Enforcement of Arbitral Awards

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James Cross
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1 Enforcement of Arbitral Awards The Practical Lawyer Enforcement of Arbitral Awards By M. Dhyan Chinnappa* Cite as : (2002) 8 SCC (Jour) 39 Introduction "An arbitrator is a private extraordinary judge between party and party, chosen by their mutual consent, to determine controversies between party and party. And arbitrators are so called because they have an arbitrary power; for if they observe the submission (arbitration agreement) and keep within bounds, their sentences are definite from which there lies no appeal". (Sir Raymond, CJ) The purpose of arbitration is to ensure effective, quick and consensual decision making process avoiding the arduous process of courts. The need for such a procedure is greater in a country like India where delay has ingrained itself as part of the system of administration of justice. While arbitration is indeed a quick procedure, the interference by court in the process acts as a clog to its development. The enactment of the Arbitration Act, 1940 (hereinafter "the old Act"), was a reflection of the legislature's determination to ensure speedy resolution of disputes. However, the old Act, though sound in principle, was bogged down by procedural delays. To put it in the words of the Apex Court: "Experiences show and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by the intending prolixity at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of the disputes has, by the decisions of the courts been clothed with legalese and unforeseeable complexity."1 There was no uniform procedure in terms of a unified code for the enforcement of foreign awards under the New York Convention and the Geneva Convention. The Foreign Awards (Recognition and Enforcement) Act, 1961 for the enforcement of arbitral awards under the New York Convention and the Arbitration (Protocol and Convention), Act 1937 hitherto held the field. With the adoption, by the United Nations Commission for International Trade Law of the UNCITRAL Model Arbitration Law and the subsequent adoption of the same by various countries in the world, it was but necessary that India adopt the Model Law to govern arbitrations and this saw the genesis of the more dynamic Arbitration and Conciliation Ordinance leading to the Arbitration and Conciliation Act, 1996 (hereinafter "the new Act"). The New Act has consolidated and amended the law relating to arbitration and is comprehensive in the sense that it covers both domestic and foreign arbitrations. It has simplified the procedure in many respects, especially concerning appointment of arbitrators, procedure to determine whether an arbitration agreement exists or not, challenge to an arbitral award and finally, enforcement. The interference of courts in the matter of arbitration has been reduced to the minimum. The enforcement procedure has also been revised. The purpose or scope of this article is to examine the law in India insofar as the enforcement of arbitral awards is concerned. A comparison of the provisions in the old Act and the new Act would be meaningful and useful. Procedure for enforcement under the old Act After the making of the award by the arbitrators or umpire and after having signed the same, at the request of one of the parties' to the agreement or any person claiming under him or if so directed by the court, the award and all other documents were to be filed in court. (Section 14). The court had jurisdiction to entertain the application for filing of the award. The court had to give notice to the parties under Section 14(2). The parties were entitled to object to the award. The court was to determine and modify or correct an award, where:

2 (a) it appeared to the court that a part of the award is upon a matter not referred to arbitration; (b) the award is imperfect in form; or contains any obvious error which can be amended without affecting such decision or it contains clerical mistakes (Section 15). The court had also the power to remit the award to the arbitrator for fresh consideration, if any issues were left undetermined, or where the award was so indefinite to be incapable of execution, or where objection to legality of award is apparent upon the face of it. The court could consider that the time for filing of objections against the award had expired or such application having been made had been refused. It was only upon satisfaction of the above conditions that the court could pass a decree confirming the arbitral award and only then would the award become final and binding and thereafter enforceable. Procedure for enforcement under the new Act Under the new Act, the procedure for enforcement stands simplified to a very great extent when compared to the provisions of the old Act. Section 35 of the new Act makes the award final and binding on parties and persons claiming under them. Section 36 provides for enforcement of the arbitral award as though it were a decree of the court, and a party is entitled to enforce the arbitral award, when the time for making an application to set aside the arbitral award had expired or such application having been made, had been refused. This saves the time spent under the old Act to make an award a decree of court. Therefore under the new Act, after an award is made or passed, the party in whose favour an award is made has nothing to do but just wait whereas under the old Act the winning party had to file an application within 30 days of receipt of the award for getting it made a rule of the court. Grounds for setting aside an arbitral award An important aspect which needs to be considered is the aspect relating to setting aside of an arbitral award. Under Section 34(2) of the new Act, an award may be set aside by the court either on the application of the party or (without such application) by the court under certain circumstances. The grounds under which a party may apply to the court to set aside an award are only those mentioned in Section 34(2). They are: a. Where a party making the application was under some incapacity. b. The arbitration agreement is not valid under the law to which the parties are subjected or failing such indication thereon, under the law for the time being in force. c. The party making the application was not given proper notice of the appointment of arbitrators or of the Arbitral Tribunal or was otherwise unable to present his case. d. Arbitral award deals with a dispute not contemplated by the parties or beyond the terms of submission. e. Composition of the Arbitral Tribunal was not in accordance with the agreement of the parties. f. Subject-matter of dispute is not capable of settlement by arbitration under the law for the time being in force. g. The arbitral award is in conflict with the public policy of the country. The court can enforce the award only if application for setting aside it is disallowed or the time for making such prayer is over. The last-mentioned position seems to run counter to the avowed objects of the Act, namely avoidance of delay. It is noteworthy to mention that once an application is preferred under Section 34, the executing court has no jurisdiction to enforce the award, until and unless the application under Section 34 is dismissed or refused. This is a marked departure from even the normal rule under the Code of Civil Procedure, 1908 where an executing court can execute the decree if there exists no stay by the appellate court. In the opinion of the author, this ought not to have been the position under the new Act. Enforcement of the award should be permitted unless there is a stay by the court hearing an application under

