Enforcement Of Arbitral Awards In India

The cardinal impetus for the parties to pursue arbitration in case any dispute arises between them is, firstly, to acquire the award if passed in their favour; and secondly, to prevent themselves from prolonged litigation. The decision given by the Arbitrator is enforceable and is legally binding. This decision is known as an ‘Arbitral Award’. However, mere obtaining the award does not mean that you can enforce it. The party, who obtained the award in their favour, has to approach the Hon’ble High Court to obtain a decree on its enforcement supported under Section 36 of The Arbitration and Conciliation (Amendment) Act 2015.

1. INTRODUCTION

Section 36 provides for direct enforcement of awards without having to get them converted into rule of the court. The provision states as follows:

Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court. By virtue of Section 34(1), recourse to the court against an arbitral award cannot be made beyond the period prescribed.

In a very celebrated judgment of ICDS Ltd. v. Mangala Builders (P) Ltd, the court said that by virtue of the provision in Section 36 the proper inquiry as to the jurisdiction for execution of award would be, which is the court having jurisdiction to decide the question forming the subject matter of the arbitration, if the same had been the subject matter of a suit.

There are two types of Arbitration Awards under the Act, namely:-

1.1. Domestic Award: As per the Arbitration and Conciliation Act, every award made under Part 1 of the Act is called a Domestic Award. In other words, when an award is made in the state where its enforcement is sought is called as domestic award.

1.2. Foreign Award: Foreign Arbitral Award is an award which is made in the territory of State other than the State, where the recognition and enforcement of the award is sought is a foreign award. This implies that an award which is made in a state other than the state where the award is sought to be enforced.

2. ENFORCEMENT OF DOMESTIC AWARDS

Unlike the Arbitration Act, 1940, no decree was required to be passed by a Court as under the new Act of 1996, the award itself is enforceable as a decree. The party, against who the award is being enforced, has a right to raise their objections so as to create grounds to set aside the award. Award must be a well-reasoned one and not opposed to public policy or any sought of patent illegality. With the amendment of new provisions under Section 14 and Section 17 of 1940 Act, the arbitrator is under a statutory obligation to state the reasons for any award that he passes. The reasons should demonstrate that there is logical and legal basis for their ultimate conclusions.

By virtue of Section 36, it is well established that where the time for making an application under section 34 for setting aside an arbitral award has expired, or such application has been refused, the award shall be enforced just as a decree of the court under the Code of Civil Procedure, 1908. Application for execution of award could not be dismissed on ground that decree had not been filed along with the execution application or that the award had not been made decree of Court. As per Section 36 arbitral award has to be enforced under CPC and in the same manner as if it were a decree of the Court.

In the case of Dirk India Private Limited v. Maharashtra State Electricity, it was laid down that ‘The enforceability of an award, in other words, is defined with reference to the failure of the other side to file an application for setting aside the award within the stipulated time limit or having filed such an application has failed to establish a case for setting aside the arbitral award.’

2.1. Limitation Period on Domestic Awards

According to Section 36(1), where, the time limit as mentioned in sub section (3) of Section 34 for application to set aside the award has expired, the award shall be enforced subject to sub section (2) of section 36, under CPC in the same manner as if it were a decree of the court. An application for setting aside award must be filed within a period of 90 days from the date of which award was passed by the tribunal. If it is not made within the stipulated time period, then the award shall be enforced without considering it under any ground for its setting aside. The Court may grant an extension period of 30 days apart from these 90 days on sufficient cause for considering the application to set aside the award.

It is a well settled position in a leading judgment of Union of India v. Popular Construction Co. as given by the Apex Court, that a domestic award becomes automatically enforceable as soon as the time period under Section 34 expires, it’s para 4 states that:

“Furthermore, section 34(1) itself provides that recourse to a court against an arbitral award may be made only by an application for setting aside such award “in accordance with” sub Section 2 and sub Section 3. Sub Section 2 relates to grounds for setting aside an award and is not relevant for our purposes. But an application filed beyond the period mentioned in Section 34, sub section (3) would not be an application “in accordance with” that sub section. Consequently by virtue of Section 34 (1), recourse to the court against an arbitral award cannot be made beyond the period prescribed. The importance of the period fixed under Section 34 is emphasized by the provisions of Section 36 which provide that “where the time for making an application to set aside the arbitral award under Section 34 has expired…….the award shall be enforced and the Code of Civil Procedure, 1908 in the same manner as if it were a decree of a court”.

