The exponential growth international trade and commerce and cross-border transaction have also seen to a substantial growth in international commercial arbitrations as an efficient means of dispute settlement. This is the need of the hour specially in case of India as lengthy litigation would inevitably prove as a barrier in maintaining business efficiency. However, sometimes in the Indian context securing and enforcing a favorable award itself becomes a challenge in itself.
The Arbitration and Conciliation Act, 1996 is the law that governs arbitrations in India. It is based on the United Nations Commission on International Trade Law (UNICATRAL) model law on International Commercial Arbitration. India is also a signatory to the New York Convention (1960) and the Geneva Convention (1924). The Arbitration and Conciliation Act can be a tricky legislation as practical judicial interpretation is of great significance in its applicability
In the recent past there have been several instances where foreign clients have found it difficult to enforce awards which they have judicially won outside India. And this essentially necessitates an understanding of recent developments and judicial interpretation of the Arbitration and Conciliation Act that prove to be more important in such cases than the actual text of the law.
While the enforcement and execution of an Indian seated arbitral award (between two India parties or Indian party and foreign party) are governed by the provisions of Part I of the Act, however the provisions of Part II of the Act deals with enforcement of foreign awards in India. As per Section 49, the award shall be deemed to be a decree of that court and the Court has to proceed further to execute the foreign award, if the court is satisfied that a foreign award is enforceable under the said Chapter.
Further Section 48 of the Act provides that enforcement of a foreign award may be refused, if the Court finds any of the grounds mentioned in clauses (a) and (b) of sub-section (2) of section 48 of the Act, at the request of the party against whom it is invoked, only if such party furnishes to the court sufficient proof to the effect.
The Supreme Court of India in Brace Transport Corporation case has observed that a party seeking to enforce an award in an international commercial arbitration may have a choice of country in which to do so; that enforcement of the award must be in a country where the properties of the judgment debtor are located.
The court, therefore, held that foreign awards must, be recognizable and enforceable internationally and the place of such enforcement would not be chosen by the parties but would depend upon the circumstances of each particular case.
India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York, 1958) (“New York Convention”) as well the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (“Geneva Convention”). If a party secures a binding award from a country which is a signatory to the New York Convention or the Geneva Convention the award would then be enforceable in India if the award is made in a territory which has been notified as a convention country by India.
The enforcement of a foreign award in India is a two-stage process which is initiated by filing an execution petition. Initially, a court would determine whether the award adhered to the requirements of the Act. Once an award is found to be enforceable it may be enforced like a decree of that court.
A plaintiff filing a suit based on a foreign award and seeking from the court a judgment in his favour for the amount stated in the award must prove:
An enforcement order and a judgment on an award serve the same purpose. They are two different procedures prescribed for enforcing an award.
In the case of an enforcement order a party applies to a court for leave to enforce the award; and on the granting of such leave, the award can be enforced as if it were a decree of a court.
An action either in the shape of a suit or a petition will can also be filed on an award and a judgment obtained thereon. In that event the award, vis-a-vis the country in which it is made, merges in the judgment and thereafter the judgment only becomes enforceable. There is no merger in the context of its enforcement in another country.
In both the cases the award in the country of its origin is complete and enforceable. If an award gets vitality by a mere enforcement order, it gets a higher sanctity by the court of its origin making a judgment on it. Both of them afford a guarantee of its vitality and enforceability in the country of its origin and therefore, a different country can safely act upon it.
Over the years judicial interpretation led to various ambiguities in the 1996 Act leading it to be considered ineffective due to implications on the timing and cost of arbitrations and the enforcement of arbitral awards. The recent Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”), has made arbitration a fair, efficient and cost-effective process. The amendments deal with restrictions on Indian court’s jurisdiction over foreign seated arbitrations and have also brought the Indian arbitration regime closer to the international standards and to the UNCITRAL Model Law on International Commercial Arbitration besides.
The new amendments seek to curb the practices leading to wastage of time and making the arbitration process prohibitively a costly affair. The new law also makes the declaration by the arbitrator about his independence and impartiality more realistic as compared to a bare formality under the previous regime. Making the arbitrator responsible for delay in the arbitration proceedings, for the reasons attributable to him, would ensure that the arbitrators do not take up arbitrations, which are beyond their capacities. Such a deterrent would imbibe self-discipline and control amongst the arbitrators. It can be said that the present amendments go a long way in reducing the interference of the Court in arbitration proceedings that has been a consistent effort of the legislature since passing of the 1996 Act and demonstrate India’s commitment to improve investment environment for foreign entities and also ‘Ease of Doing Business’ by drastically reduce timelines for resolving commercial disputes in India.
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