3 Section 34. That appears to be an inadvertent departure under the new Act from the normal procedure contemplated under the Civil Procedure Code and runs contrary to the avowed object of speedy resolution of disputes contemplated under the new Act. It is in this area that Section 36 is definitely capable of being put to mischief and therefore requires a fresh look. Enforcement of foreign awards A foreign award is defined 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 in pursuance of which either the Geneva Convention or the New York Convention applies and which is made in one of such territories where reciprocal provisions have been made for enforcement of award. Enforcement of arbitral awards in the international scenario assumes greater significance than domestic arbitration since now the law and rules regarding enforcement in the domestic arena are fairly well settled. The Geneva Convention and the New York Convention are steps towards bringing about uniformity in the matter of enforcement of arbitral awards. This aspect was highlighted by the US Supreme Court in Scherk v. Alberto-Culver2 thus: "The goal of the New York Convention, and the principal purpose underlying American adoption and implementation of it, was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory countries."3 As many as 96 countries have ratified the New York Convention including India. It is pertinent to mention that for an award to be a foreign award under the new Act, the award should arise in relation to a relationship, which can be considered as "commercial" as understood by the law in India. The word "commercial" has not been defined in the new Act. The Supreme Court in R.M. Investments v. Boeing Company4 observed that while construing the expression "commercial", guidance can also be taken from UNCITRAL Model Law which runs as follows: "The term commercial should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature, include, but are not limited to, the following transactions: any trade transaction for supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering;..."5 In Kamani Engg. Corp. Ltd. v. Socite De Traction Et D'Electricity Sociate Anonyme6, the Bombay High Court was of the opinion that the widest meaning should be accorded to the word "commercial". It is undoubtedly true that in most foreign awards, there is always a commercial element. The word "commercial" not having been defined, it should include all areas which unless can be categorized under some other head such as matrimonial or commercial or social or political, should necessarily fall within the meaning of commercial. As a matter of fact, the courts in the United States have also held that the commercial limitation is only to exclude matrimonial and other domestic relations awards, political awards and the like. Why the law does not make provision for other arbitrations would be an interesting issue to ponder upon. Unfortunately, enforcement of arbitration awards has not yet transgressed beyond the commercial parameters agreed upon by various countries. Enforcement of foreign awards and reciprocity India has accepted the New York and Geneva Conventions only with a specific reservation of reciprocity and that is clear at Sections 44(b) and 53(c) of the new Act. Reciprocity is only in relation to the place where the award is made and does not bear any real relation to the nationality of the parties or whether the nations to which each of the parties belong have signed or ratified the Conventions. So long as the award is made in a territory where reciprocal provision exists as in India, the award is automatically enforceable. An interesting situation arose in a case decided by the United States Court in Fertilizer Corpn. of India v. IDI Management, Inc.7, where an award rendered in India was sought to be enforced in the United States. The contention that was urged was that India would not have enforced the award had it been rendered in the United States against Fertilizer Corporation. The Court examined the reciprocity defence and held that reciprocity contemplated by the Convention only required that India be a signatory to the Convention; reciprocity does not extend to the judicial interpretation and enforcement policies of the contracting State in which the award was rendered. In Iran Aircraft Industries v. Avco Corpn.8, the New York Convention was held applicable to an award made in the Netherlands against a US company in favour of an Iranian company, although Iran has not ratified the convention.

