CRITICAL ANALYSIS ON THE ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN INDIA

CRITICAL ANALYSIS ON THE ENFORCEMENT OF FOREIGN ARBITRAL AWARDS IN INDIA

  
Author:
Savio Alex Sanjay
3rd Year BA LLB
Christ (Deemed to be University), Bengaluru

ABSTRACT
The purpose of Arbitration is to get speedy justice with cost effectiveness and a favorable award. We see that nowadays there have been extensive international efforts made to overcome the hurdles in recognition and enforcement of foreign arbitral awards. Hurdles such as the award being in one party’s favor and thereafter being set aside for being invalid or a disconnect between jurisdiction of domestic and foreign courts in case of annulment of an award and so on.
This paper in its introductory part briefly explores the domestic arbitration regime and it further delves into its primary focus areas as follows: –
(a)    The relevance of state ‘public policy’ with respect to International Arbitral awards?
(b)   Why is there a disconnect between International and Domestic courts of arbitration with respect to Jurisdiction and powers of annulment in developed and developing countries?
(c)   Whether Article 5 of the New York convention is absolute or exhaustive in nature?
The research methodology used by the authors in this paper is doctrinal and adopts a qualitative approach. The justification behind the adoption of the qualitative method is that the study is, mainly, a library-based research. The study depends on the secondary data, the existing literature and relevant researches those have been previously carried out. Reliance will be placed on primary sources such as Books, debates and proceedings of PCA, SIAC and other such arbitration institutions. Secondary sources such as journals, scholarly articles, reports and draft bills shall be referred to in order to analyze the lacuna in the existing mandatory international rules and conventions, and to determine the hierarchy in jurisdiction of an arbitral award’s enforcement.
INTRODUCTION
The word arbitration has the dictionary meaning of hearing and determining of a dispute between the parties by a person or persons chosen or agreed to be chosen voluntarily by the parties. It’s been observed that the concept of arbitration is not unknown in India. In classical India, disputes between private individuals were placed before Panchas and Panchayats. In a similar vein, commercial matters were decided by Mahajans and Chambers. However, formal arbitration proceedings came into existence after Britishers started commercial activities in India. Arbitration, in the legal sense, that is, reference of a dispute by consent of the parties to one or more persons with or without an umpire and an award enforceable by the sovereign power were a working concept in ancient India.
About two and a half centuries back the techniques of resolution of disputes by arbitration have received legal recognition in India. In 1772, arbitration was introduced in India for the first time. The East India Company framed several regulations which were applicable only to three metropolises, namely Bengal, Bombay and Madras.
Section 22 of the Arbitration Act, 1940 further provides that the arbitrator to whom the matters in dispute in the suit may be referred, shall be appointed in such manner as may be agreed upon mutually by the parties. The court however has no power to refer the decision of any issue raised in the suit to arbitrators nominated by the courts against the protest of the parties.
The Code of Civil Procedure (Act VIII of 1859) codified for the first time the civil procedure in civil courts and the law relating to it. Sections 312 to 327 of this code dealt with the concept of arbitration in suits. Sections 312 to 325 provided for arbitration by parties to pending suits. Section 326 dealt with the filing in court of an agreement to refer to arbitration and section 327 dealt with filing of an award without the intervention of the court. The code recognized three kinds of arbitration and the same distinction is still recognized[1].
The provisions of the code of civil procedure (Act VIII of 1859) were replaced by the code of civil procedure (Act XIV of 1882) and later by the Code of Civil Procedure (Act V of 1908). All the three codes recognized only references to arbitration of disputes which had actually arisen to arbitration. Section 2 (a) of the Arbitration Act 1899 for the first time gave recognition to the reference of the disputes likely to arise in the future to an arbitrator. The definition in section 2(a) of the Arbitration Act, 1940 is merely a repetition of the earlier definition. A uniform law of arbitration applicable throughout India was provided for the first time by the landmark enactment of the Arbitration Act, 1940.
The Indian laws recognized arbitration agreement by which the parties could bring themselves to not litigate in courts but seek their remedy outside the courts. Even though section 28 of the Contract Act 1872 makes void any such agreement by which anybody is restricted from approaching courts for relief, arbitration agreements proved to be an exception to this law. This has gone on to become a part of the fundamental law of India.
At present the new Arbitration and Conciliation Act, 1996, which repealed the old Arbitration Act, 1940, is in force. This is in adopting the UNCITRAL model laws.
It appears that the intention of the 1996 Act is to steer clear of the earlier position, namely, that the provisions of the Code of Civil Procedure, 1908 would apply to all proceedings under the Arbitration Act subject to the provisions of the Act as well as the rules made there under. On the flipside, there is internal evidence in the 1996 Act which leans towards suggesting that the intention is to make a self-contained code. Section 9 of the 1996 Act deals with the powers of the court to make certain interim measures indicating an intention on the part of the legislature to make the 1996 Act a self-contained self-operative Code with regard to the subject matter of arbitration and conciliation and that the provisions of the Civil Procedure Code are not applicable, unless specifically made so.
Foreign Awards under Arbitration and Conciliation Act, 1996
In Bhatia International v. Mass Trading[2]the Supreme Court held that “An arbitral award not made in a convention, nations won’t be viewed as an outside award and all things considered, a different activity should be recorded based on the award”. The New York Convention conveys a typical measuring stick on the benchmark of which these understandings and awards are perceived and upheld in the nations which have acknowledged it. Consequently, producing trust in the parties, who might be new to the assorted laws winning in various nations with which they are exchanging, the arbitral ascension and awards spilling out of it will be regarded and upheld by the courts of the states where the requirement is looked for.
In Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd.[3], the Supreme Court considered an inquiry whether the award could be put aside, if the Arbitral Tribunal has not taken after the compulsory technique endorsed under Sections 28, which influences the privileges of the parties. Subsection (1)(a) of Section 28 gives a command to Arbitral Tribunal to choose the question as per the substantive law for now in drive in India. Unquestionably, substantive law would incorporate the Indian Contract Act, the Transfer of Property Act and other such laws in drive. For example, if the award is passed infringing upon the arrangements of the Transfer of Property Act or disregarding the Indian Contract Act, the inquiry would be – whether such award could be put aside. Correspondingly, under sub segment (3), the Arbitral Tribunal is coordinated to determine the debate as indicated by the terms and conditions to the agreement and furthermore subsequent to considering the utilization of the exchange applicable to the exchange. In situations where Arbitral Tribunal disregards the terms of the agreement or use of the exchange pertinent to the exchange, regardless of whether the said award could be meddled. The Supreme Court opined that elucidation of Section 34 conjointly with different arrangements of the Act, it creates the impression that the administrative purpose couldn’t be that if the award is in negation of the arrangements of the Act, still anyway, it couldn’t be put aside by the court. On the off chance that it is held that such award couldn’t be meddled, it is in opposition to the fundamental idea of Justice. On the off chance that the Arbitral Tribunal has not taken after the compulsory system endorsed under the Act, it would imply that it has acted past its purview and in this way the award would be obviously illicit which could be put aside under Section 34. Further, the Supreme Court held that if the award is in opposition to the substantive arrangements of law or the provisions of the Act or against the terms of the agreement, it would be plainly illegal, which could be meddled under Section 34.
Challenges to the Foreign Awards
Arbitration law remains on two plinths: – Party self-governance and Finality of award. In the event that these two plinths are deceiving by legal Arbitration, arbitration law will neglect to understand its definitive objectivity and will lose its soul. The Court where the award has been petitioned for the authorization, will have its own particular standard of judging as to what constitutes ‘a reasonable hearing’. On account of Parsons and Whittemore Overseas Co. Inc. v. Societe Generate de l’ Industriedu Papier (RAKTA)[4] , Court for this situation dismissed the supplication which was taken by the Overseas that he was not ready to introduce his case as arbitral tribunal did not hear one and just observer from their side. Court for this situation expressed that, in the arbitration since the parties are frame distinctive nations and are scattered over the globe it isn’t helpful to stray from the concurred time limits.

