INTRODUCTION

India is one of the original signatories of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards[1] (New York Convention) and maintains a pro-enforcement stance. Therefore, to meet the objective of providing a definitive resolution to the disputes between the parties, every foreign Arbitral Award (Award) has a ‘preclusive effect’ concerning its enforcement. The framework of the Arbitration & Conciliation Act, 1996[2] (Act) is based on the UNCITRAL Model Law and thus mandates the parties to adhere to the terms of an Award. However, there are circumstances where an Award Debtor is dissatisfied with the outcome of international arbitration and therefore takes the matter to the national court through litigation. To avoid the risk of re-litigation on grounds of new causes of action arising out of similar or identical facts, the countries that are parties to the New York Convention, including India, follow the principle of preclusion. This principle gives the Award a final and binding character, ensuring a pro-enforcement approach as long as the Award complies with India’s legal framework and public policy.

The principle of preclusion is not explicitly codified and has emerged mainly through jurisprudence[3]. It can also be associated with the theory of ‘Comity of Nations,’ which upholds that the decisions made by courts of other jurisdictions are not open for discussion. Currently, the scope of this doctrine is unclear and complex. However, in most common law jurisdictions, an award that either allows or rejects a party’s claims operates as a judgment for that party, and that party is bound by the terms of the award. Consequently, a party that has failed to secure its claims is ‘precluded’ from reasserting those claims in national courts. In order for the principle of preclusion to be applied[4], the court has to decide whether the issues that are re-litigated were litigated before in the previous case and whether they were significant to the prior judgment.

This article delves into India’s pro-enforcement stance, the application of the preclusion principle, issues with enforcement, and the need to strike a balance between international comity and domestic law.

INDIA’S PRO-ENFORCEMENT STANCE AND JUDICIAL CAUTION: ENSURING COMPLIANCE WITH SECTION 48 OF THE ACT

The language of Section 48[5] of the Act is also consistent with the ethos of the New York Convention, where the phrase “may be refused” suggests a preclusive effect. Section 48 provides that enforcement may be refused only under the circumstances mentioned therein. Therefore, an award will be denied enforcement in India only if the courts find that the challenge is valid and that the contents of the award fall within the bounds of Section 48. Further, it is also important to note that India maintains a pro-enforcement stance, as reflected in several court pronouncements. In Fuerst Day Lawson v. Jindal Exports Ltd.[6], the Hon’ble Supreme Court of India rejected the contention that there was a need to initiate two different proceedings before the enforcement of an award. The SC also pointed out that before moving towards execution, the courts should adhere to the provisions of Sections 47 to 49 of the Act. Therefore, the aspect of preclusion has been well established within the courts’ framework of analyzing the enforcement of awards in India.

In the case of Union of India v. Vedanta Ltd.[7], the Hon’ble Supreme Court of India has laid down caution to determine the enforceability of foreign awards. The Supreme Court observed that Article 136 of the Limitation Act[8] doesn’t apply to the enforcement or implementation of a foreign award because such awards are not recognized as decrees of the civil courts in India. Moreover, the Supreme Court also pointed out that Indian courts should not have any rigid rules regarding enforceability and should follow an approach that is pragmatic, flexible, and not formalistic. The procedural provisions as set out under sections 47 to 49 of the Act should not be construed to be rigid and the party seeking enforcement may be allowed to produce evidence during the proceedings.

A quantitative analysis shows that Indian courts rarely restrict the enforcement of foreign awards. In general, courts strive to grant enforcement to foreign awards unless the awards are contrary to Section 48 of the Act[9] or India’s public policy.

