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_______________________________

JAMIA MILLIA ISLAMIA,


FACULTY OF LAW
_______________________________

________________________________
CLINICAL-III ASSIGNMENT ON
RECOURSE AGAISNT
ARBITRAL AWARD
_______________________________

SUMITTED TO: SUBMITTED BY:


DR. S.Z. AMANI SAMIRAH KHAN
(IXSEM)(SEC A)

1
Acknowledgement

Firstly, I would like to express my profound sense of gratitude towards the almighty for
providing me with the authentic circumstances which were mandatory for the completion
of my project.

Secondly, I am highly indebted to Amani Sir at Faculty of Law, Jamia Millia Islamia
University, New Delhi for providing me with constant encouragement and guidance
throughout the preparation of this project.

My cardinal thanks are also for my parents, friends and all teachers of law department in
our college who have always been the source of my inspiration and motivation without
which I would have never been able to unabridged my project.

Samirah Khan

2
SYNOPSIS

Introduction

Background To Arbitration Legislation

Constitutional Validity Of Section 34

Features Of Arbitral Award


o Advantages
o International Recognition Of Arbitral Awards
o Neutrality
o Specialized Competence Of Arbitrators
o Speed And Economy

Confidentiality

New York Convention

Setting Aside An Arbitral Award

Award Amount

Interference Of The Court

Challenge To Awards Or Grounds For Setting Aside Awards.

Public Policy

Foreign Arbitral Awards Post Ongc Approach

Steps For Enforcement Of Arbitral Award.

Enforceable Awards

Unenforceable Awards

Enforcement And Execution

Conclusion

3
ARBITRATION AWARD-INTRODUCTION
Arbitration Award is a determination on the merits by an arbitration tribunal in arbitration,
and is analogous to the judgment in the Court of Law. Arbitration is particularly a means of
dispute resolution in the commercial sphere. One of the reasons for doing so is that in
international trade it is often easier to enforce a foreign arbitral award than to enforce a
judgment of the Court. The closing decades of the twentieth century saw arbitration gain
worldwide acceptance as the normal means of resolving commercial disputes. National laws on
arbitration have been modernized on all continents. The Arbitration & Conciliation Act, 1996 is
one such step by India to make the arbitration law more responsive to contemporary
requirements, taking into account the Model law and Rules adopted by the United Nations
Commission on International Trade Law (UNCITRAL). International treaties on arbitration
have been signed or adhered to with impressive success. With the gradual removal of political
and trade barriers and the rapid globalization of the world economy, new challenges have been
created for arbitration institutions in response to the growing demand of parties for certainty
and predictability, greater rapidity and flexibility as well as neutrality and efficacy in the
resolution of disputes.

Arbitration is a legal process, which takes place outside the courts, but still results in a final and
legally binding decision similar to a court judgment. Arbitration is a flexible method of dispute
resolution, which can give a quick, inexpensive, confidential, fair and final solution to a dispute.
It involves the determination of the dispute by one or more independent third parties rather
than by a court. The third parties, called arbitrators, are appointed by or on behalf of the parties
in dispute1. The arbitration is conducted in accordance with the terms of the parties' arbitration
agreement, which is usually found in the provisions of a commercial contract between the
parties.

For an arbitration to take place, the disputing parties must agree to take their dispute to
arbitration. In practice, this agreement is often made before the dispute arises and is included as
a clause in their commercial contract. In signing a contract with an arbitration clause, the
parties are agreeing that their dispute will not be heard by a court but by a private individual or
a panel of several private individuals. If parties have agreed to arbitration, they will generally
have to go to arbitration rather than court as the courts will normally refuse to hear their case
by staying it to force the reluctant party to honour their agreement to arbitrate.

1
] I.e. the Arbitration & Conciliation Act 1996 (No 26 of 1996) (the 1996 Act).

4
BACKGROUND TO ARBITRATION LEGISLATION
The Indian law of arbitration is contained in the Arbitration and Conciliation Act 1996 (Act).1
The Act is based on the 1985 UNCITRAL Model Law on International Commercial
Arbitration and the UNCITRAL Arbitration Rules 1976. The Statement of Objects and
Reasons of the Act recognises that Indias economic reforms will become effective only if the
nations dispute resolution provisions are in tune with international regime. The Statement of
Objects and Reasons set forth the main objectives of the Act as follows:

i) to comprehensively cover international and commercial arbitration and conciliation as also


domestic arbitration and conciliation; ii) to make provision for an arbitral procedure which is
fair, efficient and capable of meeting the needs of the specific arbitration;

iii) to provide that the arbitral tribunal gives reasons for its arbitral award;

iv) to ensure that the arbitral tribunal remains within the limits of its jurisdiction;

v) to minimise the supervisory role of courts in the arbitral process;

vi) to permit an arbitral tribunal to use mediation, conciliation or other procedures during the
arbitral proceedings to encourage settlement of disputes;

vii) to provide that every final arbitral award is enforced in the same manner as if it were a
decree of the court;

viii) to provide that a settlement agreement reached by the parties as a result of conciliation
proceedings will have the same status and effect as an arbitral award on agreed terms on the
substance of the dispute rendered by an arbitral tribunal; and

ix) to provide that, for purposes of enforcement of foreign awards, every arbitral award made
in a country to which one of the two International Conventions relating to foreign arbitral
awards to which India is a party applies, will be treated as a foreign award.

The old law

Prior to January 1996, the law of enforcement of arbitration awards in India was spread
between three enactments. Enforcement of domestic awards was dealt with under a 1940
Act.2Enforcement of foreign awards was divided between two statutes a 1937 Act3 to give e
ect to the Geneva Convention4 awards and a 1961 Act5 to give e ect to the New York
Convention6 awards.