Arbitration by Courts

The arbitration by the judicial specialist is barred under Section 5 of the Act. This fundamental arrangement is contained in the laws of every other nation that has embraced the UNCITRAL Model. The key goals set out in the Statement of Objects and Reasons of the 1996 Act are “to limit the supervisory part of courts in the arbitral procedure” and “to ensure each arbitral award is authorized in a similar way leveling with announcement of a common court”. Section 5 under the Act sets an exhaustive bar on the obstruction of the courts in issues where there exists an arbitration proviso. Under the new Arbitration Act, the impedance of the Court in all issues associated with the direct of Arbitration, choice of the Arbitrator and the award has been especially limited when contrasted with that under the 1940 Act.

Balco and White Industries

In BALCO, the Court was of the conclusion that it couldn’t help contradicting the decisive particles in Bhatia and Venture Global, and that the ability to concede between time measures in regard of outside situated arbitrations or to manage difficulties to remote awards did not spill out of the arrangements of the 1996 Act. In doing as such, the Court took the broader view in’ understanding of Bhatia that all of Part I connected to arbitrations situated outside India did not discover applicable premise in the arrangements of the 1996 Act.[5]
A huge removal – from the conclusion is that the Court solidly supported the seat of arbitration as the ‘focal point of gravity’ of an arbitration specially to choose purview of courts in connection to that arbitration. Another is that is clears up the until now dim refinement in India between the substantive administering law of an agreement and the law representing the arbitration ascension. Maybe, most critical, is its explanation of the elucidation of the expression ‘of the nation in which, or under the rules of the New York Convention. While the expression has been the subject of talk around the world, the Court saw that there can’t be simultaneous award of two separate courts in the seat and the locale, the law of which oversees the arbitrations – it must be the court at the seat of arbitration who can exercise such purview to manage a test.
In BALCO case, altogether however, the Supreme Court characterizes the relevance of its elucidations by proposing that its perspective of the law just applies to arbitration assentions executed after its choice i.e. post 6 September 2012. In doing as such, the Court seems to have been guided by down to earth contemplations and unavoidable issues that may have come about because of applying its perspectives reflectively. This advance energizing issues on the position that Indian courts may to go up against pending arbitrations and related suits and future cases on assentions as of now in constrain, however dated before the Court’s choice. It is likewise of some enthusiasm to check whether parties re-execute arbitration assentions alone in regard of their business contracts so as to fall inside the BALCO net.
The decision is a huge positive development for India as it brings in the contour the Indian position with international arbitration jurisprudence and undertaking. This decision is bound to create greater confidence in the Indian legal system and courts. Also, it will undoubtedly make more prominent speculator trust in India, consistency and consistency in the legal approach will just work well for to make a more proficient question d
etermination process for Indian and Non – Indian parties similarly.

