Sie sind auf Seite 1von 24

“ENFORCEMENT OF ARBITRATION AWARD”

SUBMITTED TOWARDS THE FULFILMENT OF THE


COURSE TITLED -
ADR

Submitted to: Submitted by:

Mr. Vikram Pulkit Prakash (248)

Faculty, (ADR) 3rd Year, 6th Semester

1
ACKNOWLEDGEMENT

The views, opinions, statements and legal conclusions contained in this project are those of
the author, and also represent official statements or opinions. Any errors or misstatements in
this project are exclusively those of the author. These guidelines are provided by the
concerned faculty in an effort to provide better understanding of general rules of succession
and the implication process. These guidelines are NOT meant to constitute legal advice. They
simplify and broadly generalize complex issues of law. I appreciate the assistance of my
friends (LL.B’s), who provided the initial drafts of the materials in this assignment.

2
TABLE OF CONTENTS

Topic page number

Introduction 08-09

History 10

Procedure for enforcement under the old act 11

Procedure for enforcement under the new act 12

Grounds for setting aside an arbitral award 13-14

A brief history of the relevant conventions & overview of the

Relevant sections of the act 15-20

A few important aspects of the definition 21-23

Essentials considerations for the enforcement of foreign awards 24-32

Conclusion 33

Bibliography 34

3
INTRODUCTION

Conflict between partners in trade has existed ever since the beginning of trade itself and so
have methods of resolution of such disputes. As a means of resolving disputes, arbitration has
been used for centuries.1 There have been a number of attempts to define arbitration but this
has always been considered problematic. However, the following definition might be taken
for the purposes of this paper:

“Arbitration is a reference to the decision of one or more persons, either with or without an
umpire, of some matter or matters in difference between parties to commercial transactions.”

Arbitration helps to improve international economic relations by providing a mechanism that


reduces the risk of transactional commerce. While entering into a business relationship, the
business houses do hope that there would be no failure of agreements, but the fear of a
dispute is never too distant. This fear gets accentuated when the businessman is not sure of
the reliability, pragmatism, promptness as well as the fairness of the dispute resolution
mechanism. This would result in the increase of prices to compensate for the additional
hazard.

It is thus clear that the presence of effective methods of dispute resolution is a major step
forward in the direction of facilitation of trade and commerce. The main attraction of a
proceeding like arbitration is the fact that it provides the parties a neutral forum in which they
can solve their disputes and is speedy in its dispensation of a result. In order to retain this
attraction the arbitration proceedings should avoid getting into the courts as far as possible.

The arbitrator/s hears the parties and pronounces their verdict in the form of an “award”.
Since the parties chose to arbitrate and they appointed the arbitrator by mutual consent, they
usually abide by the award as well. However, there are always some persons who will not
adhere to the award. Just because the parties to arbitration took the dispute out of the court’s
hands does not mean that the court will not step in to redress the grievances of the aggrieved
party in such situations. The court has the power to enforce the award, within its own
jurisdiction, as though it were executing one of its own decrees. This sort of judicial
execution of an arbitral award is usually called ‘enforcement’.

1
David St John Sutton, John Kendall, Judith Gill, Russell on Arbitration, 21st ed., Sweet and Maxwell, London,
1997, p.3.

4
A process like arbitration assumes special importance for a developing country like India. In
the early 1990s, foreign exchange reserves were frighteningly low and foreign capital was
only trickling in. In order to encourage more foreign investment, security of investment and a
speedy and just dispute resolution process were two of the basic requirements. Hence, India
adopted the policy of liberalisation. At the same time, India began to hard-sell arbitration as a
form of dispute resolution to its domestic businessmen. Arbitration was already a major form
of dispute resolution among commercial circles in developed countries. If India could
develop a strong arbitration base, then that would take care of the speedy disposal of cases;
thus encouraging foreign investment. As a useful starting point, India was already a party to
both the New York and Geneva Conventions on arbitration. However, the domestic law was
inadequate to meet the demand. Hence, in 1995, India passed an ordinance based on the
UNCITRAL Model law on arbitration; and this subsequently became legislation in 1996.
This opened the floodgates for arbitration for Indian entrepreneurs. However, one trend that
was noticed was that most arbitration involving Indian businesses took place in foreign
countries, although the award was to be enforced here. Hence, the area of enforcement of
these foreign awards assumed special importance in India.

5
HISTORY

The enactment of the Arbitration Act, 1940 (hereinafter "the old Act"), was a reflection of the
legislature's determination to ensure speedy resolution of disputes. However, the old Act,
though sound in principle, was bogged down by procedural delays. To put it in the words of
the Apex Court:

"Experiences show and law reports bear ample testimony that the proceedings under the Act
have become highly technical accompanied by the intending prolixity at every stage
providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious
disposal of the disputes has, by the decisions of the courts been clothed with legalese and
unforeseeable complexity."2

There was no uniform procedure in terms of a unified code for the enforcement of foreign
awards under the New York Convention and the Geneva Convention. The Foreign Awards
(Recognition and Enforcement) Act, 1961 for the enforcement of arbitral awards under the
New York Convention and the Arbitration (Protocol and Convention), Act 1937 hitherto held
the field. With the adoption, by the United Nations Commission for International Trade Law
of the UNCITRAL Model Arbitration Law and the subsequent adoption of the same by
various countries in the world, it was but necessary that India adopt the Model Law to govern
arbitrations and this saw the genesis of the more dynamic Arbitration and Conciliation
Ordinance leading to the Arbitration and Conciliation Act, 1996 (hereinafter "the new Act").

The New Act has consolidated and amended the law relating to arbitration and is
comprehensive in the sense that it covers both domestic and foreign arbitrations.

It has simplified the procedure in many respects, especially concerning appointment of


arbitrators, procedure to determine whether an arbitration agreement exists or not, challenge
to an arbitral award and finally, enforcement. The interference of courts in the matter of
arbitration has been reduced to the minimum. The enforcement procedure has also been
revised. The purpose or scope of this article is to examine the law in India insofar as the
enforcement of arbitral awards is concerned.

2
Gurunanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634

6
A comparison of the provisions in the old Act and the new Act would be meaningful and
useful.

PROCEDURE FOR ENFORCEMENT UNDER THE OLD ACT

After the making of the award by the arbitrators or umpire and after having signed the same,
at the request of one of the parties' to the agreement or any person claiming under him or if so
directed by the court, the award and all other documents were to be filed in court. (Section
14)

The court had jurisdiction to entertain the application for filing of the award.

The court had to give notice to the parties under Section 14(2).

The parties were entitled to object to the award.

The court was to determine and modify or correct an award, where:

(a) It appeared to the court that a part of the award is upon a matter not referred to
arbitration;

(b) The award is imperfect in form; or contains any obvious error which can be
amended without affecting such decision or it contains clerical mistakes (Section 15).

The court had also the power to remit the award to the arbitrator for fresh consideration, if
any issues were left undetermined, or where the award was so indefinite to be incapable of
execution, or where objection to legality of award is apparent upon the face of it.

The court could consider that the time for filing of objections against the award had expired
or such application having been made had been refused.

It was only upon satisfaction of the above conditions that the court could pass a decree
confirming the arbitral award and only then would the award become final and binding and
thereafter enforceable.

7
PROCEDURE FOR ENFORCEMENT UNDER THE NEW ACT

Under the new Act, the procedure for enforcement stands simplified to a very great extent
when compared to the provisions of the old Act.

Section 35 of the new Act makes the award final and binding on parties and persons claiming
under them.

Section 36 provides for enforcement of the arbitral award as though it were a decree of the
court, and a party is entitled to enforce the arbitral award, when the time for making an
application to set aside the arbitral award had expired or such application having been made,
had been refused. This saves the time spent under the old Act to make an award a decree of
court.

Therefore under the new Act, after an award is made or passed, the party in whose favour an
award is made has nothing to do but just wait whereas under the old Act the winning party
had to file an application within 30 days of receipt of the award for getting it made a rule of
the court.

8
GROUNDS FOR SETTING ASIDE AN ARBITRAL AWARD

An important aspect which needs to be considered is the aspect relating to setting aside of an
arbitral award. Under Section 34(2) of the new Act, an award may be set aside by the court
either on the application of the party or (without such application) by the court under certain
circumstances. The grounds under which a party may apply to the court to set aside an award
are only those mentioned in Section 34(2). They are:

a. Where a party making the application was under some incapacity.

b. The arbitration agreement is not valid under the law to which the parties are
subjected or failing such indication thereon, under the law for the time being in force.

c. The party making the application was not given proper notice of the appointment of
arbitrators or of the Arbitral Tribunal or was otherwise unable to present his case.

d. Arbitral award deals with a dispute not contemplated by the parties or beyond the
terms of submission.

e. Composition of the Arbitral Tribunal was not in accordance with the agreement of
the parties.

f. Subject-matter of dispute is not capable of settlement by arbitration under the law


for the time being in force.

g. The arbitral award is in conflict with the public policy of the country.

