Arbitration and Conciliation Act, 1996 – ss.47 and 49 – Foreign award – Limitation for filing enforcement/execution petition for enforcement of a foreign award – Held: Period of limitation for filing a petition for enforcement of a foreign award u/ss.47 and 49, would be governed by Art.137 of the Limitation Act, which prescribes a period of three years from when the right to apply accrues – Limitation Act, 1963 – Art. 137.
Arbitration and Conciliation Act, 1996 – ss. 44, 46, 47 and
48 – Scheme of the Act for enforcement of New York Convention awards – Held: Part II Chapter 1 of the Act, pertains to enforcement of New York Convention awards – The enforcement Court cannot set aside a foreign award, even if the conditions u/s.48 are made out – Power to set aside a foreign award vests only with the court at the seat of arbitration, since supervisory or primary jurisdiction is exercised by the curial courts at the seat of arbitration –The enforcement court is not to correct the errors in the award u/s.48, or undertake a review on the merits of the award, but is conferred with the limited power to “refuse” enforcement, if the grounds are made out – If the Court is satisfied that the application u/s.48 is without merit, and the foreign award is found to be enforceable, then u/s.49, the award shall be deemed to be a decree of “that Court” – Limited purpose of the legal fiction is enforcement of the foreign award – New York Convention on the Recognition and Enforcement of Foreign Awards, 1958 – Arts. IV & V.
Arbitration – Foreign award – Limitation for enforcement /execution of a foreign award – Lex fori – Held: The issue of limitation for enforcement of foreign awards being procedural in nature, is subject to the lex fori i.e. the law of the forum (State) where the foreign award is sought to be enforced. Arbitration – Arbitral award – Foreign award – Limitation period for filing the enforcement / execution petition for enforcement of a foreign award in India – Held: Would be governed by Indian law – The Indian Arbitration Act, 1996 does not specify any period of limitation for filing an application for enforcement / execution of a foreign award – s.43 however provides that the Limitation Act, 1963 shall apply to arbitrations, as it applies to proceedings in court – Arbitration and Conciliation Act, 1996 – s.43 – Limitation Act, 1963.
Arbitration and Conciliation Act, 1996 – s.36 – Award in arbitral proceeding – Domestic award – Statutory fiction created u/s.36 for limited purpose of enforcement of a ‘domestic award’ as a decree of the court – Held: By deeming fiction, a domestic award is deemed to be a decree of the court, even though it is as such not a decree passed by a civil court – The deeming fiction is restricted to treat the award as a decree of the court for the purposes of execution, even though it is, as a matter of fact, only an award in an arbitral proceeding.
Arbitration – Foreign award – Held: Foreign awards are not decrees of an Indian civil court – By a legal fiction, s.49 provides that a foreign award, after it is granted recognition and enforcement u/s.48, would be deemed to be a decree of “that Court” for the limited purpose of enforcement – The phrase “that Court” refers to the Court which has adjudicated upon the petition filed u/ss.47 and 49 for enforcement of the foreign award – Art.136 of the Limitation Act would not be applicable for the enforcement /execution of a foreign award, since it is not a decree of a civil court in India – Limitation Act, 1963 – Art. 136 – Arbitration and Conciliation Act, 1996 – ss.47, 48 and 49 – Legal Fiction. Arbitration and Conciliation Act, 1996 – Foreign award – Applicable law at the enforcement stage – Held: Enforcement court does not sit in appeal over the findings of the seat court – Enforcement of the award is a subsequent and distinct proceeding from the setting aside proceedings at the seat – The enforcement court would independently determine the issue of recognition and enforceability of the foreign award in India, in accordance with the provisions of Chapter 1 Part II of the Indian Arbitration Act, 1996 – On facts, the Malaysian Courts being the seat courts were justified in applying the Malaysian Act to the public policy challenge raised by the Government of India – However, merely because the Malaysian Courts upheld the award in question, it would not be an impediment for the Indian courts to examine whether the award was opposed to the public policy of India u/s.48 of the Indian Arbitration Act, 1996 – The enforcement court would examine the challenge to the award in accordance with the grounds available u/s.48 of the Act, without being constrained by the findings of the Malaysian Courts – If the award is found to be violative of the public policy of India, it would not be enforced by the Indian courts – The enforcement court would however not second-guess or review the correctness of the judgment of the Seat Courts, while deciding the challenge to the award.
