This article is written by Shreeresh Ravindran pursuing Certificate Course in Arbitration: Strategy, Procedure and Drafting offered by LawSikho as part of his coursework.
In the present times, Arbitration has been recognised worldwide as an alternative dispute resolution medium which is very effective in resolving trade disputes with more and more predictability, certainty and efficacy.
Arbitration in India, during the present times, can be traced back to the British rule in India after the establishment of the Legislative Council in India in 1834. The Legislative council enacted the Indian Arbitration Act of 1899. This was the first time that legislation on Arbitration was enacted. Further, in the Code of Civil Procedure Act of 1908, Arbitration provisions were included, the First schedule extending to the territories of India and Second Schedule to deal with arbitration outside the scope of the Indian Arbitration Act 1899.
Later, the Arbitration (Protocol and Convention) Act in 1937 was enacted and applied to matters considered ‘commercial’ under the law in force in India and gave effect to the Geneva Protocol on Arbitration Clauses 1923 and the Geneva Convention on the execution of Foreign Arbitral Awards 1927. The Arbitration Act of 1940 aimed at consolidating and amending previous legislation.
After India’s independence, trade and commerce bloomed and the commercial community became more and more inclined towards resolution of disputes by Arbitration as against the more protracted and expensive court proceedings. The Law Commission of India in its report in November 1978 suggested extensive amendments in the Arbitration Act 1940 considering evolving commercial scenarios and the various complexities and nature of the disputes.
The Foreign Awards (Recognition and Enforcement) Act 1961 was enacted to enable effect to be given to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10th June 1958 to which India is a party.
In December 1996, the General Assembly of the United Nations established ‘United Nations Commission on International Trade Law(UNCITRAL) with the purpose of furthering and promoting International Trade and commerce and to harmonize the trade law.
The Arbitration and Conciliation Act 1996 enacted in India came into force on 25th January 1996. The Act consolidated the Arbitration laws and went much beyond the scope of the Arbitration Act of 1940. The 1996 Act is based on the UNCITRAL model to make our arbitration laws in sync with the international model law. The 1996 Act provides for domestic arbitration, international arbitration and enforcement of domestic and foreign awards. It also contained provisions for conciliation.
Furthering the cause to bolster trade and commerce and to encourage foreign investment in India, the Arbitration and Conciliation Act 1996 was amended in 2015 which received Presidential assent on 23rd October 2015. This was also not without its flaws regarding institutional arbitrations, the applicability of the 2015 Amendments to arbitrations invoked beyond 23/10/2015 etc. The Arbitration and Conciliation (Amendment) Bill 2018 is presently passed in the Lok Sabha and tabled before the Rajya Sabha for approval. This Bill is presented with a view to cater to the practical hindrances faced by the parties and the Arbitrators and includes many novel developments to ensure that India becomes a preferred seat of Arbitration in the world.
In India, an arbitral award is the decision by an Arbitral Tribunal seated in India in accordance with the substantive law for the time being in force in India, referred to as ‘Domestic award’. In international commercial arbitration, the arbitral award is issued by a foreign seated arbitral tribunal, referred to as ‘Foreign Awards’.
Section 44 of the Arbitration and Conciliation Act 1996 defines “foreign award” as an arbitral award, arising out of legal relationships which are considered as commercial under the law in force in India, in one of such territories which the Central Government notifies to the territories to which the said Convention applies. India is a signatory to the New York Convention 1958 and the Geneva Convention 1960.
In domestic arbitrations, the time limit set to the Arbitral tribunal for issuing the arbitral award is twelve months from the date on which the Arbitrator/ all the arbitrators, as the case may be, receive notice in writing of their appointment.
Procedure to apply for setting aside arbitral awards
The Arbitration and Conciliation Act 1996 provides recourse to the party against whom the arbitral award is pronounced, for setting aside the arbitral award by prescribing separate procedures for setting aside domestic and foreign awards.
