The Conundrum of Enforcing Foreign EA Awards: A Critical Analysis

By: Deepali Bhandari (NALSAR, Hyderabad) and Abhigyan Tripathi (RGNUL, Punjab)


The aim of arbitration is to ensure that the process of dispute resolution does not become a long and drawn out one. In certain circumstances, in the interests of justice and fairness, the parties may need to avail urgent relief (of an interim nature) to prevent irreparable damage. In adherence to the principle of speedy remedial action envisaged by the Arbitration & Conciliation Act, 1996 (“the Act”), the award passed by the Emergency Arbitrator (“EA”) has been upheld by the Supreme Court of India in Future v Amazon. Even though the aforesaid observation paves a way for enforcement of EA awards in the context of domestically-seated arbitration proceedings, a crucial question remains unanswered, i.e., how do EA awards passed in foreign-seated arbitration proceedings hold against the anvil of the Act in terms of their enforcement?

The Delhi HC judgement in Raffles Design International Pvt Ltd v Educomp Professional Education Ltd has posited an indirect manner of enforcing a foreign seated EA award owing to its interim nature, i.e., through the filing of a Section 9 petition. This view of the judiciary is not in line with the core values of Arbitration as well as the developing international perspectives. Therefore, through this article, the authors seek to shed light upon the disparity of status afforded to enforcement of foreign and domestic seated EA awards and analyse the obstacles faced while enforcing a foreign-seated EA award due to the Act’s structural inadequacies as well as judicial intervention mandated by it. The authors are of the view that a more expedient approach towards the enforcement of foreign EA awards is required to be incorporated into the Indian arbitration framework, i.e., through direct enforcement under section 49 of the Act.

THE INDIAN STANDPOINT: NEED TO RETHINK THE ENFORCEMENT PROCESS

Since EA awards do not find a place in the Act itself, they have been integrated into the same by stylizing them as “interim” relief. The difference between the enforceability of an interim relief provided by a domestically seated and a foreign seated arbitral tribunal is stark. As far as the former is concerned, the Court acknowledges the finality of the Emergency Arbitrator’s findings and the subsequent “interim” relief provided to enforce it within the meaning of the Act (as per the provisions of sections 17 & 36). However, the latter scenario requires a separate section 9 application, i.e., interim measures by the Court which leaves the door open for it to assess the EA award in its entirety while keeping in mind the rationale adopted by the Emergency Arbitrator. Such unfettered Court intervention hurts the ends which were intended to be fulfilled using emergency arbitration.

This in essence opens Pandora’s box as far as the enforcement of foreign EA awards is concerned since its interpretation of interim relief restricts the remedy administered by the arbitral tribunal in question. The “interim” nature of foreign EA awards makes them analogous to section 9 relief which is not conducive for their efficient and effective enforcement. This legislative inadequacy translates to an adverse judicial interpretation of section 9 and its mandatory operation for the enforcement of foreign EA awards. 

It needs to be understood herein that there is a dearth of academic jurisprudence dealing with the subject of EA awards, let alone enforcement of awards rendered by a foreign EA. The two primary judicial viewpoints which took into observation this conundrum are those put forward by the Bombay and Delhi High Courts in Avitel v HSBC and Raffles v. Educomp respectively. Both of these pronouncements noted that the only way in which a foreign seated EA may be enforced is through the filing of a section 9 petition. Such a stance essentially precludes the process of Section 49 (enforcement of foreign award) application within the Act and hence is contrary to the principle of “party autonomy”.

The Supreme Court while analysing the issue in Future v Amazon placed reliance on the doctrine of party autonomy as being the “grundnorm” and “basic spirit” of the arbitration process. While domestic EA awards may be directly enforced through a Section 17 petition, the position of the two High Courts casts a net of doubt on the validity of EA awards passed in a foreign seat, especially in the context of party autonomy. The wide discretionary power ascribed by Section 9 as well as its interpretation in the aforementioned judgements promotes excessive judicial intervention in the enforcement process, thereby defeating the purpose of independently entering into a covenant for dispute resolution through Arbitration as envisioned by the Act.

FINALITY OF AN EA AWARD: WHAT IMPORTANCE DOES IT HOLD?

