This essay has been submitted by a law student. This is not an example of the work written by our professional essay writers.
Enforcement of Foreign Arbitral Awards
With India’s progressive climb as a major international and global player in the world economy, it is apposite to understand its credibility as an arbitration friendly nation from the perspective of the efficacy and efficiency of its award enforcement regime.
This article restricts the examination to enforcement of foreign awards in India.
Enforcement of Foreign Awards is governed by Part II of the Arbitration and Conciliation Act 1996 (“1996 Act"). Part II of the 1996 Act gives effect to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention")  and Convention on the Execution of Foreign Arbitral Awards (“Geneva Convention")  .
Since the Geneva Convention is virtually otiose  and India still not a party  to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States  (“ICSID Convention" or “Washington Convention"), this article limits its discussion only to provisions dealing with enforcement of awards falling under the auspices of the New York Convention as enshrined in the 1996 Act.
Foreign Award defined:
“Foreign Award" has been defined under Section 44 of the 1996 Act as an expression which must fulfil the following ingredients:
It must be an award on difference arising out of legal relationships considered as commercial under the law in force in India;
It must have been made on or after 11th October 1960;
It must have been made in pursuance of an agreement in writing for arbitration to which the New York Convention (set forth in the First Schedule of the 1996 Act) applies; and
It must have been made in one of the reciprocating contracting states notified by the Central Government  .
With regard to the first ingredient stated above, the Supreme Court in the matter of Comed Chemicals Ltd. v/s C.N. Ramchand  discussed and reiterated its decision in R.M. Investment & Trading Co. Pvt. Ltd. v/s Boeing Co. and Anr.  :
While construing the expression “commercial" in Section 2  of the Act it has to be borne in mind that the “Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration and any expression or phrase occurring therein should receive, consistent with its literal and grammatical sense, a liberal construction." [See: Renusagar Power Co. Ltd. v. General Electric Co. and Anr. AIR/1994/SC/860 and Koch Navigation v. Hindustan Petroleum, AIR/1989/SC/2198].
The expression “commercial" should, therefore, be construed broadly having regard to the manifold activities which are integral part of international trade today.
…… Now, UNCITRAL Model Law on International Commercial Arbitration as adopted by the United National Commission on International Trade Law defines the term ‘commercial’ thus: The term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationship of a commercial nature, whether contractual or not. Relationship of a commercial nature include, but are not limited to, the following transactions; any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring leasing, construction of works; consulting; engineering, licensing; investment, financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road. [Footnote to Article 1(1)]
Conditions for enforcement of a foreign award:
The conditions for enforcement of a foreign award under the 1996 Act stem from Article V of the New York Convention  . However, the Explanation to Section 48(2)(b) of the 1996 Act adds:
Explanation – Without prejudice to the generality of clause (b)  , it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption.
The Indian courts have narrowly construed the ground of public policy in relation to foreign awards vis-à-vis domestic awards.  In the matter of Renusagar Power Co. v/s General Electric Corpn.  , the Supreme Court held:
This would mean that “public policy" in Section 7(1)(b)(ii)  has been used in a narrower sense and in order to attract to bar of public policy the enforcement of the award must invoke something more than the violation of the law of India……… Applying the said criteria it must be held that 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 (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality.
Grounds for refusal of enforcement:
If a party to an arbitration agreement is (under the law applicable to him) under some incapacity  , then the Indian courts can refuse to enforce such awards.
Invalid Arbitration Agreement:
If an arbitration agreement is not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made, it is not liable for enforcement. 
If a party to an arbitration agreement has not been given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case  - this would be in violation of the principles of natural justice and consequently, a ground for refusing enforcement. 
If the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration – this means that if the award deals with a question/proposition not brought to it for reference, it is not liable to enforcement.
The proviso to this clause carves out an exception. It states that an award which contains decisions on matters not submitted to arbitration may be recognised or enforced to the extent that it contains decisions on matters submitted to arbitration which can be separated from those on matters not so submitted. 
