Enforcing a foreign judgment or a foreign award has always been a contentious issue across the globe. More so because concepts of reciprocity of recognition of judgments and awards have become fundamental in determining the enforceability of a judgment or an award. Indian law also has provisions for dealing with this in the statutes governing civil procedures and arbitrations.
At this stage, however, it would be desirable to compare foreign judgments with foreign awards and bear in mind the difference between them. No doubt, both of them create new obligations. The judgment of a foreign government is a command of that government that has to be obeyed within the territorial limits of that government’s jurisdiction. On the principles of comity, it is, therefore, accorded international recognition, provided that it fulfills certain basic requirements. A foreign award, on the other hand, which is founded on a contract of the parties and is not given the status of a judgment in the country in which it is made, cannot claim the same international status as the act of a foreign government.
Awards passed in reciprocating territories have provisions for enforcement, but the law in India suggests prima facie that awards passed in non-reciprocating territories may not be enforceable.
Statutory Framework
In India, arbitration is governed by the Arbitration and Conciliation Act 1996 (the 1996 Act). Part II of the 1996 Act governs the enforcement of certain foreign awards pursuant to the Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) and the Geneva Convention on the Execution of Foreign Arbitral Awards 1927 (the Geneva Convention).
Section 44 of the 1996 Act defines a ‘foreign award’ (New York Convention awards) as an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after 11 October 1960:
- in pursuance of an agreement in writing for arbitration to which the convention set forth in the first schedule applies; and
- in one of such territories as the central government, being satisfied that reciprocal provisions made may, by notification in the Official Gazette, declare to be territories to which the said convention applies.
Under s44, to reach the conclusion that a particular award is a foreign award, the following conditions must be satisfied:
- the legal relationship between the parties must be commercial;
- the award must be made in pursuance of an agreement in writing; and
- the award must be made in a convention country.
Similarly, s53 of the 1996 Act, which deals with Geneva Convention awards, also defines a foreign award as an award passed in relation to commercial matters in one of the territories that the central government, being satisfied that reciprocal provisions have been made, may, by notification in the Official Gazette, declare to be territories to which the convention applies.
For an award from a foreign territory to be enforceable in India under the 1996 Act, it has to be from a country that has been notified by the Indian government. However, to date, the list of countries that have been notified by the central government (India) is quite minimal. Therefore, enforcing awards passed in a non-convention country in India is a question of considerable importance.
Practice and Procedure
An arbitral award that does not satisfy the requirements of Part II under the 1996 Act is not a ‘foreign award’ for the purposes of enforcement under the 1996 Act, even though it is made outside India. However, as per the judgment of the Supreme Court of India in Bhatia International Ltd v Bulk Trading SA [2002], it appears that an award passed in an international commercial arbitration in a non-convention country, though not enforceable under Part II, would be treated as a domestic award and would be enforceable under the provisions of Part I of the 1996 Act. The strength of this contention can be derived from the fact that the Supreme Court made certain observations with respect to international commercial arbitrations taking place in non-convention countries. Relying on s2(f) of the 1996 Act, which defines international commercial arbitration, the Supreme Court was of the opinion that the definition makes no distinction between international commercial arbitration taking place in India or outside India. The Court was also of the opinion that awards under Part II related to awards passed in the convention country, for which an enforcement mechanism was duly provided. Therefore, to that effect, Part I would not apply to such foreign awards. However, for all other awards, whether domestic or foreign awards passed in non-convention countries, provisions of Part I would continue to apply and hence enforcement mechanisms as envisaged under Part I would be equally applicable to awards passed in non-convention countries.
Paragraph 23 of the judgment reads:
‘As is set out hereinabove the said Act applies to (a) arbitrations held in India between Indians and (b) international commercial arbitrations. As set out hereinabove international commercial arbitrations may take place in India or outside India. Outside India an international commercial arbitration may be held in a convention country or in a non-convention country. The said Act, however, only classifies awards as “domestic awards” or “foreign awards”. Mr Sen admits that provisions of Part II makes it clear that “foreign awards” are only those where the arbitration takes place in a convention country. Awards in arbitration proceedings, which take place in a non-convention country, are not considered to be “foreign awards” under the said Act. They would thus not be covered by Part II. An award passed in an arbitration, which takes place in India, would be a “domestic award”. There would thus be no need to define an award as a “domestic award” unless the intention was to cover awards which would otherwise not be covered by this definition. Strictly speaking an award passed in an arbitration, which takes place in a non-convention country, would not be a “domestic award”. Thus the necessity is to define a “domestic award” as including all awards made under Part I. The definition indicates that an award made in an international commercial arbitration, held in a non-convention country, is also considered to be a “domestic award”.’
