University school of Law and Legal Studies, GGSIPU
In this era of globalization, growing complex commercial relationships expanding over several countries have necessitated the creation of an efficient method of resolution for any disputes arising in relations like arbitration. The theoretical view for this preference towards an arbitral award rather than a court judgement lies on the enforcement of the arbitral award seeming easier on the surface because of the contractual nature of such an award. The actual, practical scenario for this preference will be that there are more bilateral treaties and multilateral conventions easing the way for enforcement of foreign arbitral awards than the enforcement of a foreign court decision. However, problems still persist, as securing of an award in favour from the arbitral tribunal may only be a half-won battle while the other half of the battle is still left warring on the enforcement of the received award (even with many bilateral treaties and multiple conventions soothing the way). The author in this paper aims to discuss Enforcement of Awards in International Commercial Arbitration as well as the issues that persevere along with the Enforcement Scenario of Foreign Arbitral Awards in India.
This essay aims to understand International Commercial Arbitration, the process of execution of an arbitral award in India and otherwise, and the need for balancing of judicial intervention and freedom of interpretation of laws in the enforcement of such awards.
Keyword: International Commercial Arbitration, Foreign Arbitral Award, Enforcement of Arbitral Award.
“For an arbitrator goes by equity of a case, a judge by the law, and arbitration was invented with the express purpose of securing full power for equity.”
Arbitration is a rapidly expanding mechanism of dispute resolution before a neutral, impartial and independent third party who issues a binding decision, following an adversarial approach as compared to the inquisitorial system of court litigation.
Globalization and growing complex commercial relationships expanding over several countries necessitated the need for an efficient method of resolution for any disputes arising in relations such as arbitration as well as the subsequent execution of the arbitral award deciding the rights and obligations of the parties in relation, which would comparatively be less challenging to enforce than a court decision from a foreign sovereign.
International commercial arbitration will, to a certain degree, remain to be the preferred method for dispute resolution, owing to the factor of it being relatively speedy with a focus on party autonomy, privacy, confidentiality and finality along with it arising as a consequence to a settlement procedure from a contractual agreement between private parties rather than a court ruling which represents the sovereignty of a state, substantially easing the way for the enforcement of an arbitral award in a national court rather than a foreign state platform.
Yet, sometimes securing an award or a final judgement in favour from the arbitration court may only be a half-won battle with the other half depending on enforcing the received award even with several bilateral treaties and conventions soothing the way. This paper aims to understand international commercial arbitration, the process of enforcement of an arbitral award in India and otherwise, and the need for judicial support required to enforce such awards.
Further, the paper consists of Five Parts; Part I introduces the paper, Part II examines International Commercial Arbitration, Part III delves into the Enforcement of Arbitral Awards, Part IV discusses the enforcement of foreign awards in India and Part V concludes the Paper.
INTERNATIONAL COMMERCIAL ARBITRATION
An Arbitration is considered commercial when it transpires out of a commercial relationship, UNCITRAL Model Law states the below as relationships of commercial nature:
“any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.”
Commercial arbitration can be domestic or international, according to the UNCITRAL Model Law on International Commercial Arbitration, An Arbitration is considered to be international if:
“(a) The parties to the arbitration agreement have, at the time of the conclusion of the agreement, their places of business in different States.
(b) One of the following places is situated outside the State in which the parties have their places of business: (i) The place of arbitration, if determined in or pursuant to, the arbitration agreement, is situated outside the State in which the parties have their places of business (ii) Any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected (iii)The parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country”
International commercial arbitration is an alternative method to litigation for dispute resolution between two contracting parties as an increasingly popular and widely preferred mechanism. One of these preferences stem from the fact that they provide uniformity in the procedure of arbitration as well as its enforcement for the countries that have bilateral treaties and multilateral conventions easing the way through for the parties.
