Finality and Enforcement of Foreign Arbitral Awards:

Reflections on the Indian Arbitration Law

Jaya V S *

Contents

I. Introduction
II. Finality of Award
III. Enforcement of Arbitral awards
IV. Registration of the Award
V. Enforcement of Foreign Arbitral Awards
VI. Judicial Review During the Process of Enforcement of
Arbitral Awards
VII. Conditions for Enforcement
A. Incapacity of Parties and Invalidity of Arbitration
Agreement
B. Violation of the Principles of Natural Justice by the
Arbitrator
C. Award Beyond the Scope of Arbitration Agreement
D. Competency of Arbitral Tribunal
E. Fairness in the Procedure
F. Award Not Becoming Final
G. Award Beyond the Scope of Submission to
Arbitration
H. Commercial Nature of the Arbitration Agreement
I. Subject Matter Not Capable of Being Arbitrated
J. Award Against Public Policy
VII. Burden of Proof
IX. Rules of Major Arbitral Institutions Regarding Scrutiny
of Arbitral Awards
X. Conclusion

Abstract

In this era of globalization coupled with increasing world trade and Commerce
arbitration has come to be recognized as a sophisticated mechanism for the resolution
of disputes of international Character. The finality and enforcement of arbitral awards
assumes importance in the light of the special characteristics attached to an arbitral

*
Assistant Research Professor, The Indian Law Institute, New Delhi, India.

1
2 Asia Law Review [Vol. 4, No.2 : ??~??

proceeding culminating into an award. The whole process of arbitration depends

upon the validity of the final award. Today’s business world witnesses the fact that
more and more companies are trying to resolve their disputes through arbitration.
Hence to a great extent, arbitration decides the complex problems of international
trade law. To give full effect to the objectives of various international and national
Rules in this regard, there should be proper enforcement and implementation
mechanism. Differences in the national laws may cause hurdles in the way of
enforcement. This is due to the autonomy given to the states in the sphere of
municipal laws. Lack of uniformity in the matter of conditions of enforcement of
arbitral awards has been proved to be a great burden to the parties. Whether the
creation of an alternate forum can help the parties in the process of enforcement will
be examined in this article. An international forum created for the enforcement of
arbitral awards may act as a facilitating agency for the effective enforcement of
arbitral awards. This may also be useful in ensuring uniformity in the law of
enforcement of arbitral awards. In brief, this article is an attempt to analyse the issues
connected with the enforcement of foreign arbitral awards and the possible remedies
there to for smoothening the entire dispute resolution process through Arbitration.

I. Introduction

With the growth of international trade and commerce there was an increase in the
number disputes arising out of such transactions being adjudicated through arbitration.
One of the problems faced in such arbitration related to recognition and enforcement of
an arbitral award made in one country by the courts of other countries. As far as India is
concerned, in the past, statutory provisions on arbitration were contained in different
enactments, namely, the Arbitration Act, 1940, the Arbitration (Protocol and
Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act,
1961. The 1940 Act laid down the framework within which domestic arbitration was
conducted in India. The two other enactments dealt with foreign awards. The present
legislation, Arbitration and Conciliation Act, 1996 has repealed the earlier Acts of 1937,
1940 and 1961, which were the governing law of arbitration in India. The Arbitration
Act, 1996, has brought about many changes relating to domestic arbitration,
international arbitration and enforcement of foreign arbitral awards in India.
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 3

All the above-mentioned conventions and the Indian law give the judiciary limited
powers in the process of enforcement of arbitral awards. The scope and extent of the
judicial review during the process of enforcement needs a critical study. The Law
Commission of India1 reflects a mindset that it is high time to broaden the scope of
challenge to an arbitral award through the amendments proposed by it2. This will clothe
the judiciary with power to stay the operation of the award and its enforcement. If the
amendments become law, it would turn the clock back and it would definitely result in
India disqualifying itself from sitting in the global village of international trade and
commerce, and resolution of disputes there from. An examination of the provisions of
the Foreign Awards (Recognition and Enforcement) Act, 1961 and the Arbitration and
Conciliation Act, 1996, show that both contain similar provisions regarding the
enforcement of foreign arbitral awards3.
A study on the different grounds on which the judiciary can exercise its review
power during the course of enforcement of arbitral awards is made in this context. Both
the Indian law and the international conventions contain almost similar conditions for
the enforcement of awards. For the sake of convenience, a combined analysis of those
conditions is attempted here. The sanctity of the arbitral award is mainly depended upon
the exercise of the power of judicial interference in the arbitral process in the process of
enforcement of final awards4.

