India: Supreme Court On Enforcement Of Foreign Arbitral Awards

Introduction

The Supreme Court (“SC”) judgment in Government of India v. Vedanta Limited and Others¹, in this part we discuss the SC's views on enforcement of foreign arbitral awards under the Arbitration and Conciliation Act, 1996 (“Act”) and the New York Convention along with issues relating to public policy in foreign seated arbitrations.

While the arbitral jurisprudence in India is still evolving to keep up with the progressing commercial disputes world and to make India a favourable place for alternate dispute resolution, this judgment is a stepping stone towards progress. The judgment evaluates the scheme contemplated under Chapter I Part II of the Act. While noting that a foreign award does not become a “foreign decree” at any stage of the proceedings, the SC held that enforcement of a foreign award takes place only after the court is satisfied that it is enforceable under Part II of Chapter I of the Act. The foreign award has to pass the muster of Sections 47 and 49, after which the award becomes a ‘deemed decree'. Whereas, enforcement of a foreign decree is governed by provisions of Section 44A read with Section 13 of the Civil Procedure Code.

Enforcement of New York Convention awards

The SC held that under the Act, there is no requirement for a foreign award to be declared a decree by the seat court after which it would become enforceable. The Act has done away with “the double exequatur” which was a requirement under the Geneva Convention, 1927. Under Section 46, a foreign award is final and binding on the parties and Section 47 (replicating Article IV (1) of the New York Convention) sets out the procedure for filing the petition for enforcement/execution. The SC further held that non-production of documents at the initial stage of Section 47, should not entail a dismissal of the application for enforcement.² Relying upon its previous judgment³, the SC held that proceedings for recognition and enforcement of a foreign award encompasses two stages; (i) enforceability to be decided by the court under Sections 47 and 48 of the Act and (ii) execution of the award. However, there is no need to undergo two separate proceedings for the two stages. In one proceeding itself, the court enforcing the foreign award can take up the execution proceedings.

Further, Section 48 replicates Article V of the New York Convention and sets out the limited conditions on which enforcement of an arbitral award can be refused. The SC observed that the enforcement court cannot set aside the foreign award even if the conditions in Section 48 are made out. The power to set aside a foreign award vests only with the court at the seat of arbitration, i.e. the curial courts. The language of Section 48 itself states that enforcement “may be refused”⁴. The language of Section 48 is permissive and not mandatory. Therefore, even if the party against whom the award is passed, proves one of the grounds under Section 48, the court would still retain at residual discretion to overrule the objections, if overall justice has been done between the parties. The SC noted that the grounds of refusal in Section 48 are exhaustive as is evident from the language of the section itself; the Section states “only if that party furnishes to the court proof that….” Further, the enforcement court is not to correct errors in the foreign award or review the merits of the award. Once the award is recognized as enforceable, the concerned high court would then enforce/execute the award as per Order XXI of the CPC.

Application of Malaysian Public Policy by the Malaysian Courts

While deciding the challenge to the foreign award and whether the Malaysian Courts were justified in applying Malaysian law of public policy, the SC held that the applicable law would be judged basis the specific ground of challenge. In this case, the grounds of challenge related to excess of jurisdiction and public policy. Under the production sharing contract (“PSC”), the substantive law of the contract is Indian Law and the arbitration agreement is governed by the laws of England and since the seat of arbitration was Kuala Lampur, the curial law would be Malaysian Law.

The SC held that the enforcement of the award is a subsequent and distinct proceedings from the setting aside proceedings at the seat. The enforcement court would independently determine the issue of recognition and enforceability of the foreign award in India, in accordance with the provisions of the Act. The court having jurisdiction to annul or suspend a New York Convention award, is the court at the seat of the arbitration, which exercises “supervisory” or “primary” jurisdiction. “Laws under which the award was made” in Section 48(1)(e) refers to the country of the seat of arbitration. The enforcement courts only exercise “secondary” or “enforcement” jurisdiction over the foreign award to determine the recognition and enforceability of the award in “that jurisdiction”.

In the case at hand, the Malaysian Courts being the seat courts were justified in applying the Malaysian law to the public policy challenge raised by the Government of India. The enforcement court, being an Indian court would examine the challenge to the award under Section 48 of the Act, “without being constrained by the findings of the Malaysian Courts.” Therefore, merely because the Malaysian Courts have upheld the award, that would not be an impediment to examine whether the award was opposed to the public policy of India. The enforcement court would however not second-guess or review the judgment of the seat courts.

Foreign award whether in conflict with Public Policy of India

Relying upon its earlier judgment in Shri Lal Mahal Ltd. v. Progetto Grano SPA⁵, the SC held that the law as expounded in the Renusagar judgment⁶ would be applicable to the ambit and scope of Section 48(2)(b). Section 48 does not permit a review of the foreign award on merits. Under the Renusagar judgment, public policy comprises of (i) fundamental policy of Indian law, (ii) interests of India and (iii) justice or morality.

Section 48 was amended in 2016, by which the public policy ground was given very narrow and specific construction, by the insertion of two explanations. The 2016 amendment further dropped the clause “interest of India” which was expounded by the Renusagar judgment. The SC further observed that since the 2016 amendment has brought about specific changes, it must be construed prospectively and not retrospectively though the wording used is “for the removal of doubts.” When an explanation in an amendment changes the law, it cannot be presumed to be retrospective⁷. In the present case, the unamended Section 48 would be applicable since the enforcement proceedings were instituted prior to the amendment.

In the Renusagar judgment, the court had relied upon a judgment of the US Court of Appeals for the 2^nd Circuit⁸ wherein it was held that an expansive construction of the defense of public policy would vitiate the New York Conventions' basic effort to remove pre-existing obstacles to enforcement. Enforcement may be denied only where the enforcement would violate the forum's most basis notions of morality and justice. The SC observed that finality of awards in international commercial arbitrations should be respected, save in exceptional circumstances.

In the facts of the present case, the SC held that the Government of India has not made out a case for violation of procedural due process in the conduct of arbitral proceedings. The appeal is based on the ground that the award is contrary to the basic notions of justice, however the specific ground is not made out. Most basic notions of justice and morality have been interpreted by courts to mean that there should be great hesitation in refusing enforcement, unless it is obtained through “corruption, fraud or undue means.” In the present case, the SC held that the gravamen of the challenge is that the tribunal gave an erroneous interpretation of the terms of the PSC. The interpretation of a contract lies within the domain of the tribunal and the enforcement court cannot re-assess the merits of the matter under Section 48. Therefore, the SC has held that the enforcement of the foreign award would not contravene the public policy of India.

Conclusion

Generally, corporations dealing with high stake cross-border transactions tend to lean towards jurisdictions with favourable and evolved arbitral jurisprudence. Whilst enforcement has always been a challenge whether arising out of court proceedings or arbitrations. This welcome move attempts to bridge the gap to make India a favourable destination for foreign investment. The pro-enforcement judicial response from the SC is an optimistic impact on enforcement actions in India.

Footnotes

1 Civil Appeal No. 3185 of 2020 (Arising out of SLP (civil) No. 7172 of 2020

2 (2019) 11 SCC 620

3 (2001) 6 SCC 356

4 2020 SCC Online 177

5 (2014) 2 SCC 433

6 1994 Supp (1) SCC 644

7 (2005) 12 SCC 717

8 508 F.2d 969 (2^nd Cir 1974)

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