HM Journal

Public policy and Enforcement of Foreign Arbitral Awards in India

“Public policy is never argued at all but when other points fail.” Burrough J.

The above phrase exemplifies the elusive character of ‘public policy’ in legal processes that rely on its existence in statutes, conventions, and legal systems. The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) is an important international treaty that allows for public policy factors when determining whether or not a foreign arbitral judgement should be enforced.

The ever-increasing and rapid growth of trade and commerce has resulted in an increase in cross-border transactions that has been continuous and unbroken. As a result of the increase in cross-border commerce and transactions, there has been an increase in cross-border conflicts as well. The rise of international cross-border conflicts necessitated the development of a more efficient and effective way for resolving them.

There was general agreement among business executives and legal scholars that international commercial arbitration’s were the answer to the problem created by the rise in the number of conflicts. The acceptability of international business arbitration was bolstered by the fact that parties to cross-border disputes were often hesitant to have their issues handled by the courts of the other contesting party.

However, establishing a dispute resolution mechanism and issuing an award is only part of the story; the true success of arbitral tribunal as a mode of dispute resolution can only be determined by the award’s effective implementation in the jurisdiction where the dispute’s matter is housed. If awards cannot be enforced to put a stop to ongoing disputes by protecting the interests or assets of victorious parties, international commercial arbitration as a solution for cross-border conflicts would be rendered ineffective. As a result, award enforcement is just as essential as the arbitral processes in every international commercial arbitration.

Meaning of Public Policy

Public policy is not defined in Article V(2)(b). It states that a court may decline to accept or enforce an award if it ” would be contrary to the public policy of that country”. The terms ‘that country’ refer to the country’s public policy in which enforcement is sought. As a result, judges must consider the country’s public policy while deciding whether or not to execute the award.

Either a restricted view of public policy, i.e., established principles that prevent courts from creating new heads of public policy, or a broad view, in which courts can participate in judicial lawmaking. For the sake of enforcing foreign awards, a restrictive approach has been taken in the past decades, as shown below.

Enforcement of an Award in India

The Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (“Geneva Convention”), as well as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”), are both signed by India. In general, if a party receives an award from a country that is a signatory to one of the above-mentioned conventions and has been notified as a convention country by India, the award will be enforceable in India if it meets the requirements set out in the Indian Arbitration and Conciliation Act, 1996 (“Arbitration Act”).

Section 48 of the Arbitration Act specifies the situations in which a Court may decline to enforce an award if an application for enforcement has been filed. It is also important to note that the justifications listed in section 48 are not exhaustive.

The following are the reasons for opposing the performance of an award under Section 48:

  1. The parties to the agreement were incapacitated, and/or the agreement in issue does not comply with the legislation to which the parties have agreed, or with the law of the nation where the award was made.
  2. The party that is seeking to enforce the award was not provided adequate notice of the arbitrator’s appointment or the arbitral procedures, or was otherwise unable to state his case.
  3. The award resolves a dispute that was not foreseen by or did not fall within the terms of the arbitration submission, or it contains rulings on topics outside the purview of the arbitration submission:
  4. The Arbitral Authority’s or Procedure’s makeup was not in accordance with the parties’ contract or the legislation of the country where the arbitration happened.
  5. The award is either not binding on the parties or has been overturned by a competent body in the jurisdiction where it was issued.
  6. Under Indian law, the subject-matter of the dispute is not eligible to arbitration settlement.
  7. The award’s implementation would be detrimental to India’s public policy.

Section 48 of the Arbitration Act expressly states that the execution of a foreign award “may” be denied rather than “must” be refused. The inclusion of this wording plainly demonstrates the legislature’s purpose to provide the Court the authority to override and reject the contending party’s defence, even if they are successful in proving the existence of one of the requirements set out in section 48 of the Arbitration Act.