II. Finality of the Award

The Arbitration and Conciliation Act, 1996 attributes finality to the award. It has the
status of decree of a court5. Under the earlier Act6, the award had to the made a decree of

1
16th Law Commission of India, 176th Report on Arbitration (2002).
2
The proposed amendments contain provisions under sections 8, 11 and 34, which have the effect of
increasing the judicial interference with arbitral awards.
3
Thyssen Stahulunion GmbH v. Steel Authority of India, (2000) 99 Comp. Cas. 383 (S C)
4
The Arbitration and Conciliation Act, s. 34. It speaks about the grounds for setting aside an arbitral award.
Id., s. 57 speaks about the conditions for enforcement of New York Convention awards. Id., s. 48 speaks
about the conditions for enforcement of Geneva Convention awards.
5
Id., s. 35
6
The Arbitration Act, 1940, s. 17.
4 Asia Law Review [Vol. 4, No.2 : ??~??

a court. It was necessary because there was no guarantee of ready compliance with the
award by those against whom it is made. Court assistance was therefore necessary so that
the decree could be executed through the court for the realization of the fruit of the award.
Under the present Act, it is not necessary. The arbitral award is enforced in the same
manner as if it were a decree of the court.
Since the award is treated as final and binding on the parties and persons claiming
under them7, no judicial authority can intervene except under certain circumstances
specified in the Act8. An award between the parties is entitled to that respect which is due
to the judgment of the court of law. All claims, which are subject matter of the reference
to arbitration, are merged in the award. In Sardar Singh v. Krishna Devi, the Supreme
Court has taken the view that the rights and liabilities of the parties in respect of the
claims can be determined only on the basis of the said award9.
The decision of the arbitrator who was chosen by the parties as their judge is not only
final on facts but also on law10. It can be impeached only on the grounds available under
section 34 of the 1996 Act. The Court has no jurisdiction to substitute its own evaluation
of the conclusion of law or fact, to decide the finality of the arbitral awards. The
reasoning given by the arbitrator cannot be re-appreciated provided, there is no clear
proof of bias or misconduct. In Union of India v. Prince Muffakam Jhah11, the Court
made this position very clear. The Court said that, where the arbitrators were appointed
as a result of the agreement between the parties, it would be binding on the parties.
Even though the Act gives finality to the arbitral awards, it does not exclude cases
where the court can exercise its review power. The grounds for setting aside the awards
in a way determine the status of the award. The award may be set aside if it deals with a
dispute not contemplated by or not falling within the terms of submissions to
arbitration.12 It is also subject to review if it is conflict with the public policy of India.13

7
The Arbitration and Conciliation Act, 1996 s. 35.
8
Id.,.s. 35
9
AIR 1995 SC 491. See also, Kashinatha Yamosa Kabadi v. Narasimha Bhaskara Kabadi, AIR 1961 SC
1077.
10
R. S. Builders v. Delhi Development Authority, AIR 1995 Del. 10
11
J.T. (1994) 7 SC132.
12
Id., s. 34 (2) (a) (iv).
13
Id..,s. 34 (2) (b) (ii).
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 5

III. Enforcement of Arbitral Awards

International commercial arbitration cannot function effectively without the

assistance of national laws and domestic courts. The problem of recognition and
enforcement of arbitral awards is therefore a relevant area of study. The Supreme Court
in Oil and Natural Gas Commission v. Western Company of North America14, while
dealing with the arbitration Act, 1940, said that till an award is transformed into a
judgment it is lifeless from the point of view of its enforceability. This is because of the
fact that only after the court passes a decree and judgment in terms of the award, it gets
an independent life. But under the present Act, no such decree from the court is
necessary. The award can be enforced in the same manner as if it were a decree of the
court. This is only after the expiry of the term for making an application to set aside the
arbitral award or after the refusal of application, if made15. During the enforcement
process, a party cannot challenge the award even on the ground of existence or validity
of the agreement because the tribunal is competent to rule on its own jurisdiction.16
Also in S.S Fasteners v. Satya Paul Verma,17 it has been held that an aggrieved party
can file an application for setting aside the award only under the relevant provisions of
the Act. He cannot file a separate suit challenging the validity of the award, which had
assumed the status of a civil court decree. Under the Code of Civil Procedure there is a
presumption that the award is validly in existence and is passed by a court of competent
jurisdiction after following the due procedure18. Similarly, in Bhawarlal Bhandari v.
Universal Heavy Mechanical Lifting Enterprises19, it was held that until an award is set
aside in appeal or in revision, even if erroneous it is binding on the parties. It is to be
remembered that even though for the purpose of enforcement, the award is deemed as
the decree of the court, it is in fact not the judgment or decree of the court in the exercise

14
(1987) 1 SCR 1024.
15
Id., s. 36.
16
Jaya V S, “Competency and Jurisdiction of Arbitral Tribunals: Some Issues”, XXVI DLR (2004)
17
A.I.R. 2000 Punj. & Har. 301.
18
The Code of Civil Procedure, 1908, Order 21, Rule 24.
19
A.I.R. 1999 S.C. 246.
6 Asia Law Review [Vol. 4, No.2 : ??~??

of the judicial power of the state20.

IV. Registration of the Award

A decree or order of the court does not require registration under the Registration Act,
190821. Before the amendment of the Registration Act, 1908 in 1929, even an award did
not require registration. However after the omission of the words ‘and any award’, an
award creating or declaring right or interest in an immovable property of the value of 100
or more rupees would require registration22.
The purpose of the award is to ensure finality of the arbitration process. Its finality is
not to be questioned and it is to be enforced. But it does not do away with the
requirement of law about its registrability, if it is registrable. Registrability may be a step
towards enforcement. At the same time it is to be noted that, an unregistered award is not
inadmissible as evidence. It is a valid award as it creates rights and obligations between
the parties there to and is conclusive between them. It can be looked into as an evidence
of the conduct of the parties in accepting the award and acting upon it23.
The requirement of registration of domestic award is not required in the case of a
foreign award. If the court is satisfied as to its enforceability, it can be enforced in India.
The Supreme Court in Harendra H. Mehta v. Mukesh H. Mehta,24 held that a foreign
award does not require registration under the Registration Act, 1908. But in Lachman
Dass v. Ram Lal25, the court reaffirmed the requirement of registration of domestic
arbitral awards.
This discussion shows that under the Arbitration Act, 1940, the enforcement of
domestic arbitral awards required registration. But under the Arbitration and
Conciliation Act, 1996, once an award is made, the party in whose favour the award is
made has nothing to do but just to wait to get it executed.

20
G.C. Kanungo v. State of Orissa (1995) 5 S.C.C. 96.
21
The Registration Act, 1908, ss. 17(1)(b), 17(2) (vi).
22
Ibid.
23
Supra n. 5.
24
(1999) 97 Com. Cas. 265 (S.C.)
25
A.I.R. 1989 S.C. 1923.
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 7

V. Enforcement of Foreign Arbitral Awards

Foreign Award is defined as ‘an award on differences arising between persons out of
legal relationships, whether contractual or not, which are considered to be commercial
under the law in force in India, and made in pursuance of an agreement in writing for
arbitration to be governed by the New York Convention26 or the Geneva Convention27 in
the territory of a foreign state notified by the Government of India as having made
reciprocal provisions for enforcement of the convention. The UNCITRAL Model Law,
which is adopted in India, makes the enforcement of foreign awards easier. It states, “an
arbitral award irrespective of the country in which it was made shall be recognised as
binding upon an application in writing to the competent court and shall be enforced
subject to the provisions of this articles and of article 36”.28
Here the demarcation between ‘foreign award’ and ‘domestic award’ based on the
territorial borders is eliminated. Instead it draws a distinction between ‘international’ and
‘non-international’ awards. This is based on substantive grounds than on territorial
boarders. The place of arbitration is irrelevant for international arbitration, where as
under the Indian law, the place of arbitration being in a foreign country is an important
ingredient of foreign award. But where the proper law of award is the Indian law, the
concept of territory has no relevance. The irrelevance of the place of arbitration was
pointed out by the Supreme Court in National Thermal Power Corporation v. Singer
Company. 29 Here the Court found that the proper law of contract governing the
arbitration in that case was Indian law though the place of arbitration was London. Here
the Supreme Court rejected the claim to exclude the jurisdiction of the competent court
and laws in force in India.
An enforceable foreign award is treated as binding for all persons as between whom
it was made and may accordingly be relied upon by any of those persons by way of

26
The Arbitration and Conciliation Act, s. 44.
27
Id., s. 53.
28
The UNCITRAL Model Law, Arts. 35, 36.
29
AIR 1993 SC 998.
8 Asia Law Review [Vol. 4, No.2 : ??~??

defence, set-off or otherwise in legal proceedings in India.30 In order to prove that an

award is a foreign award and enforceable, the party applying to the court for its
enforcement is to produce the original award or a duly authenticated copy thereof as well
as the original agreement for arbitration and evidence to prove that the award is
foreign.31
Where the court is satisfied that the foreign award is enforceable, the award is
deemed to be a decree of the court32. The foreign awards (Recognition and Enforcement)
Act, 1961, also prescribed the conditions for the enforcement of a foreign award and
evidence to be produced by the party applying for its enforcement.33 Under the earlier
Act, when the court is satisfied that the foreign award is enforceable, it used to order the
award to be filed and proceed to pronounce the judgment accordingly. When the
judgment is pronounced a decree is also issued. This has been discussed by the apex
court in Thyssen stahlumon_G.M.B.H. v. Steel Authority of India Ltd.34

VI. Judicial Review During the Process of Enforcement

of Arbitral Awards

A foreign award given after the commencement of the Arbitration and Conciliation
Act, 1996, can be enforced only under that Act. The Supreme Court considered this
aspect in Furest Day Lawson Ltd v. Jihdal Exports Ltd. 35 Earlier on this issue, a
landmark judgment was given by the House of Lords in Kuwait Minister of Public Works
v. Frederick Snow and Partners36. There it was held that the award was maintainable if
the state in which the awards was made is a party to the convention at the date when the
proceedings to enforce the award began if it was not a party at the date when the award
was made. The question whether the order of the court as to the enforceability of the

