This article is written by Asif Iqbal, from Centre for Juridical Studies, Dibrugarh University, Assam. The article discusses the purpose of the subject arbitration is the enforcement of arbitral awards. In other countries, they have designed the legislation to serve the commercial arbitration proceedings and administer the awards from start to finish
The purpose of the subject arbitration is the enforcement of arbitral awards. In other countries, they have designed the legislation to serve the commercial arbitration proceedings and administer the awards from start to finish. There has been a construction of jurisprudence in a voluminous manner to enforce awards in different jurisdictions. India is a state which is peculiar as it allows attraction for Foreign Direct Investment (FDI) as the investment has grown by many folds in two decades. The investment has increased because of Liberalisation, sound macroeconomic policies, and acceptance of Bilateral Investment Treaties (BIT) which caused investor-State disputes.
Investment arbitral awards enforced in India
The Arbitration and Conciliation Act 1996 has mentioned about the enforcement of foreign and domestic awards in India. The cases brought by India in restraining investment treaty arbitrations in the different courts within the territory were about the enforcement of BIT awards which fuelled uncertainty. The pronouncement by the High Court of Delhi in both Vodafone and Khaitan Holdings by the ruling that BIT awards are not governed by the Act of 1996 because the basic arbitration isn’t commercial. The arbitral awards could have been a subject of debate in India; if they had signed the International Centre for Settlement of Investment Disputes (ICSID) Convention. Moreover, it is mandatory that the convention is ratified and fulfilled as legislation but it deprives them of a reign that makes ICSID awards enforceable in the jurisdictions of signatories. As they aren’t signatory to the convention, then Additional Facility Rules or Ad Hoc rule will apply under UNCITRAL Rules of 1976 and the framing of Additional Facility Rules was done to ease the disputes concerning resolution in which; one party isn’t a contracting State to the Convention. This rule gives a mere administration to disputes but doesn’t provide enforcing protection to resultant awards but the cause of concern will be the enforceability in giving an award will be based on the place of arbitration. To reduce the hurdle caused by the reign, there is another option provided by the Additional Facility Rules that rules will be accommodated only on such States; who are parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 or the New York Convention applied for the enforceability of awards made under the Additional Facility Rules.
Contradictory assumptions on the applicability of the Act to investment arbitrations
The applicability of the Act contains contradictory assumptions to investment arbitrations understandable through the pronouncement of Unknown vs. Louis Dreyfus Armatures and it was one of the first cases which dealt with the arbitration for investment. The case dealt with a request for an anti-arbitration injunction by the Kolkata Port Trust which will prevent Louis Dreyfus from continuing the proceedings against them. This injunction was required to be done before the investment of an arbitral tribunal was constructed under India-France BIT and the same was granted by the bench of Calcutta High Court. There was an observation which was made through it was decided that the Kolkata Port Trust identified as a Respondent in the arbitration is wrong rather the Republic of India is eligible to be a party to the agreement of arbitration in BIT.
The application for an anti-arbitration injunction was done under Section 45 of the Act by the bench which provides authority to the judiciary in deciding parties to the arbitration. It bases the assumption postulated by the bench on the Act applicable to this investment arbitration as it does to foreign seated commercial arbitrations. Hence, the position on the anti-arbitration injunction deliberated under Section 45 of the Arbitration and Conciliation Act 1996 and it decided that interference will be done only in a few and far between circumstances. The application of the standard will be one and the same while considering the interference of commercial arbitration under the same Section.
Comparison between the United Kingdom and India
The United Kingdom or England & Wales is one of the signatories to the ICSID Convention and recognised in the United Kingdom following the Arbitration (International Investment Disputes) Act 1966. The reading of the legislation shows that the effect and force of the ICSID award will be a mirror image in making execution as if the High Court of England & Wales made the judgment. Their inclusion is also there in the New York Convention which led to the recognition of the English Arbitration Act 1996 or the English Act 1996 which causes an imposition of arbitral awards and it will be as if the judgment made by the court; who are parties to the Convention of New York. The Court of Appeal with Occidental Exploration & Production Co. v. Ecuador held that Courts in England have adequate jurisdiction to hear those challenges which have been brought concerning awards made under the investment treaties. The Commercial Court partially set aside the decision on jurisdiction which was decided by the London based arbitral tribunal and it was held by the tribunal that it lacks the jurisdiction to hear the majority claims. It was decided by the Court to have a de novo review of the decision and it interpreted BIT by which there was an estimation which was brought into being; it can be read to have a hold within the breaching of fair and equitable treatment in terms of standards; GPF GP Sàrl v. Republic of Poland.
The comparison with India, the position taken by the High Court of Delhi in the Vodafone case doesn’t give any position to those parties which seek enforcement of an investment arbitral award. The assumption of this Court, in this case, was based upon the principle of the Code of Civil Procedure in making the application of investment arbitration but this shall not support at the enforcement stage because it accepts the decree of foreign courts, not tribunals under Arbitration and Conciliation Act 1996.
The impact of India’s commercial reservation to the New York Convention
The New York Convention is considered as the cornerstone in the subject which concerns the International Commercial Arbitration. The Arbitration and Conciliation Act of 1996 passed by the legislators is based on the UNCITRAL Model Law and recognized along with enforces the New York Convention for foreign awards. There isn’t a separate mechanism in India unlike those countries; who are signatories of the ICSID Convention for making enforcement of investment. The relationships between foreign investors and the Government of a State were solicited by the Convention of New York was made impossible with the adoption of Commercial Relationships Reservation (CRR) under Article 1(2) of the Convention. Although Section 44 of the Arbitration and Conciliation Act 1996 doesn’t mention adequately about the restriction, whereas, an interpretation gives a similar position for India.
The case between R.M Investments & Company v. Boeing Company, the petitioner nominalized to provide consultant services to support Boeing Company in promoting its products in India. Their agreement was extended till 30th April 1987, there was an execution to purchase two aircraft under the Definitive Purchase Agreements between Boeing and Air India. The petitioner claimed for its commission from Boeing which was refused, and they filed a suit in April 1990 in the High Court of Calcutta claiming for the recovery of 17.5 Million US Dollars as compensation and remuneration. The Supreme Court of India accepted the order by Bench of the High Court of Calcutta is appropriate because the agreement to provide consultancy services to Boeing Company is commercial. Later, the bench opined “aid can also be taken from the Model Law prepared by UNCITRAL wherein relationships of a commercial nature include commercial representation or agency” and “consulting”. The contract which was entered into by the consultancy services as well within the spectrum and award should be given in India under the Convention of New York.
The investment arbitration award comes out of a relationship between the investor and State which has been formed under the governance of Public International Law rather than a mere relation between private citizens. The purpose of claims in the arbitration of investment is to claim the breach of duty performed by the State which was obligated to them under the treaty not the terms of a commercial relationship. There wasn’t any concrete reason provided by the High Court of Delhi in excluding the entire Act from the scope of Investment Arbitration.
Advantages & Disadvantages
The advantage in the enforcement of Investment Awards is the rectification of legal errors which isn’t required to be in the national court; rather a neutral court is permissible as it will effectively increase the enforcement. The creation of an appellate mechanism provides predictability and enhances the legitimacy of investment arbitration along with upholding the investor-state dispute settlement. The New York Convention provides an opportunity to a national court that could refuse in honouring an award and the current system. The provision which mentions the enforcement contains a distinctive feature for ICSID Convention other International adjudication doesn’t act upon the enforcement rather the issue left before the domestic laws or applied treaties.
An appeal to enforce Investment Awards can go against the principle of finality. The principle means the award in the arbitration is binding and isn’t allowed to appeal on the merits. There could be an increase in cost and delay for getting a resolution process but this problem can be cleared by securing time limits in the process of appellate. Another reason for the delay in enforcing investment awards is the scope of review. The involvement of politicization in the investment process as the government may involve in the arbitration to attract their constituencies and the arbitrators for the settlement are appointed by the state, then there could be a possibility of biases against the investors.
