INTRODUCTION
The “Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958”, aka “New York Convention”[1], which India ratified in 1960, is one of the main instruments in International Arbitration. The “New York Convention” provides the framework for “enforcing foreign arbitral awards” globally. It mandates signatory countries “to recognise and enforce arbitral awards made in other signatory countries, subject to limited grounds for refusal, such as public policy and procedural irregularities”. The Convention seeks to popularise international arbitration as the method of choosing for the resolution of disputes through “guaranteeing the enforcement of awards across borders”. India’s commitment to the New York Convention is enshrined in its arbitration laws, specifically the “Arbitration and Conciliation Act, 1996 (ACA)”.
The ACA was brought into force to modernize India’s arbitration laws and align them with international standards. It was based on the “UNCITRAL Model Law on International Commercial Arbitration”. It is the governing act for both domestic and international arbitration in India. Part II, Chapter I (Sections 44 to 52) of the ACA governs the enforcement of foreign awards under the New York Convention, outlining specific requirements and grounds on which enforcement can be resisted.
THE ENFORCEMENT CONUNDRUM: WHY FOREIGN ARBITRAL AWARDS FACE ROADBLOCKS IN INDIA
One of the most controversial grounds for resisting enforcement under S48 of the ACA, which lays out the framework for “enforcement of foreign awards under the New York Convention”, is the public policy exception. Courts can refuse to enforce the award if they find that the award is “in conflict with the public policy of India”. However, the broad interpretation of the term “public policy” has led to widely inconsistent judicial decisions.
In the landmark case of “Renusagar Power Co. Ltd. v. General Electric Co.”[2], the Supreme Court examined whether the narrower interpretation of public policy, relevant in public international law, or the broader interpretation, typically applied in municipal law would apply in this case. It concluded that the narrower perspective would apply, “emphasizing that a mere violation of Indian law would not be sufficient to invoke the public policy exception”. The Court clarified that enforcement of an award would be “refused on public policy grounds” only if it contravenes the “fundamental principles of Indian law, undermines India’s interests, or offends morality”.
However, a decade later, in “ONGC Ltd. v. Saw Pipes Ltd”[3], the Supreme Court changed its stance and held that the phrase “public policy of India” should have a wider and not a narrower meaning. “The Court can set aside the award if it is (i) contrary to (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (ii) is patently illegal or (iii) is so unfair that it shocks the conscience of the court”. A liberal construction was applied to the purposive interpretation of a phrase not defined in the act.
This broadened scope of “public policy” has at times led to prolonged litigation and uncertainty in the enforceability of foreign awards.
Despite India’s pro-arbitration stance, procedural inefficiencies significantly hinder the enforcement process. Courts often delay enforcement by allowing challenges at various stages, causing the foreign award’s finality to be questioned repeatedly. The absence of a fixed timeline for enforcement proceedings prolongs uncertainty, making the process time-consuming and costly. This procedural inefficiency deters international investors and reduces India’s attractiveness as an “arbitration-friendly jurisdiction”.
This issue was brought up by Justice CS Dias of the Kerala High Court in 2023 when he criticised the delay in the execution of a foreign award from 2012 in the case of “M/S Peniel Cashew Company v M/S Ahcom Sarl”. The judge went on to say how this case was an example that “showcases the lacunae in this Act” referring to the ACA 1996, and called on the legislators and other stakeholders to address and rectify the shortfalls in the act[4].
Speaking at the “12th International Legal Forum of the Asia Pacific Region” organised by the Russian Supreme Court, Justice SK Kaul said that “Excessive judicial interference at the stage of enforcement of foreign awards should be avoided”[5]. He emphasized the “role of the judiciary in ensuring smooth dispute resolution in cases arising out cross-border disputes and Bilateral Investment Treaties (BITs)”.
Another major problem is the inconsistency in the judiciary’s stance on the enforcement provisions which often discourages foreign parties from engaging in arbitral proceedings with their Indian counterparts. The inconsistency primarily stems from varying interpretations by different courts on similar legal issues. For example, the scope of the expression “public policy” u/s 48 of the Act was further expanded in “Phulchand Exports Ltd. v. O.O.O. Patriot”[6], wherein the Supreme Court held that “expression ‘public policy’ u/s 34 and 48 of the Act are the same and added that a party could resist enforcement of a foreign award on grounds of ‘patent illegality’. Thus, it widened the scope of “public policy” u/s 48 of the Act and increased the chances of judicial intervention in international commercial arbitration”. But “Shri Lal Mahal Ltd. v. Progetto Grano Spa”[7], was an important step forward in the right direction towards “minimum judicial interference in arbitration process” and thereby “granting higher sanctity to foreign arbitral awards” by laying down “limited grounds under public policy” based on which courts can “refuse enforcement of foreign arbitral awards” u/s 48 of the Act. However, the decision of Phulchand was ultimately overruled in Shri Lal Mahal by the Hon’ble Supreme Court. This variation in judgments highlights the need for a coherent judicial approach.
