The Arbitration and Conciliation Act, 1996, governs the enforcement of foreign arbitral awards. The act essentially consolidated laws relating to arbitration and the enforcement of awards that resulted from the accession to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the United Nations Commission on International Trade Law (UNCITRAL) Model Law and Rules. These are in part II of the act.
In the recent case of Vijay Karia v Prysmian Cavi E Sistemi SRL, the Supreme Court heard an appeal from the high court which had dismissed an application challenging the enforcement of awards made by the arbitrator in London. The appellants challenged the enforcement of the award on the grounds of public policy, and being denied a proper opportunity to present their case.
In considering the use of the operative word, may, in section 48 of the act, the Supreme Court confirmed that the courts can exercise discretion only in the second challenge, that is when there are grounds which affect the party interest alone.
This principle was also upheld by the Delhi High Court in Cruz City 1 Mauritius Holdings v Unitech Limited, “Whilst this court accepts the contention that the use of the word “may” as used in the context of section 48 of the act does not confer an absolute discretion on the courts, it is not possible to accept that the word ‘may’ should be read as ‘shall’ and the court is compelled to refuse enforcement, if any of the grounds under section 48 are established.
First of all, the plain meaning of the word ‘may’ is not ‘shall’; it is used to imply discretion and connotes an option as opposed to compulsion.”
As to the use of the grounds of public policy to refuse the enforcement of awards, the Supreme Court confirmed that it is to be applied narrowly. The court emphasized the approach of the New York Convention by holding that: “The US cases show that given the ‘pro-enforcement bias’ of the New York Convention, which has been adopted in section 48 of the Arbitration Act, 1996, – the burden of proof on parties seeking enforcement has now been placed on parties objecting to enforcement and not the other way around; in the guise of public policy of the country involved, foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties; the challenge procedure in the primary jurisdiction gives more leeway to courts to interfere with an award than the narrow restrictive grounds contained in the New York Convention when a foreign award’s enforcement is resisted.”
Upholding previous judgments and the provisions of the New York Convention itself, the court concluded that the defence of public policy under section 7(1)(b)(ii) should be construed narrowly and held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy only if such enforcement would be contrary to the fundamental policy of Indian law; the interests of India, or justice and morality.
The Supreme Court considered the challenge to the enforcement of an award on the grounds that a party was not able to present its case, also known as the natural justice ground. This can be further divided into two sub-categories: where the party is prevented from presenting its case, and where the arbitral tribunal does not accept the case set up by a party. Citing Glencore International AG v Dalmia Cement (Bharat) Limited the court observed that the latter category does not give rise to any grounds mentioned under section 48(1)(b) of the act, even if the decision of the tribunal is erroneous. The court cited case law from various jurisdictions and observed that as the object of section 48 is to enforce foreign awards subject to certain conditions, the expression that was otherwise unable to present its case, in section 48(1)(b) should be read in a narrow sense.
The requirement of a fair hearing would apply only at the hearing stage and not after the award had been rendered. The court held that it is not possible to hold that a failure to consider a material issue would fall within the provisions of section 48(1)(b).
Thus, it can be seen that courts have continued to support the pro-enforcement approach of the New York Convention and have emphasized the narrow interpretation of the grounds of refusal as provided under section 48 of the act.
This article was originally published by Indian Business Law Journal: