Introduction
Arbitration is an alternative dispute resolution mechanism. It is chosen for many factors, including saving time and costs or confidentiality. In an arbitration, the arbitral tribunal renders an arbitral award. This award is enforced through the court’s coercive mechanisms in the same way as a court decree is. In India, arbitration is governed by the Arbitration and Conciliation Act of 1996 (“Act”). As per Section 2 of the Act, arbitration is called international commercial arbitration when at least one of the parties is a foreign national company or the government. A domestic award is one that results from an arbitration proceeding held in India according to the provisions of Part 1 of the Act, or the award is made in the territory of India.[1] So, the enforcement and execution of domestic awards are governed by Part I of the Act. While Part II of the Act governs the same for foreign awards.
Grounds for refusal of enforcement of an award in India
Section 34 in Part I of the Act lists the grounds for setting aside a domestic arbitral award, whereas Section 48 in Part II lists the exceptions for refusing enforcement of a foreign arbitral award. In both sections, the word ‘may’ is used; that is, the court is not bound to render the award unenforceable. The court has the discretion to do so upon application for the same by a party to the arbitration.
Section 34 lays down the grounds for setting aside a domestic arbitral award. They are:
- Either party was under some incapacity; or
- The arbitration agreement was invalid under the law applicable; or
- Procedural infirmities like the party against whom the award is involved not being given proper notice of the arbitration proceedings or lacking a fair chance to present their case; or
- The award contains decisions falling outside the scope of the submission to arbitration or the terms of the agreement; or
- The composition of the arbitral authority was not as per the parties’ agreement or as per the law of the seat
- The subject matter of the dispute is not arbitrable
- The award is in conflict with India’s public policy
Under Section 48 of the Act, the grounds for refusing enforcement to a foreign award are listed. The ground is the same, except for clause (e), which states that the enforcement may be refused if the award is not yet binding on the parties or has been set aside in a country where or under the law of which it was made.
Incapacity of the parties
The incapacity as a ground for setting aside refers to the capacity to enter into the arbitration agreement, not the underlying contract. This incapacity must be determined by the ‘law applicable’ to the parties. Since no choice of law is specifically pointed to, the choice is left to the Tribunal’s discretion.
Invalidity of the arbitration agreement
The award may be rendered unenforceable if the arbitration agreement is invalid under either the law chosen by the parties for the agreement. And if there was no such choice, then under the law of the country in which the award was made.
Arbitrability
Another condition for non-enforcement is the non-arbitrability of the issue in the dispute. Arbitrability separates types of disputes on whether they are capable to be decided by arbitration or not. This is because some issues belong exclusively to be decided by the courts. For example, a murder case cannot be resolved through a settlement between the parties through arbitration. The determining factor, according to the Supreme Court case of Booz Allen and Hamilton Inc v. SBI Home Finance Ltd, is whether the resolution of the dispute through arbitration would be contrary to the law and public policy of India.[2]
Public Policy
This condition is undoubtedly the most debated among all others. The award must be in conflict with the public policy of India to be rendered unenforceable. The explanations to the Sections state that it would be applicable only if the making of the award was induced by fraud or corruption or was in violation of the provisions in the Act regarding confidentiality and admissibility of evidence in other proceedings; “in violation of the fundamental policy of Indian law; or is in conflict with the most basic notions of morality and justice”. Furthermore, whether an award is in contravention of the fundamental public policy of India would not include a review of the merits of the case. The landmark case of Renusagar Power Ltd. v. General Electric Co. held that the public policy exception should be construed narrowly.[3] Enforcement could be refused only if the award is against: the fundamental policy of India, interests of India, or justice or morality. So, merely a violation of just any Indian law wold not suffice. Furthermore, the Supreme Court, in Govt. of India v. Vendanta, held that the term ‘public policy’ should be construed more narrowly for foreign awards than domestic awards.[4]
Patent Illegality
Under Section 34, there is an additional ground of patent illegality for setting aside an award. This condition of patent illegality was read into the public policy exception for domestic awards. The Supreme Court, in Shri Lal Mahal Ltd. v. Progetto Grano Spa, held that a foreign award cannot be refused enforcement based on the patent illegality exception.[5]
Lastly, as per Section 34(3), a domestic award can be challenged only within 3 months of the date of receipt of the award. An extension can be granted if there existed valid reasons for not being able to challenge the award in the earlier period. No such time limit exists for foreign awards.
Conclusion
The Arbitration and Conciliation Act of 1996 provides an exhaustive list of grounds on which an arbitral award can be rendered unenforceable. In light of the pro-enforcement bias, the Indian courts have been constructing these exceptions narrowly, as is evident from the analysis above.
[1] Enforcement of Arbitration Award and Decrees in India – Domestic and Foreign, https://samistilegal.in/enforcement-of-arbitration-award-and-decrees-in-india-domestic-and-foreign/.
[2] 2011 5 SCC 532.
[3] 1994 AIR SC 860.
[4] 2020 SCC OnLine SC 749.
[5] Civil Appeal No. 5085 of 2013.
Author: Abhishek Gupta, Senior Associate (assisted by Gayatri Kondapalli)
Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at info@samistilegal.in
