DR.

RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

ACADEMIC YEAR – 2018-19

SUBJECT – ALTERNATIVE DISPUTE RESOLUTION

TOPIC – ENFORCEABILITY OF FOREIGN ARBITRAL AWARDS MADE IN NON-

CONVENTION COUNTRY

SUBMITTED TO:

DR. SHAKUNTLA,

ASST. PROFESSOR,

DR. RMLNLU, LUCKNOW

SUBMITTED BY:

KISHAN KUMAR GUPTA

ENROLL NO - 150101072

BA LLB (HONS) 7th SEMESTER

FINAL DRAFT
 ACKNOWLEDGEMENT

I wish to express my gratitude to Dr. Shakuntla, our faculty in-charge for Alternative Dispute
Resolution, for giving me this golden opportunity to prepare a project on ‘Enforceability of
Foreign Arbitral Awards Made in Non-Convention Country’.

I sincerely thank her for her guidance and encouragement in carrying out this project work. I
would also like to thank the officials and other staff members of Dr. Madhu Limaye Library
who rendered their help and support during the period of my project work.

- Kishan Kumar Gupta

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 TABLE OF CONTENTS

1. INTRODUCTION..............................................................................................................4

2. POSITION OF INDIA ON THE NEW YORK CONVENTION......................................4

3. ENFORCEMENT OF NON-CONVENTION COUNTRY AWARD & THE LEGAL

POSITION IN INDIA................................................................................................................6

4. STATUTORY FRAMEWORK..........................................................................................9

5. PRACTICE AND PROCEDURE....................................................................................10

6. CONCLUSION................................................................................................................13

7. BIBILIOGRAPHY & WEBLIOGRAPHY......................................................................14

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 1. INTRODUCTION

The Indian Arbitration law clearly distinguishes between the procedure that is to be followed
regarding enforcement of domestic and foreign arbitral awards. A bare reading of the
Arbitration and Conciliation Act, 1996 (“the Act”) would imply that Part I of the Act deals
with domestic awards, while Part II of the Act is exclusive for foreign awards. Further,
Chapter I of Part II states that only those foreign awards would be enforceable in India if it
has been passed in a country to which New York Convention (Convention on Recognition
and Enforcement of Foreign Arbitral Awards 1958) applies (For the purpose of this article, a
country to which New York Convention applies shall be referred as “Convention Country”)
and is further notified by the Indian government. Because of this, a contentious issue is
evolved: What if an award has been made in a country which is not signatory to the New
York Convention? Regarding the enforcement of such award, the Indian Supreme Court
appeared to be confused itself as it can be seen in its judgments. The question remains
unanswered even after the Constitution Bench decision in BALCO v. Kaiser Aluminium
Technical Services Inc.

2. POSITION OF INDIA ON THE NEW YORK CONVENTION

The Indian Government signed the New York Convention with the following conditions:

“In accordance with Article I of the Convention, the Government of India declare that they
will apply the Convention to the recognition and enforcement of awards made only in the
territory of a State, party to this Convention. They further declare that they will apply the
Convention only to differences arising out of legal relationships, whether contractual or not,
which are considered as commercial under the law of India.”

These conditions have been incorporated in the Part II of the Act, which deals with the
enforcement of foreign arbitral awards. Under Section 44 of the Act, “foreign award” means
an arbitral award on differences between persons “arising out of legal relationships, whether
contractual or not, considered as commercial under the law in force in India” and is made “in
one of such territories as the Central Government, being satisfied that reciprocal provisions
have been made may, by notification in the Official Gazette, declare to be territories to which
the said Convention applies”.
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Though the term “commercial” has nowhere been defined in the Act, a broad interpretation of
this term has been preferred by the Supreme Court of India. In R.M. Investment & Trading
Co. Pvt. Ltd. v Boeing Co., the Court took reference from the UNCITRAL Model Law on
International Commercial Arbitration (1985) which considers “commercial representation or
agency” and “consulting” to be relationships of a commercial nature. (To get a wide
interpretation of the term “commercial”, see footnote to Article 1(1) of UNCITRAL Model
Law)

Further, it should be noted that:

“..the reciprocity requirement as it is expressed in the Act is more onerous and considerably
more restrictive than what is contemplated by the New York Convention. Section 44 not only
requires that the award is made in a Convention Country, but the country also has to be
notified in India’s Official Gazette as being a country to which the New York Convention
applies.”