The court can enforce the award only if application for setting aside it is disallowed or the
time for making such prayer is over. The last-mentioned position seems to run counter to the
avowed objects of the Act, namely avoidance of delay. It is noteworthy to mention that once
an application is preferred under Section 34, the executing court has no jurisdiction to enforce
the award, until and unless the application under Section 34 is dismissed or refused. This is a
marked departure from even the normal rule under the Code of Civil Procedure, 1908 where
an executing court can execute the decree if there exists no stay by the appellate court. In the
opinion of the author, this ought not to have been the position under the new Act.
Enforcement of the award should be permitted unless there is a stay by the court hearing an
application under Section 34. That appears to be an inadvertent departure under the new Act
from the normal procedure contemplated under the Civil Procedure Code and runs contrary to
the avowed object of speedy resolution of disputes contemplated under the new Act.

9
A FEW IMPORTANT ASPECTS OF THE DEFINITION

Definition of “foreign award”


Part 2 of the Arbitration and Conciliation Act, 1996 deals with the enforcement of arbitral
awards made under the New York Convention and the Geneva Convention. Sections 44 and
53 define which awards can be enforced under this part as “foreign awards”. A few aspects
of these definitions elicit a discussion.

“Legal relationship considered as commercial”: The definition of ‘foreign award’ in section


44 refers to “legal relationships… considered as commercial under the law in force in India”.
The New York Convention made reference to the ‘national law’ and the declaration of
accession to the New York Convention by India made reference to “the law of India”.3 What
is the importance of “law in force in India” and “transactions which are considered as
commercial”? One commentator believes that these words are of such wide import that they
will envelop the entire body of laws which are effective or operative in India. He says that
with several kinds of transactions which may be considered as ‘commercial’ on the facts of
each case, it is obvious that when the Parliament referred to the legal relationship considered
as commercial under the law in force in India, it had in mind the general body of laws with
reference to which the nature of the transactions would be considered. The Bombay High
Court in European Grain and Shipping Ltd. v. Bombay Extractions Pvt. Ltd.4, considered the
scope of Section 2 of the Foreign Awards (Recognition and Enforcement), 1961, which is
similar to section 44 of the new Act, said:
“If the nature of the transaction between the parties is one which partakes of commerce or
which is in the nature of commerce, then inevitably the relation between the parties to the
contract or parties to the transaction will be clearly a commercial relationship. The nature of
the relationship will depend on the nature of the transaction and whether the nature of the
transaction is commercial or not will have to be determined with reference to generally to the
law in force in the country inclusive of the operative legal principle in force in India. The
mere use of the word “under” preceding the words “law in force in India” would not
necessarily mean that you have to find a statutory provision or a provision of law which

3
Justice B.P. Saraf & Justice S.M. Jhunjhunwala, Law of Arbitration and Conciliation (2nd ed. Mumbai: Snow
White Publishers Pvt. Ltd. 2000), at 336
4
AIR 1983 Bom 36

10
specifically deals with the subject of particular legal relationship being commercial in
nature.”

In other words, the Court was trying not to confine the term “commercial” by defining it or
by referring to particular types of transactions, but to keep the scope of the section as wide as
possible. This policy was clear even in a later decision of the Supreme Court.5 In the
submission of the researcher, this view taken by the courts is correct, as narrowing the scope
of the section would mean that certain awards may not be enforceable merely because of a
technicality. This would be against the spirit of free international trade, which can be
considered to be part of public policy today.

Further, the researcher draws attention to the dictum of the Supreme Court in Atiabari Tea
Co. Ltd. v.State of Assam6. In this case, the Court interpreted the term “trade and commerce”
used in Article 301 of the Constitution. Even in this case, the Court has not restricted the
words “trade and commerce” to mean any specific activities alone, but to include all activities
wherein some commodities are exchanged for money or such-like commodities. Therefore, it
is submitted that the public policy on this aspect is clear – “commercial” must be given as
wide an interpretation as possible. Several other cases have also used this approach.7
However, not all foreign arbitral awards are covered under these definitions. There are other
foreign awards, which cannot be classified under either Section 44 or Section 53. Firstly, the
researcher will see how certain awards cannot fall under the definitions available in Part 2 of
the Act.