4 Foreign award: a decree of court Apart from consolidating the law relating to arbitration under the new Act, there is yet another qualitative change which has been brought about to the law relating to enforcement of foreign awards under the new Act in contrast to the Foreign Awards (Recognition and Enforcement) Act, 1961 and the Arbitration (Protocol and Convention), Act The qualitative change is in respect of the fact that under the old Act, the party seeking enforcement was required to file the award in court and the court was required to pronounce judgment according to the award, once it came to the conclusion that the award was enforceable. Upon the judgment so pronounced a decree was to follow. However, now under the new Act, the executing court is to merely satisfy itself that the award is enforceable and the award is to be enforced as if it is a decree of the court9 Procedure for enforcement The procedure for enforcement of arbitral awards is pretty much the same in the new Act as under the Foreign Awards (Recognition and Enforcement) Act, 1961 and the Arbitration (Protocol and Convention), Act The reason that there are no qualitative differences is because the New York Convention and the Geneva Convention themselves provide for the procedure for enforcement which are merely given statutory recognition by way of an enabling legislation and the same continues under the new Act. A person who intends to enforce a foreign arbitral award should apply to the court and produce the following documents: (a) Original award or copy thereof, duly authenticated in the manner required by the law of the country in which it was made. (b) Original agreement for arbitration or a duly (c) Such evidence as may be necessary to prove that the award is a foreign award. (d) Translations, if necessary shall also be furnished. The court is bound to enforce an arbitral award unless enforcement is refused owing to the following reasons: Parties to the agreement were under some incapacity. The said agreement is not valid under the law to which the parties have subjected themselves or is invalid under the law of the country where the award was made. No proper notice was given to the party against whom the award is sought to be enforced. Award deals with a difference outside the scope of reference. Composition of Arbitral Tribunal was not in accord with the agreement between the parties. Award has not become binding on the parties, or has been set aside. Subject-matter of the difference is not capable of settlement by arbitration under law in India. Enforcement is contrary to the public policy of India.10 Conclusion The immediate purpose of the new Act was to comprehensively cover international commercial arbitrations and conciliation as well as domestic arbitration and conciliation; to minimize the supervisory role of courts in the arbitral process and to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court and this seems to have been achieved by the express provisions of the new Act and the interpretative jurisprudence generated by the Supreme Court.

5 This paper has concentrated primarily on the enforcement of foreign arbitral awards under Indian law and issues incidental thereto. Parties typically contract to arbitrate disputes in order to avoid the courts and to maintain amicable and confidential relationships with their commercial partner. As noted at the outset, however, successful claimants must be certain that an award can be adequately enforced. The clear pro-enforcement policy underlying the various conventions, treaties and judicial decisions referred to in this article should provide comfort to commercial contracting parties and ensure that arbitration continues to gain in popularity in India as a method of dispute-resolution. This phenomenon should definitely reflect, with increase in the volume of commercial and business transactions occurring across Indian boundaries. To some degree, however, this development will mirror an acknowledged and manifest preference in the international trade community for arbitration as a means of resolving disputes in the place of conventional litigation. * Advocate, Dua Associates, Bangalore Return to Text - Gurunanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634 Return to Text US 506, 520, n. 15 (1974) Return to Text - Ibid. Return to Text - AIR 1994 SC 1136 Return to Text - Ibid. Return to Text - AIR 1965 Bom 114 Return to Text F. Supp. 948 (SD of Ohio 1981) Return to Text F 2d 141 (2d Cir 1992) Return to Text - Sections 49 and 50. See also Fuerst Day Lawson Ltd. v. Jindal Exports Ltd, (2001) 6 SCC 356 wherein it has been held that under the new Act, two separate proceedings, one for deciding on the enforceability to make the foreign ward rule of the court or decree and the other to take up execution thereafter is not contemplated. Return to Text - See Sections 48 and 57. Return to Text

Source: BOOK: International Handbook on Commercial Arbitration, J. Paulsson (ed.), Suppl. 30 (January/2000)

Source: BOOK: International Handbook on Commercial Arbitration, J. Paulsson (ed.), Suppl. 30 (January/2000) The Arbitration and Conciliation Act, 1996 (No. 26 of 1996), [16th August 1996] India An Act