LEGISLATIVE AND JUDICIAL RESPONSE IN INDIA

In a case from Hong Kong the Supreme Court of Hong Kong (High Court) found that the China International Economic and Trade Arbitration Commission (CIETAC) had not given the respondent Klockner an opportunity to comment on the reports which was made by the expert appointed by the tribunal as per the Rules of CIETAC. Since, the respondents were not allowed to comment on the report and were hence not given proper hearing; the award made pursuant to it was denied enforcement.
A second category covers the failure to inform a party about the arbitration. Informing parties of the identity of arbitrators is fundamental to the process of arbitration. Requirement that the party should be informed about the arbitral proceedings means that the party can be located. A German Court in Bavaria, did not allow the enforcement of an award which was made in made in Moscow. Main reason for the refusal was that the German buyer was not duly informed of the arbitration. The Court found that although Russian arbitration law provides that in case the information about the arbitral proceedings is sent to the defendant’s last known address, it sufficient to fulfill the requirement of sufficient notice to the party.
An arbitral tribunal may just legitimately decide those debate that the parties have concurred that it ought to decide. This lead is an unavoidable and legitimate outcome of the intentional idea of assertion. In consensual arbitration i.e. arbitration where parties have consented to present their question to arbitration; the expert or ability of the arbitral tribunal originates from the ascension of the gatherings; surely, there is no other source from which it can come.[6]In arbitration, authority to decide the matter is given to the private tribunal by the parties, and it is very important that they should not go beyond the powers which are so mentioned. An arbitral tribunal may just legitimately decide those debate that the parties have concurred that it ought to decide. This lead is an unavoidable and legitimate outcome of the intentional idea of assertion.
Libyan American Oil Company (Liamco) v. Socialist People’s Libyan Arab Yamahirya, formerly Libyan Arab Republic[7], is a case where the Court expressed that, without an inside and out survey of the law of agreement, the Court couldn’t state whether a rupture of agreement would revoke a proviso which rejected important harms.
“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, that award was made”. Reference is made here to three separate grounds, each of which will be considered in turn. This ground has generated more controversy than any of the other grounds mentioned
in the New York Convention. In the first part of the Article V(1)(e) of New York Convention words that used is that awards will be reused enforcement if the party resisting enforcement proves that awards has not become ‘binding’ on the parties.
It means that if the party against whom the award is invoked proves that the award has not become ‘binding’ then it’s a ground for the refusal of the enforcement of an award. The phrase that was used in the 1927 Geneva Convention was that the awards should have become ‘final’ in the country of origin. So, in that Convention, the word ‘final’ was used which led to an inference that in order to get enforcement of the award it had to be declared as ‘final’ by the Court of the place of arbitration. As a result, the problem that was encountered by the parties applying for enforcement of the awards under the 1927 convention was that the parties were required to get a declaration from the Courts where the award was made, that it was final and Courts there had disposed of all the issues related to the dispute. In this case the award was made in the United States under the auspices of the American Arbitration Association (AAA). The Court of Appeals for the District of Columbia in the US refused to confirm the award on the ground of lack of subject-matter jurisdiction. Consequently, the claimant, MINE, resorted to ICSID arbitration.
Ground V(I)(e) also provides that enforcement of an award can be refused if the party against whom the award is passed proves that the award has been ‘suspended’ by a Court in the country where, or under the law of which, the award was made. According to Article VI of the Convention, a Court can adjourn its decision on enforcement if the respondent applies for suspension of the award in the country of origin. Finally, looking at the wordings of the New York Convention in Article 5(l)(e) it refers to only the highest Court that is competent to suspend or set aside an award is the Court of the country ‘in which, or under the law of which, that award was made’. So, it means the awards can be set aside only by the Courts of the place of arbitration and this substantiated by the decisions of different Courts under the Convention which conform to the view that arbitration clause in question means procedural and not substantive. But still this approach is not consistently followed by the countries.
In a case of Venture Global Engineering v. Satyam JIC[8] the Indian Supreme Court held that an award which was made in London, which was the place of arbitration, and whose enforcement was sought in the United States could be set aside in India and not in London (being the place of arbitration) as the parties have chosen Indian law as the substantive law to govern the main issued in the dispute. But this type of decision are exceptions and do not reflect the views of the other Courts to prove the point that if award has to be set aside then law which is to be taken into consideration is the has the proper law of the contract. [9]
On account of National Thermal Power Corp. v. Vocalist Co.[10], the Indian organization i.e. National Thermal Power Corporation went into concurrence with outside organization i.e. Vocalist co. for the supply of gear and authorizing of specific works in India. Assention between them accommodated the arbitration for the settlement of the debate. Indian Law was picked by the parties as the appropriate law and the place of the arbitration was Lon