That is to say the Arbitration Act lays down the process for the enforcement of all those
awards that are rendered in countries to which New York Convention applies and are notified
by the Indian government. However, the Act and Part II is silent on the enforcement of
awards that are rendered in countries that are not notified under the gazette or those countries
that are not party to New York Convention. More importantly, of the 142 countries which
have signed the New York Convention to date, only about 47 countries have been notified in
the Official Gazette of India as countries in which the New York Convention applies. Around
95 Convention Countries which have not been officially gazette include regular seat
jurisdictions for international arbitrations such as Canada, the United Arab Emirates or New
Zealand. Therefore, questions regarding recognition and enforcement of arbitral awards made
in those countries are of substantial importance.

3. ENFORCEMENT OF NON-CONVENTION COUNTRY AWARD & THE

LEGAL POSITION IN INDIA

The issue regarding enforcement of award from non-convention country was elaborately
discussed by Supreme Court in 3-judges bench judgment in Bhatia International Ltd v Bulk
Trading SA. It was held that an award passed in an international commercial arbitration in a

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non-convention country, though not enforceable under Part II, would be treated as a domestic
award and would be enforceable under the provisions of Part I of the Act.

It was of the view that S. 2(2) of the Act does not expressly provide that Part I of Act would
not apply to arbitrations held outside India, as it does not use the word “only” in relation to
the applicability of Part I to arbitrations held in India. The main reasoning of the Court was
that if Part I of the Act only applied to arbitrations held in India, it would “amount to holding
that the Legislature has left a lacunae in the said Act.” As per the Supreme Court, “[t]here
would be a lacunae as neither Part I or II would apply to arbitrations held in a country which
is not a signatory to the New York Convention or the Geneva Convention (hereinafter called a
non-convention country). It would mean that there is no law, in India, governing such
arbitrations.”

Therefore, as per the judgment, for all domestic or foreign awards passed in non- convention
countries, provisions of Part I would apply and hence enforcement mechanisms as envisaged
under Part I would be equally applicable to awards passed in non-convention countries.

The Bhatia judgment faced a lot of criticism. The main criticism was that it rejected the
territoriality principle to distinguish Parts I and II of the Act. Soon after in Shreejee Traco (I)
(P) Ltd. v Paperline International Inc., Justice RC Lahoti (as he then was) took a contrary
view and held that S. 2(2) of the Act was clear and unambiguous that Part I would not apply
where the place of arbitration is outside India. However, the judgment in Bhatia International
prevailed as it was delivered by a larger bench of the Supreme Court.

Agreeing with what was laid down in Bhatia International, the Court in Venture Global
Engineering v. Satyam Computer Services Ltd reiterated that the provisions of Part I of the
Act would apply to all arbitrations including international commercial arbitrations and to all
proceedings relating thereto. It also held that 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 provisions. It was also of the view
that such an interpretation does not lead to any conflict between any of the provisions of the
Act and there is no lacuna as such. It further said:

“By omitting to provide that Part I will not apply to international commercial arbitrations
which take place outside India the effect would be that Part I would also apply to
international commercial arbitrations held out of India. But by not specifically providing that

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the provisions of Part I apply to international commercial arbitrations held out of India, the
intention of the legislature appears to be to allow parties to provide by agreement that Part I
or any provision therein will not apply. Thus in respect of arbitrations which take place
outside India even the non-derogable provisions of Part I can be excluded. Such an agreement
may be express or implied.”

The Court, while relying heavily on Bhatia judgment, held that a foreign award can be
challenged under S. 34 of the Act, since Part I of the Act would apply to such foreign awards
unless it was expressly or impliedly excluded by the parties.