Arbitration and Conciliation Act, 1996 – s.48 – Enforcement of foreign awards – Public policy defence for refusing enforcement u/s.48 of the Act – s.48 was amended by Act 3 of 2016 – Effect of, whether retrospective or prospective – Held: By this amendment, the public policy ground was given a narrow and specific construction by statute, by the insertion of two Explanations – The amendments made to s.48 by the 2016 Amendment Act are substantive amendments which were incorporated to make the definition of “public policy” narrow by statute – The two Explanations in s.48 begin with the words “For the avoidance of any doubt.” – However, since the amendments introduced specific criteria for the first time, it must be considered to be prospective, irrespective of the usage of the phrase “for the removal of doubts.”
Arbitration – Foreign Award – Enforcement of – Limits of judicial intervention on grounds of public policy of the enforcement State – Plea that the award in question may not be enforced, since it is contrary to the basic notions of justice – Held: On facts, not tenable, for two reasons – Firstly, the Appellants did not make out a case of violation of procedural due process in the conduct of the arbitral proceedings – Requirement of procedural fairness constitutes a fundamental basis for the integrity of the arbitral process – Fair and equal treatment of the parties is a non-derogable and mandatory provision, on which the entire edifice of the alternate dispute resolution mechanism is based – In the present case, no such violation was alleged – Secondly, the Appellants did not make out as to how the award was in conflict with the basic notions of justice, or in violation of the substantive public policy of India. Legal fiction – Object of – Held: Legal fictions are created only for some definite purpose – A legal fiction is to be limited to the purpose for which it was created, and it would not be legitimate to travel beyond the scope of that purpose, and read into the provision, any other purpose how so attractive it may be. Dismissing the appeal, the Court
HELD: Limitation for filing an enforcement/execution petition of a foreign award under Section 47 of the Arbitration and Conciliation Act, 1996
1.1. The issue of limitation for enforcement of foreign awards being procedural in nature, is subject to the lex fori i.e. the law of the forum (State) where the foreign award is sought to be enforced. Article III of the New York Convention on the Recognition and Enforcement of Foreign Awards, 1958 states that recognition and enforcement of arbitral awards should be done in accordance with the rules of procedure of the State where the award was to be enforced. The time limit may be specifically provided in the national legislation for recognition or enforcement of Convention awards, or it may be a general rule applicable to court proceedings. The limitation period for filing the enforcement / execution petition for enforcement of a foreign award in India, would be governed by Indian law. The Indian Arbitration Act, 1996 does not specify any period of limitation for filing an application for enforcement / execution of a foreign award. Section
43 however provides that the Limitation Act, 1963 shall apply to arbitrations, as it applies to proceedings in court. The Limitation Act, 1963 does not contain any specific provision for enforcement of a foreign award. Articles 136 and 137 fall in the Third Division of the Schedule to the Limitation Act. Article 136 provides that the period of limitation for the execution of any decree or order of a “civil court” is twelve years from the date when the decree or order becomes enforceable. Article 137 is the residuary provision in the Limitation Act which provides that the period of limitation for any application where no period of limitation is provided in the Act, would be three years from “when the right to apply accrues”. [Part A, Para VII (ii), (iii), (iv), (v) and (vi)] [51-B-C; 52-A-G]
1.2. Section 36 of the Arbitration and Conciliation Act, 1996 creates a statutory fiction for the limited purpose of enforcement of a ‘domestic award’ as a decree of the court, even though it is otherwise an award in an arbitral proceeding. By this deeming fiction, a domestic award is deemed to be a decree of the court, even though it is as such not a decree passed by a civil court. The arbitral tribunal cannot be considered to be a ‘court’, and the arbitral proceedings are not civil proceedings. The deeming fiction is restricted to treat the award as a decree of the court for the purposes of execution, even though it is, as a matter of fact, only an award in an arbitral proceeding. [Part A, Para VII (vii)] [53-D-F]