However, the major problem is, that even when the judiciary is enforcing an award, the execution of it may take even longer[8]. As seen in the landmark 2018 case of the Delhi High Court in the matter of the erstwhile owners of “Ranbaxy Laboratories Limited and the Japanese multi-national pharmaceutical company, Daiichi Sankyo”, in which the court upheld the arbitral award passed in Singapore, Daichi is still struggling to execute and realise the award. The same goes for the situation of “Amazon.com NV Investment Holdings LLC (‘Amazon’) v. Future Retail Limited (‘FRL’)”[9] in which Amazon ultimately lost its investment in FRL, despite obtaining an emergency award from the Singapore International Arbitration Centre. In line with its pro-arbitration stance, the Supreme Court of India ruled the interim “award in favour of Amazon enforceable under Indian law”, which is quite intriguing. Nevertheless, amid the legal battles started by FRL in different venues like the “Competition Commission of India, the Delhi High Court, and the National Company Law Tribunal, along with the participation of regulators such as the Securities and Exchange Board of India”, the interim award became worthless.
THE WAY MOVING FORWARD
In a recent interview with Bar & Bench[10], Gaëtan Verhoosel commented how a few decisions like the DMRC vs DAMEPL[11], in which the Hon’ble Supreme Court decided to exercise its curative jurisdiction to set aside an award, have undermined confidence in India’s stance on arbitration. He went on to cite another reason why International Parties are generally discouraged from selecting India as the seat for the arbitration is the length of the arbitral procedures in India. So now the question arises, what exactly can be done to ensure the enforcement of the foreign awards and in general increase the confidence of parties to select India as a seat for arbitration?
Establishing specific timeframes for every step of legal action would greatly improve the effectiveness of the procedure. Introducing a cap on the time allowed for enforcing foreign arbitral awards, like the timeframes already in place for domestic awards, may help cut down on avoidable delays. These timelines would enhance predictability and give foreign investors more assurance in India’s legal system.
Arbitration cases can be complex and may require comprehension of global arbitration standards. Providing judges with education in arbitration law, especially in understanding international agreements such as the New York Convention can improve their capacity to manage such cases effectively. This training would guarantee uniformity and decrease the likelihood of excessive judicial interference in enforcing foreign awards.
India’s ability to enforce foreign arbitral awards is crucial for its international trade ties and economic development. Despite making progress in enhancing its arbitration system, India still faces several practical obstacles, especially concerning court interference, delays in proceedings and varied understanding of enforcement rules.
Dealing with these difficulties necessitates a mix of legal, court-related, and organizational changes designed to foster a favourable atmosphere for arbitration. India can improve its appeal as an arbitration-friendly jurisdiction by limiting public policy exceptions, creating specialized arbitration courts, defining clear deadlines, and supporting judge training. Adopting these changes will not just bring India in line with global arbitration norms but also enhance its standing in the worldwide economy, guaranteeing the fair, efficient, and consistent enforcement of foreign arbitral decisions.
Author(s) Name: Amritanshu Rath (National Law University, Odisha)
References:
[1]‘About New York Convention | New York Convention’ <https://www.newyorkconvention.org/about-nyc-org> accessed 9 February 2025.
[2] Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644 (India).
[3] ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705.
[4]‘Delay to Execute Foreign Award Must Awaken Legislature to Plug Loopholes in Arbitration Act: Kerala High Court’ <https://www.barandbench.com/news/decades-delay-execute-foreign-award-must-awaken-legislature-plug-loopholes-arbitration-act-kerala-high-court> accessed 9 February 2025.
[5]‘Excessive Judicial Interference at Stage of Enforcement of Foreign Awards Should Be Avoided: Justice SK Kaul’ <https://www.barandbench.com/news/supreme-court-justice-sanjay-kishan-kaul-judiciary-dispute-resolution-cross-border-mediation> accessed 9 February 2025.
[6] Phulchand Exports Ltd. v. O.O.O. Patriot, (2011) 10 SCC 300.
[7] Shri Lal Mahal Ltd. v. Progetto Grano Spa, (2014) 2 SCC 433.
[8] Priyanshu Upadhyay, ‘Is India the Promised Arbitration Hub or an Enforcement/Execution Nightmare?’ (Bar and Bench – Indian Legal news, 23 May 2024) <https://www.barandbench.com/columns/india-the-promised-arbitration-hub-or-an-enforcementexecution-nightmare> accessed 9 February 2025.
[9] Amazon.com NV Investment Holdings LLC (‘Amazon’) v. Future Retail Limited (‘FRL’), (2022) 1 SCC 209.
[10] Bar & Bench, ‘Supreme Court’s DMRC Decision Has Undermined Confidence: Gaëtan Verhoosel KC on India’s Arbitration Prospects’ (Bar and Bench – Indian Legal news, 31 July 2024) <https://www.barandbench.com/interviews/supreme-courts-dmrc-decision-has-undermined-confidence-gatan-verhoosel-kc> accessed 9 February 2025.
[11] Debayan Roy, Delhi Airport Metro: Win for DMRC as Supreme Court Sets Aside Arbitral Award in Favour of Anil Ambani Firm, BAR & BENCH