don, it implies that arbitration must be directed by the procedural law of England and the center issues were to be chosen by the Indian law. Break grant was made, against which National Thermal Power engaged High Court of the Delhi to set aside the award. Delhi High Court properly chose that award was not secured under the Arbitration Act, 1940 but rather under the Foreign Awards (Recognition and Enforcement) Act, 1961 which manages the outside awards and the significant parties for putting aside grant is London.
The Supreme Court held that the Foreign Awards Act, 1961 had no application where the correct law of agreement as picked by the parties was the law in constrain in India with locale of Courts at Delhi since it would then be an Indian award and not a remote award regardless of whether the agreement is of worldwide nature and the procedural issues were to be represented by the principles of International Chambers of Commerce.
In Renusagar Power Co. LTD v. General Electric Co.[11], if there is infringement of standards of common equity or carelessness to the guideline of equivalent treatment of the parties the award won’t be implemented. Regardless of whether the notice is ‘legitimate notice’ or not needs to be seen from the perspective of the arrangements set down in the law of the place of the arbitration or the curial law embraced by the parties. It can’t be contended that notice could have been derived from the realities that the individual had methods for knowing, it is statutory obligation that has been threw on the court and the party starting the arbitral procedures that legitimate notice ought to be served on the parties.
Section 48 (2) (b) of the Arbitration and the Conciliation Act, 1996 states that award which is against the public policy of the country will not be enforced. Word “Public policy” as such is not defined and term is given different meanings in different countries and it is a concept which keeps on changing with change in time. It is basically left for the judges to decide what is meant by public policy.
For the enforceability of an Arbitral award, both domestic and international, it is a precondition that the award must conform to the public policy of the country in which the enforcement is sought. The central government has defined the expression “public policy” as “principles in accordance with which action of men and commodities need to be regulated to achieve the good of the entire community or public”.
CONCLUSION
The Basic highlights which are found in the legal structure for transfer of such global business debate can be summed-up into three phases, Jurisdiction of the gathering, decision of law and the acknowledgment and authorization of remote Arbitral Award. In International Commercial Arbitration, when the gatherings are of various legal frameworks, there consequently emerges a contention of laws, and a decision of the substantive law to be connected in a given debate must be made. The pattern towards deve
loping legal discretion which has a tendency to meddle with arbitral self-rule as additionally absolution is a critical factor to be kept in see. The need is to accommodate and fit arbitral self-rule and irrevocability with legal survey of the arbitral procedure. The National laws contrast on this issue. UNCITRAL Model Law endeavors to advance congruity and consistency in this circle.
In India, in 1996, the Arbitration and Conciliation Act, 1996, was passed with the good faith that it would get unavoidable trends, yet fell into its very own gap. Various choices from the courts gradually however most likely guaranteed that the favored seat in any cross-outskirt contract was dependably a vigorously arranged point and, as a general rule, wound up being either Singapore, New York or London—the set up worldwide assertion focuses. Be that as it may, advancements in intervention law through late court choices have now demonstrated the help of the legal in empowering India to embrace global prescribed procedures. At no other time has one seen such a significant number of genius mediation decisions by the Indian courts.
In light of the current judgment, gatherings to mediation are no longer at freedom to either incorporate or bar the purview of the Indian courts in instances of universal business interventions. While Bharat Aluminum Co v. Kaiser Aluminum Technical Services Inc judgment gives genuinely necessary alleviation to global players and furthermore properly perceives the standard of regional measure, which is a foundation of intervention. Indeed, even than there are such huge numbers of issues in worldwide business question, which are brought or may emerge up in future, because of absence of clear and compelling rules it can’t resolve through International business mediation systems. Some significant issues are as per the following, Enforceability of Arbitration provision/Arbitration assention, place of Arbitration and hearing, clash of laws, contrast in substantive and procedural laws among the nations, Public approach of various nations, Recognition and Enforcement of Award and so on.
In assistance to measures taken by the Indian government in help of the ̳ease of working together’, after two prematurely ended endeavors in 2001 and 2010 to alter the intervention law, on October 23, 2015, the President proclaimed the Arbitration and Conciliation (Amendment) Ordinance, 2015. The corrections fused the substance of real decisions go in the previous two decades, including a large portion of the proposals of the 246th Law Commission Report, and cleared up the significant debates that emerged as of late.[12]
From that point, on January 1, 2016, the Arbitration and Conciliation Amendment Act, 2015, was informed in the official journal, which altered the arrangements of the 1996 Act tentatively. The alterations are gone for finding a way to expedite the Indian mediation law a standard with worldwide norms and give a viable component to settling question with negligible court obstruction. The reason and motivation behind universal mediation ought to be to give an advantageous, nonpartisan, reasonable, quick and strong gathering for settling question identifying with worldwide trade.