2
Ie the Arbitration Act, 1940 (No 10 of 1940) (the 1940 Act
3
Ie the Arbitration (Protocol & Convention) Act 1937 (No 6 of 1937) (the 1937 Act
4
Ie the Convention on the Execution of Foreign Arbitral Awards (Geneva, 26 September 1927) (the Geneva
Convention). India became a signatory to this Convention on 23 October 1937 (one amongst six Asian nations to
become a signatory).

5
As the Geneva Convention became virtually otiose (by reason of Art VII of the New York
Convention), enforcement of foreign awards, for all practical purposes, came under the 1961
Act and domestic awards came under the 1940 Act. The enforcement regime between these two
statutes was, however, quite distinct. The 1961 Act confined challenge to an arbitral award
only on the limited grounds permitted under the New York Convention. The scope of
challenge to domestic awards under the 1940 Act was much wider. This Act permitted judicial
scrutiny, inter alia, on the ground that the arbitrator had misconduct himself or the
proceedings7 an expression which came to be widely interpreted and awards were interfered
with, inter alia, on the ground of fundamental errors of law apparent on the face of the record.
However, even under this wide judicial scrutiny regime, courts restrained themselves and
interfered only when the error was grave and the judicial conscience was shocked. It may be
worthwhile to cite a couple of illustrative cases.

In the case of State of Rajasthan v Puri Construction Co Ltd,8the Supreme Court held:

over the decades, judicial decisions have indicated the parameters of such challenge consistent
with the provisions of the Arbitration Act. By and large the courts have disfavoured interference
with arbitration award on account of error of law and fact on the score of mis-appreciation and
misreading of the materials on record and have shown de nite inclination to preserve the award
as far as possible. This court has held that the court does not sit in appeal over the award and
review the reasons. The court can set aside the award only if it is apparent from the award that
there is no evidence to support the conclusions or if the award is based upon any legal proposition
which is erroneous.

In the case of State of UP v Allied Constructions,9 the court held:

the arbitrator is a judge chosen by the parties and his decision is final. The court is precluded
from reappraising the evidence. Even in a case where the award contains reasons, the interference
therewith would still be not available within the jurisdiction of the court unless, of course, the
reasons are totally perverse or the judgment is based on a wrong proposition of law. An error
apparent on the face of the records would not imply closer scrutiny of the merits of documents and
materials on record. Once it is found that the view of the arbitrator is a plausible one, the court
will refrain itself from interfering (see UP SEB v Searsole Chemicals Ltd (2001) 3 SCC 397
and Ispat Engg & Foundry Works v Steel Authority of India Ltd (2001) 6 SCC 347).

5
Ie the Foreign Awards (Recognition & Enforcement) Act 1961 (No 45 of 1961) (1961 Act
6
Ie the Foreign Awards (Recognition & Enforcement) Act 1961 (No 45 of 1961) (1961 Act
7
The 1940 Act, s 30(a).
8
(1994) 6 SCC 485.
9
(2003) 7 SCC 396

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CONSTITUTIONAL VALIDITY OF SECTION 34
In TPI Ltd Vs Union of India 10, in a writ petition, it was contended by the petitioner that a
right to challenge an arbitral a-ward on merits should be present, and in the absence of the
same, section 34 would be unconstitutional. The court dismissed the write petition and stated
that the matter in question was not related to judicial review of a tribunal decision created
under any statute or any administrative action. The arbitration is an alternate forum for
redressal of disputes, and is selected by the parties of their own free will and they agree to the
arbitrator's decision by means of a mutual agreement or contract, which gives a go by to the
normal judicial forum otherwise available to the parties. There is no compulsion or imposition
by any statute compelling the parties to resort to arbitration if a dispute arises.

When the parties have chosen the forum of arbitration and the arbitrator of their choice, it is
not necessary to make a provision for appeal against the award rendered by the arbitrator. The
legislature has the power to specify the grounds on which an award can be challenged and it
would be permissible for the party to challenge the award only on those grounds. If it were
permissible for the court to re-examine the correctness of the award, the entire proceedings
would amount to a futile exercise.

10
(2001) 2 AD (Del) 21

7
FEATURES OF ARBITRAL AWARD
Advantages
Among the available dispute resolution alternatives to the courts, arbitration is by far the most
commonly used internationally. The reasons for this are clear i.e final, binding decisions11.
While several mechanisms can help parties reach an amicable settlement - for example through
mediation or conciliation - all of them depend, ultimately, on the goodwill and cooperation of
the parties. A final and enforceable decision can generally be obtained only by recourse to the
courts or by arbitration. Because arbitral awards are not subject to appeal, they are much more
likely to be final than the judgments of courts of first instance. Although arbitral awards may
be subject to being challenged, the grounds of challenge available against arbitral awards are
limited. The award given by the arbitrator is equivalent to a decree of a court of law and the
same can be executed directly, without making it a decree of the court.

International recognition of arbitral awards

Arbitral awards enjoy much greater international recognition than judgments of national
courts. About 120 countries have signed the 1958 United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, known as the "New York
Convention". The Convention facilitates enforcement of awards in all contracting states. There
are several other multilateral and bilateral arbitration conventions that may also help
enforcement.

Neutrality
In arbitral proceedings, parties can place themselves on an equal footing in five key respects:
Place of arbitration, Language used, Procedures or rules of law applied, Nationality and Legal
representation. Arbitration may take place in any country, in any language and with arbitrators
of any nationality. With this flexibility, it is generally possible to structure a neutral procedure
offering no undue advantage to any party.

Specialized competence of arbitrators

Judicial systems do not allow the parties to a dispute to choose their own judges12. In contrast,
arbitration offers the parties the unique opportunity to designate persons of their choice as
arbitrators, provided they are independent. This enables the parties to have their disputes
resolved by people who have specialized competence in the relevant field.

