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India’s courts have progressively sought to reduce interference to foreign arbitral awards and narrowed the scope where the public policy defence can be applied. However, further steps need to be taken, writes senior advocate Satvik Varma

India aims to become a global hub for international arbitration. This is an aspiration but also a necessity. As the chief justice of India highlighted at the Delhi Arbitration Weekend in March, 90% of international commercial contracts contain arbitration agreements and arbitration as a method for dispute resolution.

Given that India is the world’s fastest growing major economy, the prime minister has emphasised the need for a vibrant arbitration ecosystem that is backed by a robust legislative and legal framework, and ensured that it is a priority for his administration. Consequently, we are well on the path to achieving our desired objectives.

However, there are hurdles to overcome before we get there, especially, the level of interference by India’s courts as they enforce foreign arbitration awards.

Do we need specialised courts and separate laws for this task?

Procedure and process

Satvik Varma
Satvik Varma

Part II of the Indian Arbitration and Conciliation Act, 1996, is dedicated to the “enforcement of certain foreign awards”. In simple terms, a foreign arbitral award is one that arises out of legal relationships, which are considered as commercial under India’s laws, but is rendered outside India. This part of the arbitration act is divided into two chapters, one dealing with New York Convention awards and the other with Geneva Convention awards. Broadly, the process for enforcement is the same for both conventions, provided a party receives an award from a country that is a signatory to these conventions, and the award is made in a territory that has been notified as a convention country by India.

Once these requirements are met, an execution petition may be filed in an Indian court, which is then called on to determine whether a foreign arbitral tribunal’s award can be enforced under the Indian arbitration act. This includes whether the award has become final and, therefore, binding on the parties having exhausted all the remedies of appeal available under the law where the award was made. An executing court may also insist on a copy of the original arbitration agreement, the original or a properly authenticated copy of the award, and other evidence that supports the foreign award.

However, courts in India can refuse enforcement on certain grounds. It is here that the enforcement of awards encounters challenges, as they are analysed to determine whether they fall foul of established legal principles as detailed in the Indian arbitration act. The most common plea that award debtors use to prevent enforcement is the ruse that a subject award is contrary to the “public policy of India”. This includes that the making of the award was induced or affected by fraud, or was in contravention of the fundamental policy of Indian law, or was in conflict with the most basic notions of morality and justice in India.

Important decisions

Pertinently, the term “public policy” has not been defined in the New York Convention. Hence, its interpretation is based on each country, each of which has distinct parameters for determination.

In India, in the context of enforcement of foreign arbitral awards, the concept of public policy was first analysed by a three-judge bench of the Supreme Court in a case titled Renusagar Power Co Limited v General Electric Company (1994). The court opined that public policy in the context of private international law needed to be narrowly construed, and we needed a pro-enforcement regime with minimal interference – as envisioned by the New York Convention.

The Supreme Court also held that, at the enforcement stage, foreign arbitral awards must not be reviewed on merits; and even the statute, as it stood then, did not allow any re-examination of the evidence. It further held that a court enforcing an award must not act as an appellate authority and should steer clear of digging into the merits of an award.

For some years after Renusagar, judgments from courts backpeddled on the jurisprudence that had been established. They expanded the scope of public policy and judicial intervention, even at the stage of enforcement.

In doing so, they widened the scope of judicial interference by Indian courts. Fortunately, the Indian judiciary was quick to realise it had strayed away, and took corrective steps in McDermott International Inc v Burn Standard Co Ltd (2006). In that matter, the Supreme Court held that courts in India had only a supervisory role at the enforcement stage, and their intervention must be limited to only those circumstances encompassing fraud or bias by the arbitrator, or where there was violation of the principles of natural justice.

There followed a series of judicial decisions that supported this position. Especially, the verdict by the Constitution Bench of the Supreme Court, in Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (2012), clarified that the quantum of judicial intervention in international arbitrations would be limited, and that a foreign arbitral award could only be challenged under part II of the act and not under the broader review provided under part I of the act, which was only applicable to domestic awards. This was an important clarification since the grounds for challenging an award are different under the two parts.

Indian courts have been making consistent strides to adopt a minimal-intervention approach when enforcing foreign arbitral awards

Following the Bharat Aluminium verdict, the Supreme Court, in Shri Lal Mahal Ltd v Progetto Grano SpA (2014), emphasised that while engaging with foreign awards, a review on the merits of a dispute is impermissible. The court also held that the wider meaning given to public policy in domestic arbitration would not apply where objections were raised to the enforcement of a foreign award. It reiterated that the grounds for resisting enforcement of a foreign award were much narrower than for domestic arbitration.

2015 landmark

In 2015, with a view to remove any ambiguity, the Law Commission of India proposed substantive amendments to the act for both domestic and foreign awards. It is pertinent to highlight that the commission, in a supplementary report, took note of two landmark Supreme Court decisions: Associate Builders v Delhi Development Authority (2015); and ONGC Ltd v Western Geco International Ltd (2014).

