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June 26, 2018

Legal Capsule: Enforcement of Foreign Awards in India: by Economic Laws Practice

India has over time acquired a reputation as a ‘difficult jurisdiction’ from an arbitration perspective, especially given heightened concerns on enforcement of foreign awards and the frequent judicial intervention from Indian courts under the Arbitration and Conciliation Act, 1996 (the “Act”).

The Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”) was an attempt by the Indian legislature to address many of these factors. This article explores some of the key issues for parties to consider to ensure a smooth enforcement process of foreign seated arbitration awards in India.
  • How does the seat of arbitration impact enforcement in India?

    While the Arbitration Act mandates that a foreign award can be directly enforced in India if it originates from a country which is a party to the New York Convention (Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958) and has been notified for reciprocal enforcement of awards by the Government of India, it is noteworthy that presently only 48 out of 196 signatory countries to the New York Convention have been so notified (for list of these countries, please refer to the annexure). Therefore, it becomes important for parties to ensure that their arbitration proceedings are seated in one of these 48 countries.
  • Which courts can arbitration proceedings be initiated in?

    In order to prevent foreign parties from being dragged to lower domestic courts while challenging international arbitration proceedings and awards, the new Act now clarifies that only the High Courts – which have better trained judges and are often in the capital cities of various states – will have jurisdiction to entertain court proceedings in relation to an international commercial arbitration. Thus, for purposes of enforcement of foreign awards in India, a party must only consider the jurisdiction of the High Court in which the judgement debtor or their assets are located. 
  • What is the procedure for filing of enforcement proceedings?

    In the case of Fuerst Day Lawson, Supreme Court of India has held that a sole execution application before the relevant High Court would suffice to cover the two-step process required for execution of the foreign award; i.e. (i) testing enforceability of the award in terms of sections 47 to 49 of the Act; and (ii) if the award was found to be enforceable, the procedure for execution of the award as a decree of the court. It must be noted that the execution application requires filing of the original or copy of the award (in English language), duly authenticated in the manner required by the law of the country in which the award was made, and the original or copy of the arbitration agreement, pursuant to which the arbitration was initiated. 
  • Can the enforcement of award still be challenged on the (infamous) ‘public policy’ ground?

    Once the application for executing the award is filed, enforcement of an award can be contested on the grounds enumerated at Section 48 of the Act. While many of these grounds are similar to those contained in the New York Convention, refusing enforcement on the ground that ‘enforcement of the award will be contrary to the “public policy” of India’ had emerged as the most contentious(and staple) method of resisting enforcement of arbitral awards in India. To address this, the Amendment Act has now clarified that an award can be held to be against “public policy” only if (a) the award suffers from fraud or corruption; (b) conflicts with the fundamental policy or Indian law or (c) conflicts with most basic notions of morality and justice. The Amendment Act has also clarified that when judging whether an award is against fundamental policy of Indian law, the courts will not review the merits of the dispute. Following suit, the Indian courts have now become quite strict in entertaining the “public policy” argument. In Cruz City  and NTT Docomo , the Delhi High Court while upholding the foreign awards (allegedly in violation of provisions of Foreign Exchange and Management Act, 1999), noted that the violation of specific provisions of an enactment is not synonymous with violation of public policy of India. Similarly, in the case of KandlaExport,  the Supreme Court has clarified that there is no statutory appeal allowed under the Act against an order enforcing foreign awards.
  • How can you secure an award during the pendency of a challenge to enforcement?  

    The courts have recently been willing to secure the amounts due from a judgment debtor under a foreign award, in order to ensure that the interests of award holders are protected pending enforcement. The Bombay High Court, in Aircon Beibars , secured the sums due under a foreign award pending enforcement while noting that ‘recourse to Indian courts for interim measures in relation to a foreign seated arbitration is a transitory provision and can be invoked pending enforcement of the foreign award’. Similarly, in TRAMMO DMCC , the Bombay High Court allowed the holder of a foreign award to apply for interim relief to a court which enjoyed jurisdiction over the assets of the judgment debtor. Additionally, any such remedies which are available in respect of a final award to a party are equally available in respect of any interim award, as Section 2(c) of the Act provides that “arbitral award” includes interim award.

Conclusion

The Amended Act is indeed a step in the right direction. The judiciary has also done its bit to uphold the intent of the legislature by passing several landmark orders recently that have fostered the faith of the parties in the enforcement process in India. 

There are still issues that remain, such as the debate on enforcement of emergency awards. As an example, the concept of emergency arbitrator has not been statutorily recognised in India even under the Amendment Act, even though institutional arbitration rules in India - Mumbai Centre for International Arbitration (“MCIA”) rules and Indian Council of Arbitration rules - provide for an emergency arbitration proceeding; however, it remains as yet untried whether courts in India will enforce an award granted by an emergency arbitrator in a domestic arbitration and the judicial position as of now remains that a suit may have to be filed for seeking enforcement of such awards by emergency arbitrator.

While scepticism continues to follow arbitration processes in India, there is definitely a positive trend towards easing the ability of foreign parties to enforce their contractual rights and allowing disputes to reach a conclusion by positive enforcement of arbitral awards.



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