The Relationship of Hong Kong and India with regard to business arrangements from both sides are very long, Hong Kong Companies do business in India and vice versa. Hong Kong is Asia’s world city and door for business gateway to China and South East Asia Region. From the point of legal system both countries have developed their own procedures and practice as per their social, political and business environment and changes.
India has been an arbitration friendly country right from the beginning, because arbitration was prevalent even before the codified law came into force. In the pre-court period the leaders of the communities and the elders of the families used to act as arbitrators and people used to obey the decision of those arbitrators.
Nowadays, The Arbitration and Conciliation Act 1996 specifically provides for the manner in which a Foreign Award is to be dealt with for the purposes of its enforcement. The Act of 1940 had no such provision. The Arbitration and Conciliation Act 1996 deals with two parts, Part-I deals with the Domestic Arbitration and Part-II International Arbitration. If the arbitration agreement is found or held to provide for a seat/place of arbitration outside India, then the provisions of Part-II of the Arbitration Act, 1996 would govern the arbitration proceedings.
For boosting the foreign Investment, the Supreme Court of India in its recent Judgment held that Indian courts have no jurisdiction to pass interim orders in foreign arbitration awards between an Indian company and a foreign company under the provisions of the Indian Arbitration and Conciliation Act, 1996. The supervisory power for the regulation of the conduct of the Arbitration and challenge to an award would have to be done by the court of the country in which the arbitration proceedings are being conducted. To give force to the scheme of the international instruments such as the Geneva Convention and the New York Convention as well as the United Nations Commission on International Trade Law (UNCITRAL). It also recognizes the territorial principle which gives effect to the sovereign right of a country to regulate, through its national courts, an adjudicatory duty being performed in its own country.
The Supreme Court of India recently decided in a landmark ruling in PASL Wind Solutions Private Limited v GE Power Conversion India Private Limited (Civil Appeal No. 1647 of 2021) that two companies incorporated in India can validly designate a foreign seat for arbitration. Previously, there had been inconsistent judicial precedent on this issue and lingering concerns that an offshore arbitration award made pursuant to an arbitration agreement between exclusively Indian parties could be susceptible to challenge in the Indian courts.
In summary, the Supreme Court found that nothing stands in the way of party autonomy in designating a seat of arbitration outside India, even if both parties are Indian nationals. This was a significant departure as previously the courts had held that at least one party had to be a non-Indian person or company for such a clause to be effective. The Court clarified the position and held that an award issued by an arbitral tribunal in such circumstances would be enforceable in India and as held in the BALCO case that the parties could also seek interim relief in India where the assets of one of the parties are situated in India. The decision brings welcome certainty particularly for Indian subsidiaries of international companies that have negotiated contracts providing for offshore arbitration.
The enforcement of a foreign award can still be resisted in India on grounds contained in section 48 of the Arbitration Act, which includes amongst others the foreign award being contrary to the public policy of India.
Recently in the Amazon Versus Future Retail judgment the Hon’ble Supreme Court has held that full party autonomy is given by the Arbitration Act to have a dispute decided in accordance with institutional rules which can include Emergency Arbitrators delivering interim orders, described as “awards”. Such orders are an important step in aid of decongesting the civil courts and affording expeditious interim relief to the parties. Such orders are referable to and are made under Section 17(1) of the Arbitration Act and are enforceable.
ENFORCEMENT OF FOREIGH AWARDS
Under the Arbitration and Conciliation (Amendment) Act, 2015. There are two avenues available for the enforcement of foreign awards in India, viz., the New York Convention and the Geneva Convention, as the case may be.
A. Enforcement under the New York Convention
Sections 44 to 52 of the Arbitration and Conciliation (Amendment) Act, 2015 deals with foreign awards passed under the New York Convention.
The New York Convention defines “foreign award” as an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960-
- In pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and
- In one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.
From the above two pre-requisites emerge for enforcement of foreign awards under the New York Convention. These are:
i) The country must be a signatory to the New York Convention.
ii) The award shall be made in the territory of another contracting state which is a reciprocating territory and notified as such by the Central Government.