Issues and Challenges
In India, there hasn’t been a discussion to enforce the investment of Arbitral Awards. It has happened because the country has a dispute which arises under the Bilateral Investment Treaties (BIT) whose data is not produced in public for discourse. There were cases taken up by the courts in India to decide the matters concerning the Investment Arbitrations. The High Court of Delhi observed in the case of Union of India v. Vodafone Group, the investment arbitrations are not commercial arbitration. The matter wasn’t allowed to be governed under the Part-II of the Arbitration and Conciliation Act 1996 and decided that the award against Investment will not be provided under Section 49 of the same Act. Whereas, the same Court held a similar position in the case of the Union of India v. Khaitan Holdings Limited because the assumption of the bench was based upon the principle of Code of Civil Procedure 1908. The issue which can be understood from this case is that the principle from the Code of Civil Procedure can be applied in the Investment Arbitrations but the question for the Foreign Investment Arbitral awards remains intact to be answered.
Solutions for present Affairs in India
The New York Convention enforces the Investment Awards but India has given a lack of certainty on its position to implement it. The observation which has been made by the High Courts of Calcutta & Delhi provides unpredictability, whether the Act provides applicability or not in the investment arbitrations. There are judgments made in favour of Investors against India but several cases are pending before tribunals awaiting judgment. The solution for this affair could be the amendment of Section 44 of the Arbitration and Conciliation Act 1996 by the Parliament of India. The availability of Investment Arbitral Awards within the scope of Commercial relationship to India’s reservation to the Convention of New York. There is a certainty that the road to the enforcement of investment awards will be long and complex outside the courts of India by investors.
Cruz City 1 Mauritius Holdings v. Unitech Limited
A petition was submitted by Cruz City 1 Mauritius established as per the laws of Mauritius for the enforcement of a foreign award on 6th July 2012. The award was given by an Arbitral Tribunal which constituted as per the rules of Arbitration Rules of the London Court of International Arbitration which was formed after the request made by the Cruz City for arbitration as a dispute arose in the Keepwell agreement on 6th June 2008. The parties in this agreement were Cruz City, Burley Holdings Limited, a wholly-owned subsidiary of Unitech Limited and it was incorporated under the laws of Mauritius. The debtor is a public company incorporated as per the laws of India. The enforcement of awards was declined by Unitech based on three grounds:
- Beyond the scope of submission for arbitration.
- The debtor didn’t receive a proper notice either from the tribunal or the Cruz City to respond against the claim for payment.
- Enforcement Award is against the public policy of India as the provision of the Foreign Exchange Management Act 1999 (FEMA) is violated.
In 2012, the Cruz City earned a partial award and final award after three seated arbitrations in London. The main concern for the deliberation was the real-estate project in Mumbai and it was awarded against its venture partner, Unitech Limited, and their joint venture was known as Unitech Parties. The tribunal made an order to pay 300 million US Dollars to Cruz City for their shares in the venture along with their legal and arbitration costs. The holder commenced several proceedings to recover the award and one such enforcement proceeding was submitted in the High Court of Delhi which was objected to the Unitech Limited. The decision delivered by the bench of the High Court of Delhi was against the objection raised by Unitech Limited against the enforcement of awards. This decision allowed Cruz City to execute the awards in India. The principles discussed in this case were:
(i) Violation of FEMA doesn’t violate the public policy of India
(ii) Enforcement can be made by the courts from India even when there is a slightest of the ground under Section 48 of Arbitration and Conciliation Act, 1996.
(iii) Application of the Doctrine of Res Judicata in proceedings for the enforcement of awards.
(iv) Estoppel on parties from raising the defence in the enforcement of awards within the country.
The Arbitration and Conciliation Act of 1996 is not capable of enforcing investment treaty arbitration and judgments made by the High Court of Delhi caused a blow on the enforcement of BIT awards in India. The decisions of the High Court will force the investors to explore other options other than Courts in India and other solutions to these problems can be sorted by making amendments to the scope of BIT awards in the Act.
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