By: Ragini Agarwal (National Law University, Jodhpur)
Enforcement of arbitral awards has always been a minefield of dispute (for example, see here and here); more so, when it comes to international arbitral awards. It was with the intention of allowing the successful party to enjoy the fruits of arbitration that the grounds of challenge to an arbitral award were limited through Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“the New York Convention”), to which India is also a party. The Supreme Court of India’s pro-enforcement vigour was visible when recently, a three-judge bench ruled in favour of enforcing the appellate arbitral award dated Sept. 29, 2001, given by Jeremy Cook QC (ICC, London), marking the end of a legal battle that has gone on for almost 19 years.
When considering questions of enforcement, the objective of the Court is to ensure minimum interference of courts in the process. Section 48 of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act 1996″) is akin to Article V(1)(b) of the New York Convention, setting out limited and exhaustive grounds for challenging the enforcement of arbitral awards. The legislative policy, as aptly put across in the Supreme Court decision of Vijay Karia v. Prsymian Cavi E Sistemi SRL (“Vijay Karia“), is that:
“there ought to be only one bite at the cherry in a case where objections are made to the foreign award on the extremely narrow grounds contained in Section 48 of the Act and which have been rejected.”
While courts have the discretion to refuse to enforce an award, it is only for the most exceptional errors of arbitration as stated in the grounds in the provision.
Violation of “public policy” – one of the most debated grounds for disallowing enforcement of foreign awards has oft been called an “unruly horse” since the wide interpretation it has allows transcending the thin boundaries that separate fulfilling requirements of justice from preserving the finality of arbitral awards. Towards the end of limited interference, landmark decisions such as Renusagar Power Plant v General Electric Co. and Shri Lal Mahal Ltd. v. Progetto Grano Spa as well as the Arbitration and Conciliation (Amendment) Act, 2015 have curtailed the scope of grounds such as ‘public policy’ used in the provision.
Another ground is the requirement of natural justice being fulfilled, the provision for which came under scrutiny in M/s Centrotrade Minerals v. Hindustan Copper Ltd (2020) and is being discussed in the present article. As a thumb rule, with the pressure of being seen as pro-arbitration in the international community, Indian courts have leaned towards the narrow interpretation of the grounds.
The facts which gave rise to the appeal were as follows: Centrotrade Minerals (“the Appellant”) was a U.S. Corporation that had entered into a contract for the sale of 15,500 DMT of copper concentrate to be delivered at the Kandla Port in the State of Gujarat for use by Hindustan Copper Ltd. (“the Respondent”). When the dispute arose with regard to the quantity of dry weight of copper concentrate delivered, the parties, in accordance with Clause 14 of the contract between them, referred to settlement by two-tier arbitration. In the first tier of arbitration in India, a nil award was rendered, after which the Appellant invoked the second part of the arbitration agreement for delivering an award in accordance with ICC Rules.
During the pendency of proceedings in London, the Respondent had challenged the validity of the arbitration clause. The Rajasthan High Court restrained the Appellant from taking further steps in London; however, the Supreme Court soon vacated the High Court’s stay order. A single-judge bench of the Calcutta High Court dismissed the Section 48 petition of the Respondent, making the award executable in India. In 2004, a Division Bench in the same High Court allowed appeal against the same and stated that the London award was inexecutable. Since then, the Supreme Court has forayed three times on the dispute between the same parties.
In 2006, a division bench of the Supreme Court had a split opinion on whether a two-tier arbitration process would be permissible in the Indian scheme of arbitration and on account of the difference in opinion; reference to a bench of a higher strength was made. In a seminal opinion in 2016, the Supreme Court upheld the validity of a two-tier arbitration clause on grounds of party autonomy, while listing the second question of enforcement for consideration at a later date. This finally came to be decided on June 2, 2020, when on the question of enforcement of the foreign arbitral award under Section 48 of the Arbitration Act 1996, the Bench comprising Justices Rohinton Fali Nariman, Navin Sinha and B.R. Gavai ruled that the ground for action is limited. They opined that courts could not give an expansive meaning and interpretation to the provisions.
LEGAL ISSUES FOR CONSIDERATION
- Meaning of “otherwise unable to present”
Section 48(1)(b) and Article V(1)(b) of the New York Convention have similarly worded provisions addressing the requirement of ‘due process’ in arbitral proceedings. They state that the recognition and enforcement of an award may be refused at the request of the party against whom it is invoked on the furnishing of proof that “the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” This facet of natural justice is attached only if a fair hearing is not given to the parties by the arbitrator.
The concept of fairness, as elaborated in Vijay Karia, is multi-dimensional. Giving all parties equal opportunities to present one’s case as well as allowing the successful party to enjoy the fruits of its labour, both are aspects of fairness. The balance between ensuring the rule of natural justice and ensuring the integrity of the arbitral process is a delicate one and interpreting the said Section narrowly helps to preserve that balance. Hence, the Court stated that the meaning of “otherwise” must be given a restricted meaning.
This is in consonance with the restricted meaning of “or otherwise” elaborated upon in P. Ramanatha Aiyar’s Advanced Law Lexicon wherein if the phrase follows an enumeration of particulars, it receives a narrower interpretation. The Supreme Court also differentiated the current position of the law calling for a narrower interpretation arising from a pro-enforcement bias from the position of law that prevailed under the Arbitration Act, 1940. Under that, “misconduct” as a ground for setting aside award was much broader conceptually. At the same time, the burden of proof for substantiating the allegations lay upon the party alleging such misconduct.
- Nuances of the Natural Justice Requirement
Only exceptional circumstances would lead to a breach of due process. When there had been an earthquake, an Italian court (with pari materia provisions in the context of New York Convention) found that a month would not be enough time for a party to prepare and present its case. Mere failure to take advantage of the opportunity afforded by law would not lead to a violation of natural justice principles. This is the position in the jurisdictions following the New York Convention such as UK, US and Singapore as well. Ultimately, the onus is on the parties to present their case, and no breach can be said to have been committed where a party chose to not present its case or impeded its ability to present the case.
In the facts of the case, the Supreme Court noted that the arbitrator had given repeated opportunities to the Respondent to present its case and even considered all delayed submissions. Jeremy Cook QC noted in his award that “though not bound to do so because of their belated nature, I have considered those submissions and taken them fully into account in making this Award.” Despite the conduct of the Respondent is attempting to subvert arbitral proceedings by not making submissions on time and filing multiple suits in Indian courts pleading for a stay in arbitration, the arbitral award had heard all the evidence given by the Respondent and taken them into account when making the award. Hence, it could not be said that ground for the Respondent being “otherwise unable to present” its case was made out.
- Adjourning Proceedings and Giving the Arbitral Tribunal Opportunity to Correct Defects
Interestingly, the Court was cognizant of the limitations on its power imposed by Section 48, wherein the option of remanding the matter back to the ICC Arbitral Tribunal to pass a fresh award was outside the jurisdiction of the enforcing court. This may be contrasted with the provision in sub-section (4) of Section 34 in the context of domestic awards, wherein the Court may allow the arbitral tribunal to resume arbitral proceedings or take such action as in the opinion of the arbitral tribunal would eliminate the grounds for setting aside the award.
The ruling of the Supreme Court is a step bolstering the formulation and interpretation of Section 48 of the Arbitration Act, 1996, respecting the spirit and pro-enforcement bias of the New York Convention of which India is also a signatory. While courts are not formalistic in their construction of the Section, they tend to focus on the facts and the conduct of the parties which eventually leads to the application of the same restrictively. The Court’s approach provides useful guidance on their determination of when a party is entitled to resist enforcement of a foreign award.