Speed and economy

Arbitration is faster and less expensive than litigation in the courts. Although a complex
international dispute may sometimes take a great deal of time and money to resolve, even by
arbitration, the limited scope for challenge against arbitral awards, as compared with court
11
] I.e. the Arbitration & Conciliation Act 1996 (No 26 of 1996) (the 1996 Act).
12
I.e. the Arbitration & Conciliation Act 1996 (No 26 of 1996) (the 1996 Act).

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judgments, offers a clear advantage. Above all, it helps to ensure that the parties will not
subsequently be entangled in a prolonged and costly series of appeals. Furthermore, arbitration
offers the parties the flexibility to set up proceedings that can be conducted as quickly and
economically as the circumstances allow.

Confidentiality
Arbitration hearings are not public, and only the parties themselves receive copies of the
awards.

In January 1996, India enacted a new Arbitration Act. This Act repealed all the three previous
statutes (the 1937 Act, the 1961 Act and the 1940 Act).13The new Act has two significant parts.
Part I provides for any arbitration conducted in India and enforcement of awards there under.
Part II provides for enforcement of foreign awards. Any arbitration conducted in India or
enforcement of award there under (whether domestic or international) is governed by Part I,
while enforcement of any foreign award to which the New York Convention or the Geneva
Convention applies, is governed by Part II of the Act.

13
I.e. the Arbitration & Conciliation Act 1996 (No 26 of 1996) (the 1996 Act),S. 85

9
NEW YORK CONVENTION

Under the New York Convention the enforcement court may refuse the recognition only upon
the grounds expressly provided by Article V. The list is exhaustive and excludes any revision
of the merits of the award, and the court may decline the request for refusal even when there
are certain grounds to set the award aside. This Convention and the Model Law distinguish
between grounds that must be raised by the opposing party and those that can be raised by the
court. In this latter case, the court may raise either the non-arbitrability of the subject matter
or the recognition and enforcement will be contrary to the public policy.14

SETTING ASIDE AN ARBITRAL AWARD

Like other ways of dispute settlement, the process of arbitration, to work effectively needs the
support of the system of law. Earlier, the provisions on arbitration were laid down in three
different enactments, namely, The Arbitration Act, 1940, which dealt with the domestic
awards, The Arbitration (Protocol And Convention) Act, 1937 and The Foreign Awards
(Recognition and Enforcement) Act, 1961, which basically dealt with foreign awards.

The Arbitration Act, 1940 and also the Acts of 1937 and 1961 were then repealed by The
Arbitration and Conciliation Act, 1996. This modern law seeks to provide for an effective mode
of settlement of disputes between the parties, both for domestic and also for international
commercial arbitration.

It is clear an evident that an arbitral award will be binding on the parties. However under
section 34 read with section 37 of the Act it is provided that an arbitral award can be appealed
against on limited question of fact and law. Section 34 lays down the grounds on which an
award passed by the arbitral tribunal can be set aside, and at the same time section 37
enumerates when an award can be appealed against. These include capacity of a party,
invalidity of arbitration agreement, violation of principles of natural justice and the exceeding
of terms of reference by arbitrator. The only residuary ground on which the Court can go into
the merits of the award is the public policy, which is always subject to circumstances and
interpretation.

AWARD AMOUNT

An award, according to The Arbitration Act, 1996 will be considered valid if it satisfies two
conditions, which are:

it must be certain, and

it must contain the decision.

14
Loukas Mistelis and Julian Lew. Pervasive Problems in International Arbitration. Pag. 178.

10
The award should not leave any matters to be discussed subsequently and it should clearly
mention and define the duties and liabilities imposed on the parties. It must be clear and
unambiguous and final in relation to the issues and claims with which it deals.

In Union of India Vs Punjab Communications Ltd, the amount which was payable by the
objector to the respondent was not specified in the award and the claim for the amount which
has been denied by it was incomplete, ambiguous and incapable of being implemented or
enforced, therefore the award was liable to be set aside.

INTERFERENCE OF THE COURT

The grounds for objecting an award under section34 and section 37 are now made common to
purely domestic awards as well as international arbitration awards. The principle of least court
interference seems fine when it is applied to international arbitration awards. The same,
though, cannot be said with respect to domestic awards as many a times the awards passed in
India are passed by lay men who are not very well acquainted with law. Thus, unlike with
international awards, interference with awards given in domestic matter should not be
restricted.

Amongst states which have a developed arbitration law, it is generally recognized that more
freedom may be allowed in an international arbitration than is commonly allowed in a domestic
arbitration. The reason is evident. Domestic arbitration usually takes place between the citizens
or residents of the same state, as an alternative to proceedings before the courts of law of that
stateit is natural that a State should wish (and even need) to exercise firmer control over
such arbitrations, involving its own residents or citizens than it would wish (or need) to
exercise in relation to international arbitrations which may only take place within the states
territory because of geographical convenience.

The above passage supports the view that in the matter of purely domestic arbitrations
between Indian nationals, the State can desire that its courts should have greater or firmer
control on the arbitrations.

11
CHALLENGE TO AWARDS OR GROUNDS FOR SETTING ASIDE
AWARDS.
Setting Aside An Arbitral Award

In every arbitral proceeding, an arbitrator has to be appointed who finally makes an award
which is called the arbitral award. The contents of the award have to be written and signed by
the arbitrator and the reasons for the award have to be stated unless stated otherwise.

As mentioned above, section 34 provides for provision on the basis of which an arbitral award
can be set aside, and if an award is declared to be void then the whole purpose and object of the
act gets nullified. Thus, the arbitrator has to take extra care while making an award, but how
much care should be taken is the question without the answer.