30
The Arbitration and Conciliation Act, 1996, ss. 46 and 55.
31
Id., ss. 47(1), 56(1).
32
Id., ss. 49 and 58.
33
The Foreign Awards (Recognition and Enforcement) Act, 1961, ss. 7, 8. It corresponds to sections 47 and
48 of the Arbitration and Conciliation Act, 1996.
34
Supra n. 2.
35
(2001) 6 SCC 356. See also, National Aluminum Co. Ltd. v. Metalimpex Ltd., (2001)6 SCC 372.
36
(1984) 1 All ER 733 (HL).
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 9

award is a judgment or not, was considered by the Bombay High Court in Northern Sales
Ltd. v. Reliable Extraction Industries Pvt. Ltd.37 The court was of the opinion that the
order was not a judgment. Even if it is a judgment, the award does not merge with it.
The court will not be satisfied about the enforceability of the foreign award, if the
party proves it against whom it is sought to be enforced that the award suffers from
certain infirmities. For example, if the parties to the agreements under the law applicable
to them were under some incapacity or the agreement was not valid under the law to
which the parties were subjected to, the court will not enforce the arbitral award. There
may also come situations where there was no indication as to the place of arbitration,38 or
there was no due compliance with rules of fair hearing39 or the award exceeded the scope
of submission to arbitration40. Again in situations where the composition of the arbitral
authority or its procedure was not in accordance with the agreement of the parties41 or
the award has been suspended or set aside by a competent authority of the country in
which or under the law of which that award was made, the award loses its
enforceability.42
The two other conditions, which affect the enforceability of the foreign awards, are,
(1) the subject matter of the award is not capable of settlement by arbitration under the
Indian law43 and (2) the enforcement of the award is contrary to the public policy.44
Appeal is available against the order of the court refusing to enforce the award.45 The
enforcement of awards may be refused if any of the circumstances listed above are
present. The expression used is ‘may be refused’. Hence the refusal depends upon the
discretion of the court. It can be seen that all the above conditions are in conformity with
the international conventions.46

37
AIR 1985 S.C. 332.
38
The Arbitration and conciliation Act, 1996, s. 48 (1) (a).
39
Id., s. 48 (1) (b).
40
Id., s. 48(1) ©.
41
Id., s. 48 (1) (d).
42
Id., s. 48 (1) (e).
43
Id., s. 48 (2) (a).
44
Id., s. 48 (2) (b).
45
Id., s. 50 (1) (b).
46
Art. V of the New York Convention on the Recognition and Enforcement of Foreign Awards, 1958. Also,
art. 36 of the UNCITRAL Model Law and arts. 1and 2 of the Geneva Convention on the Recognition and
Enforcement of Arbitral Awards, 1927.
10 Asia Law Review [Vol. 4, No.2 : ??~??

National legal systems take different approaches to the enforcement of arbitral

awards including the grounds for non-enforceability. So it may happen that an award is
enforced in one country and refused in another country. The question whether an award
is domestic or foreign is of special important in this context.47 Hence it can be seen that,
the enforcement of foreign awards assumes greater significance than that of domestic
award since the law and the rules regarding enforcement in the domestic level are fairly
well settled.48

VII. Conditions for Enforcement

Indian Courts will not enforce an arbitral award if the parties were not competent to
contract. Similar result may occur when there is violation of the principles of natural
justice or lack of jurisdiction of the tribunal. These and the other conditions need critical
analysis.

A. Incapacity of Parties and Invalidity of Arbitration Agreement

Incapacity of the parties is a valid ground for refusal of enforcement of arbitral

awards. Generally the incapacity of the parties are to be determined in accordance with
the law applicable to the parties or in the absence of any indication thereof, according to
the law of the place of arbitration. Same is the case with the law to be applied for
determination of the validity of the arbitration agreement.
The Supreme Court in Svenka Handles Banker v. Indian Charge Chrome Ltd.49 held
that the right to foreign arbitration is an indefeasible right of the parties in which the
court does not have any discretion.
In a later case, the Company Law Board followed the above decision.50 For getting a
reference for an arbitration, the parties have to put their material before the court and the

47
Sanjay P. Gogia, “Need for a New International Court for Enforcement”, 30 IJIL 80 (1996).
48
M. Dhyan Chinnappa, “Enforcement of Arbitral Awards”, (2002) 8 SCC 41 (Jour).
49
(1994)2 S.C.C. 155.
50
Naveen Kedia v. Chennai Power Generation Ltd. (1990) 95 Com. Cas. 640 (CLB).
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 11

court has to record its finding as to the capacity of the parties thereon.51 Again as to the
validity of the arbitration agreement also, the court has to exercise its wisdom. If the
agreement is such that it is not capable of being performed, the court may not refer the
parties to arbitration. Incapacity does not mean impossibility. It implies that
performance is impracticable from a reasonable man’s point of view.
Incapacity of the parties to perform an agreement may happen when the contract is
frustrated. Frustration occurs whenever law recognizes that without default of either
party a contractual obligation has become incapable of being performed, because the
circumstances in which the performance is called for would render it a thing radically
different from which was undertaken by the contract. This doctrine does not apply to
self-induced frustration. It is applicable when the impossibility is caused by external
circumstances beyond the contemplation of the parties.