It is also important to note that the Court’s authority to deny enforcement of arbitral awards under section 48 of the Arbitration Act are not those of an appellate court; it is a widely recognized principle that the Court before which implementation is sought should not delve into the merits of the award or into issues of any factual or legal errors made by the Arbitrator/ Arbitral Tribunal.

When the Court in which the enforcement actions are filed determines that a foreign award is executable under this Chapter, the award is considered to be a domestic Court judgment.

Appropriate Court for Enforcement

A ‘court,’ as defined by the Arbitration Act, is the primary Civil Court with original jurisdiction to settle the issue that is the issue of the arbitration if it is also the subject of a lawsuit.

Given the foregoing, it is clear that an award holder can seek execution from any Indian court in whose jurisdiction the assets/interests at issue are located. To enable the prompt enforcement of foreign awards, the legislation established several commercial courts under the Commercial Courts, Commercial Division, and Commercial Appellate Division of High Courts Act 2015 (“Commercial Courts Act”), which have authority to hear such issues in most circumstances.

Amazon v. Future Case – Supreme Court’s latest progressive decision

In Amazon.com NV Investment Holdings Inc. v. Future Retail Ltd (“Amazon v. Future”), the Apex Court of India took a step forward by implementing an emergency order/award issued by a Singapore International Arbitration Centre (“SIAC”)-appointed emergency arbitral panel. The Court determined that the phrase “arbitral tribunal” as defined in section 17 of the Arbitration and Conciliation Act of 1996 (“Arbitration Act”) included a “emergency arbitrator.” As a result, the Court determined that its award/order is executable in India..

Note – In the matter of Raffles Design v. Educomp Professional Education (“Raffles v. Educomp”), the Delhi High Court ruled that an emergency award issued by a foreign-seated arbitral tribunal was not binding under the Arbitration Act and could only be executed by filing a lawsuit. In the contrary, the court decided that the party who had secured a foreign seated emergency award would have to seek interim relief from the domestic court from afresh in accordance with the emergency award.

Suggestions

A change in the Policy making is the need of the hour. We need policies in line the best practices in developed countries if we want to make India a business hub as envisioned in the Make in India and Atmanirbhar Bharat policies of the Government. Articles 17H and 17I of the United Nations Commission on International Trade Law(UNCITRAL) Model Law recognising and executing interim orders issued by foreign seated arbitral tribunals be legislatively incorporated in the Arbitration Act, similar to the Singapore and Hong Kong legislations.

Conclusion

India has become a regional powerhouse and is on the way to becoming a worldwide commercial giant as a result of its fast growth and development since the opening up of the economy following the 1991 reforms. The judiciary, on the other hand, has been burdened and, in some circumstances, paralysed by a large backlog of cases and problems that can take decades to settle. International investors have long complained that any disputes arising in or requiring execution of judgements against assets and interests based in India take a lengthy period, which is inconvenient for the development and expansion of trade and commerce. Modifications have been introduced, to make India a much more investor-friendly country.

The courts’ pro-arbitration stance is evidenced by a recent flurry of decisions stating that courts should only have a limited role in the execution of foreign awards. The 2015 and 2019 modifications to the Arbitration Act, as well as the formation of the commercial courts already mentioned, have been hailed as moves that have brought India into line with worldwide law and best practises in the area of arbitration.


References:

  1. Burrough J. in Richardson v. Mellish (1824-34) All ER 258.
  2. Art.V(2)(B), New York Convention.
  3. Civil Appeals No. 4492-4497 of 2021, Supreme Court of India, Judgment dated 6 August 2021 (“Amazon v. Future”)
  4. O.M.P. (I) (COMM.) 23/2015 & CCP (O) 59/2016, IA Nos. 25949/2015 & 2179/2016

This article has been written by Saurabh Suman, 3rd year BBA.LL.B(H), Symbiosis Law School Pune. One may reach out to him at [email protected]

Note to Saurabh by HM Journal – Thank you for choosing our platform to submit your article. It’s a great topic to read and understand about Public Policy and Enforcement of Foreign Arbitral Awards in India. We wish you a great success in the future.

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