In case of domestic award, an application under Section 34 of the Act is to be filed in the Court before three months from the date on which the party making that application had received the arbitral award. Section 34(3) allows the party a further period of 30 days after the expiry of three months if the court is satisfied that the party was prevented by sufficient cause from making the application. No application for setting aside the award can be entertained by the court after the expiry of these additional thirty days.
A very important amendment in the 2015 Act introduces that a party challenging an award under Section 34 will have to move a separate application in order to seek a stay on enforcement and execution of the award. Prior to the Amendment, a Section 34 application would automatically put a stay on the execution of the award.
In the case of International commercial arbitrations, there is no proviso for setting aside a foreign award in the Arbitration and Conciliation Act 1996. The courts in India can either enforce it or refuse to enforce it. The Supreme Court, in Venture Global Engineering vs Satyam Computer Services Ltd and Anr, has stated that a foreign award can be set aside by an Indian Court u/s 34 of the Act.
Procedure to enforce the Arbitral awards
The procedure for enforcement and execution of the Domestic awards and Foreign awards is governed primarily by the Arbitration and Conciliation Act 1996 and the Code of Civil Procedure 1908. Arbitral awards are enforced as a decree of the Court and principles of natural justice apply to the execution proceedings. The execution of the domestic awards are dealt with by the provisions of Part I of the Arbitration and Conciliation Act 1996, while the foreign awards are dealt with by Part II of the Act.
With regard to enforcement of domestic awards, after the period for filing the application under section 34 for setting aside the arbitral award is over and irrespective of whether a separate application under Section 34 is filed or not, Section 36 (as per 2015 Amendment Act) mandates that the award shall be enforced as if it were a decree of the court as per the provisions of the Code of Civil Procedure 1908, unless the court grants an order of stay of the operation of the arbitral award for payment of money on such a separate application with due regard to Code of Civil Procedure 1908.
In case of a foreign award, the party, in whose favour the award is issued, has to follow a three-step process for enforcement of the foreign award as per the Arbitration and Conciliation Act 1996. Firstly, the party shall make an application under section 47 and shall produce documents and evidence along with the application. Secondly, the other party is to raise a defence as per section 48 with evidence and thirdly, the court, if it is satisfied with the evidence produced by the parties, decide on the enforceability of the award and enforce it under section 49 of the Act.
As regards, filing the application under section 47 and production of documents and evidence along with the application, the Supreme court in P.E.C Limited vs Austbulk Shipping has interpreted the word ‘shall’ as occurring in the section as ‘may’ and also clarified that such interpretation is restricted to only the initial stage of filing the application and not thereafter. As such the mandatory need for production of documents and evidence at the time of filing the application is relaxed.
Appropriate Court for the execution of the arbitral award
In case of domestic awards, the jurisdiction for the execution of arbitral awards would be the Commercial Courts exercising such jurisdiction which would ordinarily lie before any Principal Civil Court of original jurisdiction in a district, as well as the Commercial Division of the High Court in the exercise of its ordinary original civil jurisdiction.
In case of International commercial Arbitration with a seat outside India, where the subject matter of a Foreign Award is money, the jurisdiction for the execution of arbitral award will be with the Commercial Division of those High Courts, in whose jurisdiction, the assets of the opposite party shall lie. In case the subject matter of the award is, otherwise, the jurisdiction will lie with the Commercial Division of those High Court which would have jurisdiction if the subject matter of the award was a subject matter of a suit.
In case of International Commercial Arbitration with seat in India, the subject matter being money, the jurisdiction for the execution of arbitral awards will be with the Commercial Division of those High Courts where the assets of the opposite party shall lie. In cases where the subject matter of the award is other than money, the jurisdiction will lie with the Commercial Division of those High Court which would have jurisdiction if the subject matter of the award was a subject matter of a suit.