The aspect of an EA award that may form a crucial point, amongst other things, for the Court to deliberate upon during the process of enforcing the same is its finality in terms of what it seeks to achieve procedurally from the parties involved. The indirect approach that has been adopted by the Indian courts may hamper the speedy resolution process and defeat the purpose of opting for Arbitration in itself. Even though the Delhi HC in Raffles v Educomp, upheld the section 9 petition filed by the party which had obtained a favourable EA award in Singapore, the verdict was passed nearly 10 months after the EA award was rendered. Such a delay may irreversibly hamper the Arbitration proceedings in other scenarios where time is of the absolute essence, thereby defeating the purpose of invocation of Emergency arbitration.

While emergency arbitration has been recently upheld in India, other jurisdictions have witnessed the translation of excessive judicial intervention into delay of justice and subsequently irreparable harm to the parties. The same issue was observed by the District Court of Georgia wherein the EA award was deemed to be unenforceable after deliberations that caused a delay of more than a year in the conduct of the contractual merit-based arbitration proceedings. The reasoning behind the aforesaid approach was that the EA award was merely intended to preserve the status quo in light of the pending arbitration proceedings and did not deal with the issues in question in a “final” manner. The reasoning which led the Delhi HC to prescribe the aforementioned treatment of EA awards in Raffles v Edcuomp seems to flow from here.  While deliberating over the matter, the Delhi HC opined that the Courts should not take into account the findings of the Emergency Arbitrator to be “unfettered” by them and undertake an independent analysis as to whether the EA award falls within the scope of “interim relief” provided for in Section 9 of the Act. Such an approach is far from conducive to the enforcement of an EA award and showcases the Courts negligence in its understanding of the word “emergency” in Emergency Awards.

The verdict passed by the New York District Court in Yahoo v Microsoft forms an important part of this discourse regarding the enforceability of EA awards. The Court upheld the foreign EA award due to its first-hand analysis of the issue at hand. The EA award in question had granted injunctive relief towards Microsoft since it deemed the harm caused by Yahoo! not holding up its end of the Agreement as “irreparable”. This meant that the Court had allowed for a foreign EA award to resemble a final award, from a totally procedural lens and thus broadened the scope of powers possessed by an Emergency Arbitrator. Furthermore, the US 9th Circuit Court in Chinmax Medical Systems Inc v Alere San Diego Inc, very categorically stated that EA awards are temporary equitable orders which are calculated to preserve assets or ensure the performance of obligations to make the final award by the ordinarily constituted Arbitral Tribunal more meaningful. 

It should be noted that the interpretation put forth by the Delhi HC in Raffles v Educomp takes a different view than the aforesaid, as far as their interpretation of the law is concerned. The authors would like to point out that the Indian position should not lie at the opposite end of the spectrum, concerning the abovementioned interpretations.  While the American courts observed the requirement for taking into account the findings of the Emergency Arbitrator in rendering the Award to ensure proper enforcement of the requisite measures, the Delhi HC suggested for such the courts in India to not be affected by the findings of the Emergency Arbitrator. This in essence neglects the finality which such a measure grants keeping in mind the extraordinary issues and circumstances at hand. Even though ordinary awards rendered by Foreign Arbitral Tribunals are enforceable directly under section 49 of the Act, the non-recognition of foreign EA awards is not in line with the international perspective and requires to be re-looked at.

CONCLUSION

While recognizing the emergency awards is a welcome move in India, much needs to be done on its practical aspects. The mechanism of arbitration is guided by laws laid down by the legislature and abided by the tribunal and the parties. The role of the judiciary was deliberately limited and following that very essence, legislators must step in to draft laws that define the specifics of EA awards. Therefore, it may be stated that there is a need to rethink the legislative status quo in India concerning foreign EA awards is an urgent one owing to growing reliance upon it by stakeholders and to align itself with evolving international standards.


(Deepali Bhandari is a third-year student at NALSAR, Hyderabad and has an inclination towards Dispute Resolution and Insolvency & Restructuring Laws. Abhigyan Tripathi is a fourth-year student at RGNUL, Punjab and has an inclination towards International Commercial Arbitration, Insolvency and Antitrust Laws.)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s