1.3. The Limitation Act was framed keeping in view the suits, appeals and applications to be filed in Indian courts. Wherever the need was felt to deal with an application/petition filed outside India, the Limitation Act specifically provided a time period for that situation. The legislature has omitted reference to “foreign decrees” under Article 136 of the Limitation Act. The intention of the legislature was to confine Article 136 to the decrees of a civil court in India. The application for execution of a foreign decree would be an application not covered under any other Article of the Limitation Act, and would be covered by Article 137 of the Limitation Act. Foreign awards are not decrees of an Indian civil court. By a legal fiction, Section 49 provides that a foreign award, after it is granted recognition and enforcement under Section 48, would be deemed to be a decree of “that Court” for the limited purpose of enforcement. The phrase “that Court” refers to the Court which has adjudicated upon the petition filed under Sections 47 and 49 for enforcement of the foreign award. Article 136 of the Limitation Act would not be applicable for the enforcement / execution of a foreign award, since it is not a decree of a civil court in India. The enforcement of a foreign award as a deemed decree of the concerned High Court [as per the amended Explanation to Section 47 by Act 3 of 2016 confers exclusive jurisdiction on the High Court for execution of foreign awards] would be covered by the residuary provision i.e. Article 137 of the Limitation Act. [Part A, Para VII (ix), (x) and (xi)][55-E-H; 56-A-C; 60-C-E]
1.4. The period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49, would be governed by Article 137 of the Limitation Act, 1963 which prescribes a period of three years from when the right to apply accrues. The application under Sections 47 and 49 for enforcement of the foreign award, is a substantive petition filed under the Arbitration Act, 1996. It is a well-settled position that the Arbitration Act is a self-contained code. The application under Section 47 is not an application filed under any of the provisions of Order XXI of the CPC, 1908. The application is filed before the appropriate High Court for enforcement, which would take recourse to the provisions of Order XXI of the CPC only for the purposes of execution of the foreign award as a deemed decree. The bar contained in Section 5, which excludes an application filed under any of the provisions of Order XXI of the CPC, would not be applicable to a substantive petition filed under the Arbitration Act, 1996. Consequently, a party may file an application under Section 5 for condonation of delay, if required in the facts and circumstances of the case. [Part A, Para VII (xiv) and (xv)][57F-H; 58-A-C] Scheme of the 1996 Act for enforcement of New York Convention awards
2.1. Part II Chapter 1 of the Arbitration and Conciliation Act, 1996 pertains to the enforcement of New York Convention awards. Under the 1996 Act, there is no requirement for the foreign award to be filed before the seat court, and obtain a decree thereon, after which it becomes enforceable as a foreign decree. This was referred to as the “double exequatur” which was a requirement under the Geneva Convention, 1927 and was done away with by the New York Convention, which superseded it. There is a paradigm shift under the 1996 Act. Under the 1996 Act, a party may apply for recognition and enforcement of a foreign award, after it is passed by the arbitral tribunal. The applicant is not required to obtain leave from the court of the seat in which, or under the laws of which, the award was made. [Part B, Para (ii)(a)][60-F-H; 61-A-C]
2.2. Section 48 replicates Article V of the New York Convention, and sets out the limited conditions on which the enforcement of a foreign award may be refused. Sub-sections (1) and (2) of Sections 48 contain seven grounds for refusal to enforce a foreign award. Sub-section (1) contains five grounds which may be raised by the losing party for refusal of enforcement of the foreign award, while sub-section (2) contains two grounds which the court may ex officio invoke to refuse enforcement of the award, i.e. non-arbitrability of the subject-matter of the dispute under the laws of India; and second, the award is in conflict with the public policy of India. [Part B, Para (ii)(h)][66-A-C]
2.3. The enforcement Court cannot set aside a foreign award, even if the conditions under Section 48 are made out. The power to set aside a foreign award vests only with the court at the seat of arbitration, since the supervisory or primary jurisdiction is exercised by the curial courts at the seat of arbitration. The enforcement court may “refuse” enforcement of a foreign award, if the conditions contained in Section 48 are made out. This would be evident from the language of the Section itself, which provides that enforcement of a foreign award may be “refused” only if the applicant furnishes proof of any of the conditions contained in Section 48 of the Act. [Part B, Para (ii)(i)][66-D-F]