The Supreme Court, in Sundaram Finance Ltd. v. Abdul Samad and Anr, has stated that ‘the enforcement of an award through its execution can be filed anywhere in the country where such decree can be executed and there is no requirement for obtaining a transfer of decree from the Court, which would have jurisdiction over the arbitral proceedings’.
Since domestic awards are executed as a decree of the court, the Limitation Act 1963 applies to Arbitration and prescribes a period 12 years for enforcement of such an award. As regards the execution of foreign award, different views have been expressed by the courts, some deeming it as a decree and therefore a limitation of period of 12 years would be applicable, whereas some courts are of the view that since there is no provision under the Limitation Act for making an application for execution of a foreign award, such application will be governed by the residuary Article 137 of the Limitation Act and therefore such application has to be made within a period of three years and subsequently once the application is determined to be enforceable in India, such decree can be executed within a period of twelve years as per Article 136 of the Limitation Act.
Stamping and registration of awards
In case of domestic awards, Section 35 of the Stamp Act 1899 states that an award which is not sufficiently stamped is inadmissible. The amount of the stamp duty varies from state to state depending upon where the award is made. Also, under section 17 of the Registration Act 1908, it is mandatory for an award has to be registered if it affects the immovable property, else will be rendered invalid.
In case of foreign awards, the Supreme court has held that a Foreign award is not liable to be stamped and yet to be considered as valid.
The Arbitration and Conciliation (Amendment) Act 2015
The Arbitration and Conciliation (Amendment) Act, 2015 came into force from 23rd October 2015. Although this amendment was enacted to amend lacunas in the parent act, it has in fact, given rise to its own controversies. One of the most contentious issues was regarding the applicability of the 2015 Amendment Act. Section 26 of the 2015 Amendment states that the act shall apply to arbitral proceedings which have commenced on or after the date of commencement of the act i.e. 23rd October 2015.
For instance, Section 34 application under the earlier 1996 Act would ensue an automatic stay on the enforcement of an arbitral award. Now under the amended 2015 act, Section 36 states that there would be no automatic stay on the execution of the arbitral award in case of a Section 34 application. So, in case the Arbitration proceedings commenced before 23rd October 2015 and the award was pronounced after the date, then would the enforcement of the arbitral awards per the amended section 36, despite the existence of Section 34 application, be allowed? Since Section 34 application is to be made in the Courts for setting aside of an arbitral award, would it then, being a court proceeding, be out of the ambit of the Arbitration proceedings as mentioned in Section 26? Such and other posing questions earmarked the 2015 amendment to the parent act of 1996.
In light of further lacunas and ambiguity, the Supreme Court, in BCCI vs Kochi Cricket ruled that the automatic stay of operation of the award under the amended Section 36 was not a vested right and amended Section 36 would apply to Section 34 applications filed before the commencement of the 2015 Act.
The Arbitration and Conciliation (Amendment) Bill 2018
A further amendment to the Arbitration and Conciliation (Amendment) Act 2015 was very much essential to clear the ambiguities in the amendments introduced in the 2015 Act. Among the other ambiguities, one of the major setbacks faced by the Amendment Act of 2015 was pertaining to its applicability to court proceedings where the arbitration proceedings commenced before the amended act of 2015 came into effect. To address this issue, Section 87 has been proposed in the Amendment Bill, 2018 which states that unless the parties agree otherwise, the 2015 Amendment Act shall not apply to arbitral proceedings commenced before the Amendment Act, 2015 coming into force i.e. prior to 23.10.2015 and court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Amendment Act, 2015.
The 2018 amendment bill was introduced in the Lok Sabha on 18th July 2018 and was passed on 10th Aug 2018. The Bill is now pending approval of the Rajya Sabha.
One of the major challenges faced by the international community in the resolution of disputes is the enforcement and execution of arbitral awards. In order to ensure speedy resolution of disputes, it is imperative that the procedures for execution of the awards are made unambiguous, time-efficient and cost-effective. Only then the arbitration process as an alternative dispute resolution method will become a win-win situation for the parties, the nation and the international community as a whole.
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