The persistent quest of the Indian arbitration industry towards promoting arbitration in the sub-continent saw a milestone, when the Supreme Court of India declared that a foreign award is enforceable in India with the same "pro-enforcement bias", as prescribed in Article V of the New York Convention (the Convention). Thus, upholding the enforceability of foreign award, the Supreme Court emphasized that in the matter of enforceability of foreign award the scope of entertaining objection to enforceability is very limited. The apex court also emphasized that the onus lies on the party seeking refusal of enforcement, to show why the foreign award be not enforced.1

Taking note of the contours with respect to refusal of enforceability of foreign award, the apex court appreciated the prevailing judicial prescription wherein the structure of Article V of the Convention had been examined.2 It was noted that Article V of the Convention has two parts, wherein the first part sets out the grounds of objections available to the party against whom the award is sought to be enforced. Further, the second part sets out two additional reasons on which the court can, on its own motion, refuse the recognition and enforcement of a foreign award. It was specifically noted that none of the grounds set out in Article V postulates a challenge to the award on merits.

Having noted the prevailing Indian perspective on the Convention, the court also examined the judicial perspective of other jurisdiction3, and noted their interpretation that the country under whose arbitration law the award is made, has the 'Primary Jurisdiction' over the award, and it can annul that award by applying its own domestic law. Whereas the country in which the award is taken for enforcement has only 'Secondary Jurisdiction' to refuse enforcement only on the grounds specified in Article V of the Convention. It was further noted in the context of Secondary Jurisdiction that the Court may not refuse to enforce an arbitral award solely on the ground that the arbitrator may have made a mistake of law or fact. It was also noted that the party defending against enforcement of the arbitral award bears the burden of proof.

Having noted the "pro-enforcement bias" in Article V of Convention, the Supreme Court proceeded to examine the magnitude of the expression "may refuse" in the context of exercise of Secondary Jurisdiction, as contemplated under Article V of the Convention. It was noted that Section 48 of the Arbitration and Conciliation Act, 1996 (the Act), as well as Article V of the Convention uses the expression "may refuse", which signifies that even if grounds for refusal of recognition and enforcement of an award are proved to exist, the enforcing court is not obliged to refuse enforcement. In that backdrop the apex court classified the grounds for resisting the enforcement of foreign award, as set out in Section 48 of the Act, into three categories, to examine as to when it is discretionary to refuse the enforcement and when such discretion is not available:

  1. grounds which affect the jurisdiction of the arbitration proceedings - such as, the arbitration agreement not being valid or subject matter of difference being not capable of settlement by arbitration under the law of India. It was held that in such cases, there can be no discretion, and the court shall have to refuse the enforcement.
  2. grounds which affect party interest alone: where grounds are linked to party interest alone, such as, party unable to present its case, and which ground is capable of waiver or abandonment; or, against such ground being made out, it is further shown that no prejudice is caused to the party making out such ground. It was held that in such cases, a court may well enforce a foreign award, even if such ground is made out.
  3. grounds which affect the public policy of India: examining these grounds, the court held that there would be no discretion of enforcing an award which is induced by fraud or corruption, or which violates the fundamental policy of Indian law, or is in conflict with the most basic notions of morality or justice.

Summing up, the apex court observed that the expression "may" in Section 48 can, depending upon the context, mean "shall" or as connoting that a residual discretion remains in the court to enforce a foreign award, despite grounds for its resistance having been made out. So far, width of this discretion is limited to the circumstances set out hereinabove, in which case a balancing act may be performed by the court enforcing a foreign award.