B. Violation of the Principles of Natural Justice by the Arbitrator

An arbitrator is guilty of misconduct if he acts in apparent violation of the rules of

natural justice to the detriment of either party. Lack of opportunity or notice may be a
ground for refusal of enforcement. The person alleging must establish that he did not
have ‘proper notice’ which was adequate or of sufficient for preparing his case. The
court will not enforce an award when there is misconduct on the part of the arbitrator
relating to the award.52

C. Award Beyond the Scope of Arbitration Agreement

The sanctity of the arbitral awards decides its enforceability. If the tribunal gives an
award which is beyond the scope of the arbitration agreement, it is liable to be set aside
because it has lost its validity. In the arbitration agreement, the parties specify the nature
of the disputes and the kind of the remedy they desire. If the tribunal discards all these
factors in its fanciful will, then the very propose of such an agreement has gone. The
parties anticipate maximum expertise and expediency on the part of the arbitrators while
51
Renu Sagar Power Co. Ltd. v. General Electric Co. Ltd., AIR 1985 SC 1156.
52
S.A. Tiewul, “The Enforcement of Arbitration Agreements and Awards”, vol.2, The University of Ghana
law Journal, 162 (1974).
12 Asia Law Review [Vol. 4, No.2 : ??~??

deciding a dispute. If it is not reflected in the award, then the court can exercise its power
of judicial scrutiny during the process of enforcement.

D. Competency of Arbitral Tribunal

Enforcement of an arbitrated tribunal can be opposed on the ground that the

composition of the arbitral tribunal was not in accordance with the agreement or with the
law of the county where the arbitration took place. Generally the law which would apply
to the filling of award, its enforcement and its setting aside would be the law governing
the agreement to arbitrate and the performance of the agreement.53 Competency of the
arbitral tribunal is a ground under which the award can be set side. During the process of
enforcement of arbitral awards also, the court has the power to review the awards when
there exists any element of incompetence of the arbitral tribunal. Incompetence may
arise due to, improper appointment of arbitrators, bias on the part of the arbitrators or due
to the lack of jurisdiction of the tribunal.

E. Fairness in the Procedure

Procedural irregularities or unfairness in the procedure is another ground on which

an award can be reviewed during the process of enforcement. Arbitrator, as an impartial
judge, has to comply with the procedure envisaged by the rules adopted by the parties.
Any kind of non-compliance with the procedure can lead to non-enforceability.

F. Award Not Becoming Final

Enforcement of a foreign award may be refused, on the request of the party if he

proves that the award has not yet become binding on the parties or has been set aside or
suspended by a competent authority of the country in which or under the law of which
county, that award was made. If a party has made an appeal regarding the competence of
the arbitrator or any defect in the arbitration procedure, before the prescribed authority
of the country where the award is made, or the time for making such an objection or

53
P.M. Bakshi, “Arbitration law”, 33-34, Annual survey of Indian law, 71 (1997-1998).
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 13

appeal has not expired, the award cannot be enforced. It would be binding if such
objection has been rejected or such time has expired. The Supreme Court had considered
this aspect in Tans Ocean Shipping Co. Ltd. v. Black Sea Shipping Co. Ltd.54
But in Renusagar Power Co. Ltd. v. Black Sea Shipping Co. Ltd.,55 the Supreme
Court held that for the enforcement of a foreign award the finality of the award in the
foreign country is not necessary. According to the Court, once it is held that the award is
a foreign award, the provisions of the Act would apply.

G. Award Beyond the Scope of Submission to Arbitration

Arbitral process, unlike a judicial one, is a consensual resolution of disputes. It

recognizes the parties, freedom to refer their disputes to arbitration. The parties have also
the liberty to choose the place of arbitration and the law applicable to the proceedings as
well as the subject matter of dispute. If the arbitrator passes an award without
considering these factors, that is liable to be set aside. Apart from this, the nature of the
foreign arbitral award is also considered by the Supreme Court while dealing with
enforcement. This matter was discussed in Harendra H. Metha v. Mukesh H. Mehta.56
The Court identified the following ingredients,
1. The award should be made on an arbitration agreement governed by the New
York Convention or the Geneva Convention and not by the Indian Law
2. The agreement involved must be an agreement considered as commercial under
the law in force in India.
3. The award must be made outside India. However in another case, the Supreme
Court has observed that, an award on the arbitration agreement governed by law
of India, although the dispute was with a foreigner and the arbitration was held
and made in a foreign country was not a foreign award.57

It is also not necessary that the parties should belong to two different countries or be
subject to different national jurisdictions. The award is recognised as ‘foreign award’
54
(1999) 96 Com. 367 (SC).
55
(1984) 4 S.C.C. 679.
56
(1999) 97 Com. Cas 265 (SC).
57
National Thermal Power Corporation v. Singer Co., AIR 1993 SC 998.
14 Asia Law Review [Vol. 4, No.2 : ??~??

only if it is made in a foreign country on the basis of an arbitration agreement not

governed by the law of India. Where the parities to the contract expressly state that the
laws applicable to the contract would be the laws enforced in India and that the Indian
Courts would have exclusive jurisdiction in all mattes arising under the contract, the
arbitral award is not a foreign award.58

