June 13, 2021

Enforcement of Arbitral Award under Arbitration and Conciliation,1996

Arbitration

What is an Arbitral Award?

Just as litigation leads to a judgment, arbitration leads to an award a discussion of the tribunal which disposes of substantive dispute(s) between the parties and which is binding on them. An arbitral award is final and binding on the parties and creates legal rights and obligations. If the arbitration has been conducted properly, the losing party (award-debtor) may accept the tribunal decision and, if order to pay damages to the other party (award-creditor) satisfies the award voluntarily. If, however, an award debtor considers that the tribunal has acted improperly or made an error, there are two courses of action which it may take.

The award-debtor may take the initiative by starting the legal proceedings before the court with a view to obtain a court order setting aside the award. As per section 34 of Arbitration and Conciliation, 1996, the court intervenes only if there are grounds which are mentioned in the said section.

If, however, the award-debtor refuses to satisfy the award, the tribunal is powerless and the only way in which the award-creditor can recover any sums awarded by the tribunal is to invoke the coercive power of the courts- by seeking to enforce the award through legal action.

Even where an application to set aside the arbitral award has been filed in the court under section 34, the filing of such an application shall not by itself render the award unenforceable, unless the court grants an order to stay of the operation of the said arbitral award on a separate application made for that purpose. However, in case, the party has made such application, the court may grant stay after giving reason for the same in writing and the award will not be final and binding till the application is refused by the court. Once the award becomes final as mentioned above, it shall be enforced as if it were a decree of the court. 

Arbitral award can be classified as-

  • Domestic award
  • Foreign award

Domestic Arbitral Award

The domestic awards are covered in part 1 of the arbitration and conciliation act, 1996. The domestic award is distinguishable from international award or foreign award. A foreign award may be regarded as a domestic award in which country it is made.

Part 1 of the act applies to such arbitration when the seat of the arbitration for the international arbitration is India and all the domestic arbitration. In the case of a domestic award a challenge to the award can be made under section 34 of the act where as no “challenge” proceeding is contemplated as foreign award. There is an exception that is, domestic award also includes international arbitration award, where one party is other than India or any citizen, govt. or institution other than India, but award made in territory of India. 

Foreign Arbitral Award

On the other hand a foreign award is one which is made in an arbitration and proceedings seated outside India. Normally, the term “foreign award” gains significance only for the purpose of enforcement in a country other than its country of origin.

Section 48 of the act is related to article V of the New York Convention. An application for enforcement of a foreign award can be registered by a party on limited grounds stipulated in section 48 of the Act. Thus, no ‘challenge’ proceedings to annul the award can be brought against a foreign award in India under the Act notwithstanding the governing law of the contract is Indian law. Foreign awards sought to be enforced in India cannot be challenged on merits in Indian courts. In an enforcement proceeding, the court may refuse to enforce the foreign award on satisfactory ‘proof’ of any of the grounds mentioned in section 48(1),  by the party resisting the enforcement of the award. The said section sets out the defenses open to a party resisting enforcement of a foreign award.   

Enforcement of an Arbitral Award

Section 36 covers enforcement,

Where the time for making an application of the arbitral award under section 34 has expired, then subject to the provision of sub section(2), such award shall be enforced in accordance with the provisions of the code of civil procedure 1908 as if were a decree of the court.

 In order to enforce the award, it is compulsory for the arbitral award to be final and valid. When an award becomes final it prevents the winning party from filing a successful claim. It also prevents the lost party from raising a lost case because they believe they can secondly have a more agreeable court, convincing witnesses, or a better lawyer. Therefore, section 35 of the Act provides that the arbitral award shall be final and binding on parties and persons, claiming under them respectively.

The commencement of the arbitration process when the parties enter into an agreement, and not in the manner provided under section 35 of the 1996 Act, it does not constitute an award and does not imply that the option of award are permanent.

The award may be challenged under section 34 of the Act otherwise it is final and becomes a court decision under section 35 and no dispute of jurisdiction other than an arbitration agreement may be proposed in the case.

Enforcement of domestic award

 An order passed by the Arbitral Tribunal on formal arbitration in India will be regarded as a court order and will be enforceable under the provisions of the arbitration and conciliation act, as if it were a court order, specifying its application.

Once the arbitral award has been finalized and operational, the prize holder shall apply for the award to the debtor before a commercial court or High Court, subject to jurisdiction. In the interim, if possible, the arbitral award is challenged, the court has the power to provide protection assistance and grant residency when the arbitral award is made. It is worth noting that in terms of the Amendment Act of 2015, the party challenging the arbitral award will have to apply for a separate application in order to claim the residency. It may be noted that if the court finds that the award is valid, in the execution phase, there will be no challenge to the validity of the mediation award.

