement’ are distinct and have different meanings. An award if enforced is necessarily recognized by the Court which orders its enforcement but an award which is recognized may not necessarily be enforced. 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 not only recognize the legal effect of the award, but also use legal sanctions to ensure that it is carried out (42) . Recognition is a defensive process which is used as a protection against an endeavor to raise in a fresh proceeding in respect of the case that has already been adjudicated and decided in an earlier arbitration proceeding. A party which receives a favourable award is entitled to raise an objection to subsequent re-consideration with respect to the dispute which was the subject matter of the arbitration, since the earlier judgment will act as res-judicata (43). As opposed to the expression ‘recognition’, which is a defensive process, ‘enforcement’ is a weapon of offence as it involves recovery of the award amount, if the award is monetary in nature. In cases of foreign seated International Commercial Arbitration as per 1996 Act, the Courts are concerned only with the ‘enforcement’ of these awards not the recognition as the statute has bestowed the same by declaring them as ‘deemed awards’ (44).
In Noy Vallesina v. Jindal Drugs Limited (45), the Hon’ble Bombay High Court opined that for enforcement of a foreign award it first has to be recognized as a decree by the Indian Court by which the residuary provision (46) of the Limitation Act would be applicable whereby the limitation period is 3 years and it is only after the recognition of the same as a decree that the limitation period for the enforcement of a decree i.e. 12 years would be applicable.
A different view to this point was taken in Compania Naviera Sodnac v. Bharat Refineries Ltd. (47) by Madras High Court which rightly stated in light of Section 49 (48) of the 1996 Act that foreign awards are deemed decrees therefore there is no need for a prior recognition of the same for the purpose of enforcement. Therefore, the limitation period will only be of 12 years.
The position of law stated in Compania Naviera Sodnac case stands substantiated with a 2001 judgment of Hon’ble Supreme Court in M/s Fuerst Day Lawson Ltd. v. Jindal Exports Ltd.(49) wherein it was held that a foreign award is already stamped as a decree. Therefore the Court only has to see whether the award is enforceable and it is the answer is in affirmative then the Court can proceed to execute the same.
INTERIM RELIEF AND THE BHATIA-BALCO CONUNDRUM
As an aberration however, the entire row regarding the applicability of the provisions of Part I of the Act on disputes in lieu of part II, defined so ably by the Balco judgment, which stated that both the parts are mutually exclusive and independent, is criticized on just one ground – that of lack of provisions and clarity of interim relief in matters of International Commercial Arbitrations and Foreign Awards.
The purpose of enacting section 9, read in the light of model law and the UNCITRAL Rules, is to provide a relief in the nature of an interim measure of protection. The intention behind the insertion of section 9 was to ensure that during the pendency of the arbitral proceedings, the party against which the award is sought does not unlawfully and dishonestly dispose its assets, or siphon off liquefiable investments and contingency funds in order to frustrate the purpose of the proceedings and make it infructuous. The efficacy of this section lay in the existence of a preventive measure that would curb such shrewd and astute tactics. The order of the court shall fall in the category of interim measures of protection as distinguished from an all time or permanent protection. The purpose is to protect the rights of the parties, which are under adjudication, to be frustrated (50). Section 17, on the other hand, deals with interim measures that can be potentially undertaken by an Arbitral Tribunal in exercise of their powers under this Act.
The Amendment Act, 2015, inserted subsection (2) in section 2, which clearly elucidates that in respect of matters under section 9 of the Act, amongst other sections, the ambit shall extend to matters of International Commercial Arbitration as well, even if the seat is outside India, unless the parties have expressly denounced it. This amendment sought to find a solution to the Bhatia-Balco conundrum, which were contrary judgements of the Supreme Court on the applicability of section 9 on other parts apart from Part I.
In Bhatia International V. Bulk Trading & Ors., (51) it was emphatically held by the Hon’ble Supreme Court that the provisions of sections 9, 17, and 2, all of which are incidental to the issue of interim measures, are, unless expressly excluded in pursuance of a prior agreement, equally applicable to matters of International Commercial Arbitration held outside India. Furthermore, it was opined by the court that general principles that are applicable to all types of arbitration such as those contained in section 9 and 17 are not repeated in every part as such principles are applicable to all parts and chapters unless the contrary is expressly stated.
The Bhatia International judgement was reiterated by the Hon’ble Supreme Court in Venture Global Engineering v. Satyam Complex Services Ltd. (52), where the court, in absolute affirmation of the aforementioned Bhatia judgment, held that provisions of part I such as those expressly stated in section 9 and section 17, are also applicable to foreign awards in international commercial arbitration where the seat is outside India, unless expressly excluded.