However, the applicability of various provisions of the Act to arbitrations held outside India
was finally laid down to rest in the decision by a constitution bench of the Supreme Court. In
Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc., the main issue arising
was the applicability of Part I of the Act to arbitrations that take place outside India following
the decisions of the court in Bhatia and Venture. The Constitution Bench overruled Bhatia
and Venture and upheld the territoriality principle as fundamental to the Act. In the Court’s
view, Part I of the Act would only apply to domestic and international commercial
arbitrations that took place in India and would not apply to arbitrations that took place outside
India. It held that “a plain reading of Section 2(2) makes it clear that Part I is limited in its
application to arbitrations which take place in India.” It said that the omission of the word
“only” from Section 2(2) indicates that applicability of Part I of the Arbitration Act, 1996 is
not limited to the arbitrations that take place in India, and that “if Part I were to be applicable
to arbitrations seated in foreign countries, certain words would have to be added to Section
2(2)” which would be “contrary to the contextual intent and object of Section 2(2)” of the
Act. It also said that there is no overlapping of the provisions in Part I and Part II; nor are the
provisions in Part II supplementary to Part I. Rather there is complete segregation between
the two parts. It further was of the view: “[I]f the gap or lacuna is disclosed, it would be for
the Parliament to rectify the same. Such a task cannot be undertaken by the Court.”

To quote from the judgment,

“We are of the opinion that merely because the Arbitration Act, 1996 does not cover the non
convention awards would not create a lacuna in the Arbitration Act, 1996. If there was no
lacuna during the period in which the same law was contained in three different instruments,
i.e. the Arbitration Act, 1940 read with 1961 Act, and the Arbitration (Protocol and

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Convention) Act, 1937, it cannot be construed as a lacuna when the same law is consolidated
into one legislation, i.e. the Arbitration Act, 1996.”

It added:

“It must further be emphasised that the definition of “foreign awards” in Sections 44 and 53
of the Arbitration Act, 1996 intentionally limits it to awards made in pursuance of an
agreement to which the New York Convention, 1958 or the Geneva Protocol, 1923 applies. It
is obvious, therefore, that no remedy was provided for the enforcement of the “non
convention awards” under the 1961 Act. Therefore, the non convention award cannot be
incorporated into the Arbitration Act, 1996 by process of interpretation. The task of removing
any perceived lacuna or curing any defect in the Arbitration Act, 1996 is with the
Parliament... [T]he clear intention of the legislature is not to include the Non- convention
Awards within the Arbitration Act, 1996.”

The position has now been made clear by the Constitution Bench that a foreign award passed
in a non-convention country cannot be enforced under the Arbitration Act. However, the
following question is still left unanswered: In the absence of legislative intervention, how can
foreign awards rendered in a non-convention country be enforced in India?

At this moment, it is of considerable importance to refer to the judgment of the Supreme

Court in the case of Badat & Co. Bombay v. East India Trading Co. which was passed much
prior to enactment of the present Arbitration Act, 1996. The Supreme Court had laid down
that the awards passed in a non-convention country can be enforced on grounds of justice,
equity and good conscience. To quote,

“[U]nder the Arbitration Protocol and Convention Act, 1937 (VI of 1937), certain
commercial awards made in foreign countries are enforceable in India as if they were made
on reference to arbitration in India. The provisions of this Act, however, apply only to
countries which are parties to the Protocol set forth in the First Schedule to the Act or to
awards between persons of whom one is subject to the jurisdiction of some one of such
powers as the Central Government being satisfied that the reciprocal provision have been
made, may, by notification declare to be parties to the Convention, setforth in the Second
Schedule to the Act. It is common ground that these provisions are not applicable to the
awards in question. Apart from the provisions of the aforesaid statute, foreign awards and
foreign judgments based upon awards are enforceable in India on the same grounds and in the

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same circumstances in which they are enforceable in England under the common law on
grounds of justice, equity and good conscience.”

4. STATUTORY FRAMEWORK

In India, arbitration is governed by the Arbitration and Conciliation Act 1996 (the 1996 Act).
Part II of the 1996 Act governs the enforcement of certain foreign awards pursuant to the
Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York
Convention) and the Geneva Convention on the Execution of Foreign Arbitral Awards 1927
(the Geneva Convention).

