Indian Courts settle key issues relating to enforcement of awards

In five recent judgments, the Indian courts have offered important guidance on the enforcement of both domestic and international awards in India.

This post first discusses three judgments of the Supreme Court of India ("Supreme Court"), clarifying the interpretation of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"), in light of recent amendments intended to simplify the enforcement process.

Next, the post covers two judgments of the Delhi High Court and Rajasthan High Court on challenges to enforcement of awards, which offer useful guidance on the courts' approach to issues of public policy.

Supreme Court judgments on amendments to the enforcement process

(i) Kandla Export Corporation and Another v OCI Corporation and another

Kandla Export related to an arbitration award issued in London. When the Gujarat Commercial Court granted the award creditor's application to enforce the award, the award debtor (who had previously appealed the award, without success, to both the English High Court and the Court of Appeal) sought to appeal that decision to the Commercial Appellate Division of the Gujarat High Court (created pursuant to the Commercial Courts Act[1]). The debtor relied on section 13(1) of that Act, which allows parties a right of appeal from a judgment of a Commercial Court to the Commercial Appellate Division of that High Court.

The question before the Supreme Court was whether the right of appeal in section 13(1) was applicable in the context of a decision by a Commercial Court to enforce an arbitral award. The Supreme Court considered that the objective of the Commercial Courts Act was a "speedy resolution of disputes of a commercial nature" and any construction that created a further right of appeal would be contrary the purpose of both the Commercial Courts Act and the Arbitration Act. It concluded that there was no further right of appeal under the Commercial Courts Act in this context. This is a welcome judgment as it clarifies that award debtors do not have a second 'bite of the cherry' under the Commercial Court regime.

(ii) Board of Control for Cricket in India v Kochi Cricket Pvt. Ltd

When the Arbitration Act was amended in 2015, one important amendment was to Section 36, which relates to enforcement of awards. It now provides that there is no automatic stay of enforcement whilst an application to set aside an award under Section 34 is pending, and the award will be enforceable unless a separate application to stay enforcement is made and granted by the court. The court has the discretion to impose conditions on the stay including, for example, a requirement to deposit all or part of the award amount at court.

The 2015 amendments to the Arbitration Act came into effect on 23 October 2015. The issue in BCCI was whether the new Section 36 also applied to challenges to awards (under Section 34) filed before 23 October 2015.  Various High Courts had reached conflicting decisions on this issue.

The Supreme Court found that the new Section 36 would apply to challenges filed before 23 October 2015 and were pending at that date. It observed that execution was a procedural (not substantive) matter and so the 2015 amendment could apply to extant challenges.

Interestingly, the Supreme Court referred to the Government's press release (discussed here) where the Government announced its intention to amend the Arbitration Act to clarify this issue. The court noted the Government's apparent intention to make the new Section 36 only applicable to arbitrations commenced after 23 October 2015, but noted that "the very object of the enactment of the Amendment Act would otherwise be defeated" if that intention was given effect.

(iii) Sundaram Finance Limited v Abdul Samad

In this case, the Supreme Court settled another important issue that had been the subject of conflicting High Court decisions. Section 42 of the Arbitration Act states that where an application relating to an arbitration agreement is made to one court, only that court would have jurisdiction over the arbitral proceedings and any subsequent applications. It was meant to avoid multiple proceedings in different High Courts relating to the same arbitration agreement.

The issue in Sundaram Finance was whether an application to enforce an award must also be made to this one court, followed by an application to transfer the decree to the court(s) of the place where the assets targeted for enforcement are located; or whether the application can be made directly to such court(s). The Supreme Court found that Section 42 did not apply where arbitration proceedings had been terminated and therefore did not affect enforcement. Parties could apply directly to any court to execute the award in respect of assets within that court's jurisdiction, without having to first apply to transfer the decree to that court. This is a welcome decision. It gives parties clarity on which court to approach for enforcement and cuts out one step in the process.

