Commercial considerations have always been the core point of debate during any negotiations on a transaction, be it an international or domestic commercial contract. The least deliberated clause during such negotiations has been that of "Dispute Resolution". However, the need to have a perfectly drafted arbitration clause has in recent times gained a lot of significance. In...
Commercial considerations have always been the core point of debate during any negotiations on a transaction, be it an international or domestic commercial contract. The least deliberated clause during such negotiations has been that of "Dispute Resolution".
However, the need to have a perfectly drafted arbitration clause has in recent times gained a lot of significance. In the current scenario, the Indian economy has been hit hard by the slowdown in Europe and the US, attributing to a sharp depreciation of the rupee against the dollar and leading to great turmoil in the financial equations of cross border transactions. This leads to parties failing to fulfil their obligations and thus, a dispute crops up. In international commercial transactions, the parties generally agree to refer disputes to arbitration, foreign law as choice of law, courts of that country or a neutral arbitration tribunal to have jurisdiction to decide in the matter and venue of arbitration is invariably in the neutral country.
Arbitration is considered the fastest and low-cost solution as compared to litigation in the courts. The popularity of international commercial arbitration is also due to the comparative ease of enforcement of an award as compared to the enforcement of a judgement of a foreign court. But is enforcement of a foreign award in India really as fast as securing an award in a foreign country. The answer is certainly NO.
The fact remains that whether it is enforcement of foreign awards or foreign judgements in India, the decree holder is required to go through time-consuming and lengthy court procedures for enforcement and ultimately execution thereof. The only brighter side of all this is that more often, considering the huge cost of arbitration and the time involved, the parties choose to arrive at a settlement to further mitigate losses. Therefore, rather than "resolution" of disputes which is the aim and object of any Arbitration law, it can be said that Arbitration to a considerable extent facilitates "settlement" of disputes.
Arbitration is a voluntary procedure of resolution of dispute that depends on the agreement of the parties and once such agreement has been reached, neither party can withdraw from the agreement unilaterally. Although, under Arbitration getting an award is faster, the process does not end here. An award in hand is only half the battle won. Enforcement of the foreign award and execution thereof are the two most crucial and tedious tasks that have their own limitations.
FOREIGN AWARDS
The Arbitration and Conciliation Act,1996 ("the Act") has been framed to provide expeditious dispute resolution which would attract international investors, boost the Indian economy and help to regain confidence in the Indian judiciary in domestic as well as international circles. The Act is modelled on the lines of UNICITRAL Model Law and provides for Part I ap¬plicable to domestic awards and Part II applicable to enforcement of foreign awards to which the New York Convention and Geneva Convention applies.
Therefore, in order to be considered as foreign award, it must deal with differences arising out of legal relationships, whether contractual or not considered as commercial under the laws in force in India, and the country where the award has been passed, must be a country notified by the Government of India being a recip-rocatory country to which either Convention applies. Presently, there are 46 such notified reciprocating Countries.
Thus it is a unique feature of the arbitral award under the 1996 Act that the party need not wait for a formal decree for enforcement of the award. If an award has not been made in these convention countries then it will not be treated as foreign award, and no execution proceedings can be directly initiated under section 48 of the Arbitration Act, and as such, a separate suit will have to be filed on the basis of the award.
A party seeking to enforce an award in an international commercial arbitration would file enforcement proceed-ings in the country where the assets of the losing party are located so as to ensure that the award is fully satisfied by the legal attachment or seizure of the assets of the losing party. For enforcement of foreign award, the decree holder must apply to the court, seeking enforcement under section 48 of the Arbitration Act. Therefore, although arbitration held abroad reduces the intervention of the court and facilitates expeditious obtaining of an award, for the purpose of enforcement of such an award, approaching the courts in India becomes mandatory.
Setting Aside of a Foreign Award:
Foreign awards may be set aside or suspended in the country in which or under the laws by which they are governed. The Act does not provide for setting aside of the foreign award. It provides for Indian courts to either grant enforcement or to refuse to enforce it. Once the court is satisfied that the foreign award is enforceable, the award becomes a decree of the court and ex-ecutable. The Indian courts do not sit in appeal on a foreign award.
The Supreme Court of India in the case of Bhatia International Vs. Bulk Trading S.A (2002) has held that "Where arbitration is held in India, the provisions of Part I would compulsory apply. In cases of international commercial arbitrations held out of India, provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions. In that case, the laws or rules chosen by the parties would prevail. Any provision, in Part I, which is contrary to, or excluded by that law or rules will not apply. An international commercial arbitration may be held in a country which is a signatory to either the New York Convention or the Geneva Convention or in a non-convention country. The said Act nowhere provides that its provisions are not to apply to international commercial arbitrations which take place in a non-convention country".