B. Enforcement under the Geneva Convention
Sections 53-60 of the Arbitration and Conciliation (Amendment) Act, 2015 contains provisions relating to foreign awards passed under the Geneva Convention.
As per the Geneva Convention, “foreign award” means an arbitral award on differences relating to matters considered as commercial under the law in force in India made after the 28th day of July, 1924,-
- in pursuance of an agreement for arbitration to which the Protocol set forth in the Second Schedule applies, and
- between persons of whom one is subject to the jurisdiction of some one of such Powers as the Central Government, being satisfied that reciprocal provisions have been made, may, by notification in the Official Gazette, declare to be parties to the Convention set forth in the Third Schedule, and of whom the other is subject to the jurisdiction of some other of the powers aforesaid, and
- in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, by like notification, declare to be territories to which the said Convention applies, and for the purposes of this Chapter, an award shall not be deemed to be final if any
- proceedings for the purpose of contesting the validity of the award are pending in any country in which it was made.
The Supreme Court of India in the matter of Gemini Bay Transcription Pvt Ltd vs Integrated Sales Service Limited decided on 10 August, 2021 heldthat a reading of Section 44 of the Arbitration and Conciliation Act, 1996 would show that there are six ingredients to an award being a foreign award under the said Section. First, it must be an arbitral award on differences between persons arising out of legal relationships.
Second, these differences may be in contract or outside of contract, for example, in tort. Third, the legal relationship so spoken of ought to be considered “commercial” under the law in India. Fourth, the award must be made on or after the 11th day of October, 1960. Fifth, the award must be a New York Convention award – in short it must be in pursuance of an agreement in writing to which the New York Convention applies and be in one of such territories. And Sixth, it must be made in one of such territories which the Central Government by notification declares to be territories to which the New York Convention applies.
The conditions for enforcement of foreign awards under the Geneva Convention are provided under Section 57 of the Arbitration and Conciliation Act, 1996. These are as follows:
- the award has been made in pursuance of a submission to arbitration which is valid under the law applicable thereto;
- the subject-matter of the award is capable of settlement by arbitration under the law of India;
- the award has been made by the arbitral tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure;
- the award has become final in the country in which it has been made, in the sense that it will not be considered as such if it is open to opposition or appeal or if it is proved that any proceedings for the purpose of contesting the validity of the award are pending;
- the enforcement of the award is not contrary to the public policy or the law of India.
The Arbitration and Conciliation Act was amended in 2015 and the ground of non- enforcement of arbitration award on the ground of it being contrary to public policy of India was restricted to only include those awards that are: (i) affected by fraud or corruption, (ii) in contravention with the fundamental policy of Indian law, or (iii) conflict with the notions of morality or justice.
However, the said section lays down that even if the aforesaid conditions are fulfilled, enforcement of the award shall be refused if the Court is satisfied that-
- the award has been annulled in the country in which it was made;
- the party against whom it is sought to use the award was not given notice of the arbitration proceedings in sufficient time to enable him to present his case; or that, being under a legal incapacity, he was not properly represented;
- the award does not deal with the differences contemplated by or falling within the terms of the submission to arbitration or that it contains decisions on matters beyond the scope of the submission to arbitration: Provided that if the award has not covered all the differences submitted to the arbitral tribunal, the Court may, if it thinks fit, postpone such enforcement or grant it subject to such guarantee as the Court may decide.
Furthermore, if the party against whom the award has been made proves that under the law governing the arbitration procedure there is any other ground, entitling him to contest the validity of the award, the Court may, if it thinks fit, either refuse enforcement of the award or adjourn the consideration thereof, giving such party a reasonable time within which to have the award annulled by the competent tribunal.
Section 58 provides that where the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of the Court.
In 2012, India confirmed that it will add the Peoples’ Republic of China (including the Special Administrative Regions of Hong Kong and Macao) to the list of so-called “gazetted” states.
The approach of the Indian court to enforce the arbitration award is still in the process of evolvement.