[1]Siroj Export Company Ltd. V. I.O.C. Ltd., AIR 1997 Raj 120:1997 (2) CivLj 552: 1996 (1) Raj LR 306:1997 (1) Raj LW 187.
[2] Bhatia International v. Mass Trading S. A. & Anr Appeal (Civil) 6527 of 2001
[3] ONGC v. SAW Pipes Appeal (Civil) 7419 (2001) of 518
 
[4] Parsons & Whittemore Overseas Co. Inc. v. Societe Generale de lIndustrie du Papier (RAKTA), Y.B. Comm. Arb I 205 (1976) (US No. 7).
 
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[5] Bharat Aluminium Co vs Kaiser Aluminium Technical (Civil) Appeal No.7019 of 2005
[6] Bauer & Grobmann OHG v. Fratelli Cerrone Alfredo e Raffaele, X Y.B. Comm. Arb. 461-462 (1985) (Italy No. 70). Corte di Appello [Court of Appeal], Naples (Salerno Section), May 18, 1982.
 
[7] Libyan American Oil Company (Liamco) v. Socialist People’s Libyan Arab Yamahirya, formerly Libyan Arab Republic (1982) VII Ybk Comm Arb 382.
[8] Venture Global Engineering v. Satyam Computer Services, 233 Fed Appx 517 (CA 6 (Mich)).
[9] Centro-trade Minerals & Metals Inc. v. Hindustan Copper Ltd., 2006 (2) Arb I.R. 547 (SC).
 
[10] National Thermal Power Corp. Ltd. v. Singer Co., Anr., AIR 1993 SC 998: (1992) 2 SCC 551.
 
[11] Renusagar Power Co. Ltd. v. General Electric Co., AIR 1994 SC 860, 888: 1994 Supp(l) SCC 644.
 
[12] Law Commission of India, Supplementary to report No.246 on Amendments to the Arbitration and Conciliation Act,1996

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