May 1st, 2021

The Issue of Enforcement of an Arbitral Award between Two Domestic Parties in a Foreign Seated Arbitration

In India, several High courts have taken such arbitral clauses and have held that the domestic parties are prohibited from agreeing upon the exclusion of Part Ⅰ of the Arbitration and Conciliation Act, 1996. These courts have held that the arbitrations which are conducted within the territory of India shall necessarily fall under the ambit of the Indian Law and shall be governed by the same.^[1] These courts have placed their reliance on the dictum of the Supreme Court in the matter of Bhatia International v. Bulk Trading S.A and Another (hereinafter referred to as “Bhatia”)^[2] which was further overruled by a larger bench of the Supreme Court in Bharat Aluminum Co. v. Kaiser Aluminum Technical Services Inc. (hereinafter referred to as “BALCO”).^[3]

In TDM Infrastructure Private Limited v. UE Development India Private Limited (hereinafter referred to as “TDM”), the Supreme Court of India, while considering the application under Section 11 of the Act, held that an agreement which has been entered into by two Indian Parties shall not be considered as international commercial agreement.^[4] However, while considering the judgment delivered by  the Supreme Court of India in the matter of State of West Bengal v. Associated Contractors, the judgment delivered in the case of TDM shall not hold any precedential value.^[5] Hence, the subsequent reliance of various courts on the judgment of TDM shall not be of much relevance.^[6]

The Supreme Court of India in the case of Atlas Export Industries v. Kotak & Co. (hereinafter referred to as “Atlas”), has clearly held that agreements wherein two Indian parties choose a foreign seat of arbitration shall not be considered in violation of public policy in India as it would be applicable for qualification as an exemption under Section 28 of the Indian Contract Act, 1872.^[7]

The critics generally argue that the judgment in Atlas is delivered under the old regime, prior to the enactment of the Act. However, it is pertinent to note that, even in that era, enforcement of the Foreign Awards was governed by the Foreign Awards (Recognition and Enforcement) Act of 1961 (hereinafter referred to as “Foreign Awards Act, 1961”) and the Arbitration (Protocol and Convention) Act of 1937 (hereinafter referred to as “Foreign Awards Act, 1937”) which incorporated the Articles of the New York Convention and the Geneva Convention respectively. The Act not only amends the existing law but makes an attempt to consolidate it as well. The statutes which dealt with domestic arbitration as well the enforcement of the foreign awards have been consolidated into one statute. If a comparison is drawn between the Foreign Awards Act, 1961 and the Foreign Awards Act, 1937 with the provisions of Part Ⅱ of the Act, and the Geneva Convention and the New York Convention, it could be explicitly stated that the Foreign Awards Act, 1937, Foreign Awards Act, 1961 and the provisions of the present Act have clearly incorporated the Geneva Convention and the New York Convention.^[8] Hence, it can be conclusively said that the law which was laid down by the Supreme Court of India in Atlas shall be considered as a good law while enforcing the foreign awards under the Act.^[9]

Most of the High Courts have upheld the validity of such arbitration agreements and, thus, brought it at par with international practices. This debate has finally come to an end as recently the Supreme Court of India, on 20^th April, 2021, held in the matter of PASL Wind Solutions Private Ltd v. GE Power Conversion India Private Limited that the selection of a foreign arbitration seat is permissible to two Indian parties. The Court has stated in the International Commercial Arbitration that, specifically concerning a place of arbitration outside India, the term “international commercial arbitration” is used to connote that the arbitral award is to be rendered in that place but is to be enforced and recognized following the provisions of Part II of the Arbitration Act.

The context of such arbitration in India is, therefore, different from that of “the definition of international commercial arbitration” as referred to in Section 2 (1) (f). Section 2 (1) (f) portrays that international commercial arbitration is party-centric in the sense that at least one of the parties to the arbitration agreement must be a person who is a national of or a habitual resident in any country other than India.

Whereas on the other hand, Section 44 of the Arbitration Act portrays international commercial arbitration as place-centric when the arbitration is seated outside of India. The phrase only signifies that it is arbitration between two parties in an area outside India where New York Convention applies to that region, rendering it an “international” commercial arbitration. The Court drew this conclusion that since Section 44 is neutral irrespective of the nationality of the parties and with regard to where the award is made, it cannot be accepted that, where two Indian nationals have their disputes in a country outside India solved, Section 44 itself should be amended.

The deck was now cleared for the purpose of exercising party autonomy in the arbitration, which was given the highest sanctity. In the words of the Court, party autonomy is the ‘brooding and guiding spirit’ of arbitration. The Court made the observation while referring to the decision in Bharat Aluminum v. Kaiser Aluminum Technical Services Inc.^[10] The Court decided that, since both parties were Indian citizens, nothing stands in the way of party autonomy to designate an arbitral office outside India.

Restriction on Judicial Intervention in Foreign Awards: BALCO Judgement

The Supreme Court of India, while considering the issue of grant of interim measures of protection under the Act, in relation to foreign award which arose out of the arbitration seated in the city of Paris, France, in its judgment in Bhatia, held that the general provisions of Part I would also be applicable to overseas arbitrations. This would not apply if the parties expressly or impliedly exclude it.^[11]

This resulted in a scenario where the Indian courts, depending on the circumstances of the case, could also have jurisdiction in the foreign seated arbitration under Part I of the Act.^[12] A simple selection of a foreign seat was not enough. This led to confusion and an absence of consistency amongst the parties concerning the applicability of the law to foreign awards. The risk that even a foreign arbitral award could be subject to the provisions of Part I of the Act was always present. The Supreme Court of India resolved this problem in 2012, in the BALCO judgment, wherein it was held that a simple selection of a foreign seat would automatically oust the jurisdiction of the Indian courts under Part I. This also meant that the choice of a foreign seat would also stop the parties from enjoying the provisions of Section 9 under Part I, which provided the provisions for interim relief. The BALCO judgment was only applicable to the contracts which were entered into by the parties after the date of the judgment in 2012. This helped in limiting the impact of the judgment.^[13]

Conclusion

In India, there has been a progressive reception towards arbitration (including enforcement of awards) due to factors such as ever-evolving legislative developments and judicial developments. There has been no notable reduction in abrasion or corrosion of the arbitral awards due to the minimum intervention of the court in the arbitration proceedings. The courts of India have become appreciative of the dictum of the arbitrators as rendered in the respective awards and they avoid sitting in an appeal over the arbitration awards. It is very important that the courts do not have much intervention in the arbitration proceedings so that it becomes a successful alternate dispute resolution mechanism and saves a lot of time and energy of the parties and the courts which are already burdened with a lot of cases which will take many years to conclude. If there is a lot of intervention from the courts of the country in the arbitration proceedings, then it will fail to become an alternate dispute resolution mechanism, and the arbitration proceedings and litigation proceedings will have no difference between them. Indian judiciary has stood against the attacks on arbitration by the critiques as being interfering, tedious, and inconsistent. The judiciary of the country has been successful in breaking the anti-arbitration ecosystem in India.