The Supreme Court (“SC”) judgment in Government of India v. Vedanta Limited and Others while noting that a foreign award does not become a “foreign decree” at any stage of the proceedings, the SC held that enforcement of a foreign award takes place only after the court is satisfied that it is enforceable under Part II of Chapter I of the Act. The foreign award has to pass the muster of Sections 47 and 49, after which the award becomes a ‘deemed decree’.
In the Renusagar Power Co. Ltd. Vs General Electric Co. judgment, the court had relied upon a judgment of the US Court of Appeals for the 2nd Circuit wherein it was held that an expansive construction of the defense of public policy would vitiate the New York Conventions basic effort to remove pre-existing obstacles to enforcement. Enforcement may be denied only where the enforcement would violate the forum’s most basis notions of morality and justice. The SC observed that finality of awards in international commercial arbitrations should be respected, save in exceptional circumstances.
In the facts of the present case, the SC held that the Government of India has not made out a case for violation of procedural due process in the conduct of arbitral proceedings. The appeal was based on the ground that the award was contrary to the basic notions of justice, however the specific ground was not made out. Most basic notions of justice and morality have been interpreted by courts to mean that there should be great hesitation in refusing enforcement, unless it is obtained through “corruption, fraud or undue means.”
The Supreme Court further held that interpretation of a contract lies within the domain of the tribunal and the enforcement court cannot re-assess the merits of the matter under Section 48. Therefore, the SC has held that the enforcement of the foreign award would not contravene the public policy of India.
Following the 2015 amendment, the courts have consistently followed the minimal judicial intervention approach when ruling on objections to the enforcement of a foreign award.
In GEA EGI Contracting Ltd v Bharat Heavy Electrical Limited ((2016) 233 DLT 661), the Delhi High Court refused to prevent the enforcement of a foreign award, stating that although the award was incorrect, it could be considered reasonable. The court also refused to interfere in a foreign award’s enforcement in Xstrata Coal Marketing AG v Dalmia Bharat (Cement) Ltd (2016 SCC OnLine Del 5861), in which it had to decide whether the calculation of damages provided for in the award in the absence of any evidence contravened the fundamental policy of Indian law. The court stated that the findings on the calculation of damages were not perverse and that the award could be set aside only on limited grounds under Section 48 of the Arbitration and Conciliation Act, which would not entail a review of the award on the merits.
Recently, in Daiichi Sankyo Company Limited v Malvinder Mohan Singh (2019 SCC OnLine Del 7836), the Delhi High Court held that the ‘fundamental policy of India’ under Explanation 2 to Section 48(2)(b) of the Arbitration and Conciliation Act does not mean provisions of Indian statutes, but rather the substantial principles on which Indian law is founded.
In the matter of Campos Brothers Farms V Matru Bhumi Supply Chain Pvt. Ltd. yet again it was held that while the courts cannot go into the merits of and reasoning provided in an award, a complete failure to consider the issues and contentions raised by the losing party will trigger Section 48(2)(b) of the Arbitration and Conciliation Act and can render the award unenforceable. In view of this, the non-enforcement of the award in this case was within the realms of the law.
Campos Brothers Farms is an exception to the normal approach as the court refused to allow the award’s enforcement because it violated the principles of natural justice and contravened public policy. The decision is significant and was relied on and discussed by the Supreme Court in its recent decision in Vijay Karia v Prysmian Cavi E Sistemi SRL (2020 SCC Online SC 177)
Following the 2015 amendment to the Arbitration and Conciliation Act, the Indian courts have maintained their approach of minimal intervention in cases concerning the enforcement of foreign awards. The courts have stepped in to prevent enforcement only on limited grounds and in a few select cases. Even in such select cases, the threshold for convincing the court that an award should not be enforced is high. Therefore, it appears that enforcement is the norm and refusal is the exception.
The idea of foreign arbitration award enforcement in India is getting rolled with lot of pace and Indian courts are finding a lot of applications for enforcement of Foreign Arbitration Awards in India.
(This article is only for information purposes and for applicability to specific facts/cases please take legal advice)
Drafted and Settled by
T.S.Ahuja (Managing Partner) & Vishal Pancholi (Associate Partner)
Of Ahuja Law Offices
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