An appeal to set aside an award has to be strictly made by the aggrieved party within 3 months
from the date the award was received by it. A request can also be made under section 33,
provided that the court is satisfied that there was a sufficient cause for the delay, thereby
allowing the appeal to set aside an award to be made within 30 days after the 3 month period.
Hence the award should be challenged timely as per the provision of section 34(3) of the Act.

According to section 34(2), an award maybe set aside on the application of an aggrieved party.
Under certain circumstances, the court can set aside the award made by the arbitral tribunal
even without an application made by the party.

The grounds, mentioned in section 34(2) under which a party can make an application to the
court to set aside an award are as follows:

When the party making the application was incapacitated to enter the agreement.

The arbitration agreement, to which the parties are subjected, is not valid under the
law.

A proper notice of appointment of arbitrators, or of the arbitral tribunal was not given
to the party making the application.

Arbitral award deals with a dispute not contemplated by the parties or beyond the term
of submission.

Composition of the Arbitral Award was not in accordance with the agreement of the
parties.

Subject-matter of dispute is not capable of settlement by arbitration under the law for
the time being in force.

The arbitral award is in conflict with the public policy of the country.

12
Once an application of setting aside the arbitral award is preferred under section 34, the
executing court has no jurisdiction to enforce the award, until and unless the application under
section 34 is dismissed or refused. This is a marked departure from even the normal rule under
the Code of Civil Procedure, 1908 where an executing court can execute the decree if there
exists no stay by the appellate court. In the opinion of the author, this ought not to have been
the position under the new Act. Enforcement of the award should be permitted unless there is a
stay by the court hearing an application under section 34.

DOMESTIC ARBITRAL AWARD

Part I of the 1996 Act is modelled on the UNCITRAL Model Law15 and the UNCITRAL
Arbitration Rules16 with few departures. The relevant provisions are briefly outlined below.
Section 13 of the 1996 Act, corresponding to Art 13 of the Model Law, provides for challenge
to an arbitrator on the ground of lack of independence or impartiality or lack of qualification. In
the first instance, a challenge is to be made before the arbitral tribunal itself.17 If the challenge
is rejected, the tribunal shall continue with the arbitral proceedings and make an award.18
Section 13(5) of the 1996 Act provides that where the tribunal overrules a challenge and
proceeds with the arbitration, the party challenging the arbitrator may make an application for
setting aside the arbitral award under s 34 of the 1996 Act (corresponding to Art 34 of the
Model Law). Hence, approach to a court is only at the post-award stage. This is a departure
from the Model Law which provides for an approach to the court within 30 days of the arbitral
tribunal rejecting the challenge.19 The second departure from the Model Law (relevant to
enforcement) is to be found in S. 16 of the 1996 Act (corresponding to Art 16 of the Model
Law). Section 16 incorporates the competence-competence principle and enables the arbitral
tribunal to rule on its jurisdiction, including with respect to the existence or validity of the
arbitration agreement. If the arbitral tribunal rejects any objection to its jurisdiction, or to the
existence or validity of the arbitration agreement, it shall continue with the arbitral
proceedings and make an award.20 Section 16(6) of the 1996 Act provides that a party
aggrieved by such award may make an application for setting aside the same in accordance with
S.34. Article 16 of the Model Law, in contrast, provides that where the arbitral tribunal
overrules any objection to its jurisdiction, the party aggrieved with such decision may approach
the court for resolution within 30 days. The Indian Act permits approach to the court only at
the award stage (and not during the pendency of the arbitration proceedings). Hence, Section
13(5) and 16(6) of the 1996 Act furnish two additional grounds for challenge of an arbitral

15
I.e. the Arbitration & Conciliation Act 1996 (No 26 of 1996) (the 1996 Act),S. 85
16
Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), General Assembly
Resolution 31/98, adopted on 15 December 1976 (the UNCITRAL Arbitration Rules).
17
The 1996 Act, s 13(2)
18
The 1996 Act, s 13(2)
19
The Model Law, Art 13(3).
20
The Model Law, Art 13(3).

13
award (over and above the ones stipulated in s 34 of the 1996 Act referred to below). Section 34
of the 1996 Act contains the main grounds for setting aside the award. It is based on Art 34 of
the Model Law and, like Art 34, states that the grounds contained therein are the only
grounds on which an award may be set aside. However, in the Indian context the word only
prefixing the grounds is a bit of a misnomer as two additional grounds have been created by the
Act itself as mentioned above. Besides, another ground is to be found in an Explanation to the
public policy ground in s 34. The same reads as follows:

It is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public
policy of India if the making of the award is induced or affected by fraud or corruption or was in
violation of Section 75 or Section 81.

Section 75 referred to above is part of the conciliation scheme under the Act and states that the
conciliator and parties shall keep confidential all matters relating to the conciliation
proceedings. Section 81 prohibits any reference in arbitral or judicial proceedings to views,
suggestions, admissions or proposals, etc. made by parties during conciliation proceedings.

Save for the exception, referred to above, s 34 of the 1996 Act is a faithful reproduction of Art
34 of the Model Law.

FOREIGN ARBITRAL AWARDS POST ONGC APPROACH

The Act of 1996 does not provide for challenge for foreign arbitral award specifically. Although
Section 48 and more particularly Section 48(1)(e) read with other substantive provisions makes
it abundantly clear that although it is not permissible to challenge a foreign award, it could be
resisted in its enforcement on the same grounds as are available while challenging a domestic
award. While a bare reading of Section 48(1)(e) would demonstrate that a foreign award can be
challenged in a country in which it was made or the country under law of which it was made.

