Enforcement of Foreign Arbitral Awards

Introduction

Effective and speedy dispute resolution mechanisms for domestic and global investors are essential in order to facilitate the growth of business, trade and commercial transactions across the globe. If foreign awards are not properly enforced within the country, the purpose of resorting to swifter methods of resolution is defeated and the parties may be compelled to take recourse to the traditional legal system. It is in this context that the proper enforcement of foreign arbitral awards in the country is crucial.

A Brief History

A general consensus to recognise and enforce foreign arbitral awards was first brought forth by the Geneva Protocol of 1923 under Articles 1, 2 and 3.

It was subsequently followed by the Geneva Convention of 1927. Article 1 of the 1927 Convention enumerates that arbitral awards shall be recognized as binding and enforceable in accordance with rules of the procedure of the territory where the award is relied upon.

These treaties would form the first of many pacts among nations that would be signed to materialize the outcomes of international arbitrations.

The Arbitration (Protocol and Convention) Act, 1937, in its interpretation clause, defines the term ‘foreign award’ within the context of commercial law and arbitration and the succeeding provisions give effect to such awards. This Act was the first attempt at enforcing within the Indian territory arbitral awards otherwise decided in foreign jurisdictions. It would lay the foundation for future legislation such as the Arbitration Act, 1940 and the Arbitration and Conciliation Act, 1996 both in a general sense and in regard to enforcing foreign awards.

Later, The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, was adopted in 1958. This charter along with the UNCITRAL Model Law on International Commercial Arbitration (1985) paved the way for the current state of Indian laws and practices in enforcing foreign awards.

This article is primarily focused on the New York Convention and the ways in which it helped reform ineffective laws into viable mechanisms of effectuating foreign awards in India.

The New York Convention

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 also known as New York Convention, entered into by 169 countries, is meant to give effect to outcomes of arbitrations held outside the territorial jurisdiction of the country where the award is sought to be enforced.

The Convention has gained wide acceptance across the world. The UNCITRAL Model Law on International Commercial Arbitration, 1985 was developed to work in tandem with the Convention, with respect to every stage of the arbitration process.

Article 1 of the Convention deals with its applicability in various contexts and the scope of the term ‘arbitral awards’.

Article 2 specifies that written arbitration agreements shall be recognized by the contracting states, the agreements shall contain arbitral clauses and the court of a contracting party shall refer the disputes to arbitration.

Article 3 holds that each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles.

Article 7 repeals the authority of the Geneva Protocol of 1923 and Geneva Convention of 1927 and empowers any other bilateral or multilateral treaty/(ies) the state/s may be enjoying in relation to the enforcement of foreign awards. It also holds that no party shall be deprived of its right under such a treaty owing to the New York Convention.

The past

Prior to the enactment of The Arbitration Dispute Resolution and Conciliation Act, 1996 which was modelled on the UNCITRAL Model Law, the Arbitration Act, 1940 applied to matters relating to Alternative Dispute Resolution.

The Arbitration Act, 1940 allowed for court interference at various stages of the arbitration proceedings which stalled the progress of the dispute and gave the court oversight over the resolution process. This resulted in delays which led to foreign investors becoming sceptical of investing in unstable domestic business environments. This was exacerbated by the fact that the system did not guarantee speedy resolution of disputes and a commitment to the rule of law among other reasons.

The Supreme Court in the case of Guru Nanak Foundations Vs. Rattan Singh held that “the way in which proceedings under the Act are conducted and without an exception challenged, has made lawyers laugh and legal philosophers weep” in view of the “unending prolixity, at every stage providing a legal trap to the unwary.”

This criticism comes from the fact that

The 1940 Act gave powers to the court to interfere with the proceedings and undercut the authority of the arbitral tribunals.

The parties could move the courts whenever they felt that the matter was not proceeding in their favour and,

The awards granted were allowed to be challenged on numerous grounds which defeated the entire purpose of ADR.

The Aftermath

Under Part II of the Arbitration and Conciliation Act, 1996, the imprint of the New York Convention can clearly be seen. Section 47, for example, reflects words used in the Convention verbatim and other sections are similarly enumerated in the spirit of the guidelines set by the Convention.

Section 47 states

“Evidence —

(1) The party applying for the enforcement of a foreign award shall, at the time of the application, produce before the court—

(a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;

(b) the original agreement for arbitration or a duly certified copy thereof; and

(c) such evidence as may be necessary to prove that the award is a foreign award.

(2) 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.

This is derivative of Article 4 of the Convention which states:

1. To obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:

a) The duly authenticated original award or a duly certified copy thereof;

(b) The original agreement referred to in Article II or a duly certified copy thereof.

2. If the said award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.”

The striking similarity between the Convention and domestic law may be observed and is a demonstration of India’s commitment to the Convention and to other contracting parties. This law reflects the Government’s attempts to create a conducive environment that promotes arbitration at all levels.

Bharat Aluminium Co v. Kaiser Aluminium Technical Services (‘BALCO’)

This judgement is recognised as having been instrumental in laying down broad propositions in regard to harmonizing inconsistent and erroneous decisions in past arbitration matters, to bringing the arbitration regime in India on par with the New York Convention and UNCITRAL Model Law as well as to attenuate the court’s role in intervening in the arbitral process-

The Court held that Indian courts are not empowered to set aside foreign arbitral awards pursuant to S. 34 of the A & C Act, 1996. It also noted that the courts will not hold any power towards awarding interim relief in foreign seated arbitrations pursuant to S. 9 of the same Act.

The Indian courts’ jurisdiction was not dependent on deciphering the express or implied intention of the parties, and thus parties need not expressly exclude the application of Part I of the Act in agreements that provide for foreign-seated arbitration on or after 6 September 2012.

A civil suit under the Code of Civil Procedure, 1908 will not lie for seeking interim relief in foreign-seated arbitrations primarily because interim relief would not constitute a substantive cause of action.

Conclusion

Nations globally have strived to create a regime of procedure and obligations that help in seamless resolution of disputes through the adoption of various Conventions beginning from the year 1928. India has fulfilled its international obligations by accepting established global norms in the incorporation of various amendments, legislations and precedents. Though India’s path through the ADR ecosystem has been rife with missteps, progress is steadily being achieved in regard to building a trustworthy dispute resolution system which instills confidence in the minds of businesses, investors and other stakeholders.