However, as an unfortunate clog in the swiftly rotating wheel of arbitration in India, what followed in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.(53) (BALCO), spelt doom for the erstwhile Bhatia and Venture Global Judgments. The apex court in BALCO, while prospectively overruling the abovementioned judgements, categorically stated that no application for interim relief or for interim injunction simpliciter, in lieu of sections 9 and 17, is maintainable for foreign seated arbitrations.
This had an adverse effect on parties seeking interim application, as on one hand, there is no explicit provision in Part II regarding interim measures, and the entire purpose of enacting a holistic, inclusive legislation was to ensure that unnecessary and prolonged delays cease to exist, and there is clarity on certain matters that the erstwhile separate legislations (1937, 1940, and 1961 Acts) might have overlooked. On the other hand, by disallowing the provisions of section 9 to be applied to foreign seated matters, there lingers ambiguity and a conundrum in the face of vacant and hollow legislation, as to questions of interim applications, thereby frustrating the entire arbitral process.
THE ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2015
In order to address and rectify this hotly debated conundrum, the amendment Act, 2015, sought to introduce sub-section (2) to section 2, which, as a final clarification on this issue, stated that unless an agreement to the contrary exists, provisions such as section 9, section 27, and section 37(1)(a) and (3) shall be applicable to matters where the seat is outside India. Thus, by reiterating what was said in the 2002 and 2008 judgments of Bhatia and venture global, balance was restored, and while stating that Part I and Part II are mutually exclusive, it saved the purpose and essence of section 9 and the concept of interim measures from being abrogated.
The swiftly increasing importance of arbitration, and a hassle free, efficacious, and progressive legislation or procedure in pursuance of the same, is undeniably akin to lesser sharp swords on the iron throne of dispute resolution and judicial excellence. Perhaps had Austin been alive today, he would be immensely proud of the fact that modern legislation concerning arbitration has accorded paramount importance to the ‘enforcement’ part of the arbitral awards. It is, however, a juxtaposition of what is, and what ought to be, in betwixt of which our current legislation languishes, albeit marching swiftly towards the ideal structure.
The author, throughout this paper, have sought to demarcate and expressly elucidate the importance of the 1996 Act, the subsequent 2015 Amendment, previous international conventions and the UNCITRAL Model, and the erstwhile Indian statutes that embodied the same.
Due emphasis has been laid on a catena of issues that demanded a discussion, such as the evolution of the doctrine of public policy, and the crucial change made in section 48 by the 2015 Amendment Act; on the independent nature and importance of Parts I and II of the 1996 Act and the importance of awards passed when the seat is in India or otherwise; on doctrines such as competence-competence and double exequatur, and the authority of the court to decide its own jurisdiction, but to simultaneously understand that it isn’t to be inscribed on stone, and the removal of multiplicity of proceedings while adhering the 1958 convention respectively; on the distinction between enforcement and recognition, and the importance of the context of territorial nexus; and on matters regarding purpose and scope of interim measures such as those provided in section 9 and 17, and their applicability in light of subsequent Supreme Court judgments and parliamentary amendments.
Finally, in furtherance of the cited authorities and the study undertaken above, the author would finally like to suggest measures that can be adopted by legislature in furtherance of creating a pro-arbitration bias and turning India into a global commercial hub for arbitration, so that the country doesn’t have to face the utter embarrassment which it faced in White Industries Australia ltd. v. Republic of India (54). Although, recommendations of 20th Law Commission in its 246th report has squarely covered and rectified the problematic areas. Thus, the author, while applauding the legislature for incorporating most of these recommendations, also reiterate the proposal of Law Commission that the objections under Section 48 should be subject to a strict period of limitation. Moreover, the hearing of the same should be expeditious and made time-bound most preferably within a period of one year from the date of the passing of the award. Furthermore, since the interim award passed by the arbitral tribunal would not constitute a final judgment or decree under Section 13 and 44A of CPC, the same cannot be enforced in India, thus in such a case the order-holder stands remediless. Therefore, deliberation on the same should be considered and suitable mechanism adopted.
It is, however, our solemn duty to protect and preserve the progressive intention of the legislature behind the enactment of such statutes, and to ensure that our structure doesn’t turn out to be akin to an arbitration between a lion and a lamb where the lamb is in the stomach of the lion the next morning, and yet a false notion of justice is apparently achieved.