In another peculiar case of Venture Global Engineering v/s Satyam Computer Services (2008), the Supreme Court of India has observed that if Part I is not specifically excluded in international commercial arbitration held out of India then a judgement-debtor cannot be deprived of his right under Section 34 of Part I to invoke the public policy of India, to set aside the award.
In a recent case of Yograj Infrastructure Ltd. v. Ssang Yong Engineering and Construction Co. Ltd. (2011), the Supreme Court has held that the principles laid down in Bhatia International v. Bulk Trading S.A would not apply where parties have categorically agreed that the arbitration proceedings would be governed by some other arbitration law. The Court further held that, the Arbitration Act, in fact, indicates that Part I would apply only in cases where the seat of arbitration is in India.
Grounds for Refusal of Enforcement:
Section 48 of the Act provides for seven grounds on which the Indian courts may refuse enforcement of Foreign Award, namely, incapacity of the party, inadequate notice, award beyond the scope of the arbitration, composition of arbitral authority or procedures not in accordance with the agreement, award not binding or is set aside or suspended by the foreign court having jurisdiction, subject matter not arbitrable and against public policy of India. The scope of inquiry is limited to these grounds in section 48, and does not enable a party to impeach the award on merits.
One of the common grounds on which a foreign award is contested by the party is that the award is against the public policy of India. Although the Act provides that making of the award, if induced or affected by fraud or corruption, then the same is in conflict with the public policy of India, the Indian Court has construed the same as to be contrary to the fundamental policy of Indian law, or the interest of India, or justice or morality.
If the court refuses to enforce the award, there is a provision for Appeal. The courts in India generally do not interfere with the foreign award and are favourable to granting enforcement. Let us now consider how Indian courts treat judgements passed by foreign courts.
FOREIGN JUDGEMENTS
In India, Code of Civil Procedure (CPC), 1908, governs the execution of decree or judgement from a foreign court. "Foreign Court" is defined in the CPC to mean a court situated outside India and a "foreign judgement" means a judgement of the foreign court.
There are two modes of enforcing foreign judgement/decree in India.
- Judgements from superior courts in reciprocating territories can be enforced directly by filing an execution decree under Section 44-A of the CPC and
- if the foreign court whose decree/judgement sought to be enforced in India is not of any reciprocating country, then to file a fresh suit based upon such decree.
Thus, a foreign judgement from a non-reciprocating territory is merely considered evidentiary in the courts of India. For the purpose of section 44-A of CPC, only 11 countries have been notified as reciprocating territories unlike 46 reciprocating countries in respect of the Arbitration Act.
Grounds for Refusal of Foreign Judgements:
Under Section 13 of the CPC, the court may refuse execution of a foreign judgement as inconclusive and unenforceable in the following circumstances:
- not pronounced by a court of competent jurisdiction;
- not given on merits;
- based on incorrect view of international law or a refusal to recognize the law of India;
- opposed to natural justice;
- obtained by fraud;
- Breach of any law in India.
In Kevin George Vaz Vs. Cotton Textile Exports the question before the Bombay High Court was whether the judgement passed by the Labour Tribunal, Hong Kong, is conclusive as the said judgement was not a decree of a superior court in a reciprocating territory. It was challenged that the mandatory pre-requisite of section 44-A of CPC that the foreign judgement should be of a superior court was not satisfied. The common grounds of challenge are that the foreign judgement is not on merits of the case or opposed to principles of natural justice.
The burden of proving that the judgement is not on merits of the case is on the party alleging it. However, courts never expect impossible proofs. It would never be possible for a party to lead evidence about the state of mind of the judge who passed the decree. The expression "judgement on merits" implies that it must have been passed after contest and evidence had been let in by both sides.
It is always contended by judgement debtor that he was denied an opportunity to defend the suit in a foreign court on merits and therefore, the foreign proceedings are opposed to the principles of natural justice. The Supreme Court has observed "that negation of natural justice merely relates to alleged irregularities in procedure adopted by the adjudicating court and has nothing to do with the merits of the case. The courts are vigilant to see that the defendant has not been deprived of an opportunity to present his side of the case."
It may be noted that a foreign award cannot be equated to a foreign judgement and its validity is not open to challenge under section 13 of CPC. International commercial arbitration is gaining momentum. Although there are diverse views, the Arbitration and Conciliation Act, 1996, in India has achieved effectively enforcing foreign awards to a large extent. Therefore, in-stead of litigating in the courts of a foreign country, it would always be advantageous to refer disputes to arbitration either in India or abroad.
Disclaimer - The views expressed in this article are those of the author and do not necessarily reflect the position and policy of MDP & Partners.