This judgment suggests that an award passed in a non-convention country would be treated as a domestic award and is therefore enforceable under Part I of the 1996 Act. It is noteworthy that in cases of international commercial arbitration, held outside of India in a non-convention country, provisions of Part I would apply unless the parties by agreement, express or implied, exclude all or any of its provisions.
That being so, the next question is, what is the procedure and mechanism for enforcing such an award in India?
Part I of the 1996 Act provides, in s34, the process of setting aside an award. Under s34, an application for setting aside an award may not be made after three months from the date on which the party making the application received the award. The time frame of three months may be further extended by 30 days if the court is satisfied that sufficient cause existed for the applicant not being able to move the application within the stipulated three-month period. If, however, no such application is filed for setting aside the award under s34, as per s36 of the 1996 Act, the award shall be enforced under the Code of Civil Procedure (CPC) 1908 as if it were a decree of the court.
CPC 1908 Order XXI prescribes the manner in which the decree may be executed by the decree holder against the judgment debtor. Therefore, by legal fiction, an award can be enforced as a decree of the court on expiry of 90 days (unless another 30 days is granted as sufficient cause).
However, it is clear from the mandatory language of s34 that an award, when challenged within the stipulated time, becomes unexecutable. There is no discretion left with the court to pass an interlocutory order in regard to the award, except to adjudicate the correctness of the claim made by the applicant. However, it would be pertinent to bear in mind that the procedure for enforcement of the award is applicable only when Part I is held to be applicable to the arbitration. In the event that the governing law of the arbitration, by implication or by express provision, bars the application of Part I, the procedure for the enforcement of awards would be to file a suit on the award and the judgment obtained thereon.
It is of utmost importance that in such a case, where the award is made in a non-convention country and to which the provisions of Part I do not apply:
- the award must have been made under an arbitration agreement;
- the arbitration was conducted in accordance to the agreement;
- the award is made pursuant to the provisions of the agreement, and is valid according to the lex fori of the place where the arbitration was conducted and where the award was made; and
- the award has attained finality.
As per the decision of the Supreme Court in Badat & Co v East India Trading Company [1964], an award passed in a foreign country can afford a cause of action only when it is final, ie a judgment based on the award as per the law of the country where the award was passed has been rendered. By itself, the award cannot give rise to any fresh cause of action. This would mean that the observation in Bhatia, regarding the enforcement of non-convention country awards, cannot be relied on.
In the event that these conditions are satisfied, a suit on the said award may be filed in India for enforcement of the same.
In view thereof, it appears that the following conclusions may be drawn in this regard:
- an award passed in an arbitration held in a non-convention country under the law of that country will not be a ‘foreign award’ within the meaning of Part II and therefore cannot be enforced under the provisions of Part II;
- an award passed in an arbitration held in a non-convention country, under that country’s laws and without an implied or express exclusion of the 1996 Act, may be enforced in India as an domestic award under the provisions of Part I of the 1996 Act in view of the judgment in Bhatia; and
- an award passed in an arbitration held in a non-convention country, under that country’s laws and where the arbitration agreement excludes the applicability of the 1996 Act either by implications or expressly, may be enforced in India by means of filing a suit on the said award and the judgment obtained thereon.
Conclusion
Arbitration as an alternate and efficacious remedy has been marred by the intervention of the courts in India. However, that should not be taken to mean that the courts have interfered at will. It is best not to forget that the courts have stepped in to fill the gaps left by the legislature. However, the thin line between judicial interpretation and legislating has often been crossed by the courts. It appears that the decision of the same court in Badat was not brought to the notice of the court while deciding Bhatia.
Recently, however, steps have been initiated to amend the 1996 Act (taking into account this anomaly between the two judgments), which will perhaps help solve these issues that are still pending.