1. The Central Government notifies which countries are parties to the New York and
Geneva Conventions for the purpose of enforcement of awards made in arbitrations
held in these countries. However, not all international commercial arbitrations take
place in these countries. Further, traders from India trade with people from countries,
which are not parties to either Convention. They might have arbitration clauses in their
contracts. In any of these cases, the award announced by the arbitral tribunal cannot be
enforced under Part 2 of the Act, as they do not qualify for the definition of “foreign
award” under Sections 44 and 53.

5
R.M. Investment & Trading Co. Pvt. Ltd. v. Boeing Co., AIR 1994 SC 1136
6
AIR 1961 SC 232
7
See Fatehchand Himmatlal v. State of Maharashtra, AIR 1977 SC 1825, Mukesh H. Mehta v. Harendra H.
Mehta, (1995) 5 Comp L.J. 517 (Bom), Josef Meisaner GMBR v. Kanoria Chemicals & Industries Ltd., AIR
1986 Cal 45

11
2. Although there is a wide interpretation given to the scope of “commercial” used in the
definition of ‘foreign award’, there are many disputes which are not of commercial
nature. Further, there are arbitrations which take place in foreign countries which are
not commercial arbitrations. Awards announced in these arbitrations are not
enforceable under Part 2 of the Act.

12
ESSENTIAL CONSIDERATIONS FOR THE ENFORCEMENT OF FOREIGN
AWARDS

Enforcement of Awards
Keeping in mind the two reasons discussed in the previous chapter regarding the inadequacy
of Part 2 of the Act for the enforcement of foreign awards, one needs to look at the avenues
available for the enforcement of foreign arbitral awards. Sometimes it so happens that a
person may require a process other than that specified in Part 2 of the Act for enforcing even
Convention awards. In the researcher’s opinion, all arbitral awards, even foreign awards
covered under Part 2, are enforceable through Section 36 of the Act.

Section 36 of the Act states that an arbitral award is enforceable by a civil court of competent
jurisdiction in the same manner as the court executes its own decrees. In other words, all
arbitral awards are enforceable by a court as though they are decrees passed by the court
itself. Further, Sections 52 and 60 state that the provisions of Part 2 are not exhaustive for the
enforcement of awards made under the two Conventions – the parties can take recourse to
any mechanism afforded by the law to enforce arbitral awards. Extending the same logic to
the non-Convention awards, the researcher submits that non-Convention awards passed
during an international arbitration are enforceable

An interesting aspect of Section 36 is that it gives the status of decree to arbitral awards.
Some commentators refer to this as a “deemed decree”, although the researcher submits that
this would be a misnomer. According to Section 36, a court of competent jurisdiction will
enforce an arbitral award, as though the award was a decree that had been passed by it.
Therefore, as far as enforcement of an arbitral award is concerned, there is no difference
between the award and a decree of the court. However, the term “deemed decree” seems to
indicate that the award is in fact a decree of the court. This is not true, because the court has
not heard the parties, the court knows nothing about the merits of the dispute, it has not
applied its mind while resolving the matter; therefore, there is no way that the award will be
regarded as a decree of the court. What the section provides is that the court will execute the
arbitral award in the same manner as it would execute one of its own decrees.

13
Hence, a foreign arbitral award, which cannot be enforced under Part 2 of the Act, can be
enforced under Section 36 of the same Act. Further, under Sections 52 and 60, even awards
which can be enforced under Part 2 can be enforced with the help of Section 36 instead.

Defences Against Enforcement under the Convention {Article V(1)}


The following are the defences to the enforcement of awards found in Article V in the
Convention. The first five defences are those that must be raised by a party, and the party that
raises them has the burden of proof to establish those.

Lack of Capacity, Lack of Agreement


The first defence is incapacity of the party or a lack of a valid arbitration agreement. One
might be concerned about incapacity if there was arbitration in a dispute with a governmental
entity; in other words, the question might be whether that entity had the capacity to enter into
the arbitration agreement because the entity lacks authority to bind itself to arbitrate. This
issue is also relevant in domestic arbitrations while dealing with the government.

The other issue is the lack of a valid arbitration agreement. This issue should not pose great
obstacles because generally such matters would be explored in the course of the arbitration as
potential defences to enforcement of the contract.

Inadequate Notice and Opportunity to Present Case


The second defence is inadequate notice or opportunity to be heard. It is interesting to note
that in the Convention itself there is no differentiation between a contested and default award.
This contrasts with the situation in the enforcement of foreign judgments, where, in the case
of a default judgment, courts are more willing to look at what actually occurred in the case
itself.