The primary set of rules in international arbitration have been set through the UNCITRAL Arbitration rules and the United Nations Convention on the recognition and enforcement of foreign arbitral award 1958 (New York Convention). More than 159 countries in the present world are party to the New York Convention which accordingly eases the enforcement of judgements in those countries. The New York Convention requires that the state which signed and ratified it to enforce and recognise the international arbitral awards and agreements made in different contracting countries subject to minimum exceptions.
The process of international commercial arbitration proceedings in broad manner can be categorised without going into every steps and essentials into the modus operandi as below
Arbitration clause in agreement or parties agree to refer to arbitration
There is a breach of the agreement or a dispute regarding a commercial matter
There were damages because of the breach which bought the dispute to arbitration
Arbitration proceedings follow for the breach where one party is a claimant for damages
Challenge of the award at the seat or execution of the award by the arbitrator/s
An arbitral award is given in favour of a party by the arbitral tribunal and termination of proceedings
A party once having successfully attained in its favour an arbitral award has only half the struggle won because if the unsuccessful party refuses to comply with the award then the party who has the award in favour will be required to enforce the award which is rapidly becoming complex and costly. Enforceability of the award is the other half as failure to do so in almost all cases makes the award valueless.
ENFORCING OF AN AWARD
For Enforcing of an award there are in practice two widely used ways of seeking execution of an arbitral award:
- Informal- by applying pressure
- Formal- through relevant local courts
During the procedures of the International commercial arbitration award, the informal method usually consists of applying intimidation- either reputational, domestic or commercial, through the party’s home country or reducing payment obligation through negotiation, however if these channels wound up unsuccessful the situation becomes complex and expensive.
If these informal methods fail, the victorious parties would be required to locate jurisdictions holding assets of the losing party which are relatively arbitration friendly where the award maybe enforced. This is not an elementary task as it may seem in the first glance since many erudite parties have started taking advantage of jurisdictions where compliance mechanism and supervision are low, and sheltered assets to protect from arbitral enforcement.
The best case for a party in whose favour the award was given is one where the arbitration seat and enforceable assets are located in a state which has ratified the New York Convention on the recognition and enforcement of foreign arbitral award, a multilateral treaty where the signatories have agreed to enforce award made at the seat of any of the state as if they were local court judgements subject to some limited substantive grounds without going into the merits of the case if the requirements of the New York Convention have been followed.
The problem emerges when different local courts in practice apply the New York Convention rules differently, this deviation is facilitated by the fact that New York Convention provides that the local courts ‘may’ refuse enforcement under the criteria for recognising or enforcing an award and not that they must.
In actuality, this has led to unpredictability and extremely contrasting approaches across jurisdictions as well as inconsistency in the interpretation and application of the convention.
Even when a state is not a signatory in the New York Convention, it may still be possible to enforce an award through the use of bilateral treaties for the recognition of award or court judgements, these mechanisms are although complicated and very heavily contingent on the provisions and the willingness of the local courts to enforce them.
ENFORCEMENT OF FOREIGN AWARD IN INDIA
The foremost law regulating arbitration in India is The Arbitration and Conciliation Act,1996 which is divided into three parts. Part I deals with the domestic arbitration and international commercial arbitration seated in India, Part II deals with Foreign Awards and their enforcement in accordance with The New York Convention 1958 and the Geneva Convention 1927, and Part III of the act is a statutory incorporation of conciliation provisions.
Section 46 of the Arbitration and Conciliation Act, 1996 states that an award determined to be enforceable shall be treated as binding and is final when it can no longer be challenged in court. A party holding a foreign award can apply for its enforcement once the court is satisfied it can be executed and the award will be treated like the decree of a local court.
Enforcing a foreign award in India has been a difficult process for quite some time and this hurdle in enforcement can be thanked to the interventionist approach of the Indian Judiciary.
The courts have since long interfered and shown little restraint in setting aside or refusing enforcement and even making interim orders and bringing a halt to the arbitral proceedings. Enforcement of an award, according to the New York Convention can be refused on the grounds of it being against the ‘public policy’, but since the New York Convention doesn’t define the term ‘public policy’, the courts in India have been free to interpret as they see fit, to the benefit of the enforcing parties.
