Enforcement Of Arbitration Awards In India (Part 1)

A jurisdiction's credibility as an arbitration friendly

one rests primarily on the efficiency and efficacy of its award

enforcement regime.

This article examines the award enforcement regime in

India.

A: 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

Act1. Enforcement of foreign awards was divided

between two statutes a 1937 2Act to give effect to

Geneva Convention 3awards and a 1961 Act4

to give effect to the New York Convention5 awards.

As the Geneva Convention became virtually otiose (by reason of

Article VII of the New York Convention) enforcement of foreign

awards, for all practical purposes, was under the 1961 Act and

for domestic awards was 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

"misconducted" himself or the proceedings6

- 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 few illustrative cases:

In State of Rajasthan v. Puri Construction Co.

Ltd.,7 the 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 definite

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 State of U.P. v. Allied

Constructions8, 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 U.P. SEB v. Searsole

Chemicals Ltd. and Ispat Engg. & Foundry Works v. Steel

Authority of India Ltd.)."

I have laboured somewhat on the "old" law since

thanks to a 2003 Supreme Court Judgment (which shall be

elaborated upon later) the "new" law on the subject

has begun to resemble the "old" law.

B: The New Regime:

In January 1996, India enacted a new Arbitration Act

(hereinafter Act or Arbitration Act).9 This Act

repealed all the three previous statutes (the 1937 Act, the

1961 Act and the 1940 Act)10. The new Act has two

significant parts. Part I provides for any arbitration

conducted in India and enforcement of awards thereunder. Part

II provides for enforcement of foreign awards. Any arbitration

conducted in India or enforcement of award thereunder (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.

C: Domestic Awards:

Grounds for setting aside

awards

Part I is modelled on the UNCITRAL Model Law

11and the UNCITRAL Arbitration Rules12

with few departures. The relevant provisions are briefly

outlined below:

Section 13 of the Act, corresponding to Article 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.13 If the

challenge is rejected the tribunal shall continue with the

arbitral proceedings and make an award. 14Section 13

(5) of the 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 Section 34 of the Act

(corresponding to Article 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.15

The second departure from the Model Law (relevant to

enforcement) is to be found in Section 16 of the Act

(corresponding to Article 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. 16Section 16 (6)

provides that a party aggrieved by such award may make an

application for setting aside the same in accordance with

Section 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 Sections 13 (5) and 16 (6) furnish two additional

grounds for challenge of an arbitral award (over and above the

ones stipulated in Section 34 of the Act referred to

below).

Section 34 of the Act contains the main grounds for setting

aside the award. It is based on Article 34 of the Model Law and

like Article 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...