EXECUTION OF FOREIGN ARBITRAL AWARD: POWER OF EXECUTING COURTS IN INDIA BY - ADV. EMILYA ROSE BENNY
EXECUTION OF FOREIGN ARBITRAL AWARD: POWER OF EXECUTING COURTS
IN INDIA
AUTHORED BY - ADV. EMILYA ROSE BENNY
High Court of Kerala
Abstract
Execution of foreign arbitral award
in India is governed by Arbitration and Conciliation Act 1996. This paper
examines the scope of the Act in determining the rights of the parties to the
award, rate of interest, limitation period in executing the foreign arbitral
award. Where the rate of interest
of award has not been determined between the parties of foreign arbitral award the
question is whether the Executing Court in India has the power to grant the
interest (including post- award interest) or determine the rights of parties, can
Section 31 (7) (b) directly be applied to the proceedings under Part II
of Arbitration and Conciliation Act 1996 under the guise that is lexi fori, power
of the Enforcement Court in India to determine the validity of or to set aside
the foreign arbitral award. Unlike
the foreign award, the enforcement of foreign arbitral award is governed by a
special statute. The Act does not exclusively cover the power of Executing
Courts in India in enforcing the Foreign arbitral award. But the Court has arrived in a conclusion
through narrow construction of the Act.
Execution of foreign arbitral award
in India is governed by Arbitration and Conciliation Act 1996. A foreign award is considered to be an
arbitral award related to matters considered commercial under Sec.53 of the Act.
Arbitral award is the decision passed by an arbitral tribunal. With respect to
the enforcement of foreign arbitral award, the Country shall be a party to the
New York Convention or the Geneva
Convention. India became the signatory to the New York Convention on 1958
which aims to ensure
the enforcement of awards. To the effect that Arbitration and Conciliation
Act was enacted on 1996. Hence there is
no need of question as to whether a foreign arbitral award can be enforced in
India. Section 44 of Arbitration and Conciliation Act defines a foreign award
as an arbitral award on disputes between persons arising out of legal
relationships, whether contractual or not, considered as commercial under the
law in force in India[1].
Domestic award and foreign award are the types mentioned in the Act, 1996. Part
I and Part II deals with execution of domestic award and foreign award
respectively. Part I of the Arbitration Act, 1996 exclusively applies to all
arbitrations arising between domestic parties and pertaining to a domestic
dispute. Even if the domestic parties involved in a purely domestic dispute
contractually agrees to denude the Courts of this country of their
jurisdictions, the same will not ipso facto take such arbitrations outside the
applicability of Part I and operate to exclude the jurisdiction of Indian
Courts therein[2]. Place
of Arbitration shall be at the option of the parties binding upon the
arbitration clause failing on which, the place of arbitration shall be determined
by the arbitral tribunal having regard to the circumstances of the case. The question is whether Section 34 and
37 of Act confers power to modify an arbitral award. The answer is not per se.
The foreign arbitral award is not enforceable as such until it acquires the
status of decree. A foreign award deemed to be the decree of the Court when the
enforcement Court adjudicates the enforcement and execution of the foreign
award. A substantive application has to
be filed under Section 47 of the Arbitration and Conciliation Act before the
executing Court in India to that effect. The Court will look into the
ingredients of Section 47 to 49 to give effect the award.
Limitation
period for executing foreign arbitral award
There is no express provision
in the Arbitration and Conciliation Act 1996 regarding the period of limitation
with respect to the execution of foreign award. In that case, Limitation Act
may be applied. Issue of period of Limitation is mixed question of law and
facts. However, the Limitation Act also does not contemplate an explicit
provision for the enforcement of foreign arbitral award hence it would necessarily fall under the residuary provision Article 137.
Since execution petition of the
foreign arbitral award has to be filed under Section 47 of the Act, O.XXI has
no role in enforcing the award and hence Section 5 of Limitation can’t be
directly applied. Needless to emphasize
it has been subject to protractor discussions before the Courts of
India, where Art. 136 and Art. 137 of the Limitation Act are being applied
interchangeably in various judgments. The question before the Court is whether
Art 136 or 137 shall be applied. The issue of limitation for enforcement of
foreign awards being procedural in nature, is subject to the lex fori i.e. the
law of the forum (State) where the foreign award is sought to be enforced. In Bank of Baroda v. Kotak Mahindra Bank[3], it was ruled that for foreign decrees
to be enforced, Article 136 does not apply. Limitation period of execution of
the same shall only be governed by the law that prevalent in the country which
it has passed instead, Article 137 is applicable (it is the residuary provision
which says that when no other limitation is prescribed limitation of 3 years
will apply).