The most recent decision of the Supreme Court on the subject of setting aside an award on the
ground of public policy under Section 34 is Venture Global Engineering Vs. Satyam Computer
Services Ltd.21 Based on the earlier judgment in Bhatia International,22 the Supreme Court held
that it is open to the parties to exclude the application of the provisions of part I by express and
implied agreement, failing which the whole of part I would apply. Further, it held that to apply
Section 34 to a foreign award would not be inconsistent with Section 48 of the 1996 Act, or any
other provision of part II and that the judgment-debtor cannot be deprived of his right under
Section 34 to evoke the public policy of India, to set aside the award. Thus, the extended
definition of public policy cannot be bypassed by taking the award to foreign country for
enforcement.

On 10-1-2008 the Supreme Court rendered its decision in Satyam Computer Services Ltd.

21
ibid
22
Bhatia International v. Bulk Trading SA, (2003)5 SCC 105

14
case23 and held that even a foreign award can be challenged in India on the ground of public
policy. The decision was passed basically relying on the decision of the Court in Bhatia
International v. Bulk Trading S.A24 in which it was held that Part I of the 1996 Act will also
apply to Part II unless expressly or impliedly excluded by the parties through agreement. The
Supreme Court upheld a challenge in India to a foreign arbitration award on the grounds that
the relief contained in the award violated certain Indian statutes and was therefore contrary to
Indian public policy pursuant to Part I of the Indian Arbitration and Conciliation Act, 1996.

The case arose from a challenge in India by a US company, Venture Global Engineering
(VGE), to set aside an award rendered against it in an arbitration proceeding in London under
the rules of the LCIA. The relief in the award implicated VGEs interests in India and called for
the transfer of certain shares that VGE owned in an Indian joint venture. VGEs challenge
asserted that the relief in the award violated certain Indian corporate and foreign investment
statutes, specifically the Foreign Exchange Management Act, 1999, and therefore constituted a
"conflict with the public policy of India" pursuant to the general provisions contained in
Section 34 of Part I of the Arbitration Act. The court held that:

The provisions of Part I of the Act (Arbitration and Conciliation Act, 1996) would apply to all
arbitrations including international commercial arbitrations and to all proceedings relating
thereto. We further hold that where such arbitration is held in India, the provisions of Part-I
would compulsorily apply and parties are free to deviate to the extent permitted by the provisions
of Part-I. It is also clear that even in the case of international commercial arbitrations held out of
India provisions of Part-I would apply unless the parties by agreement, express or implied,
exclude all or any of its provisi-ons.

The decision has important implications both for companies doing business involving India and
for companies with substantial assets located in India and for companies required to enforce
foreign arbitration awards in India. This decision has made the foreign awards open to
challenge under the grounds listed in section 34 of Part I of the Act, which includes the ground
that the award is against Indian public policy. Public policy in this sense is stated to encompass
the illegality and fundamental policy, interests, justice and morality of India. If an arbitration
agreement does not specifically exclude the application of this part of the Act, the award is open
to a challenge under the Act.

Although, scope of Part I can be avoided by the parties by accepting to the same under their
contract. However, this shall not help to as the grounds for opposing enforcement are found in
Part II of the Act. These grounds are, for the most part, the same as the grounds for
challenging the award set out in Part I. The Part II grounds are set out in section 48 of the Act

23
Venture Global Engg. V. Satyam Services Ltd.(2008)
24
Bhatia International v. Bulk Trading S.A.& Anr(2002)

15
and, as in section 34, cover an award which is considered to be against Indian public policy.
There is no case law on the point, but it is generally accepted that any attempt to exclude the
effect of Part II of the Act would fail.

Following the judgment in Venture Global Engineering, if the arbitration agreement does not
specifically exclude the application of Part I of the Act, foreign awards are open to challenge by
the losing party under the grounds listed in section 34 of Part I. However, the grounds for
opposing enforcement under Part II of the Act mirror those in Part I. Therefore an exclusion of
Part I will be ineffective where Part II applies. Part II of the Act will always apply to foreign
awards when they are enforced in India.

Therefore, although technically the judgment has not made any material changes to the status quo
in relation to enforcing foreign awards in India, it appears to have had significant practical
effects:
The decision is likely to result in an increase in challenges to foreign arbitral awards in
India; and
It has set alarm bells ringing over the extent to which India is willing to comply with
its New York Convention obligations.
This judgment of the Supreme Court is contrary to the object and scheme of the New
York Convention and also in violation ofArticle III of the Convention, in as much as it
introduces an additional ground for challenging a foreign award. The decision is
contrary to the intention of the Indian legislature, since it:
Exposes a foreign award to an additional ground of challenge, (introduced by way of
judicial legislation) meant for domestic awards only.
Makes provision of Section 48 of 1996 Act of enforcement of foreign award redundant,
as every time an enforcement application is filed before Indian courts under Section 48,
the opposite party would file objection under Section 34, availing the benefit of
challenging the foreign award on merits.
Seeks to introduce a procedure to challenge a foreign award through judicial legislation
in the absence of such a procedure under the 1996 Act.

The decision is also contrary to the precedent laid in ONGC Vs. Saw Pipes,25 wherein
the court had accepted that the scope of Section.34 and Section.48 are not identical and
hence the assumption of the court that the effort of the respondent was to avoid
enforcement of the award under Section 48 of 1996 Act, thereby depriving the appellant
the benefit of the rule of public policy of India, is not correct.

The Supreme Courts intervention in the Satyam case26 on grounds of public policy is

25
ONGC v. SAW Pipes Ltd., AIR 2003 SC 2629
26
Venture Global Engineering v. Satyam Computer Services Ltd., AIR 2008 SC 1061 (April)

16
most unfortunate, as it does not take into account the decision of the three judges Bench
in Renusagar case.27 The present decision, thus exposes foreign awards to challenge on
merits on the ground that it is patently illegal, notwithstanding the enforcement
proceedings in any other jurisdiction. In effect, the decision treats a foreign award as a
domestic award, if the execution of the award is to be done as per the laws of India.