High Court decisions on public policy challenges to awards

(i) Daiichi Sankyo Company Limited v Malvinder Mohan Singh and others

Daiichi Sankyo is a decision of the Delhi High Court where the court allowed the enforcement of an international arbitration award in part but refused enforcement in relation to certain award debtors who were minors. The arbitration arose out of an agreement to sell the award debtors' (Mr Singh and others') shares in Ranbaxy Laboratories Limited to the award creditor (Daiichi Sankyo). The arbitration was seated in Singapore and under the ICC Rules. The award creditor argued that it was induced to purchase the shares by a fraudulent misrepresentation, and the tribunal awarded the creditor damages.

The award debtors challenged the enforcement of the award on the grounds that the award was contrary to the fundamental policy of India. In particular, it challenged: (i) the quantum of damages awarded; (ii) the tribunal's decision to award consequential damages under the contract; (iii) the tribunal's decision on limitation; (iv) the tribunal's award of interest; and (v) the award of damages against respondents who were minors. The court dismissed all but the last objection, noting that as a general principle, fundamental policy of Indian law "does not mean provisions of the statute but substratal principles on which Indian Law is founded." In considering the challenges to the tribunal's decision on damages, the court observed: "The quantification of the damages and the various factors that would have to be taken in account in the facts and circumstances of a case would necessarily be a fact based enquiry and would necessarily be within the domain of the Arbitral Tribunal". It noted that it "is not for this Court to dwell deep into these aspects while considering objections under Section 48 of the Arbitration Act" and dismissed the objection.

On the final objection to enforcement (relating to the fact that some of the award debtors were minors), the court found that the tribunal's decision was contrary to Indian law in that a minor could not be held to have committed fraud through an agent. It then observed, considering other legislation, that that protection of minors was part of the fundamental policy of Indian law and therefore the award was not enforceable against the award debtors who were minors.

(ii) Django Navigation Ltd v Indo Ferro Metal Private Ltd

In Django Navigation, the award debtor challenged an award passed by an arbitral tribunal seated in London under the LMAA Rules. The parties entered into a charterparty evidenced by a fixture recap that stated: "20) English Law/ Arb London/ LMAA Rules to Apply". The vessel owner (award creditor) alleged that the charterer (award debtor) had renounced or terminated the charterparty by failing to provide the cargo.

The charterer did not participate in the arbitration and argued that the award should be set aside on the basis that: (i) no arbitration agreement was concluded; and (ii) the award was contrary to the public policy of India. The Rajasthan High Court rejected both arguments. It held that it was common practice in the shipping industry to conclude contracts of carriage by email exchange and a fixture recap and that there was no ambiguity in the arbitration agreement. The court also held that in a challenge to an award under Section 48 of the Arbitration Act it "cannot look into the merits of the case". It observed that the charterer could have participated in the arbitration or filed an appeal under the English Arbitration Act, 1996 but had chosen not to do so. It was therefore estopped from raising arguments on the merits of the award in this application.

Comment

The Supreme Court judgments offer clarity on important issues relating to enforcement of awards in India. These issues were subject to multiple conflicting High Court decisions and the Supreme Court's decisions put an end to this uncertainty. The BCCI judgment will be of great significance to parties currently defending a challenge to an arbitration award in the Indian courts.  The ruling that the new Section 36 is relevant to these applications means that a (potentially lengthy) stay of enforcement is no longer the default position. In Kandla Exports and Sundaram Finance, the Supreme Court's decisions pave the way for a simpler enforcement process, rejecting the attempts to add another round of appeal and a further step in the enforcement process respectively.

Lastly, both Daiichi Sankyo and Django Navigation demonstrate a robust approach to examining applications to set aside awards on public policy grounds whilst noting that in certain instances (here, the involvement of minors) public policy does have a role to play.

For more information please contact Donny Surtani, Partner, Nihal Joseph, Associate, or your usual Herbert Smith Freehills contact.

[1]       The full title of the Act is the Commercial Courts, Commercial Division and Commercial Appellate Division of High Court Act 2015.  It created a separate division in certain High Courts to deal with commercial matters, including certain arbitration applications.