Section 49 of the Act
contemplates that when the foreign award is enforceable
under Section 47 of the Act, the award shall be deemed to be a decree of that
Court. The Hon’ble Supreme
Court of India in Government of India v.
Vedanta & Ors[4]
has finally resolved the ambiguity in application of the Law of period of
limitation in executing foreign arbitral award while deciding the issue of
maintainability. Article 137 applies to the enforcement of foreign awards,
which provides a period of 3 years from “when the right to apply accrues”. The
right to apply would accrue from the date of making the award, would be
governed by Article 137 of the Limitation Act, 1963 which prescribes a period
of three years from when the right to apply accrues[5].
Rate
of interest in the arbitral award
Where
the arbitral award is for payment of money, the rate of interest of award shall
by determined from the terms of the agreement between the parties. If not so,
the rate of interest is governed by Section 31(7) (a) & (b) of the
Arbitration and Conciliation Act 1996. The arbitral tribunal may
include in the sum for which the award is made interest, at such rate as it
deems reasonable, on the whole or any part of the money, for the whole or any
part of the period between the date on which the cause of action arose and the
date on which the award is made. A sum directed to be paid by an
arbitral award shall, unless the award otherwise directs, carry interest (post
– award interest) at the rate of eighteen per cent per annum from the date of
the award to the date of payment.[6] And the
question is whether a Court of law can grant post-award interest if the
arbitral award is silent on post-award interest on the sum awarded. The
Court of law may only grant post award interest as mentioned in Section
31(7)(b) of the Act[7].
In Raveechee and Company v. Union of India [8]
Hon’ble Supreme Court held that an arbitrator has the power to award interest
unless specifically barred from awarding it and the bar must be clear and
specific. Also held that the liability to pay interest pendente lite arises
because the claimant has been found entitled to the same and had been kept out
from those dues due to the pendency of the arbitration. In State of Haryana v. S.L. Arora[9],
(2010) 3 SCC 690, the Court held that, if the award is silent about
interest, the person in whose favour the award is made will be entitled to
interest at 18% per annum on the principal amount awarded, from the date of
award till date of payment. The Hon’ble Supreme Court has reiterated in Indian Railway Construction Company Ltd.
V. M/s National Buildings
Construction Corporation Ltd[10] , that unless there is a specific bar under the contract, it is
always open for the Arbitrator to award pendent-lite interest in view of
Section 31(7) (a) of the Arbitration and Conciliation Act 1996.
a. Power of executing Court in
determining the rate of interest
Where
a foreign arbitral award is silent on the post- award interest, the question is
whether Section 31(7) (b) of the Act 1996 applies. Right to claim interest may
vary from country to country, where the award is sought to be enforced. There
is prohibition of charging interest in Muslim countries where Shariat Law
applies, the award of interest will be unenforceable due to public policy. In the
question as to whether the Court which is enforcing the award is empowered to
direct payment of post award interest, when the award does not contemplate the
payment of any interest is discussed in M/s
International Nut Alliance LLC v. M/s John’s Cashew C[11], where the Hon’ble High
Court of Kerala made the payment
of the award amount final and found there is no requirement of further orders
in the execution petition. In Jindal exports Ltd v. Furest day Lawson Ltd[12],
Court pointed out
that the executing court can’t go behind the award and held that court does not
have the power to award interest since it is only enforcing a foreign award. A
similar and detailed observation has been made out in the constitutional bench of
Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc[13]('BALCO'
for short), wherein it was held that Part 1 & Part II are exclusive of each
other and hence Part I can’t be made applicable to foreign seated arbitration
even if the agreed upon the same. In
TransAsia Private Capital v. Gaurav Dawan[14],
the
Delhi High Court has rightly clarified that the Courts in India cannot
determine the rights of party to the dispute direct application of the Indian
law unless the parties failed to prove the applicability of foreign law to that
effect. Hence section 31 (7) (b) can’t be indirectly applied to the proceedings under
Part II of the Act 1996 under the guise that is lexi fori when it comes to the
interest in the arbitral award. The available remedy would be that the party
who has been aggrieved by the foreign I award with respect to rate of interest/ non-granting
of interest may challenge the same before the competent forum/authority within
the period of limitation. From the above judgments and law of land, executing
Court has no role in granting interest in the award that has been exclusively covered
under Part II of the Act.
Conditions
when the execution of foreign award may be refused
A
foreign award cannot be set aside by an enforcement Court in India. Executing
Court can only refuse to enforce the same upon the grounds contemplated under
Sec.48 of the Arbitration and Conciliation Act. Enforcement of foreign award
may be refused, at the request of the party against whom it is invoked, only if
the party furnishes the proof that it cannot enforced by reason of operation of
law, terms of the agreement, decision of Arbitrator/ arbitral authority.\
a.