In the enforcement of arbitral awards under the Convention, the focus of the courts is more
on whether the losing party had notice of the proceeding and an opportunity to attend
conferences and hearings, submit briefs, etc. If the party had those opportunities and failed to
avail itself of them, courts do not have a great deal of sympathy and proceed to enforce
foreign arbitral awards.

Waiver
In arbitration cases it is very common that, when there are party-appointed arbitrators, they
make appropriate disclosures at the outset that someone can perhaps raise issues of bias,

14
conflict of interest, etc. So even if there are procedural deficiencies that may, theoretically,
provide for a refusal of enforcement, if there is no objection made in the course of the
arbitration, it will be regarded by the courts as having been waived.

Awards Exceeds Arbitrators Authority


The third ground, which is in Article V(1)(c), is that the award exceeds the scope of the
arbitrator’s authority. This, too, is very narrowly construed by courts, which do not want to
get involved in analyzing the merits or the decision making process undertaken by the
arbitrators. In fact, if courts see that there were extensive hearings and submissions and that a
fairly thorough decision was rendered, they will not refuse to enforce. A good example is the
Fertilizer Corporation of India case, where the contract explicitly said that consequential
damages were not to be available. Notwithstanding that provision, there was an award in
India under Indian law that included consequential damages, and the US court upheld that
award.

Composition of Tribunal
The fourth ground, found under Article V(1)(d), is irregularity in the composition of the
arbitration panel or procedure. Essentially there has to have been a violation of the
procedures set forth in the arbitration agreement, such as for the appointment of arbitrators,
discovery, or exchange of pleadings. Arbitration agreements are often specific in this regard.
Procedures may also be mandated under the law of the place where the arbitration was held.

Was the Award Binding, Set Aside, or Suspended?


The last ground under Article V is that the award was binding or was set aside or suspended.
Obviously, if that were the situation the court would refuse to enforce the award; and
“binding” under the Convention only means that it’s not subject to further arbitral procedures.
It could be subject to court challenges, but that would not change the fact that the award is
binding.

Grounds
Two additional grounds, which are under Article V(2) of the Convention, can be raised by
either a party or by the court on its own initiative.

ARBITRABILITY
The first is that the subject matter of the dispute is not arbitrable under the law of the country
where enforcement is sought. Obviously, in view of the developments in this country in terms

15
of the extension of arbitrability, particularly in the international arena, there are very few
areas in fact that this would provide a basis for avoiding enforcement of an award.

Public Policy
The final ground for non-enforcement of an award is that enforcement would violate public
policy. This ground has not been used with much success, although it has been attempted in
numerous cases. Of course, every attempt to deny enforcement of an award always has the
public policy ground inherent in it, either independently or as a backdrop to the main
arguments against enforcement.

Conditions for enforcement under the Indian Law


The grounds mentioned in section 48 are exhaustive. Enforcement may be refused only if the
objector can prove one of the grounds given in sub section (1) or if the Court finds existence
of a ground listed in sub-section (2). As a general rule of interpretation the grounds under
section 48 for refusal are to be construed narrowly.

The Courts are not free to refuse to enforce a foreign right at the pleasure of the judges, to
suit the individual notion of expediency or fairness. They do not close their doors unless help
would violate some fundamental principle of justice, some prevalent conception of good
morals, some deep-rooted tradition of the common weal.

The grounds listed in sub-section (1) of section 48 of the 1996 Act for refusal of enforcement
of the award are to be proved by the party against whom it is invoked (hereinafter also ‘the
respondent’). The burden of proof to the show existence of the grounds for refusal is on the
respondent. These grounds can be invoked only by an application of the respondent.

Under the scheme of section 7 of the 1937 Act the plaintiffs had to prove that the award was
enforceable under the Act and in that connection the plaintiffs had to prove what is referred to
in detail in clause (a), (b), (c), (d) and (e) of section 7(l) of the 1937 Act. The plaintiffs
would have further to prove that “the enforcement of the award is not contrary to the public
policy or the law of India.

Enforcement of a foreign award may be refused


Sub-sections (1) and (2) of section 48 of the 1996 Act have used Permissive expression that
the enforcement of a foreign award “may” be refused instead of mandatory expression of
“shall”. The Court has discretion to overrule the defence put up by the respondent even if he

16
has proved the existence of one of the grounds listed in this section. The Court may use
discretion in cases where it finds the objector is estopped from invoking any of the grounds
listed in section 48 of the 1996 Act or that the “public policy” violation involved is not such
as to prevent enforcement of the award.