This can be seen in decisions taken by the courts, In ONGC ltd v. Saw Pipes the Supreme Court ruled that the Tribunal made an error in applying the Indian Law during the arbitration process and therefore, the award will be considered as against public policy and interest of India, giving an impression that the parties can appeal to the Indian courts on the merits of the case if the governing law is an Indian law/ Although, in a recent judgement – Shri Lal Mahal Ltd. v. Progetto Grano Spa the Supreme Court revisited this approach and ruled that the wider interpretation of ‘public policy’ does not apply to foreign seated arbitration awards and that a narrower test of patent illegality or immorality is to be applied while enforcing such foreign awards.
In the controversial Bhatia International v. Bulk Trading S. A. and An case, it was held that the Indian courts had equal powers in respect of foreign arbitration that they do in domestic arbitration. This meant that other than refusing enforcement of an award, the Indian courts can also order interim measures and even set aside an award on appeal from the losing party. Arbitration that is regulated by the courts of the seat of arbitration were bare and subject to intervention by the Indian judiciary which was especially troublesome in the enforcement of an award scenario.
However fortunately, in the landmark Bharat Aluminium Company and Ors. v. Kaiser Aluminium Technical Services Inc. and Ors. Judgement, the Supreme Court overruled Bhatia International and stated that the power exercised under Part I of the arbitration and conciliation act in relation to domestic awards can’t be exercised in relation to foreign seated arbitration proceedings and that the powers of the courts are limited to what is provided under Part II of the act.
It’s true that Indian Judiciary has become more pro arbitration with a gradual shift in the judicial philosophy and on the approach to enforcing of foreign awards in India. In recent judgement passed by the Bombay high court, a SIAC award arising out of a dispute from a shareholder’s agreement was enforced with the court rejecting public policy objections to enforcement. The judgement discourages challenges to an enforcement that are ambiguous as well as reassessing the merits of a dispute by reappreciating the material facts and the evidence.
Even still there still remains uncertainty regarding enforcement of foreign awards because of the conflicting opinions and debates on the level of judicial intervention that should be permitted as well as the level of freedom of interpretation of provisions that should be permitted.
A rapidly-rising economy requires a steadfast and steady dispute resolution process in order to have better foreign dispute resolution. The path for enforcement of international arbitral award is comparatively easier than the enforcement of a court judgement but it’s not completely free of its own complexities and challenges. The various interpretations and differing procedure in different states due to freedom of elucidation in the New York Convention has made the process inconsistent. In international laws and conventions, the nations are bound to put their own explanations and interpretations on the provisions but to maintain a degree of uniformity in the process there is a requirement to restrict the freedom of interpretation of the laws that are formulated.
In India, the Supreme Court judgements do offer clarity on important issues relating to enforcement of an award but the level of judicial intervention beyond the act and enforcing of the award need to be regulated since the judicial support is essential in the enforcement process. There is a requirement for striking a balance between domestic intervention and finality of an award made in an arbitral seat outside India, instead of only Supreme Court judgements proper legislative provisions will provide a proper authority and bring finality in position of judicial intervention in regard to enforcement.
 Footnote to Article 1(1), UNCITRAL Model Law on International Commercial Arbitration 1985 With amendments as adopted in 2006, https://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf, (Last Accessed on 20th June 2019).
 Article 1(3), UNCITRAL Model Law on International Commercial Arbitration 1985 With amendments as adopted in 2006, https://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf, (Last Accessed on 27th June 2019).
 United Nations Commission on International Trade Law (UNCITRAL), https://www.uncitral.org/pdf/english/texts/arbitration/arb-rules/arb-rules.pdf,(Last Accessed on 20th June 2019).
Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”), June 10, 1958, http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html, (Last Accessed on 2nd June 2019).
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