H. Commercial Nature of the Arbitration Agreement

For the enforcement of the foreign award, it is essential that the subject matter should
be of commercial nature under the law in force in India. This means that the transaction
between the parties to the agreement must be one falling under the commercial category.
The Bombay High Court in European Grain and Shipping Ltd, v. Bombay Electronics
Pvt. Ltd.,59 held that the mere use of the word ‘under’ preceding the words ‘the law in
force in India’ would not necessarily mean that one has to find out a statutory provision
or a provision of law which specifically deals with the subject of the particular
relationship being commercial in nature. It is not necessary that there should be a
statutory provision enumerating such legal relationship for determining whether the
relationship is commercial or not. The Court went on saying that the contract in that case
which was for the sale and purchase of a commodity was clearly a contract which
brought about legal relationship of a commercial nature under the Indian law. In R.M.
Investment & Trading Co. Ltd. v. Boeing Co., 60 the Supreme Court gave a liberal
construction to the phrase ‘commercial’. It was held that the relationship between the
R.M. Investment Co. and Boeing Co. arising out of an agreement where under the
former was to provide the latter with consultancy services for the sale of Boeing aircrafts
in India, was commercial. The word commercial embraces every phase of commercial
and business activity, which turns out to be a source of any gain, profit, benefit or
advantage to the parties.

58
Supra n. 55.
59
AIR 1983 Bom. 36.
60
AIR 1994 SC 1136.
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 15

I. Subject Matter Not Capable of Being Arbitrated

What is arbitral is the dispute between the persons arising out of legal relationship
whether contractual or not, considered as commercial in accordance with the law in
force in India in pursuance of an agreement. If the court is satisfied that the dispute is not
capable of settlement by arbitration, enforcement can be refused. An arbitrator can
arbitrate only an arbitrable dispute.61 What is arbitrable is a matter, which the disputants
may settle by arbitration agreement. For example, non-payment of a debt, which is
acknowledged and admitted, cannot be submitted to arbitration. It is the case with
matrimonial disputes. But now days even matrimonial disputes are being referred to
arbitration. Matters, which fall within the jurisdiction of the specified statutory tribunals,
are determined only by them and are outside the purview of arbitration. Income-tax
disputes, other tax disputes and industrial disputes cannot be a subject matter for
arbitration. So also, disputes relating to title to immovable properties in a foreign country
is not arbitrable.62 But what is seen today is that the scope of resolution of disputes
through arbitration is widening day by day.

J. Award Against Public Policy

An award contrary to the substantive provisions of law or the provisions of the

Arbitration and Conciliation Act, 1996 or against the terms of the contract would be
patently illegal and opposed to the public policy of India. If it affects the rights of the
parties would be open to interference by the court under section 34(2) of the Act of
199663. This assumes important in the light of the fact that it is a major ground for
refusing the enforcement of awards without insisting upon the proof from the opposite
party. The arbitrator has to explain convincingly how the result reached is compatible
with the public good. The arbitrator would enhance the likelihood of the award’s being
sustained by the confronting policy issues.64 In Renusagar Power Co. Ltd. v. General

61
Tamil Nadu Electricity Board v. Bridge Tunnel Construction Co., AIR 1997 SC 1376.
62
Nachia Chettiar v. Subrahmanian Chettiar, AIR 1960 SC 307.
63
Hindustan Zinc Ltd. v. Friends Coal Carbonisation, (2006) 4 SCC 445.
64
Thedore. J. Antoine, “Arbitration and Judicial Review”, The University of Michigan Law School Law
Quandrangle Notes, Fall/Winter, 108 (2000).
16 Asia Law Review [Vol. 4, No.2 : ??~??

Electric Co.,65 the Supreme Court, while considering the provision of Foreign Exchange
Regulation Act, 1974, held that the enforcement of a foreign award would be refused on
the ground that it was contrary to the public policy.
The Bombay High Court defined public policy in Mukesh H. Mehta v. Harendra H
Mehta.66 Accordingly an award is against public policy if it is contrary to;
1. The fundamental policy of Indian law
2. The interest of India
3. Justice or morality

Fundamental Policy of Indian Law

The fundamental policy of the Indian law is to make available cheap and speedy
justice, free from time consuming and expensive court procedures. It favours efficient
dispute resolution where the parties have chosen arbitration, their own arbitrators,
procedures to be followed in arbitration and place of arbitration. In the case of a foreign
award, it can be decided in accordance with the law of international forum, if agreed
upon. The Indian law takes into consideration the term public policy in a strict sense so
that, it may not affect the opposite party to his detriment.67 Public policy is equivalent to
the policy of law. Whatever tends to injustice, restraint of liberty, commerce and natural
or legal rights are against public policy of India. When obstruction of justice or the
violation of a statute or good moral is made the object of a contract it is against the
welfare of public and therefore not susceptible to enforcement. 68 What is the
fundamental policy of India has to be looked into from the angle of Indian law and the
courts should exercise proper care in assuring that the decision itself is not going against
the public policy of India. Principles of public policy have been crystallised under
different heads and courts can expound and apply them to different situations. Executive
while making a sub-ordinate legislation cannot open new heads of public policy at its
whims69.