2.4. The opening words of Section 48 use permissive, rather than mandatory language, that enforcement “may be” refused.The use of the words “may be” indicate that even if the party against whom the award is passed, proves the existence of one or more grounds for refusal of enforcement, the court would retain a residual discretion to overrule the objections, if it finds that overall justice has been done between the parties, and may direct the enforcement of the award. This is generally done where the ground for refusal concerns a minor violation of the procedural rules applicable to the arbitration, or if the ground for refusal was not raised in the arbitration. A court may also take the view that the violation is not such as to prevent enforcement of the award in international relations. [Part B, Para (ii)(j)][66-G; 67-A-C]
2.5.The grounds for refusing enforcement of foreign awards contained in Section 48 are exhaustive, which is evident from the language of the Section, which provides that enforcement may be refused “only if”the applicant furnishes proof of any of the conditions contained in that provision. The enforcement court is not to correct the errors in the award under Section 48, or undertake a review on the merits of the award, but is conferred with the limited power to “refuse” enforcement, if the grounds are made out.If the Court is satisfied that the application under Section 48 is without merit, and the foreign award is found to be enforceable, then under Section 49, the award shall be deemed to be a decree of “that Court”. The limited purpose of the legal fiction is for the purpose of the enforcement of the foreign award. The concerned High Court would then enforce the award by taking recourse to the provisions of Order XXI of the CPC. [Part B, Para (ii)(k), (l) and (m)][67-D; 68-A-D]
Whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the foreign award?
3.1. The enforcement court does not sit in appeal over the findings of the seat court. The enforcement of the award is a subsequent and distinct proceeding from the setting aside proceedings at the seat. The enforcement court would independently determine the issue of recognition and enforceability of the foreign award in India, in accordance with the provisions of Chapter 1 Part II of the Indian Arbitration Act, 1996. [Part C, Discussion and Findings, Para (i)][77-D-E]
3.2. The courts having jurisdiction to annul or suspend a New York Convention award are the courts of the State where the award was made, or is determined to have been made i.e. at the seat of arbitration. The seat of the arbitration is a legal concept i.e. the juridical home of the arbitration. The legal “seat” must not be confused with a geographically convenient venue chosen to conduct some of the hearings in the arbitration. The courts at the seat of arbitration are referred to as the courts which exercise “supervisory” or “primary” jurisdiction over the award. The “laws under which the award was made” used in Article V (1)(e) of the New York Convention, is mirrored in Section 48(1)(e) of the Indian Arbitration Act, which refers to the country of the seat of the arbitration, and not the State whose laws govern the substantive contract. [Part C, Discussion and Findings, Para (ii)][77-E-G]
3.3. The courts before which the foreign award is brought for recognition and enforcement would exercise “secondary” or “enforcement” jurisdiction over the award, to determine the recognition and enforceability of the award in that jurisdiction. [Part C, Discussion and Findings, Para (iii)][79-B]
3.4. The governing law determines the substantive rights and obligations of the parties in the underlying commercial contract. The parties normally make a choice of the governing law of the substantive contract; in the absence of a choice of the governing law, it would be determined by the tribunal in accordance with the conflict of law rules, which are considered to be applicable. The law governing the arbitration agreement must be determined separately from the law applicable to the substantive contract. The arbitration agreement constitutes a separate and autonomous agreement, which would determine the validity and extent of the arbitration agreement; limits of party autonomy, the jurisdiction of the tribunal, etc. The curial law of the arbitration is determined by the seat of arbitration. In an international commercial arbitration, it is necessary that the conduct of the arbitral proceedings are connected with the law of the seat of arbitration, which would regulate the various aspects of the arbitral proceedings. The parties have the autonomy to determine the choice of law, which would govern the arbitral procedure, which is referred to as the lex arbitri, and is expressed in the choice of the seat of arbitration. The curial law governs the procedure of the arbitration, the commencement of the arbitration, appointment of arbitrator/s in exercise of the default power by the court, grant of provisional measures, collection of evidence, hearings, and challenge to the award. The courts at the seat of arbitration exercise supervisory or “primary” jurisdiction over the arbitral proceedings, except if the parties have