Scope of the enquiry


Under the Geneva Convention, in order to obtain recognition or enforcement of a foreign
arbitral award, the requirements of clauses (a) to (e) of Article 1 had to be fulfilled and in
Article 2, it was prescribed that even if the conditions laid down in Article I were fulfilled
recognition and enforcement of the award would be refused if the Court was satisfied in
respect of matters mentioned in clauses (a), (b) and (c). The principles, which apply to
recognition and enforcement of foreign awards, are in substance, similar to those adopted by
the English Courts.8 With regard to enforcement of foreign judgments, the position at
common law is that a foreign judgment which is final and conclusive cannot be impeached
for any error either of fact or of law and is impeachable on limited grounds, namely, the
Court of the foreign country did not, in the circumstances of case, have jurisdiction to give
the judgment in the view of English law; the judgment is vitiated by fraud on part of the party
in whose favor the judgment is given or fraud on the part of the Court which pronounced the
judgment; the enforcement or recognition of the judgment would be contrary to public policy;
the proceedings in which the judgment was obtained were opposed to natural justice.9 In the
matter of enforcement of foreign arbitral awards at common law a foreign award is
enforceable if the award is in accordance with the agreement to arbitrate which is valid by its
proper law and the award is valid and final according to the arbitration law governing the
proceedings. The award would not be recognized or enforced if, under the submission
agreement and the law applicable thereto, the arbitrators have no justification to make it, or it
was obtained by fraud or its recognition or enforcement would be contrary to public policy or
the proceedings in which it was obtained were opposed to natural justice. The English Courts
would not refuse to recognize or enforce a foreign award merely because the arbitrators (in its
view) applied the wrong law to the dispute or misapplied the right law.
It is a generally accepted interpretation of the New York Convention that the Court before
whom the enforcement of the foreign award is sought may not review the merits of the
award. The main reason is that the exhaustive list of grounds for refusal of enforcement

8
Dicey and Morris , The Conflict of Laws, 11th Edn. , Vol. 1, p. 578
9
Dicey and Morris, The Conflict of Laws, 11th Edn. Rules 42 to 46, pp. 464 to 476; Cheshire and North, Private
International Law, 12th Edn. pp., 368 to 392

17
enumerated in Article V does not include a mistake in fact or law by the arbitrator.
Furthermore, under the New York Convention the task of the enforcement judge is a limited
one. The control exercised by him is limited to verifying whether an objection of a
respondent on the basis of the grounds for refusal of Article V(I) is justified and whether the
enforcement of the award would violate, the public policy of the law of his country. This
limitation must be seen in the light of the principle of international commercial arbitration
that a national Court should not interfere with the substance of the arbitration.10

The New York Convention does not permit any review on the merits of an award to which to
the Convention applies and in this respect, therefore, differs from the provisions of some
systems of national law governing the challenge of an award, where an appeal to the Courts
on points of law may be permitted.11

In proceedings for enforcement of a foreign award under the 1961 Act the scope of enquiry
before the Court in which award is sought to be enforced is limited to grounds mentioned in
section 7 of the 1961 Act and does not enable a party to the said proceedings to impeach the
award on merits.12

Meaning of ‘enforcement’
In Pratabmill v. K.C. Sethia Ltd.13, it was submitted that the agreement and the award were
against public policy of India and the expression; “enforcement thereof” means execution of
the foreign award under section 7 of the 1961 Act. Calcutta High Court has observed-
“It is said that the awards in this case only direct the appellant to pay a certain sum of money
as damages. As such, on the face of it, it cannot be said that the awards are against any
public policy. The difficulty of accepting this argument is the narrow meaning it attributes to
the word, “enforcement”. Enforcement is not merely the technical part of execution.
Enforcement includes the whole process of getting an award as well as its execution. We are,
therefore, not prepared to limit the word, “enforcement”, in section 7(i) of the Act to the mere
technical part of its execution.”