Legality of composition / procedure:
If the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country where the arbitration took place  , then such an award is not liable to be enforced.
If the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made. 
In the matter of Oil and Natural Gas Commission v/s Western Company of North America  , a Division Bench of the Supreme Court held:
(1) That the enforceability must be determined as per the law applicable to the award.
(2) French, German and Italian Courts have taken the view that the enforceability as per the law of the country which governs the award is essential precondition for asserting that it has become binding under Article V(l)(e).
Recognition or enforcement of a Convention award may also be refused if the award is in respect of matter which is not capable of settlement by arbitration, or if it would be contrary to public policy  to recognise or enforce the award. 
It is a general principle of the conflict of laws that the courts of a country will not apply any foreign law if and in so far as its application would lead to results contrary to the fundamental principles of public policy of the lex fori. The courts of all countries insist on applying to a case otherwise governed by foreign law those principles of their own law which, in their own view, express basic ideas of public policy. But a mere difference, between the lex fori and the foreign law, is not sufficient to justify the exclusion of foreign law on grounds of public policy. It has already been seen that the courts are slower to invoke public policy in cases involving a foreign element than when a purely municipal legal issue is involved. As Judge Cardozo put it, the courts will not refuse to enforce or recognize a foreign right unless it would violate some fundamental principle of justice, some prevalent conception of good morals, some deep-rooted tradition of the common weal. 
In the matter of Oil and Natural Gas Corp v/s Saw Pipes Ltd.  , the Supreme Court held that:
It can be held that the term 'public policy of India' is required to be interpreted in the context of the jurisdiction of the Court where the validity of award is challenged before it becomes final and executable. The concept of enforcement of the award after it becomes final is different and the jurisdiction of the Court at that stage could be limited. Similar is the position with regard to the execution of a decree. It is settled law as well as it is provided under Code of Civil Procedure that once the decree has attained finality, in an execution proceeding, it may be challenged only on limited grounds such as the decree being without jurisdiction or nullity. But in a case where the judgment and decree is challenged before the Appellate Court or the Court exercising revisional jurisdiction, the jurisdiction of such Court would be wider. Therefore, in a case where the validity of award is challenged there is no necessity of giving a narrower meaning to the term 'public policy of India'. On the contrary, wider meaning is required to be given so that the 'patently illegal award' passed by the arbitral tribunal could be set aside. If narrow meaning as contended by the learned senior counsel Mr. Dave is given, some of the provisions of the Arbitration Act would become nugatory………
…… if the award is patently against the statutory provisions of substantive law which is in force in India or is passed without giving an opportunity of hearing to the parties as provided under Section 24 or without giving any reason in a case where parties have not agreed that no reasons are to be recorded, it would be against the statutory provisions. In all such cases, the award is required to be set aside on the ground of 'patent illegality'.
In the above case, the Supreme Court took the bold step of incorporating “patent illegality" under the scope of “public policy" under Section 34 of the 1996 Act.
Setting aside a Foreign Award:
There is no provision to set aside a foreign award under the 1996 Act. It is pertinent to take note of Section 48(1)(e) which holds that foreign awards may be set aside or suspended in the country in which or under whose laws the award was made.
However, this fundamental line of difference between a domestic and foreign award has been wantonly ‘erased’ by the Supreme Court in the matter of Venture Global Engineering v/s Satyam Computer Services Ltd. and Anr.  and exposed the enforcement of foreign awards to challenge on the grounds of domestic public policy.
In this case, the Supreme Court had to deal with a situation where a foreign award rendered in London was sought to be enforced by the successful party (which was an Indian company in this case) in the District Court of Michigan, USA, under the LCIA  . The dispute arose out of a joint venture agreement between the parties. Satyam alleged that Venture Global had committed an event of default under the shareholders agreement and in keeping with the terms of said agreement, it exercised its option to purchase the appellant’s shares in the joint venture company at book value. The matter was referred to arbitration because the parties failed to resolve the matter amicably. Satyam sought to enforce the award in the District Court of Michigan, USA – a curious move to say the least (as the shares were of an Indian company having fulfilled regulatory requirements under the laws of India). Consequently, Venture Global filed a civil suit in an Indian District Court to set aside the order on the ground that it was in violation of India’s Foreign Exchange Management Act, 1999. The District Court, followed by the Andhra Pradesh High Court (on appeal), dismissed the suit on the ground that such a procedure was not envisaged by any law passed by the Indian Legislature.