65
(1994) 81 Com. Cas. 171.
66
(1998) 92 Com. Cas. 402 (Bom).
67
Supra n. 64.
68
Kolaparti Venkatareddi v. Kolaparti Peda Venkatachalam, AIR 1964 AP 465.
69
State of Rajastan v. Basant Nahate (2005) 12 SCC 77.
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 17

Interest of India
The second aspect of public policy of India is the interest of India. Arbitration,
especially international commercial arbitration, deals with disputes of international
relevance involving huge monetary value. The law relating to management of foreign
exchange has a national economic interest and it ensures that the nation does not loose
foreign exchange, which is very essential for the economic survival of the country. In
Trans Ocean Shipping Agency (p) Ltd.v. Black Sea Shipping Co. 70, the Supreme Court
explained that the rules of public policy are to be enforced against arbitral awards
because it is one of the determining factors of a nation’s stable economy.
Interest of India includes everything that is for the public good and welfare of the
nation.71 The arbitrator shall be loyal to the parties whose dispute he has to resolve.
Whenever there exists an element of bias or misconduct on the part of the arbitrator, it
will vitiate the award.

Justice and Morality

Justice and Morality are the grounds for refusal of enforcement. An award, which
spreads inequity, is certainly against the public policy. Therefore what the court has to
look into is whether there is any infringement of any essential morality or not. Public
policy on the grounds of justice and morality also requires that the arbitrator is to act
fairly, in good faith, without bias and in judicial temper. When there is any violation of
these principles, the question of public policy comes into question.72
The Arbitrator, as an appointed authority by the parties, has to adhere to certain basic
principles of justice, morality and impartiality. If the arbitrator acts against these
principles, the award can be set-aside under the grounds of public policy.73 Enforcement
of foreign arbitral award may be denied on the ground of public policy only where
enforcement would violate the forum state’s most basic notions of morality and justice.
So in the case of foreign awards, the term public policy is used in a very narrow sense. In
order to attract the bar of public policy the enforcement of the award must invoke

70
(1999) 96 Com. Cas. 367 (SC).
71
Secretary Jaipur Development Authority v. Daulat Mal Jain, (1997) I SCC 35.
72
Supra n.15
73
Trance Ocean Shipping Agency (p). Ltd. v. Black Sea Shipping co., (1992) 96 Comp. Cas. 367 (SC).
18 Asia Law Review [Vol. 4, No.2 : ??~??

something more than the violation of the law of India.

VIII. Burden of Proof

The party applying for the enforcement of a foreign award shall at the time of
application, produce before the court the original copy or authenticated copy of the
award in the manner required by the law of the country in which it was made and also
other evidences proving the finality of the award.74 But when the issue of objections as to
enforceability of the award comes, the situation is different. The party against whom the
award is going to be enforced has the burden of proving that the award is not binding on
him as it falls within the grounds for setting aside an award. The presumption of validity
of the award can be challenged by the party upon furnishing evidences to prove the
infirmities in the award. The court after looking into those evidences has to reach a fair
conclusion. The provision in the Act is applicable to agreements entered prior to the
coming into force of the 1996 Act also. A learned writer has opined that, the nature and
extent of the power of an enforcing court to decline enforcement of a foreign award in
India on the ground that its enforcement contravenes public policy, lies in the legislative
history of the provision of Section 7(1) (b) (ii) of the erstwhile Foreign Awards
(Recognition and Enforcement) Act, 1961.75
From the plain reading of the grounds enumerated here, it becomes clear that the
courts have been given ample freedom to decide the enforceability of an arbitral award.
This freedom is more in cases of international commercial arbitration awards. This
freedom or the discretion given to the court will definitely impair the objectives of
arbitration process. The increased judicial intervention is what is intended by the
proposed amendment.76 Though there is no direct impact of these amendments to the
enforcement of foreign awards, it can indirectly affect the speedier enforcement. The
problems of reciprocity mentioned in the conventions in a way prompts non-parties to

74
Ss. 56(1)(a) and 56 (1) (b) of the Arbitration and Conciliation Act, 1996.
75
K.I. Vibhute, “Enforcement of Foreign Commercial Arbitral Awards”, N.M. Tripathi Private Ltd.,
Bombay (1994), p.114.
76
D.M.Popat, “Law of Arbitration and Alternate Dispute Resolution”, 32 Chartered Secretary, 998 (2002).
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 19

become a party to the convention.

IX. Rules of Major Arbitral Institutions Regarding Scrutiny

of Arbitral Awards

Rules of the International Chamber of Commerce require the scrutiny of the award
by the court77 as a condition for the enforceability of the award. When this is done, the
award becomes binding on the parties.78 The American Arbitration Association rules do
not contain any specific provision regarding enforcement of arbitral awards. The award
passed by the tribunal is treated as final and binding on the parties.79 Rules of the London
Court of International Arbitration makes all awards made under in final and binding on
the parties.80 Its rules say that, the decisions of the LCIA court with respect to all matters
relating to the arbitration shall be conclusive and binding upon the parties and the
Arbitral Tribunal.81

X. Conclusion

The validity of any arbitral award depends upon the issues of finality and
enforcement of arbitration awards. The whole process of arbitration will become futile
unless the award is enforced. In this era of increasing world trade, more and more
companies are trying to resolve their disputes through arbitration. Such arbitration
decides the complex problems of the international trade law. The parties resort to
arbitration process to avoid huge costs and to get a speedy remedy. The Arbitration and
Conciliation Act, 1996, deals with the enforcement of foreign awards in the light of