This is a significant departure from the provisions of the Arbitration Act, 1940. Under the 1940 Act, after the time to set aside the award expired, the court was required to “proceed to pronounce judgment according to the award and upon (the judgment so pronounced a decree shall follow”. Now the consequence of the time expiring under Section 34 of the 1996 Act is that the award becomes immediately enforceable without any further act of the Court.

In the case of Balwant Singh & Sons v. Union of India, it was observed that the Statute casts an obligation on parties to ask arbitrator to file award in Court after receipt of notice , though no period of limitation has been provided to filing an award under the Arbitration Act. The said option had to be exercised by parties within a period of 90 days as contemplated by Article 178 of the Limitation Act. It could not be executed and made rule of Court.

Where an application for setting aside an award has been filed in the Court, the filing of this application does not itself render the award unenforceable. Sub- Section (2) of Section 36 clearly states that, just by filing an application under Section 34 for setting aside the arbitral award, it will not render the award unenforceable on its own. For an award to be held unenforceable, the Court has to grant a stay of operation of the arbitral award in accordance with the provisions of sub section (3) of the section.

In a recent judgment of BCCI v. Kochi Cricket Pvt. Ltd. the following observations were made:

Since it is clear that execution of a decree pertains to the realm of procedure, and that there is no substantive vested right in a judgment debtor to resist execution, Section 36, as substituted, would apply even to pending Section 34 applications on the date of commencement of the Amendment Act.

It was further held that:

The scheme of Section 26 is thus clear: that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to Court proceedings which have commenced on or after the Amendment Act came into force.

However, according to Section 36(3), the Court may grant a stay on operation as on which ever condition the Court deem fit and give a stay order in writing upon filing an application under sub section (2).

2.2. Jurisdiction of Foreign awards on Enforcement

The above enforcement of arbitration award has a very important aspect of Jurisdiction of the Courts enforcing the arbitration award. It has been held that the Court who can exercise power under Section 34, alone can entertain steps to execute arbitral awards.

After a detailed analysis above on Section 36, it is now clear that the major crux of this section says that a domestic award is enforceable in the same manner as a decree of a civil court under CPC until and unless the Court by reasons as deem fit sets aside the award.

In a leading judgment of I.C.S.D Ltd. v. Mangala Builders Pvt. Ltd., the courts have cleared the position of jurisdiction and stated that:

“This is also implied from the wordings of Section 36 itself. A right to enforce the award arises only after the period for setting aside the arbitral award under Section 34 has expired or such an application having been made is rejected. That is to say, the Court executing the decree has to satisfy itself, before entertaining the application for execution that, the period for setting aside the award has expired or such an application having been made has been refused. If that be so, inferentially, the Court that can exercise the power under Section 34 of the Act can alone entertain the steps to enforce the arbitral award. It means the “Court” as understood in Section 34 has alone the jurisdiction to entertain the enforcement of the arbitral award.

Regarding the determination of proper court having jurisdiction to entertain the petition the court can exercise powers under Section 34 can entertain steps to execute the arbitral award.

In a recent case of State Trading Corporation of India Ltd. v. Global Steel Holding Limited, it was observed and held that the High Court does not have jurisdiction to require the judgement debtor to appear and make a statement whether his properties are within the jurisdiction of that High Court. Merely because the judgment debtor is in possession in Delhi of the Share Certificates evidencing the shareholding of companies situated at Philippines, the Delhi High Court would have no jurisdiction to order attachment and sale of those shares. Court of Delhi had no jurisdiction to execute Award.

2.3. Position Pre- Amendment

The Arbitration and Conciliation Act, 1996 under Section 36, pertained to two scenarios where the award becomes enforceable:-

1. Where the time for making an application to set aside the arbitral award has expired.

In the scenario wherein, the time for making an application under section 34 for setting aside an award has expired, the award is rendered enforceable. ; or;

2. Where the application for setting aside the award has been refused for any reason sought by the Court, then the award is rendered enforceable.

Position of this Section before Amendment was restricted to the two scenarios as explained above. This primarily meant that, mere filing of an application under Section 34 was in itself enough to render the award unenforceable.

It is well established in the case of National Aluminum Co. Ltd. v. Pressteel& Fabrications (P) Ltd., that the proposition of law canvassed by a Petitioner seeking enforceability of an award, when an application is pending before the District Court, is not permissible in view of a decision rendered in this case. The Para 11 states that-

“…At one point of time, considering the award as a money decree, we were inclined to direct the party to deposit the awarded amount in the Court below so that the applicant can withdraw it, on such terms and conditions as the said court might permit it to do as an interim measure. But then we noticed from the mandatory language of Section 34 of the 1996 Act that an award, when challenged under Section 34 within the time stipulated therein, becomes unexecutable. There is no discretion left with the Court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible. On facts of this case, there being no exceptional situation which would compel us to ignore such statutory provision, and to use our jurisdiction under Article 142, we restrain ourselves from passing any such order, as prayed for by the applicant.”

In the aforesaid judgment, there is an automatic suspension of the execution of the award, once an application challenging the said award filed under Section 34 of the Act is pending. The amendment is also suggested but as stated hereinabove, especially in the judgment delivered by the Apex Court, the Court cannot recast, reframe and restructure the law on its own.

This interpretation of Section 36 made by the Apex Court, clearly suggests the fact that the amount awarded is not enforceable, once the application under Section 34 of the Act is pending before the District Court.

Discussions on enforceability of such arbitral awards have been raised many times even before the recent amendments, since it is pertinent to note that the infamous amendments have been done because of the challenges. If application is filed in executing Court, pursuant to rejection of some grounds in Section 34 proceedings, executing Court would have to discern as to whether that part of order of Court pertains to those claims which can be sustained on stand- alone basis. If executing court comes to such conclusion, undoubtedly, execution proceedings could proceed against that part of order subject, however, to intermission by an appellate Court. Although, an award given by Arbitrator and assuming status of a decree from Civil Court shall be un- executable when the relationship between tenant and owner does not exist but is only of licencee.

2.4. Position Post- Amendment

However, this position completely changed the enforcement of Domestic awards under Section 36. Now, the mere filing of an application for setting aside an award is not enough to render the award unenforceable. The Court has to grant a proper stay by giving effect to any appropriate ground for setting aside the award, only then can the award be rendered unenforceable.

The losing party in arbitration against whom an arbitral award has been made may apply to the Court for setting aside the award. The section provides that the application for setting aside must be passed within 3 months of receiving the award. As soon as the limitation period under Section 34 for setting aside the arbitral award expires, the arbitral award becomes enforceable under section 36. The Court may allow a condonation of delay by 30 days after the expiry of the limitation period on a sufficient cause.

2.4.1. SUFFICIENT CAUSE

When any party causes a delay in between any of its proceedings in the Court, they can take a plea by giving the court, a sufficient cause as to why the delay was caused. The term has been used under Section 5 of the Limitation Act.

It has been well established in the leading judgment of Ramlal, Motilal And Chhotelal v. Rewa Coalfields Ltd. that a party is called on by the court in order to give them an opportunity to present what caused their delay. The relevant paras from the judgment are:

The context seems to suggest that “within such period” means within the period which ends with the last day of limitation prescribed. In other words, in all cases falling under Section 5, what the party has to show is why he did not file an appeal on the last day of limitation prescribed. That may inevitably mean that the party will have to show sufficient cause not only for-not filing the appeal on the last day but to explain the delay made thereafter day by day. In other words, in showing sufficient cause for condoning the delay the party may be called upon to explain for the whole of the delay covered by the period between the last day prescribed for filing the appeal and the day on which the appeal is filed. To hold that the expression “within such period” means during such period would in our opinion be repugnant in the context. We would accordingly hold that the learned Judicial Commissioner was in error taking the view that the failure of the appellant to account for its non-diligence during the whole of the period of limitation prescribed for the appeal necessarily disqualified it from praying for the condonation of delay, even though the delay in question was only for one day; and that too was caused by the party’s illness.

3. ENFORCEMENT OF FOREIGN AWARDS

Before starting with the Enforcement of Foreign Arbitral Awards, we must first know what are Foreign Arbitral Awards and certain other concepts. Foreign Arbitral Award is an award which is made in the territory of State other than the State, where the recognition and enforcement of the award is sought is a foreign award. According to this, every award made in India is known as a domestic award and every award made in any state outside India is known as a foreign award.

According to Section 44 of the 1996 Act, a ”Foreign Award” means 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, made on or after the 11th day of October, 1960-

a) In pursuance of an agreement in writing for arbitration to which the convention set forth in First Schedule applies, and

b) In one of such territories as the Central Government, being satisfied that reciprocal provisions have been made, by notification in the Official Gazette, declare to be territories to which the said convention applies.

Part II deals with the enforcement of foreign awards. Enforcement of Foreign Awards in India :

Under the Arbitration and Conciliation (Amendment) Act, 2015, there are two avenues available for the enforcement of foreign awards in India, being the New York Convention and the Geneva Convention. It is pertinent to note that the procedure between both the convention are same and the only difference between them is that of the Countries signatory on each and the sections in the 1996 Act.

