Alternate dispute resolution (ADRs) is gaining momentum worldwide and India is no exception. But it is equally important that decisions arrived through ADRs are enforced. A look at enforcement provisions.
The Arbitration and Conciliation Act, 1996 (Act) provides for both domestic and foreign awards. Foreign awards are governed by Part II of the Act and covers awards under New York and Geneva Conventions. Awards passed in the ‘Convention Countries’ are the only awards considered as foreign awards. The awards passed in the non-conventional country, though foreign in nature, are treated as domestic awards. Awards passed under Part 1 of the act are also domestic awards.
A domestic award results from arbitration held within the territories of India and is enforceable in the same manner, as if it were a decree of the court. The prime objective behind the provision is to provide a summary procedure and the winning party can directly enforce the award once the period for challenge expires, without requiring leave of the court.
A foreign award under the Act is defined under section 44, dealing with New York Convention. Section 47 of the Act lays down the evidence required for enforcement of a foreign award. An award may be recognised without being enforced. However, if it is enforced then it is necessarily to be recognised. Foreign award, under the Geneva Convention, is enforceable under Section 57 of the Act of 1996. It is not necessary that for treating an award as a foreign award the parties should belong to different states or be subject to two different national jurisdictions.
In Fuerst Day Lawson case, the Supreme Court held that there is no need to take separate proceedings for enforcement of foreign award; one for deciding the enforceability of the award to make rule of the court or decree and the other to take up execution thereafter to one proceeding. The court can deal with the entire matter of enforcing a foreign award. A foreign award is treated as binding on persons between whom it was made. Veena Ralli, Senior Associate, Ralli & Associates adds, “The person against whom a foreign award has been passed need not initiate any proceedings to challenge the same. However, the person, who has suffered the foreign award, has to satisfy the court before which the application for enforcement has been filed by the other side that the said award is not enforceable, due to any one or more grounds given under Section 48 of the Act. Thus, a foreign award per se is not executable unless the court decides its enforceability after hearing the party, who is likely to be adversely affected. If none of the grounds given under Section 48 is established, then the foreign award becomes enforceable and executable by the same court and the beneficiary of the award need not file any fresh execution proceedings for enforcing the said foreign award.”
Chandrashekhar D. Mulherkar, Advocate, Delhi High Court & Supreme Court informs, “In International Commercial Arbitrations held outside India, on many occasions, the claim is in foreign currency and the resultant award is also in foreign currency. When such an award is brought to India for execution, one issue that arises is the relevant date for conversion of the award amount into rupees as the exchange rate is prone to fluctuation.” He added, “The Supreme Court in Forasol vs. ONGC, applying the principle that the party, which has suffered losses, must be restituted to its original position, held that, unless another date is specified by the arbitrator(s), the date on which the award was made a decree of the court would be the most appropriate date for conversion. Although the Forasol judgment was based on the old Act, i.e. the Arbitration Act, 1940, which required the award to be formally declared a decree of the court; the principles laid down would apply to foreign awards under the Arbitration and Conciliation Act, 1996, as foreign awards still need to be declared as enforceable before they can be executed as a decree of the court. Thus, applying the ratio of the Forasol case, the date of conversion should be the date when the court has held the foreign award to be enforceable in India.”
There are two fundamental differences between enforcement of a foreign award and a domestic award. A domestic award does not require any application for enforcement. Once objections (if any) are rejected, the award is by itself capable of execution as a decree. In case of a foreign award, the party seeking enforcement has to make an application for the same. Once the court is satisfied that the foreign award is enforceable, the award becomes a decree of the court and executable as such. However, after Fuerst Day Lawson Case a combined application can be filed for enforcement and execution.
“In International Commercial Arbitrations held outside India, on many occasions, the claim is in foreign currency and the resultant award is also in foreign currency. When such an award is brought to India for execution, one issue that arises is the relevant date for conversion of the award amount into rupees as the exchange rate is prone to fluctuation.”
“Enforcement of a foreign award has gained immense importance with increasing globalisation and rise in cross-border trade. However, one of the biggest challenges in international arbitration and thereafter in enforcement is fairness in procedure during the arbitration proceedings.”
The other difference is that unlike for domestic awards, there is no provision to set aside a foreign award. It can only be enforced or refused. However, the Supreme Court has held in Venture Global Engineering v. Satyam Computer Services that it is permissible to set aside a foreign award in India, applying the provisions of Section 34 of Part I of the Act, if the judgment debtor invokes the public policy of India.
Advocate Priya Kumar, Delhi High Court & Supreme Court states, “Enforcement of a foreign award has gained immense importance with increasing globalisation and rise in cross-border trade. However, one of the biggest challenges in international arbitration and thereafter in enforcement is fairness in procedure during the arbitration proceedings. While the arbitration law does not provide specifically for opposing enforcement on the ground of opportunity of fair trial and equality, experience of the working of the arbitration law shows that these aspects are becoming increasingly significant. The legislators and the courts may have to consider to what extent these aspects are important. The courts may even consider, in general or specifically in a given case, to what extent do these aspects militate against the public policy to justify refusing enforcement of a foreign award.”
The immediate consequence of a refusal to enforce an award is that the winning party fails to get what he ought to have; namely seizure of the assets of the losing party for which enforcement was sought.
The party seeking enforcement still holds an award, which can be enforced in the country, where the losing party has its assets. Therefore, much depends on the reason for which enforcement is refused. If enforcement is refused because of failure by the arbitral tribunal to give the losing party an opportunity to present his case, it may not be possible to enforce the award elsewhere also, since other courts may take the same view.
The award is an instrument within the meaning of the Stamp Act and requires stamping. The award can neither be received in evidence, nor can it be acted upon if it is unstamped. However, non-stamping only makes the award defective, which can be cured by payment of requisite stamp duty and penalty, if any.
In the case of an award of a sum of money; the court may give permission to enforce the award by any means of execution, available for a judgment of the court or give judgment for that sum including interest as a debt. Similarly, the court may enforce an award of damages and specific performance. The court may also grant an interim relief to assist in the enforcement of an arbitration award.
Article V (1) (c) of the New York Convention allows the enforcement of the part of an award; which actually deals with issues submitted to the arbitrators’ jurisdiction and are within their mandate, provided that part is severable, that it can be separated from parts of the award outside the parties’ arbitration agreement or that go beyond their claims. The applicability and success of an objection to enforcement, based on Article V (1) (c), may be determined only through a process of interpretation of parties’ intent.
The purpose of the Act is to expedite dispute resolution, be that governed by Part I or Part II of the Act. As the procedure for the enforcement of the arbitral award is through the mechanism of the domestic courts, the final award needs to be timely recognised and enforced by the competent court to maintain the superiority of the arbitral proceeding.
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