made an express and effective choice of a different lex arbitri, in which event, the role of the courts at the seat will be limited to those matters which are specified to be internationally mandatory and of a non-derogable nature. The lex fori governs the proceedings for recognition and enforcement of the award in other jurisdictions. Article III of the New York Convention provides that the national courts apply their respective lex fori regarding limitation periods applicable for recognition and enforcement proceedings; the date from which the limitation period would commence, whether there is power to extend the period of limitation. The lex fori determines the court which is competent and has the jurisdiction to decide the issue of recognition and enforcement of the foreign award, and the legal remedies available to the parties for enforcement of the foreign award. [Part C, Discussion and Findings, Para (iv)][79-D-G; 80-A-F]
3.5. The Malaysian Courts being the seat courts were justified in applying the Malaysian Act to the public policy challenge raised by the Government of India. The enforcement court would, however, examine the challenge to the award in accordance with the grounds available under Section 48 of the Act, without being constrained by the findings of the Malaysian Courts. Merely because the Malaysian Courts have upheld the award, it would not be an impediment for the Indian courts to examine whether the award was opposed to the public policy of India under Section 48 of the Indian Arbitration Act, 1996. If the award is found to be violative of the public policy of India, it would not be enforced by the Indian courts. The enforcement court would however not second-guess or review the correctness of the judgment of the Seat Courts, while deciding the challenge to the award. [Part C, Discussion and Findings, Para (v)][80-F-G; 81-AB] Whether amendments made to Section 48 of the Arbitration and Conciliation Act, 1996, by Act 3 of 2016 have retrospective application?
4. This issue is required to be determined in accordance with the conditions laid down in Section 48 of the Arbitration and Conciliation Act, 1996. Section 48 was amended by Act 3 of 2016. By this amendment, the public policy ground was given a narrow and specific construction by statute, by the insertion of two Explanations. The amendments made to Section 48 by the 2016 Amendment Act are substantive amendments, which have been incorporated to make the definition of “public policy” narrow by statute. The two Explanations in Section 48 begin with the words “For the avoidance of any doubt.” It cannot, however, be presumed to be clarificatory and retrospective, since the substituted Explanation 1 has introduced new sub-clauses, which have brought about a material and substantive change in the section. A new Explanation 2 has been inserted which states that the test as to whether there is a contravention with the fundamental policy of Indian law, shall not entail a review on the merits of the dispute. Since the amendments have introduced specific criteria for the first time, it must be considered to be prospective, irrespective of the usage of the phrase “for the removal of doubts.” [Part D, Para (i), (vii), (ix)][81-F; 88-D; 89-C-G]
Whether the foreign award is in conflict with the Public Policy of India?
5.1. The International Council for Commercial Arbitration (ICCA) Guide to the Interpretation of the 1958 New York Convention : A Handbook for Judges (2011), states that while considering the grounds for refusal of a foreign award, the Court must be guided by the following principles (i) no review on merits;
(ii) narrow interpretation of the grounds for refusal; and (iii) limited discretionary power. The merits of the arbitral award are not open to review by the enforcement court, which lies within the domain of the seat courts. Accordingly, errors of judgment, are not a sufficient ground for refusing enforcement of a foreign award. [Part D, Para (xviii)][95-H; 96-A-B]
5.2. The Appellants have contended that the award may not be enforced, since it is contrary to the basic notions of justice. This submission cannot be accepted for the following reasons. Firstly, the Appellants have not made out a case of violation of procedural due process in the conduct of the arbitral proceedings. The requirement of procedural fairness constitutes a fundamental basis for the integrity of the arbitral process. Fair and equal treatment of the parties is a non-derogable and mandatory provision, on which the entire edifice of the alternate dispute resolution mechanism is based. In the present case, there is no such violation alleged. Secondly, the Appellants have not made out as to how the award is in conflict with the basic notions of justice, or in violation of the substantive public policy of India. [Part D, Para (xix) ][96-D-F]
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BCCI v. Kochi Cricket (P) Ltd. (2018) 6 SCC
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