“Public Policy”

10
The New York Convention of 1958 – Towards a Uniform Judicial Interpretation by Albert Jan van den Berg
p.269
11
Redfem and Hunter, Law and Practice of International Commercial Arbitration 2nd Edn., p.461
12
Renusagar Power Co. Ltd. v. General Electric Co., AIR 1994 SC 860 (881)
13
AIR 1960 Cal 702 (708)

18
As all arbitration practitioners and scholars know, violation of public policy of the enforcing
State has long been a ground for refusing recognition/enforcement of foreign judgments and
awards. This principle is enshrined in Article V.2 of the New York Convention and Article
36 of the UNCITRAL Model Law. The public policy exception to enforcement is an
acknowledgement of the right of the State and its courts to exercise ultimate control over the
arbitral process. There is a tension, however, which the legislature and the courts must
resolve between: on the one hand, not wishing to lend the State’s authority to enforcement of
awards which contravene domestic laws and values; and, on the other hand, the desire to
respect the finality of foreign awards. In seeking to resolve this tension, some legislatures and
courts have decided that a narrower concept of public policy should apply to foreign awards
than is applied to domestic awards. This narrower concept is often referred to as international
public policy. This name suggests that it is in some way a supra-national principle; however,
in practice it is no more than public policy as applied to foreign awards and its content and
application remains subjective to each State.

As is always the case when the term is used, there was some doubt as to the scope of “public
policy” used in Section 48. What considerations must weigh on the court’s mind before it can
declare that an award is not enforceable because it is contrary to public policy? This question
was considered in Renusagar Power Co. v. General Electric Co.14. The court held that mere
contravention of law would not attract bar of public policy, but the award must be contrary to
(i) fundamental policy of Indian law, or (ii) the interests of India, or (iii) justice or morality.
The researcher submits that the decision of the court in the above case has not cleared the
ambiguity regarding the term because it has also used vague and general terms such as
“fundamental policy” and “national interest” and “justice”. In this regard, the dictum of the
Supreme Court in Central Inland Water Transport Co. Ltd. v. Brojo Nath Ganguly15 is
noteworthy:
“Public policy connotes some matter which concerns the public good and the public interest.
The concept of what is for the public good or in the public interest or what would be injurious
or harmful to the public good or the public interest has varied from time to time.”

The above paragraph from this judgement makes it clear that public policy is a subjective
term, which has to be determined keeping in mind the social, economic and political status of
the country and also the facts and circumstances of the case on hand. As an aid to

14
AIR 1986 Del 8
15
AIR 1986 SC 1571

19
interpretation of the term ‘public policy’, the Explanation to Section 48 states that an award
obtained by fraud or corruption is also contrary to public policy.

In another recent decision by the Bombay High Court, the point that arose for consideration is
the circumstances under which a foreign award may be regarded as unenforceable in India,
on the ground of being contrary to public policy.

The case relates to a contract under which Ruchi International, an Indian Company, was to
sell soybean meal from India to a French buyer. The terms and conditions of the contract
were governed by the GAFTA General Conditions of Contract and Arbitration Rules.
GAFTA is an international chamber of commerce dealing with matters relating to food and
grain trade. The buyer alleged breach of contract by the seller and invoked the arbitral clause
under GAFTA rules, and an award was passed in favour of the claimant buyer.

In the appeal, it transpired that the claimant, who was under liquidation, had assigned its
rights in the claim in the arbitration to a third party (the “assignee”). The Appellate Forum
held the assignment to be valid under the applicable laws as it was done with notice to the
contesting party. The objection that the arbitration agreement had failed was rejected. The
assignee was permitted to contest the appeal on substitution of the name of the parties, and
the appeal was rejected on merits.

The assignee filed a petition in the Indian court for enforcement of the award under the Indian
Arbitration and Conciliation Act (“Arbitration Act”), 1996, where it was resisted on the
ground of being opposed to public policy in view of Section 6(e) of the Transfer of Property
Act.

Under Section 6(e) of the TP Act, a mere right to sue cannot be transferred or assigned. The
assignment in the present case took place in appeal proceedings and was held valid under the
applicable laws. Once the assignment was accepted as valid and the award passed, the
question arising for consideration is whether the enforcing court could treat the award as
being opposed to public policy.

The GAFTA award is a “foreign award” within the meaning of the Arbitration Act. The
question is of whether Section 6(e) of the TP Act would extend to a foreign award. The
Supreme Court in the case of Renusagar Power Co Vs General Electric had held the areas
covered by public policy and the law of the land are not necessarily coextensive. A foreign

20
award would be refused enforcement on being contrary to public policy, if its enforcement is
against the fundamental policy of India law or the interests, justice or morality of India.
What had to be considered by the enforcing court is that assignment was not of the right to
sue but of the award, on the passing of which a debt came into existence. Is then an award
based on an assignable right unenforceable, because if the assignee had sued in India his case
would be barred under Section 6(e) of the TP Act? The award cannot be said to be opposed to
justice when the appellate forum had considered and decided the issue of assignment. By no
stretch of imagination can the award be regarded being opposed to morality. Transfer of a
right to sue could interpret as being against morality, if the purpose is gambling or betting.
But if such law is valid in the country where the award is made, then the enforcing court
cannot refuse execution on such grounds. There are several pronouncements of English
courts in similar situations.

On these grounds, the Bombay High Court permitted the enforcement of the award. The
division bench has concurred, clarifying that Section 6(e) would have been applicable only, if
the assignee had filed its claim for damages in India on the basis of the assignment. The court
has therefore adopted the international approach towards enforcement of foreign awards,
instead of creating technicalities — an indication that the Indian judiciary has expressed its
atonement with a globalised commercial world instead of taking a jingoistic position.

21
CONCLUSION

 As defined under sections 44 and 53 of the Arbitration and Conciliation Act, 1996 the
core of the definition of a foreign award that can be enforced under Part 2 of the Act is
that the award should be in relation to a dispute arising out of a legal relationship that
can be described as commercial under the law of India. The term commercial has been
given a wide interpretation by the Indian courts. However, the researcher is not
convinced with the logic behind confining the scope of this Part to commercial
transactions, as it could easily have been extended to all arbitral awards under the
Convention without any hassle.
 The enforcement mechanisms for awards under both the New York and Geneva
Conventions are similar. Once the court is convinced that the award is a foreign award
as per the statute, it will enforce the award. However, if certain conditions are met, the
court can refuse to enforce the award. Such an order of refusal is appealable. Once the
court is convinced that the award is a foreign award, it will execute the award as if it
were its own decree. However, the party seeking to enforce the award need not follow
this mechanism; he can follow any mechanism available to him under law to ensure
enforcement of the award; in other words, he can avail of Section 36 to enforce his
award.
 Similarly, a party seeking to enforce an award that falls under neither Convention, he
can ask the court to enforce it under Section 36. Such an award is also executed in the
same manner as a decree of the enforcing court. This further strengthens the
researcher’s point that the Act contains unnecessary technicalities regarding the
definition of foreign award, as the enforcement mechanisms under Part 2 and Section
36 are very similar.
 The Act has gone a long way to promote the Indian economy. The Act is based on the
UNCITRAL model law on arbitration, but Parliament has gone a step further and has
tried to plug the loopholes contained in the model law. Hence, the end product is that
India has a very useful arbitration law, which would go a long way to promotion of
foreign trade in India. The results are there to be seen. Arbitration is one of the fastest
emerging fields in India and as far as the law on paper is concerned, India is one of the
best in the world. The enforcement mechanism is also not slack, although the enforcing

22
authorities are the ordinary civil courts. This is an encouraging sign and shows that the
law of arbitration has not betrayed the policy of liberalisation.
BIBLIOGRAPHY

ARTICLES

1. Dhyan Chinnappa, Enforcement of Arbitral Awards (2002) 8 SCC (Jour) 39.


2. Kenneth R. Davis, “Unconventional Wisdom: A New Look At Articles V And VII Of
The Convention On The Recognition And Enforcement Of Foreign Arbitral Awards “,
37 Tex. Int’l L.J. 43.
3. Pelagia Ivanova, “Forum Non Conveniens And Personal Jurisdiction: Procedural
Limitations On The Enforcement Of Foreign Arbitral Awards Under The New York
Convention”, 83 B.U. L. Rev. 899,
4. S.K. Dholakia, Case Comment: Bhatia International v. Bulk Trading S.A., (2003) 5
SCC (Jour) 22.

BOOKS

1. Justice B.P. Saraf & Justice S.M. Jhunjhunwala, Law of Arbitration and
Conciliation (2nd ed. Mumbai: Snow White Publications Pvt. Ltd. 2000).
2. K.K. Venugopal, et al. (eds.), Justice R.S. Bachawat’s Law of Arbitration and
Conciliation (3rd ed. Nagpur: Wadhwa & Co. 1999).
3. P. Chandrasekhara Rao, The Arbitration and Conciliation Act, 1996: A
Commentary (New Delhi: Universal Law Publishing Co. 1997).
4. P.C. Markanda, Law Relating to Arbitration and Conciliation (2nd ed. Nagpur:
Wadhwa & Co. 1997).
5. Sudipto Sarkar & V.R. Manohar (eds.), Sarkar’s Law of Civil Procedure (10th ed.
Nagpur: Wadhwa & Co. 2002).
6. Surendra Malik, Supreme Court on Arbitration (Lucknow: Eastern Book Co. 2001).

WEBSITES

1. www.manupatra.com
2. www.westlaw.com

23
24