Enforcement of foreign award

India has signed the Geneva Convention on the Execution of Foreign Affairs Arbitral Awards, 1927 and the Convention on the Recognition and Strengthening of Foreign Arbitral Awards, 1958. The arbitral award would be enforced in India, if the courts in India receive award for mediation in the country, signed by Geneva Convention or New York Convention, and the award is made with a place, declared as a meeting country by India. The central government has declared the 48 countries to be just like the other countries 196 countries in the world with Mauritius being the most recent to add. Enforcement of an external prize in India begins with file submissions a request for execution and a two-stage process.

  • First stage, a competent person would determine to comply the award to the requirements of the act.
  •  Step two, to enforce that award as a decision of that court.

 However, the award provider may take delays on unimportant matters objections and requirements such as filing a certified or original copy of the award and the basic agreement before the court.

The award must therefore meet two requirements to be named as “foreign award”.

  • The first is that under Indian law, it has to deal with the difference from a legal relationship can be considered commercial. The term “commercial relationship” has been widely publicized translated by Indian courts.
  •  The second requirement is that the country in which the award was located, the issue must be notified by the internal government to be a fit world.

Requirements for the enforcement of foreign awards

  • Original copy or certified copy of award given by Arbitral tribunal.
  • Original or certified copy of the agreement.
  • Evidence needs to prove the existence of a foreign award.

Conditions for enforcement of domestic and foreign Arbitral Awards

The Arbitral Award may be awarded voluntarily and the party may look over to the following reasons for challenging the award;

  • Any failure of the parties to agree.
  • Especially when there are foreign awards the agreement in question does not exist according to the law of the country in which the award was made or the law that the parties have placed under it.
  • Failure of the party to request mediation to provide prior notice of an appointment of arbitrator or arbitral tribunal.
  • The award is based primarily on the delivery of the decision or the agreement itself.
  •  In particular the foreign award has never been binding on the parties, either suspended or set aside by the appropriate state authority where that award was made.
  • The arbitrator is unable to resolve the underlying dispute Indian law.
  • Enforcement of the award may be opposite of the Indian public policy.

Types domestic and foreign arbitral awards which are enforceable

  • Awards containing prohibiting the doing of acts or injunctions ordering.
  • Decisions or awards by emergency arbitral authority which grants interim injunction.
  • Declaratory awards
  • Other Awards
  • Money awards.

Limitation period for enforcement of Arbitral Awards

Domestic award

The Supreme Court held in

 Umesh Goel v. Himachal Pradesh Cooperative Group Housing Society that,

An  arbitral awards will be considered for enforcement purposes and the Limitation Act 1963 applies to arbitration, so the maximum period for the enforcement of such awards is twelve years.

Foreign award

Different High Courts have different views and interpretations of limitations a time when the team can consolidate the award.

The Bombay High Court ruled that the foreign award would be a two-step process as it is not a private declaration and would not be binding on parties unless the appropriate court records it as enforceable. Therefore the prescribed period may be three years, as the application for enforcement of the foreign award will fall under the provision of accommodation in the Program for limitation Act. After that when the appropriate court accept the award as a decision, the estimated time will be twelve years of execution such a proclamation.

The Madras High Court held that,

 “the foreign award is already stamped as a decree and the party having a foreign award can straight away apply for enforcement of it and in such circumstances, the party having a foreign award has got 12 years time like that of a decree holder.”

Conclusion

 Previously there were no laws and regulations for the enforcement of foreign award in India. Therefore, it can easily be argued that India’s legal system is geared towards creating an environment that will facilitate the enforcement of foreign awards. The main problem with the Arbitration and Conciliation, 1996, is related to enforcement, dealing with foreign mediation awards and foreign court decisions alike. Due to the lack of distinction between foreign awards for decisions and court decisions, issues especially relating to foreign awards are not properly addressed in Indian Law. Other developments such as bringing clarity to the host countries with various arrangements to be listed in the official gazette are needed and legislation specifically applicable to foreign arbitral award will make it possible to provide more structure in the arbitral process and keep India in line with world-class jurisdiction.

For more notes on Arbitration and Conciliation Act, Click Here.

For law notes, Click Here.

Author Details: Srishti Saini (Fairfield Institute of Management & Technology)

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