• New York Convention Awards

As mentioned earlier, Part II deals with the enforcement of foreign awards in India. Section 44 of Part II of the Act defines foreign awards that are made in countries that are notified by the Central Govt. to which the New York Convention applies. The Act lays down the procedure for its enforcement in India under which the New York Convention applies. The Act is, however, silent upon the enforcement of foreign awards that are made in countries to which the New York Convention does not apply.

• Geneva Convention Awards

Section 53-60 of the Arbitration and Conciliation Act deals with the enforcement of Geneva Convention Awards in India.

In Fuerst Day Lawson V. Jindal Exports, the Hon’ble Supreme court of India held that once it is determined that a foreign arbitral award is enforceable then it can straightaway it should be executed like a decree of the court and there is no requirement of making foreign award a rule of court.

It had been held in Balco v. Kaiser by the Hon’ble Supreme Court that Part II is applicable only to foreign awards and these cannot be set aside by Indian Laws.

3.1. CONDITIONS FOR ENFORCEMENT OF FOREIGN AWARDS

There are two pre-requisites for enforcement of foreign awards under the New York Convention/Geneva Convention. These are:

• The country must be a signatory to the New York Convention/ Geneva Convention.

• The award shall be made in the territory of another contracting state which is a reciprocating territory and notified as such by the Central Government.

As per the new Act, the application for enforcement of a foreign award will now only lie to High Court.

There are certain conditions, abiding which; a foreign award can be enforced in India under the Part II. These are the negative conditions to enforcement. Enforcement may get refused if:-

a) The subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

b) The enforcement of the award would be contrary to the public policy of India.

3.2. LANGUAGE OF THE AWARD

If the award is in a language other than the Country where it is to be enforced, the party seeking enforcement shall get it translated into English certified as correct by a diplomatic of a country to which the party belongs.

PROCEDURAL REQUIREMENTS FOR ENFORCEMENT OF FOREIGN AWARDS

There are certain procedural requirements in order to enforce foreign awards in India. According to Section 47 or Section 56 of 1996 Act, the winning party who applies for the enforcement of the foreign award in India, under the New York Convention should produce before the court:-

(1) The party applying for the enforcement of a foreign award shall, at the time of the application, produces before the court—

(a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;

(b) the original agreement for arbitration or a duly certified copy thereof; and

(c) such evidence as may be necessary to prove that the award is a foreign award.

(2) If the award or agreement to be produced under sub-section (1) is in a foreign language, the party seeking to enforce the award shall produce a translation into English certified as correct by a diplomatic or consular agent of the country to which that party belongs or certified as correct in such other manner as may be sufficient according to the law in force in India.

By virtue of Section 47 of the Act, any party applying for the enforcement of foreign award shall produce these evidences as a documentary proof of the validity of the award before the court along with the application for enforcement:

1) The original award or a copy thereof, duly authenticated in the manner required by the Law of the Country in which it was made

2) The original agreement for arbitration or a duly certified copy thereof;

3) Such evidence as may be necessary to prove that the award is a foreign award.

Every Domestic Award is enforceable as a decree of the Civil Court, whereas in case of Foreign Awards they become enforceable only when the Courts find that they are enforceable and they fulfill all the conditions as have been provided in Section 48 of the Act. Also when they find no reason to challenge the validity and enforceability of the award, the award becomes enforceable. The duty is on the party seeking enforcement to satisfy the Court regarding the award being enforceable.

Any party against whom a foreign award has been made to be enforced in India has to wait to challenge the award until it is proved by the party seeking to enforce it has proved to the Court that the award is validly enforceable and fulfils all the conditions to enforceability.

If the party against whom the foreign award has been made can prove to the court even two to three grounds as mentioned in Section 48, the Court shall to refuse the enforceability of the foreign award in India.

In a recent Judgment, the Indian court rejects objections to enforcement of a $300 million LCIA award. There have been leading judgments on the point of the arbitral award being against the public policy of India. Amendments made to the term ‘Public Policy’ under Section 34:-

• Explanation 1 to the term ‘public policy of India’ substituted in Section 34(2)(b): Arbitral award shall be treated as an award in conflict with the public policy of India only where making of the award was induced or affected by fraud or corruption or was in violation of provisions of confidentiality (section 75) or admissibility of evidence of conciliation proceedings in other proceedings (section 81); or is in contravention with the fundamental policy of Indian law; or it is in conflict with the most basic notions of morality or justice.

• Explanation 2 inserted in Section 34(2)(b): The test as to whether the award is in contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

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