77
Rules of arbitration of the International Chamber of Commerce, art. 27. It reads, “Before signing the
award the arbitral tribunal shall submit it in draft form to the court. The court may lay down modifications
as to the form of the award and without affecting the arbitral tribunal’s liberty of decision. No award shall
be rendered by the Arbitral Tribunal until it has been approved by the court as to its form”.
78
Id., art. 28 (6).
79
Rules of the American Arbitration Association, art.27(1).
80
Rules of the London Court of International Arbitration, art. 26.9.
81
Id., art.29.1.
20 Asia Law Review [Vol. 4, No.2 : ??~??

conventions, especially the UNCITRAL Model Law. The Act gives ample powers to the
national courts in the matter of enforcement.
Differences in the national laws may cause hurdles in the way of enforcement. This
is due to the autonomy given to the states in the sphere of municipal laws. Lack of
uniformity in the matter of condition of enforcement of arbitral awards is a great burden
to the parties. Whether the creation of an alternate forum can help the parties in the
process of enforcement is a matter to be looked in to. An international forum created for
the enforcement of arbitral awards can keep a check on judicial interference. This may
be useful in ensuring uniformity in the law of enforcement of arbitral awards.

References

Statutes
• The Arbitration and Conciliation Act, 1996
• The Arbitration Act, 1940
• The Code of Civil Procedure, 1908
• The Registration Act, 1908
• The Indian Contract Act, 1872
• The Foreign Awards (Recognition and Enforcement) Act, 1961
• The Arbitration (Protocol and Convention) Act, 1937
• The English Arbitration Act, 1996
• The Uniform Arbitration Act, 1955
• The United States Federal Arbitration Act, 1925

Books
• Anthony Walton and Mary Victoria, Russel on Arbitration, Stevens and Sons Ltd.,
London (20th Edn. — 1982)
• D.P. Mittal, Law of Arbitration ADR and Contract, Taxmann Allied Services (P)
Ltd., New Delhi (2nd Edn. - 2001)
• G.K. Kwatra, The Arbitration and Conciliation of Law in India, The Indian
Council of Arbitration, New Delhi (2002)
• Garry. B. Bom, International Commercial Arbitration, Transnational Publishers
and Kluwer Law International, New York (2nd Edn. —2001)
• J.H.C. Morn’s et.al, Dicey’s Conflict of Laws, Stevens and Sons Ltd., London (7th
Edn. - 1958)
2007] Finality and Enforcement of Foreign Arbitral Awards: Reflections on the Indian Arbitration Law 21

• Justice D.B.P. Saraf and Justice. B.M. Jhunghunwala, Law of Arbitration and
Conciliation, Snow-white Publishers, Mumbai (2nd Edn. - 2000)
• K.I. Vibhute, Enforcement of Foreign Commercial Arbitral Awards, N.M.
Tripathi Pvt. Ltd., Bombay (1994)

Articles
• Adv. M.A. Sujan, “Accountability of an Arbitrator”, AIR 2002, 66(Jour)
• Arvindya Kumar Mitra, “Domestic Arbitration and its Efficacy”, 35 ICA
Arbitration Quarterly, 55 (2003)
• Aswin Kumar Bansal, “India as a center of international Arbitration”, 32
Chartered Secretary, 1414 (2002)
• D.M.POPAT, “Law of Arbitration and Alternate Dispute Resolution”, 32
Chartered Secretary, 998 (2002)
• Dr. K.I. Vibhute, “International Commercial Arbitration Some Reflections on its
Problems and Perspectives”, (1995) I S C C 7 (Jour)
• G. Krishna Murthy and Ky. Satyanarayana, “ADR Arbitration Law in India”, 32
Chartered Secretary, 1127 (2002)
• G. Reghuraman, “Salient Features of the New Law of Arbitration”, (1996)2 Comp.
L.J.84 (Jour)
• Geoffrey. M. Beresford Hortwell, “Arbitration — A Commercial Man’s way to
Justice”, 32 Chartered Secretary, 984 (2002)
• Jaya V S , “ Competency and Jurisdiction of Arbitral Awards: Some Issues”,
XXVI DLR (2004)
• Thedore. J. Antoine, “Arbitration and Judicial Review”, The University of
Michigan Law School Law Quandrangle Notes, Fall/Winter, 108 (2000).
• P.M. Bakshi, “Arbitration law”, 33-34, Annual survey of Indian law, 71
(1997-1998)
• M. Dhyan Chinnappa, “Enforcement of Arbitral Awards”, (2002) 8 SCC 41
(Jour).
• Sanjay P. Gogia, “Need for a New International Court for Enforcement”, 30 IJIL
80 (1996).

Reports
• 16th Law Commission of India, 176th Report on Arbitration, 2002
• The Civil Justice Committee Report, 1925
• The United Nations Commissions on International Trade, Draft Model Law, 1984

International Documents
• General Agreement on Tariff and Trade, 1948.
22 Asia Law Review [Vol. 4, No.2 : ??~??

• International Arbitration Rules of American Arbitration Association, 1997

• Rules of Arbitration of International Chamber of Commerce, 1998
• The Geneva Convention, 1958
• The Geneva Protocol, 1923
• The London Court of International Arbitration Rules, 1998
• The UNCITRAL Model Law, 1985
• World Trade Organization, 1994