Kashif Zafar Hussain is Partner, Clarion Legal.
2. TDM Infrastructure Pvt. Ltd. v. UE Development India (P) Ltd., (2008) 14 SCC 271.
3. New York Convention, art. (V) 1 (a).
4. Geneva Convention, art 1 (e)
5. New York Convention, art. (V) 2 (a)
6. The Arbitration and Conciliation Act, 1996 (Act 26 of 1996) ss. 48, 54.
7. (1824) 2 SCC 252.
10. Varuna Bhanrale, Ashish Kabra, et. Al. “Widened scope of “Public Policy” leaves arbitral awards susceptible to further scrutiny by courts”, available at:http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/widened-scope-0f-public-policy-leaves-arbitral-awards-susceptible-to-further-scrutiny-by-courts.html?no_cache=1&cHash=bd6a9abae83687808f2ccb78211ea511.
11. (2002) 4 SCC 105.
13. (2008) 4 SCC 190
15. R.H. Graveson, Conflict of Laws, 165 (Eastern Book House, Delhi, 7th edn., 2016)
16. Sir Michael John, Transnational Arbitration in English Law 193 (Oxford University Press, Oxfordshire, 2014)
17. International Standard Electric Corp. v. Bridas Sociedad Anonima Petrolera, 745 F.supp.172
18. (2012) 9 SCC 552
19. AIR 2013 SC 552
20. (2007) 1 SLR 597; (2006) SGCA 41
21. AJU v. AJT, (2011) SGCA 41
22. (2011) FCA 905.
23. Uganda Telecom Limited v. Hi-Tech Telecom Pty Ltd (2011) FCA 131.
24. Parsons & Whittemore Overseas Co., Inc. v. Societe Generale De L’industrie Du Papier 508 F.2d 969 (2nd Cir. 1974)
25. Law Commission of India, 246th Report on Amendment to the Arbitration and Conciliation Act 1996 (Auhust, 2014).
26. Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958, art. 1(3)
27. Convention on the Execution of Foreign Arbitral Awards, 1927, art. 1
28. The Arbitration and Conciliation Act, 1996 (Act 26 of 1996) ss. 48, 54.
29. Australia; Austria; Belgium; Botswana; Bulgaria; Central African Republic; Chile; China (including Hong Kong and Macau) Cuba; Czechoslovak Socialist Republic; Denmark; Ecuador; Federal Republic of Germany; Finland; France; German; Democratic Republic; Ghana; Greece; Hungary; Italy; Japan; Kuwait; Malagasy Republic; Malaysia; Mauritius, Mexico; Morocco; Nigeria; Norway; Philippines; Poland; Republic of Korea; Romania; Russia; San Marino; Singapore; Spain; Sweden; Switzerland; Syrian Arab Republic; Thailand; The Arab Republic of Egypt; The Netherlands; Trinidad and Tobago; Tunisia; United Kingdom; United Republic of Tanzania and United States of America
33. Dicey, Morris, The Conflict of Laws, 586 (New York University Press , New York, 1999).
34. (2001) 7 SCC 728
35. Andrew Tweeddale, Arbitration of Commercial Disputes: International and English Law and Practice, (Oxford University Press,Oxfordshire 2007).
36. Coimbatore District Podu Samgam v. Bala Subramania Foundary, AIR (1987) SC 2045: (1987) 3 SCC 723: 1987 (3) SCJ 157: 1987 (2) Supreme 215.
37. Fouchard, Gaillard, et. al,, International Commercial Arbitration, 586 (Kluwer Law International).
40. Emmanuel Gaillard, The Urgency of not Revising the New York Convention, (Albert Jon Van Den Berg ed., 2009).
41. Yugraneft Corp v. Rexx Management Corp., (2010) 12 SCC 19.
43. Harsh Sethi , Arpan Kr. Gupta, International Commercial Arbitration & Its Indian Perspective, 255-56 ( Eastern Books, Delhi, 2011).
44. The Arbitration and Conciliation Act, 1996 (Act 26 of 1996) ss. 49, 58.
46. Limitation Act 1963, Entry No. 113 to the Schedule
47. AIR 2007 Mad 251.
48. Enforcement of Foreign Awards- Where the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that Court.
49. (2001) 6 SCC 356.
51. (2002) 4 SCC 105.
52. (2008) 4 SCC 190.
53. (2012) 9 SCC 552.
54. IIC 529 (2011)Disclaimer: The views or opinions expressed are solely of the author.