As regards the ground of inability to present a case, as contemplated under section 48(1)(b) of the Act, the hon'ble court noted the extant judicial prescription4 that such ground should be able to render the proceedings violative of the due process and principles of natural justice. The court also noted in this context, the judicial view of other jurisdiction5, to the effect that the inability to present a case to arbitrators contemplates that the party has been prevented from presenting his case by matters outside his control where the procedure adopted has been operated in a manner contrary to the rules of natural justice. Taking note of the prevailing judicial views, the Supreme Court observed that given the fact that the object of Section 48 is to enforce foreign awards subject to certain well-defined narrow exceptions, the expression "was otherwise unable to present his case" occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase, i.e. if a fair hearing was not given by the arbitrator to the parties. It was thus held that read along with the first part of Section 48(1)(b), it is clear that this expression would apply at the hearing stage and not after the award has been delivered.

Deliberating on the aspect of public policy ground, the court noted the law settled so far,6 that a ground alleging that the interpretation of an agreement by an arbitrator is perverse, cannot rest on any of the grounds contained in Section 48(1)(b). It was noted that while considering the enforceability of foreign awards, the court does not exercise appellate jurisdiction, nor does it enquire as to whether, while rendering foreign award, some error has been committed. The court further noted and concurred with the view7 that once it is found that the arbitrator has ignored the submissions of a party in totality, whatever be the merit of the submissions, then such award cannot be enforced, being in violation of the Principles of Natural Justice and contrary to the public policy of India. The court thus, held that if a foreign award fails to determine a material issue which goes to the root of the matter, or fails to decide a claim or counterclaim in its entirety, the award may shock the conscience of the court and be refused enforcement.

Moving forth to strengthen the 'pro-enforcement' policy, the High Court of Delhi, in a recent matter involving execution of an award rendered in an international commercial arbitration against a foreign state, has held that once a foreign state enters into an arbitration agreement, such foreign state waives its sovereign status and forgoes its right of claiming sovereign immunity8. The court further held that arbitration being a consensual and binding mechanism of dispute settlement, it cannot be contended by a foreign state that its consent must be sought once again at the stage of enforcement of an arbitral award against it, while ignoring the fact that the arbitral award is the culmination of the very process of arbitration which the foreign state has admittedly consented to. Consequently, the court held that prior consent of central government under Section 86(3) of the Civil Procedure Code is not required for enforcement of arbitral award against a foreign state.

Tracing the footprints of 'pro-enforcement', another milestone is awaiting in the offing with respect to declaration of enforceability of an Interim/Emergency award passed in a foreign jurisdiction. The issue is pending before the hon'ble Supreme Court in a matter between Amazon and Future9 involving transfer of retail business. So far, the prima-facie view of the apex court, as reflecting from the interim order10, indicates a likely 'pro-enforcement' adjudication of the matter. It will be interesting to see, whether such awaited declaration would play on to the expectations of the growing Indian arbitration industry towards strengthening the credibility of Indian arbitration infrastructure.

Footnotes

1. Vijay Karia vs Prysmian Cavi E Sistemi Srl CIVIL APPEAL NO. 1544 OF 2020, on 13.02.2020

2. Renusagar Power Plant Co. Ltd. v. General Electric Co. (1994) Supp (1) SCC 644

3. Karaha Bodas Co., L.L.C v. Perusahaan Pertambagan Minyak 364 F.3d 274 (2004)

4. Glencore International AG v Dalmia Cement (Bharat) Limited [2017 SCC OnLine Del 8932 Delhi High Court]

5. Minmetals Germany GmbH v. Ferco Steel Ltd. [(1999) C.L.C. 647]

6. Shri Lal Mahal Ltd. v Progretto Grano SPA[(2014) 2 SCC 433]

7. Campos Brothers Farms v. Matru Bhumi Supply Chain Pvt. Ltd. (2019) 261 DLT 201

8. KLA Const Technologies Pvt. Ltd. v The Embassy of Islamic Republic of Afghanistan OMP (ENF) (COMM) 82/2021 – Delhi High Court, judgment dated 08.06.2021

9. Amazon.Com NV Investment Holdings LLC v Future Retail Limited [SLP No. 6113-6114/2021]

10. Order dated 19.04.2021 passed in SLP No. 6113-6114/2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.