Section 44 of the 1996 Act defines a ‘foreign award’ (New York Convention awards) as an
arbitral award on differences between persons arising out of legal relationships, whether
contractual or not, considered as commercial under the law in force in India, made on or after
11 October 1960:

in pursuance of an agreement in writing for arbitration to which the convention set forth in
the first schedule applies; and

in one of such territories as the central government, being satisfied that reciprocal provisions
made may, by notification in the Official Gazette, declare to be territories to which the said
convention applies.

Under s44, to reach the conclusion that a particular award is a foreign award, the following
conditions must be satisfied:

1. the legal relationship between the parties must be commercial;

2. the award must be made in pursuance of an agreement in writing; and

3. the award must be made in a convention country.

Similarly, s53 of the 1996 Act, which deals with Geneva Convention awards, also defines a
foreign award as an award passed in relation to commercial matters in one of the territories
that the central government, being satisfied that reciprocal provisions have been made, may,
by notification in the Official Gazette, declare to be territories to which the convention
applies.

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For an award from a foreign territory to be enforceable in India under the 1996 Act, it has to
be from a country that has been notified by the Indian government. However, to date, the list
of countries that have been notified by the central government (India) is quite minimal.
Therefore, enforcing awards passed in a non-convention country in India is a question of
considerable importance.

5. PRACTICE AND PROCEDURE

An arbitral award that does not satisfy the requirements of Part II under the 1996 Act is not a
‘foreign award’ for the purposes of enforcement under the 1996 Act, even though it is made
outside India. However, as per the judgment of the Supreme Court of India in Bhatia
International Ltd v Bulk Trading SA [2002], it appears that an award passed in an
international commercial arbitration in a non-convention country, though not enforceable
under Part II, would be treated as a domestic award and would be enforceable under the
provisions of Part I of the 1996 Act. The strength of this contention can be derived from the
fact that the Supreme Court made certain observations with respect to international
commercial arbitrations taking place in non-convention countries. Relying on s2(f) of the
1996 Act, which defines international commercial arbitration, the Supreme Court was of the
opinion that the definition makes no distinction between international commercial arbitration
taking place in India or outside India. The Court was also of the opinion that awards under
Part II related to awards passed in the convention country, for which an enforcement
mechanism was duly provided. Therefore, to that effect, Part I would not apply to such
foreign awards. However, for all other awards, whether domestic or foreign awards passed in
non-convention countries, provisions of Part I would continue to apply and hence
enforcement mechanisms as envisaged under Part I would be equally applicable to awards
passed in non-convention countries.

Paragraph 23 of the judgment reads:

‘As is set out hereinabove the said Act applies to (a) arbitrations held in India between
Indians and (b) international commercial arbitrations. As set out hereinabove international
commercial arbitrations may take place in India or outside India. Outside India an
international commercial arbitration may be held in a convention country or in a non-
convention country. The said Act, however, only classifies awards as “domestic awards” or

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“foreign awards”. Mr Sen admits that provisions of Part II makes it clear that “foreign
awards” are only those where the arbitration takes place in a convention country. Awards in
arbitration proceedings, which take place in a non-convention country, are not considered to
be “foreign awards” under the said Act. They would thus not be covered by Part II. An award
passed in an arbitration, which takes place in India, would be a “domestic award”. There
would thus be no need to define an award as a “domestic award” unless the intention was to
cover awards which would otherwise not be covered by this definition. Strictly speaking an
award passed in an arbitration, which takes place in a non-convention country, would not be a
“domestic award”. Thus the necessity is to define a “domestic award” as including all awards
made under Part I. The definition indicates that an award made in an international
commercial arbitration, held in a non-convention country, is also considered to be a
“domestic award”.’

This judgment suggests that an award passed in a non-convention country would be treated as
a domestic award and is therefore enforceable under Part I of the 1996 Act. It is noteworthy
that in cases of international commercial arbitration, held outside of India in a non-
convention country, provisions of Part I would apply unless the parties by agreement, express
or implied, exclude all or any of its provisions.

That being so, the next question is, what is the procedure and mechanism for enforcing such
an award in India?

Part I of the 1996 Act provides, in s34, the process of setting aside an award. Under s34, an
application for setting aside an award may not be made after three months from the date on
which the party making the application received the award. The time frame of three months
may be further extended by 30 days if the court is satisfied that sufficient cause existed for
the applicant not being able to move the application within the stipulated three-month period.
If, however, no such application is filed for setting aside the award under s34, as per s36 of
the 1996 Act, the award shall be enforced under the Code of Civil Procedure (CPC) 1908 as if
it were a decree of the court.