Thus, it is easily inferred that the direction these decisions have taken the law on the
subject and in all such cases, the judgments depart from the spirit through judicial
lawmaking and they disclose a lack of trust in the arbitral process.

27
Renusagar Power Plant Co. v. General Electric Co., AIR 1994 SC 860

17
PUBLIC POLICY
It is clear that, The Arbitration and Conciliation Act, 1996 was conceived by the compulsions
of globalisation leading to adoption of the United Nations Commission on International Trade
Law (UNCITRAL) Model Law. This Act is by and large an integrated version of the 1940 Act
which governed the domestic arbitration, the Arbitration (Protocol and Convention) Act, 1937
and the Foreign Award (Recognition and Enforcement) Act, 1961, which governed
international arbitral awards. Apparently, Chapter I to VIII of the UNCITRAL are replicas of
Chapters I to VII of the Part-I of the 1996 Act, with the difference that in the UNCITRAL the
provisions are called Article whereas under the Act they are called Section.28 The main
objectives set out in the Statement of Objects and Reasons of the 1996 Act are to minimise the
supervisory role of courts in the arbitral process and to provide that every final arbitral award
is enforced in the same manner as if it were a decree of the Court. 29
Public policy is that principle of law which holds that no subject can lawfully do, which has a
tendency to be injurious to the public or against the public good, which may be termed, as it
sometimes has been, the policy of the law or public policy in relation to the administration of
the law. Public policy connotes some matter which concerns public good and public interest.
The concept of public policy varies from time to time.30

Interpretation Of The Term Public Policy

It is not possible to precisely define Public Policy. Keeping that in mind, the term Public
Policy has been interpreted quite liberally by the Indian Courts. Whatever tends to injustice of
operation, restraint of liberty, commerce, natural or legal rights, whatever tends to the
obstruction of justice or to the violation of a statute and whatever is against good moral when
made the object of contract is against public policy, and, therefore, void and not susceptible to
enforcement.

The researcher would like to further elaborate the same point with the help of a few Indian
cases where the courts have had an opportunity to interpret public policy. In Renusagar
Power Co. v. General Electric Co. the honble Supreme Court held that the expression
public policy refers to the public policy India and the recognition and enforcement of the
award of the arbitral tribunal in India cannot be questioned on the ground that it is contrary to
the public policy of any other country.

It has been held in various cases that it is against public policy if the arbitrator is partial or
biased towards a party. Thus the arbitrator is bound:

by the contract between the parties and decide the case in the light of the contractual
provision, and to give proper opportunity to the parties;
28
Vikrant Tyres Ltd. v. Export Foreign Trade Co. Ltd., 2005(3) RAJ 612 (Ker)
29
Vikrant Tyres Ltd. v. Export Foreign Trade Co. Ltd., 2005(3) RAJ 612 (Ker)
30
Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, AIR 1986 SC 1571. For a very fine and
detailed statement of Sir William Holdsworth on public policy please refer History of English Law, Vol. III, p.55

18
to pass the award in accordance with the law so as not to be guilty of misconduct and

to apply mind to crucial questions as non-application amounts to legal misconduct.

The judgment given by the Supreme Court in Oil and Natural Gas Corpn. Ltd. V. Saw Pipes
ltd, further interprets public policy. The court stated that if any award given by the arbitral
tribunal violates any provision of The Arbitration Act, 1996 or is patently illegal, then in that
case the award could be set aside under section 34 of the said Act. Thus the court has expressly
stated that an award which is, on the face of it, patently in violation of any statutory provisions
cannot be said to be in public interest

The UNCITRAL Model Law Commission stated in its report31 that the term public policy
comprises fundamental principles of justice. It was understood that the term public policy
which was used in the 1958 New York Convention and many other treaties, covered
fundamental principles of law and justice in substantive as well as procedural respects. Thus,
instances such as corruption, bribery, or fraud and similar serious cases would constitute a
ground for setting aside an award.

In the case of Renusagar Power Plant Co. Ltd. Vs. General Electric Co.,32 the court in view
of the absence of a workable definition of international public policy found it difficult to
construe the expression public policy in Article V(2)(b) of the New York Convention to mean
international public policy as it could be, construed both in narrow or wide sense. In the
Renusagar case, it has been observed: It is obvious that since the Act is calculated and
designed to subserve the cause of facilitating international trade and promotion thereof by
providing for speedy settlement of disputes arising in such trade through arbitration, any
expression or phrase occurring therein should receive, consisting with its literal and
grammatical sense, a liberal construction.

The Supreme Court, while construing the term public policy in Section 7(1)(b)(ii) of Foreign
Awards (Recognition and Enforcement) Act, applied the principles of private international law
and held that an award would be contrary to public policy if such enforcement would be
contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or
morality.

The trend in India is similar to that in England i.e. public policy could be interpreted in a
narrow sense and a broad sense.

ONGC Vs. Saw Pipes33 case

31
UNCITRAL Report on the work of its 18th session, June 3-21, 1985, para.296
32
Renusagar Power Plant Co. Ltd v. General Electric Co., AIR 1994 SC 860
33
ONGC v. SAW Pipes Ltd., AIR 2003 SC 262

19
The limited grounds of challenge provided under Section 3434 are universally recognised. It is
well accepted that the courts have no power to get into the merits of the dispute. However, this
basic proposition was put to test and suffered a setback in the case of ONGC Vs. Saw Pipes Ltd.
In this case, an award was challenged on the ground that the arbitral tribunal had incorrectly
applied the law of the land in rejecting a claim for liquidated damages.