However, on appeal, the Supreme Court (while extending its earlier decision in the matter of Bhatia International v/s Bulk Trading  ), held that:
On close scrutiny of the materials and the dictum laid down in three-Judge Bench decision in Bhatia International (supra), we agree with the contention of Mr. K.K. Venugopal and hold that paragraphs 32 and 35 of the Bhatia International (supra) make it clear that the provisions of Part I of the Act would apply to all arbitrations including international commercial arbitrations and to all proceedings relating thereto. We further hold that where such arbitration is held in India, the provisions of Part-I would compulsorily apply and parties are free to deviate to the extent permitted by the provisions of Part-I. It is also clear that even in the case of international commercial arbitrations held out of India provisions of Part-I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. We are also of the view that such an interpretation does not lead to any conflict between any of the provisions of the Act and there is no lacuna as such.
In any event, to apply Section 34 to foreign international awards would not be inconsistent with Section 48 of the Act, or any other provision of Part II as a situation may arise, where, even in respect of properties situate in India and where an award would be invalid if opposed to the public policy of India, merely because the judgment-debtor resides abroad, the award can be enforced against properties in India through personal compliance of the judgment-debtor and by holding out the threat of contempt as is being sought to be done in the present case. In such an event, the judgment-debtor cannot be deprived of his right under Section 34 to invoke the public policy of India, to set aside the award. As observed earlier, the public policy of India includes - (a) the fundamental policy of India; or (b) the interests of India; or (c) justice or morality; or (d) in addition, if it is patently illegal. This extended definition of public policy can be by-passed by taking the award to a foreign country for enforcement.
Therefore, Venture Global  makes it clear that even though there is no provision in Part II of the 1996 Act to provide for challenge to a foreign award, a petition to set aside the same would lie under Part I – Section 34 of the 1996 Act. Simply put, the Court applied the domestic award provisions of the 1996 Act to foreign awards as well.
This judgement has significantly limited the extent of contractual freedom available to parties. The most alluring aspect of arbitration (not only from an Indian perspective) is the freedom to select the law, the forum and the arbitrator, inter alia. Keeping in sync with the UNCITRAL Model Law, International Jurists are strictly against judicial interference in an arbitral agreement.
This newly created ground for challenge states that not only must the award pass the criterion of Section 48  of the 1996 Act, it must also pass the ‘test’ of the expanded “public policy" ground created under Section 34 of the 1996 Act.
In my opinion, the consequences of the Venture Global  are quite worrisome to say the least because it lays down a new ground for challenge to a foreign award which was not originally envisaged by the Legislature while enacting the 1996 Act. One can only hope that a larger bench of the Supreme Court or the Consultation Paper  will undo the wanton nature of its judgement in Venture Global  . That being said, it is pertinent to note that this new ground of challenge, founded on the expanded interpretation of public policy  , is per incuriam, as a larger (three judges) bench of the Supreme Court held to the contrary. 
The Supreme Court in Indtel Technical Services Pvt. Ltd. v/s W.S. Atkins Rail Ltd.  , while referring Bhatia International had observed as follows:
37. The decision in Bhatia International case  has been rendered by a Bench of three Judges and governs the scope of the application under consideration, as it clearly lays down that the provisions of Part I of the Arbitration and Conciliation Act, 1996, would be equally applicable to international commercial arbitrations held outside India, unless any of the said provisions are excluded by agreement between the parties expressly or by implication, which is not so in the instant case.
Recently (to the surprise of the legal fraternity), in the matter of North Delhi Power Limited v/s Govt. of National Capital Territory of Delhi and Ors.  a Division Bench of the Supreme Court held (while commenting on the Venture Global case  , inter alia) that:
We have absolutely no quarrel with the principles in all these reported decisions.