In both matters, the court expansively defined what was public policy. The commission once again highlighted that public policy needed to be narrowly interpreted, especially in the context of foreign awards. The commission and the amendments that followed clarified without any doubt that Indian courts had erred in applying the domestic notions of public policy while enforcing foreign arbitral awards.

Following these amendments, an important judgment tested the amended legislative intent in Ssangyong Engineering and Construction Co Ltd v National Highways Authority of India (NHAI) (2019). The Supreme Court held that only decisions that shake the judicial conscience should be considered under the heading of “justice or morality”, as introduced by the amendments.

Proceeding on similar positive lines in Vijay Karia v Prysiman Cavi E Sistemi SRL (2020), the Supreme Court once again held that when dealing with foreign awards, the issue of “fundamental policy of Indian law” becomes a condition to prevent enforcement only when the enforcement of the foreign award will lead to a breach of some Indian legal principle or legislation.

The court also upheld the need to safeguard the integrity of foreign awards and the need to prevent mechanical and insignificant objections being filed by award debtors. In Gemini Bay Transcription Pvt Ltd v Integrated Sales Services Ltd & Ors (2022), the Supreme Court reiterated its view from the Ssangyong case and maintained a pro-arbitration approach while observing that awards should be tinkered with only when they shook the conscience of courts.

Most recently, in Avitel Post Studioz Limited & Ors vs HSBC PI Holdings (Mauritius) Limited (2024), the Supreme Court reiterated the dicta from Ssangyong and held that “courts in some countries have recognised that when applying their own public policy to convention awards, they should give it an international and not a domestic dimension”.

Giving impetus to India’s aspirations of becoming a global arbitration hub and the enforcement of foreign awards in India, the court also held it was imperative to understand that foreign arbitration involved practices based on global standards that were significantly different from domestic standards and laws applicable in India.

For this purpose alone, and to unknot the more tangled query, there was a dire need to understand that the two unequals of domestic and international arbitrations cannot be measured as equals. Finally, the Supreme Court was of the view that “being a signatory to the New York Convention, we must therefore adopt an internationalist approach”.

Remarkably the Supreme Court, in Avitel, also relied on and confirmed the dicta in Parsons & Whittemore Overseas Co v Societe Generale de L’Industrie du Papier (1974) (one of the earliest cases dealing with the aspect of public policy), where the US Court of Appeals, Second Circuit, had noted that “the convention’s public policy [defence] should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforcement would violate the forum state’s most basic notions of morality and justice”. This jurisprudence has been applied in various convention member countries, including by India’s Supreme Court in the Renusagar case.

Conclusion: roadmap for future

Indian courts have been making consistent strides to adopt a minimal-intervention approach when enforcing foreign arbitral awards, to align with global standards. This is sure to boost investor trust, and confidence in our ability to be a neutral arbitration forum that parties are willing to accept. This will lead to India’s development, both economically and jurisprudentially.

But a lot still needs to be done. As the chief justice of India said: “Unless all of us involved in this process change our perspectives, challenge our assumptions and actively strive for diversity and inclusion, we risk perpetuating the very biases that we seek to avoid.”

Aside from court intervention, award holders have to endure lengthy waits for enforcement in India, as with Avitel, where the enforcement alone took almost 10 years. Experience has shown that merely dividing the act into two parts has not borne complete results.

Therefore, there is an urgent need to have a separate set of rules or provisions for the enforcement of foreign awards. We must also accept that a perpetual intermingling of various provisions of the act, between domestic and foreign arbitrations, has brought a complex web that urgently needs to be undone.

This will also help finally put to bed the “public policy” and “fundamental policy” debate, which, over the years, has become the armour of award debtors to resist enforcement of foreign awards. As the court observed, in Vijay Karia, award debtors were indulging in “speculative litigation with the fond hope that by flinging mud on a foreign arbitral award, some of the mud so flung would stick”. The mud-slinging needs to be checked immediately.

Additionally, it would help if specialised courts were set up, as they are for intellectual property matters, to deal with timely enforcement of foreign awards. In the past few years, various institutional arbitration centres have been established, some of which have ties to international counterparts. These centres can conduct ongoing training programmes on global best-practice, for members of our judiciary and the practitioners.

In fact, all who are part of the arbitration ecosystem in India need to undergo a mindset change and a cultural shift so that practices from the adversarial litigation sphere do not form the basis of their thought process while engaging in the alternative dispute resolution process of arbitration.

As the Supreme Court, quoting playwright and author Oscar Wilde, noted in Avitel: “In this world, there are only two tragedies. One is not getting what one wants, and the other is getting it.” But it can’t also be a pyrrhic victory. An award holder must be able to enjoy the fruits of the award, and the enforcement process should not leave the winner with a bitter taste. After all, legislative intent for the enforcement of foreign awards is just one bite at the cherry.

Satvik Varma is a senior advocate based in New Delhi. His practice focuses on corporate commercial litigation, complex shareholder disputes, insolvency petitions, domestic and international arbitrations and intellectual property matters. He holds a law degree from Harvard Law School and is licensed to practise in India and the State of New York. He was counsel to the successful appellant in the landmark decision of Associate Builders noted in this article.

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