Two errors of great magnitude that have been committed in this case are:

While reviewing the merits of the ONGC case, the court failed to consider the labour strike in
entire European continent, something which was neither under the control nor could be
predicted by SAW Pipes. This particular aspect has been completely overlooked by the court.

The decision of the two judges Bench in ONGC has bypassed the ruling of the three judges
Bench of Supreme Court in the Renusagar case.

That shows both judicial indiscipline and violation of the binding precedent of a larger Bench.
While the Bench in Renusagar case held that the term public policy of India was to be
interpreted in a narrow sense, the Division Bench went ahead unmindful of the prior precedent
and expanded the same to such an extent that arbitral awards could now be reviewed on their
merits. This is a huge step backwards in laws relating to alternate dispute resolution in the era
of globalisation. This is a reason that ONGC case is considered to be a villain in this regard
giving an open opportunity other than the limited grounds of challenge provided under Section
3435

The Supreme Courts judgment in this case expanded the concept of public policy to add that
the award would be contrary to public policy if it was patently illegal. The Supreme Court
distinguished SAW Pipes case36 from that of Renusagar on the ground that the Renusagar
judgment12 was in context of a foreign award, while the ratio of SAW Pipes[22] would be
confined to domestic awards only. And in the name of public policy, the court went on to re-
appreciate the question of facts, mixed question of fact and law and pure question of law, which
is most undesirable in international commercial arbitration, as it would lead to uncertainty, a
factor which no businessman in international business transaction would like to have.

It may be correctly stated that the ratio set in ONGC Vs. Saw Pipes37 makes a significant dent
in the jurisprudence of arbitration in India and has come in for some sharp nonetheless
deserving criticism. Mr. Fali S. Nariman, one of the greatest lawyers of our generation,
remarks on the judgment as having virtually set at naught the entire Arbitration and
Conciliation Act of 1996To have introducedby judicial innovationa fresh ground of

34
Arbitration and Conciliation Act, 1996
35
ONGC v. SAW Pipes Ltd., AIR 2003 SC 26299.
36
ibid
37
ibid

20
challenge and placed it under the head of public policy was first contrary to the established
doctrine of precedentthe decision of three judges being binding on a bench of two judges. It
was also contrary to the plain intent of the new 1996 law, namely the need of finality in
alternative methods of dispute resolution without court interference.

If courts continue to hold that they have the last word on facts and on lawnotwithstanding
consensual agreements to refer matters necessarily involving facts and law to adjudication by
arbitrationthe 1996 Act might as well be scrapped.

The Division Bench of two judges of the court has altered the entire road-map of arbitration
law and put the clock back to where we started under the old 1940 Act.38

38
From transcript of speech delivered by Mr. F. S. Nariman at the inaugural session of Legal Reforms in
Infrastructure, New Delhi, 2 May, 2003 quoted in Kachwaha, Sumeet, The Indian Arbitration Law : Towards a
New Jurisprudence, Int. A.L.R. 2007, 10(1), 13-17

21
STEPS FOR ENFORCEMENT OF ARBITRAL AWARD.

Domestic
One of the declared objectives of the 1996 Act is that every final award: is enforced in the same
manner as if it were a decree of the Court39. Hence, the scheme of the Act is that it is up to the
losing party to object to the award and petition the court for setting it aside. The winning
party has to make no procedural move. If the objections to the award are not sustained (or if
there are no objections within the time allowed) the award itself becomes enforceable as if it
were a decree of the court40. It would be noticed that the Indian law has thus fundamentally
departed from the Model Law in this regard. The Model Law requires an application for
enforcement (Art 35) and the grounds on which enforcement of an award may be refused are as
set forth in Art 36 thereof. This has been departed from under the Indian regime as stated
above with the result, that in so far as domestic awards are concerned, if there is no application
to set aside an award under s 34 (or if the objections if made have been rejected), the award can
straightaway be executed as a decree of the court. Thus, when the period for filing objections
has expired or objections have been rejected, the award can be enforced under the Civil
Procedure Code (CPC) in the same manner as if it were a decree passed by a court of law.
Section 36 declares that an arbitral award has the force of the decree, though in fact it is not a
decree. An ex parte Award passed by an Arbitral Tribunal under Section 28 of the Act is also
enforceable under Sec. 36. Even a settlement reached by the parties under Section 30 of the Act
can be enforceable under Sec. 36 of the Act as if it is a Decree of the Court.

Foreign arbitral award


India's Arbitration and Conciliation Act, 1996 provides a statutory framework for the
enforcement of foreign arbitral awards given in countries which are signatories to either the
1927 Convention on the Execution of Foreign Arbitral Awards (Geneva Convention) or the
1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York
Convention).

One of the prerequisites for the enforcement of a foreign arbitral award in India's courts is that
it should be a foreign award under the Geneva Convention or the New York Convention.

In the case of Bhatia International vs Bulk Trading41, the Supreme Court held that an
arbitration award not made in a convention country will not be considered a foreign award and,
as such, a separate action will have to be filed on the basis of the award.

39
Statement of Objects and Reasons to the 1996 Act, para 4(vii).
40
The 1996 Act, s 36.
41
AIR 2002 SC 1432

22
ENFORCEABLE AWARDS

There are several requirements for a foreign arbitral award to be enforceable under the AC Act.

(i) Commercial transaction: The award must be given in a convention country to resolve
commercial disputes arising out of a legal relationship. In the case of RM Investment &
Trading vs Boeing42 , the Supreme Court observed that the term "commercial" should be
liberally construed as having regard to manifold activities which are an integral part of
international trade.