CPC 1908 Order XXI prescribes the manner in which the decree may be executed by the
decree holder against the judgment debtor. Therefore, by legal fiction, an award can be
enforced as a decree of the court on expiry of 90 days (unless another 30 days is granted as
sufficient cause).

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However, it is clear from the mandatory language of s34 that an award, when challenged
within the stipulated time, becomes unexecutable. There is no discretion left with the court to
pass an interlocutory order in regard to the award, except to adjudicate the correctness of the
claim made by the applicant. However, it would be pertinent to bear in mind that the
procedure for enforcement of the award is applicable only when Part I is held to be applicable
to the arbitration. In the event that the governing law of the arbitration, by implication or by
express provision, bars the application of Part I, the procedure for the enforcement of awards
would be to file a suit on the award and the judgment obtained thereon.

It is of utmost importance that in such a case, where the award is made in a non-convention
country and to which the provisions of Part I do not apply:

1. the award must have been made under an arbitration agreement;

2. the arbitration was conducted in accordance to the agreement;

3. the award is made pursuant to the provisions of the agreement, and is valid according
to the lex fori of the place where the arbitration was conducted and where the award
was made; and

4. the award has attained finality.

As per the decision of the Supreme Court in Badat & Co v East India Trading Company
[1964], an award passed in a foreign country can afford a cause of action only when it is
final, ie a judgment based on the award as per the law of the country where the award was
passed has been rendered. By itself, the award cannot give rise to any fresh cause of action.
This would mean that the observation in Bhatia, regarding the enforcement of non-
convention country awards, cannot be relied on.

In the event that these conditions are satisfied, a suit on the said award may be filed in India
for enforcement of the same.

In view thereof, it appears that the following conclusions may be drawn in this regard:

1. an award passed in an arbitration held in a non-convention country under the law of

that country will not be a ‘foreign award’ within the meaning of Part II and therefore
cannot be enforced under the provisions of Part II;

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 2. an award passed in an arbitration held in a non-convention country, under that
country’s laws and without an implied or express exclusion of the 1996 Act, may be
enforced in India as an domestic award under the provisions of Part I of the 1996 Act
in view of the judgment in Bhatia; and

3. an award passed in an arbitration held in a non-convention country, under that

country’s laws and where the arbitration agreement excludes the applicability of the
1996 Act either by implications or expressly, may be enforced in India by means of
filing a suit on the said award and the judgment obtained thereon.

6. CONCLUSION

It is submitted that the Act would not apply to awards passed in a non-convention country.
The Bhatia judgment had set a wrong position of law, which was also followed in Venture
Global. By holding that Part I of Act would apply to awards passed in a non- convention
country, the Court did what was unintended by legislative intent of the Act. The Bhatia
judgment has been correctly overruled in BALCO judgment. However, it can be said that
there is a flaw in the Act. The legislature has nowhere in the Act dealt with the awards passed
in a non-convention country. A plain proposition would mean that the awards passed in a non-
convention country cannot be enforced in India. The flaw must be rectified by the legislature.
Till then, going back to what was stated by Supreme Court in Badat (1963), such awards can
be enforced on “common law grounds of justice, equity and good conscience.” It is
concluded that a fresh civil suit can be filed in this regard.

7. BIBILIOGRAPHY & WEBLIOGRAPHY

Books –

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 1. Law Of Arbitration & Conciliation (With Exhaustive Coverage Of International
Commercial Arbitration & Adr); R.S. Bachawat (Lexis Nexis publication, 2010).

2. Redfern and Hunter on International Arbitration; Nigel Blackaby, Constantine

Partasides, Alan Redfern, Martin Hunter (Oxford University Press, 2015).

Online resources –

1. http://www.inhouselawyer.co.uk/legal-briefing/enforcing-a-foreign-non-convention-
country-award-in-india/

2. https://www.livelaw.in/non-signatory-countries-new-york-convention-enforcement-
foreign-awards-india/

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