An award may be recognized without being enforced but if it is enforced, it is necessarily recognized. This statement by the Supreme Court in 1994 in the case of Brace Transport Corporation of Monrovia v Orient Middle East Lines noted that when a court is asked to enforce an award, it must recognize its legal effect and use legal sanctions to ensure that it is carried out.
There has always been some question about the enforceability of foreign arbitration awards in India. The Arbitration and Conciliation Act, 1996, has been classified into various parts. Part I provides for the construction of the Arbitral Tribunals, their proceedings, the making of the order and enforcement. Part II contains the provisions which deal with enforcement of foreign awards.
The 2002 judgment of the Supreme Court in Bhatia International Limited v Bulk Trading S A provided that parties cannot override or exclude the non-derogable provisions of Part I in such arbitrations. By omitting to provide that Part I will not apply to international commercial arbitrations outside India the effect is that it also applies to international commercial arbitrations held out of India. But, by not specifically providing that the provisions apply to international commercial arbitrations held out of India, the intention of the legislature appears to be to allow parties to provide by agreement that Part I or any provision therein will not apply.
Thus in arbitrations that take place outside India, even the non-derogable provisions of Part I can be excluded through express or implied agreement. In other words, in cases of international commercial arbitrations held out of India the provisions of Part I apply unless the parties agree to exclude them. In that case the laws or rules chosen by the parties would prevail. Any provision in Part I which is contrary to or excluded by these provisions will not apply.
The recent Supreme Court judgment in the case of Venture Global Engineering and Satyam Computer Services has again raised questions on how enforceable foreign awards are and, more importantly, how beneficial their enforceability is for Indian corporations. It reiterated what was stated in the Bhatia International case. The bench of justices Tarun Chatterjee and P Sathasivam held that the provisions of the act would apply to international commercial arbitrations held out of India and that the provisions of Part I would apply to all arbitrations, including international commercial arbitrations and to all related proceedings unless the parties agree to exlude them.
The Supreme Court held that a suit can be filed in India challenging a foreign award by an arbitrator if the award is against public policy and in contravention of statutory provisions. The bench further held that the interpretation does not lead to any conflict between the provisions of the act.
The most familiar legal saga in this regard was that of Renusagar. It is the tale of a foreign arbitration and award delivered in 1986 after a pitched battle with General Electric in three rounds of litigation over almost five years followed by proceedings by GE in India and Renusagar’s unsuccessfull efforts to stay the decision. After the award was delivered, the challenge was pursued right up to the Supreme Court and finally brought to a close in 1993. The seven year delay shook the faith of many in international commercial arbitration.
In Renusagar Power Co Ltd v General Electric Co the Supreme Court held that Indian courts can refuse to apply a rule of foreign law or recognize a foreign judgment or arbitral award if it is contrary to the public policy of India. However, the court noted that mere violation of a law does not mean public policy has been infringed.
The prime law of India is that where there is an express agreement to submit to the jurisdiction of a foreign court, a judgment by that court binds the parties, and effect will be given to the judgment in Indian courts. The governing legislation is the Code of Civil Procedure, 1908.
Section 2 of the code defines a “foreign judgement” and a “foreign court” and provides that a foreign judgment means adjudication by a foreign court on a matter before it. A judgment given by a foreign court does not cease to be so when, as a consequence of political change, the territory where the court was situated at the time of the judgment becomes part of India.
Section 49 of the act gives legal teeth to the process of enforcement by equating the foreign award to a decree of the court in which the application for its enforcement had been made. This incident, however, comes about only when the court is satisfied that the foreign award is enforceable.
The act has restricted the right to appeal against an order enforcing a foreign award by restricting the right to appeal only against an order refusing to enforce a foreign award. The only right available against an order enforcing a foreign award is the right to petition the Supreme court for special leave to appeal – and it’s up to the discretion of the Apex Court to grant or refuse leave.
To make the enforceability of foreign awards easier and effective in India, foreign courts must be competent to try the suit, not only as regards pecuniary limits of its jurisdiction and the subject-matter of the suit, but also with reference to its territorial jurisdiction. The competency of the foreign court is to be judged not by the territorial law of the foreign state, but by the rules of private international law.
Sanjay Asher is a partner and Bhumika Batra is an associate with Crawford Bayley & Co.
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