CHALLENGES TO ENFORCEMENT: DEPARTURES FROM PRECLUSION PRINCIPLE

In the few cases where the doctrine of preclusion has been held to be inapplicable, the courts have observed that the foreign award conflicts with India’s fundamental policy. An example in this regard is the case of National Agriculture Cooperative Marketing Federation of India v. Alimenta S.A.[10] In this case, NAFED was not able to perform certain export commitments as the Government of India failed to provide the required clearances on various grounds. As a result, the contract became void and unenforceable under the FOSFA agreement. After the above-mentioned dispute and an adverse award against NAFED, the Supreme Court declined to give effect to the award stating that it is in conflict with India’s fundamental policy. The Court emphasized that due to the explicit terms of the arbitration agreement, NAFED could not be held liable for damages since the contract had become void. The government refused NAFED a permit to export the item in the preceding year for the following season, which made it impossible for NAFED to supply the goods. The principles of natural justice play a significant role in determining the enforceability of foreign awards. In the case of Mitsui OSK Lines Ltd. (Japan) v. Orient Ship Agency Pvt. Ltd.[11], the Hon’ble Bombay High Court ruled against enforcing a foreign award. According to the court, the party against whom the award is to be enforced must be given an opportunity to explain why the enforcement should not be permitted. The court noted that a foreign award can be enforced only against those who are parties to the arbitration agreement and not against additional respondents who are neither parties to the arbitration agreement nor the award.

Another factor that can restrict enforcement is the inadequate appreciation or lack of proper appreciation of evidence by the international arbitral tribunal. For example, in Agritrade International Pvt. Ltd. v. National Agriculture Co-operative Marketing Federation of India[12], the Hon’ble Delhi High Court laid down that if the Arbitral Tribunal reaches a conclusion based on ‘surmises and conjectures’ and hence, it is not clear whether a firm contract existed between the parties, then the award can be successfully challenged and enforcement denied.

Furthermore, enforcement may also be restricted, where prima facie there is no arbitration agreement[13] between the parties, or where the material filed in support of the execution petition is insufficient to show[14] that the business of the parent company is also the business of the subsidiary company.

CONCLUSION

In light of India’s vision to become the hub for dispute resolution, it is crucial that principles such as “preclusion” are properly implemented. This ensures that various jurisdictions with different laws can work harmoniously in business and settlement of disputes. However, it is equally important that doctrines such as “preclusion” should not be applied in their entirety. The main idea here is that any judgment or finding of a foreign court that is against the paramount policy of Indian law should not be allowed to be enforced in India as it goes against the provisions of the 1996 Act.

[1] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, WIKIPEDIA (June 18, 2024, 08:41) https://en.wikipedia.org/wiki/Convention_on_the_Recognition_and_Enforcement_of_Foreign_Arbitral_Awards

[2] The Arbitration and Conciliation Act, 1996, No. 26, Acts of Parliament, 1996 (India).

[3] Stavros Brekoulakis, The Effect of an Arbitral Award and Third Parties in International Arbitration: Res Judicata Revisited, https://www.international-arbitration-attorney.com/wp-content/uploads/res_Judicata_and_third_parties-libreinternational_arbitration.pdf.

[4] GARY BORN, INTERNATIONAL COMMERICIAL ARBITRATION (Wolters Kluwer 2020).

[5] The Arbitration and Conciliation Act, 1996, §48, No. 26, Acts of Parliament, 1996 (India).

[6] M/S. Fuerst Day Lawson Ltd vs Jindal Exports Ltd, AIR 2001 SC 2293.

[7] Government of India vs Vedanta Limited, 1994 Supp (1) SCC 644.

[8] The Limitation Act, 1963, §136, No. 36, Acts of Parliament, 1963 (India).

[9] Ibid.

[10] National Agriculture Cooperative Marketing Federation of India v. Alimenta S.A., AIR 2020 SC 2681.

[11] Mitsui OSK Lines Ltd. (Japan) v. Orient Ship Agency Pvt. Ltd, 2020 SCC Online Bombay 217.

[12] Agritrade International Pvt. Ltd. v. National Agriculture Co-operative Marketing Federation of India, (2012) 2 AD 616.

[13] Marina World Shipping Corporation Ltd. vs Jindal Exports & Imports Private Ltd, 2012 Latest Caselaw 1335 Del.

[14] Navig8 Chemical Pools Inc vs Nu Tek India Limited, 2019 Latest Caselaw 3508 Del.