Enforcement of a Foreign Award:
A party applying for enforcement of a foreign award is required to produce the following before the court: 
the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;
the original agreement for arbitration or a duly certified copy thereof; and
such evidence as may be necessary to prove that the award is a foreign award.
However, if the award or agreement to be produced under sub-section (1) is in a foreign language, the party seeking to enforce the award shall produce a translation into English certified as correct by a diplomatic or consular agent of the country to which that party belongs or certified as correct in such other manner as may be sufficient according to the law in force in India. 
In the matter of Fuerst Day Lawson Ltd v/s Jindal Exports Ltd.  the Supreme Court held that:
Once the court decides that foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award as a rule of court/decree again. If the object and purpose can be served in the same proceedings, in our view, there is no need to take two separate proceedings resulting in multiplicity of litigation. It is also clear from objectives contained in para 4 of the Statement of objects and Reasons, Section 47 to 49 and Scheme of the Act that every final arbitral award is to be enforced as if it were a decree of the court……… In our opinion, of enforcement proceedings, one for deciding the enforceability of the award to make rule of the court or decree and the other to take up execution thereafter. In one proceedings, as already stated above, the court enforcing a foreign award can deal with the entire matter.
In other words, no other application is required to convert the judgment into a decree.
The Way Forward:
Dr. M. Veerappa Moily  finally released the much awaited Consultation Paper on the Proposed Amendments to the Arbitration & Conciliation Act, 1996 (“Consultation Paper")  . It is pertinent to take note of a few extracts from the Consultation Paper:
It is evident from the above discussion that there is no uniformity in judicial decisions in respect of applicability of Part I of the Act in respect of cases where the seat of arbitration is not in India. As per Bhatia International  and Satyam Computers  , in cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, exclude all or any of its provisions. The result is that all the provisions of Part I including provisions relating to appointment of arbitrator (Section 11), challenge of arbitration award (Section 34) would also be applicable to International Commercial Arbitration where seat of arbitration is not in India. However, in view of the observations made by the Supreme Court in Shreejee Traco (India) Pvt. Ltd. v/s Paper Line International Inc.  , no provisions of Part I would apply to cases where the place of arbitration is not in India. 
It may be stated that it is the broad principle in International Commercial arbitration that a law of the country where it is held, namely, the seat or forum or lex loci arbitri of the arbitration, governs the arbitration. However, if all the provisions of Part I are not made applicable to International Commercial arbitration where the seat of arbitration is not in India, some practical problems arise. There may be cases where the properties and assets of a party to arbitration may be in India. Section 9 of the Act which falls in Part I provides for interim measures by the Court. As per Section 9, a party may, apply to a court for certain interim measures of protection including for preservation, interim custody or sale of goods, securing the amount in disputes, detention, preservation or inspection of any property, interim injunction etc. If provision of Section 9 is not made applicable to International Commercial arbitration where seat of arbitration is not in India, a party may be out of remedy if the assets and property are in India. In cases of international arbitration where the seat of arbitration is outside India, a serious controversy has arisen in the Indian Courts. These are cases where interim measures could not be granted by Indian courts under Section 9 to an Indian national before commencement of arbitration (or after the award) against property of a foreign party. By the time the Indian party takes steps to move the courts in the country in which the seat of arbitration is located, the property may have been removed or transferred. 
There is an another aspect which relates to enforcement of arbitration award rendered in a non-convention country i.e. a country which is not signatory either to New York convention or to the Geneva convention. In Bhatia International Supreme Court referred to definition of International Commercial Arbitration provided in Section 2 (1)(f) and held that the definition makes no distinction between international commercial arbitrations held in India or outside India. An international commercial arbitration may be held in a country which is a signatory to either the New York Convention or the Geneva Convention (hereinafter called “the convention country"). An international commercial arbitration may be held in a non-convention country. The said Act nowhere provides that its provisions are not to apply to international commercial arbitrations which take place in a non-convention country. Part II only applies to arbitrations which take place in a convention country. 