Operation of law.
Foreign
arbitral award can be refused to be enforced under operation of law of the
executing Court where: the parties to the agreement is incapable under the law
applicable to them, the agreement is invalid under the law applicable to them, if
the party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or was
otherwise unable to present his case, award has been set aside/
suspended by a competent authority of the country under the law, that award has
been made, enforcement of the award contrary to public policy of India, the award deals with a difference not
contemplated by or not falling within the terms of the submission to
arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration.
b.
Terms of the agreement
Where
the composition of the arbitral authority was not in accordance with the
agreement of the parties, arbitral procedure not in accordance with the
agreement of the parties.
c.
Decision of Arbitrator/ arbitral authority
Where
the award contrary to or not falling within the terms of submission to
arbitration, decision on matters beyond the scope of submission to arbitration.
Exception:
If the
decision on matters submitted to arbitration is separable from those not so
submitted, that part of the award which contains decision on matters that has
submitted to arbitration may be enforced. In Avitel post studioz limited & Ors. v. HSBC pi holdings
(mauritius) limited [15] Court
observed that there can be no difficulty in holding that the most basic notions
of morality and justice under the concept of ‘public policy’ would include
bias. Refusal of enforcement of foreign award should only be in a rare case
where, non- adherence to International Standards is clearly demonstrable. In Shri Lal Mahal Ltd. v. Progetto Grano Spa[16],
the Supreme Court held that the wider meaning given to ‘public policy of India’
in the domestic sphere under Section 34(2)(b)(ii) would not apply where
objection is raised to the enforcement of the Award under Section 48(2)(b) of
the Indian Arbitration Act. This would indicate that the grounds for resisting
enforcement of a foreign award are much narrower than the grounds available for
challenging a domestic award under Section 34 of the Indian Arbitration Act.
Setting aside of
foreign arbitral award
Section
34 of the Arbitration and Conciliation Act 1996 deals with appeal against
arbitral award passed by the Arbitral tribunal. Appeal under Section 34 of the Indian Act is not
maintainable against the foreign award.
Conclusion
Court
of India has arrived to the conclusion in catena of judgments
with respect to the power of the Executing Court in enforcing foreign arbitral
award through narrow construction of the Act. Where the rate of interest has
not been determined between the parties of foreign arbitral award Executing
Court has neither power to grant the interest nor determine the rights of
parties. Indubitably, a
foreign arbitral award cannot be set aside by an enforcement Court in India. In
fact, executing Court can refuse to enforce the foreign arbitral award under
Section 48 of the Arbitration and Conciliation Act and the same must be
construed narrowly. Under
Section 47 of the Act, the foreign award shall be deemed to be a decree of that
Court. The Act does not granted an
exclusive power to executing Courts with respect to execution of foreign award.
[1] Arbitration and Conciliation Act,
1996, 44, No. 26, Acts of Parliament, 1996(India)
[2] Bharat Aluminium Co. v. Kaiser
Aluminium Technical Service, Inc, (2012) 9 SCC 552
[3] Bank of Baroda v. Kotak Mahindra
Bank, AIRONLINE 2020 SUPREMECOURT 1474
[4] Government of India v. Vedanta
& Ors, AIRONLINE 2020 SC 744
[5] Ibid
[6] Arbitration and Conciliation Act,1996, 31(7) (a) & (b), No.
26, Acts of Parliament, 1996(India)
[7] Arbitration and Conciliation Act,
1996, 31(7)(b), No. 26, Acts of Parliament, 1996(India)
[8] Raveechee and Company v. Union of
India, (2018) 7 SCC 664
[9] State of Haryana v. S.L Arora, (2010) 3 SCC 690
[10] Indian Railway Construction Company Ltd v. M/s
National Buildings Construction Corporation Ltd, 2023, liveLaw (SC) 210
[11] M/s International Nut Alliance LLC v. M/s
John’s Cashew C, 2024:KER:31904
[12] Jindal exports Ltd v. Furest day Lawson
Ltd, MANU/DE/3204/2009
[13] Bharat Aluminium Co. v. Kaiser Aluminium Technical
Service, Inc, (2012) 9 SCC 552
[14] TransAsia Private Capital v. Gaurav Dawan,
2023:DHC:2336
[15] Avitel post studioz limited &
Ors. v. HSBC pi holdings (mauritius) limited AIRONLINE
2020 SC 691
[16] Shri Lal Mahal Ltd v. Progetto
Grano Spa, AIRONLINE 2013 SC 191