(ii) Written agreement: The Geneva Convention and the New York Convention provide that a
foreign arbitral agreement must be made in writing, although it need not be worded formally
or be in accordance with a particular format.

(iii) Agreement must be valid: The foreign award must be valid and arise from an enforceable
commercial agreement. In the case of Khardah Company vs Raymon & Co (India), 43the
Supreme Court held that an arbitration clause cannot be enforceable when the agreement of
which it forms an integral part is declared illegal.

(iv) Award must be unambiguous: In the case of Koch Navigation vs Hindustan Petroleum
Corp44, the Supreme Court held that courts must give effect to an award that is clear,
unambiguous and capable of resolution under Indian law.

UNENFORCEABLE AWARDS

Under sections 48 and 57 of the AC Act, an Indian court can refuse to enforce a foreign arbitral award if
it falls within the scope of the following statutory defenses:

(i) the parties to the agreement are under some incapacity;


(ii) the agreement is void;
(iii) the award contains decisions on matters beyond the scope of the arbitration
agreement;
(iv) the composition of the arbitral authority or the arbitral procedure was not in
accordance with the arbitration agreement;

(v) the award has been set aside or suspended by a competent authority of the country in
which it was made;

42
AIR 1994 SC 1136
43
AIR 1962 SC 1810,
44
, AIR 1989 SC 2198

23
(v) the subject matter of dispute cannot be settled by arbitration under Indian law, or
(vii) the enforcement of the award would be contrary to Indian public policy.

24
ENFORCEMENT AND EXECUTION
The party seeking enforcement of a foreign award under the provisions of the Act must make an
application to the court of competent jurisdiction with the following documents:

(i) the original/duly authenticated copy of the award;

(ii) the original/duly authenticated copy of the agreement, and

(iii) such evidence as may be necessary to prove that the award is a foreign award.

In the case of Fuerst Day Lawson vs Jindal Exports45, the Supreme Court held that a single
application will hold good to decide the question of the execution of the foreign arbitral award
as well as the decree of the award.

A binding agreement

On fulfilling the statutory conditions mentioned above, a foreign award will be deemed a decree
of the Indian court enforcing the award and thereafter will be binding for all purposes on the
parties subject to the award.

Difficulties Experienced In Enforcement

Main difficulties which a party experiences while seeking enforcement of an Arbitral


Award are :

An Arbitral Award under the 1996 Act cannot be enforced as a Decree till the period of
challenge under Sec.34 (3) is over or the objections filed have been dismissed. It is a
common practice that whenever an Arbitral Award is made, the party adversely
affected by it files a petition u/s 34 of the Act in the Court and the Court issues notice.
Then, till the time this objection petition is dismissed the said award cannot be
enforced. Given the delays in our judicial system, it almost takes years for the
Objection Petition to be disposed off and till such time the party having the arbitral
award in its favour remains in limbo. Thus, the laudable objective behind doing away of
legal proceedings to make the arbitral award a Rule of Court under the 1940 Act by
introducing Sec.36 in the 1996 Act has been diluted to a great extent.

It is proposed to provide for, inter alia, that mere filing objection petition under Sec.34 will not
operate as stay of the award and the court may grant stay of the operation of the award subject
to imposition of such conditions as it may deem fit to impose and the power to impose
conditions include the power to grant interim measures not only against the parties to the

45
AIR 2001 SC 2293.

25
award but also against the third parties in order to protect the interest of the party in whose
favour the award is passed.

The Execution procedure laid down in Order XXI of CPC is lengthy, complex and time
consuming and almost a never ending story.
By the time the stage of filing execution comes, the party against whom the award had
come, cleverly disposes off its assets so as to defeat the execution proceedings. Unless a
party has taken interim orders u/s 9 of the Act against disposal of assets etc. there are
good chances that by the time execution application is filed, the judgment debtor would
have practically spirited away all its assets.

26
27
CONCLUSION
Presently, section 34 and 37 provide for recourse against an arbitral award which may be set
aside by a court on certain specified grounds. The grounds mentioned in section 34(2)(a)
entitles the court to set aside an award only if the parties seeking such relief furnishes proof as
regards the existence of the grounds mentioned therein. These grounds include incapacity of a
party, validity of arbitration agreement, the party making the application not being given
proper notice of appointment of arbitrator or of the proceedings or otherwise unable to present
his case, subject matter not falling within the terms of submission to arbitration. Section
34(2)(b) mentions two grounds which are, however, left to be found out by the court itself. The
grounds are:
the subject matter of the dispute not capable of settlement by arbitration that is to say,
the disputes are not arbitral; and
that the award is in conflict with the public policy of India.
While on the other hand, s.34 contains the provision where an appeal may lie against an
arbitral award.
All these grounds are common to both domestic as well as international arbitral awards.
However, in so far as the ground regarding the award being in conflict with the public policy of
India is concerned, that ambit thereof is quite distinct and different and depends upon the
nature of the award i.e., domestic or international. The Supreme Court in Renu Sagar case has
clarified that enforcement of foreign award being governed by the principles of private
international law, the doctrine of public policy, as applied in the field of international law alone
would be attracted. The court further clarified that a mere infraction of a domestic law per se
would not amount to a conflict with the public policy of India.
Furthermore, the verdict given in Oil and Natural Gas Corpn. Ltd. V. Saw Pipes ltd can be
misinterpreted by the courts in their own rights and gives them an opportunity to interfere in
almost every arbitral award which is brought to its notice.
The researcher submits that the term public policy should be used in its narrow sense. It
should be used in such a way that the threshold for the court to consider setting aside or
allowing an appeal against an arbitral award is more than just a mere violation of the law in
India. Thus public policy should be only so interpreted as far as it aims to broaden the public
interest of honesty and fair-dealing, of not violating a basic notion of Indian law.

28