In this regard we may point out that an award to be a ‘foreign award’ has to be made in the territory of a foreign State notified by the Central Government as having made a reciprocal provision for enforcement of New York Convention or Geneva convention. The Supreme Court in Badat & Co. v/s East India Trading Co.  was dealing with a case that arose before the Foreign Awards (Recognition and Enforcement) Act, 1961 became applicable. The court held as follows. “Before we do so, it would be desirable to examine the position regarding the enforcement of foreign awards and foreign judgments based upon awards. Under the Arbitration Protocol and convention Act, 1937 (6 of 1937), certain commercial awards made in foreign countries are enforceable in India as if they were made on reference to arbitration in India. The provisions of this Act, however, apply only to countries which are parties to the Protocol setforth in the First Schedule to the Act or to Awards between persons of whom one is subject to the jurisdiction of some one of such powers as the Central Government being satisfied that the reciprocal provisions have been made, may, by notification declare to be parties to the Convention, setforth in the Second Schedule to the Act. It is common ground that these provisions are not applicable to the awards in question. Apart from the provisions of the aforesaid statute, foreign awards and foreign judgments based upon awards are enforceable in India on the same grounds and in the same circumstances in which they are enforceable in England under the common law on grounds of justice, equity and good conscience. 33. It will thus be seen that there is a conflict of opinion on a number of points concerning the enforcement of foreign awards or judgments, based upon foreign awards. However, certain propositions appear to be clear. One is that where the award is followed by a judgment in a proceeding which is not merely formal but which permits of objections being taken to the validity of the award by the party against whom judgment is sought, the judgment will be enforceable in England. Even in that case, however, the plaintiff will have the right to sue on the original cause of action. The second principle is that even a foreign award will be enforced in England provided it satisfies mutatis mutandis the tests applicable for the enforcement of foreign judgments on the ground that it creates a contractual obligation arising out of submission to arbitration. On two matters connected with this there is difference of opinion. One is whether an award which is followed by a judgment can be enforced as an award in England or whether the judgment alone can be enforced. The other is whether an award which is not enforceable in the country in which it was made without obtaining an enforcement order or a judgment can be enforced in England or whether in such a case the only remedy is to sue on the original cause of action. The third principle is that a foreign judgment or a foreign award may be sued upon in England as giving good cause of action provided certain conditions are fulfilled one of which is that it has become final." 
The Consultation Paper seeks to amend the following provisions, inter alia, of the 1996 Act:
In order to remove certain difficulties, it is proposed to amend Section 2(2) of the 1996 Act as follows: 
(2) This part shall apply only where the place of arbitration is in India.
Provided that provisions of Sections 9 and 27 shall also apply to international commercial arbitration where the place of arbitration is not in India if an award made in such place is enforceable and recognized under Part II of this Act.
Insertion of the new Section 34A: 
34A. Application for setting aside arbitral award on additional ground of patent and serious illegality –
(1) Recourse to a Court against an arbitral award made in an arbitration other than an international commercial arbitration, can also be made by a party under sub-section (1) of section 34 on the additional ground that there is a patent and serious illegality, which has caused or is likely to cause substantial injustice to the applicant.
(2) Where the ground referred to in sub-section (1) is invoked in an application filed under sub-section (1) of section 34, while considering such ground, the Court must be satisfied that the illegality identified by the applicant is patent and serious and has caused or is likely to cause substantial injustice to the applicant.
Though India is considered, by and large, an arbitration friendly nation, the decision in Venture Global  and subsequent scrutiny thereof has, rightly or wrongly, increased India’s risk profile in the minds of those who would have otherwise selected Indian law as part of their arbitration agreement.
The most important factor which remains to be seen is whether the proposed amendments in the Consultation Paper will receive adequate discussion and subsequently, effective implementation so as to remove judicially created lacuna in the law.
Cite This Essay
To export a reference to this article please select a referencing style below: