Section 48 of the Arbitration Act, 1966 reads as follows:
48.Conditions for enforcement of foreign awards.—
(1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that—
(a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or
(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
(2) Enforcement of an arbitral award may also be refused if the Court finds that—
(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or
(b) the enforcement of the award would be contrary to the public policy of India.
Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.]
(3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause(e) of sub-section (1) the Court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.
One of the first judgments which construed pari materia provisions in the Foreign Awards Act, 1961 was the celebrated judgment in Renusagar (1994) Supp (1) SCC 644. This judgment was relied upon in the recent judgment of Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India (NHAI) Civil Appeal No. 4779 of 2019, in which court referred to Renusagar (supra) and observed that “public policy” in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract the bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression “public policy” in Section 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. Applying the said criteria, it must be held that the enforcement of a foreign award would be refused on the ground that it is 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 judgment of Shri Lal Mahal Ltd. v. Progetto Grano SPA (2014) 2 SCC 433 that it made it clear that the Renusagar (supra) position would continue to apply to cases which arose under Section 48(2)(b), the wider meaning given “to public policy of India” in the domestic sphere not being applicable. In doing so it overruled the judgment in Phulchand Exports Ltd. v. O.O.O Patriot (2011) 10 SCC 300
In LMJ International Ltd. v. Sleepwell Industries (2019) 5 SCC 302, It was argued before Supreme Court was that grounds as to maintainability had been taken, as a result of which grounds under Section 48 of the Arbitration Act were not actually argued as objections before the Single Judge. This plea of the appellant was rejected by Supreme Court, given the object of Section 48 of the Act.
Amendments that were made by the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as the “2015 Amendment Act”). Section 48 was amended to delete the ground of “contrary to the interest of India”. Also, what was important was to reiterate the Renusagar (supra) position, that the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute (vide Explanation 2 to Section 48(2)).
It will be noticed that in the context of challenge to domestic awards, Section 34 of the Arbitration Act differentiates between international commercial arbitrations held in India and other arbitrations held in India. So far as “the public policy of India” ground is concerned, both Sections 34 and 48 are now identical, so that in an International Commercial Arbitration conducted in India, the ground of challenge relating to “public policy of India” would be the same as the ground of resisting enforcement of a foreign award in India. Why it is important to advert to this feature of the 2015 Amendment Act is that all grounds relating to patent illegality appearing on the face of the award are outside the scope of interference with international commercial arbitration awards made in India and foreign awards whose enforcement is resisted in India.
In Sui Southern Gas Co. Ltd. v. Habibullah Coastal Power Co. (2010) SGHC 62, the Singapore High Court, after setting out the legislative policy of the Model Law that the ‘public policy’ exception is to be narrowly viewed and that an arbitral award that shocks the conscience alone would be set aside
General approach to enforcement and recognition of Foreign Awards
The USA was a late signatory to the New York Convention, acceding to the Convention only in 1970. However, in an early judgment of the U.S Court of Appeals, Second Circuit, namely Parsons & Whittemore Overseas Co. v. Societe Generale De L’Industrie Du Papier 508 F.2d 969 (1974), the Court in a succinct paragraph pointed out the change made by the New York Convention when compared with the older Geneva Convention of 1927 and concluded that, that the Convention’s public policy defense should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforcement would violate the forum state’s most basic notions of morality and justice.
This judgment was followed in Compagnie des Bauxites de Guinee v. Hammermills Inc. (1992) WL 122712 where the US District Court, District of Colombia followed Parsons (supra) .
In Certain Underwriters at Lloyd’s London v. BCS Ins. Co. 239 F.Supp.2d 812 (2003), the US District Court, N.D Illinois referred to the Federal Arbitration Act and went on to hold that the review of a panel decision is “grudgingly narrow”. (See paragraphs 2 and 3).
In Karaha Bodas Co., L.L.C v. Perusahaan Pertambagan Minyak 364 F.3d 274 (2004), the United States Court of Appeals for the 5th Circuit analysed the New York Convention thus: “Absent extraordinary circumstances, a confirming court is not to reconsider an arbitrator’s findings.” Likewise, in Admart AG v. Stephen and Mary Birch Foundation Inc. 457 F.3d 302 (2006), the U.S Court of Appeals, 3rd Circuit, after setting out Article V of the New York Convention, held that, an award cannot be enforced under the Convention where it is “predicated on a subject matter outside the arbitrator’s jurisdiction,” but the Convention does not “sanction second-guessing the arbitrator’s construction of the parties’ agreement.” Id. at 977.”
Section 48 of the Arbitration Act, 1996 – the burden of proof on parties seeking enforcement has now been placed on parties objecting to enforcement and not the other way around; in the guise of public policy of the country involved, foreign awards cannot be set aside by second guessing the arbitrator’s interpretation of the agreement of the parties; the challenge procedure in the primary jurisdiction gives more leeway to Courts to interfere with an award than the narrow restrictive grounds contained in the New York Convention when a foreign award’s enforcement is resisted.
Discretion of the Court to Enforce Foreign Awards
Thus far, it is clear that enforcement of a foreign award may under Section 48 of the Arbitration Act be refused only if the party resisting enforcement furnishes to the Court proof that any of the stated grounds has been made out to resist enforcement. The said grounds are watertight – no ground outside Section 48 can be looked at.
An interesting judgment of the U.K. Supreme Court is reported as Dallah Real Estate and Tourism Holding Co. v. The Ministry of Religious Affairs, Government of Pakistan (2010) UKSC 46. In this judgment – given the resistance to a foreign award in the U.K – the discretion of a Court to enforce such award, even if grounds to resist the award have been made out.
A learned single judge of the Delhi High Court in Cruz City 1 Mauritius Holdings v. Unitech Limited (2017) 239 DLT 649,adverted to this issue and held: First of all, the plain meaning of the word “may” is not “shall”; it is used to imply discretion and connote an option as opposed to compulsion.
The Natural Justice Ground under Section 48
VIJAY KARIA & ORS. Vs PRYSMIAN CAVI E SISTEMI SRL & ORS.
Given the fact that the object of Section 48 is to enforce foreign awards subject to certain well-defined narrow exceptions, the expression “was otherwise unable to present his case” occurring in Section 48(1)(b) cannot be given an expansive meaning and would have to be read in the context and colour of the words preceding the said phrase. In short, this expression would be a facet of natural justice, which would be breached only if a fair hearing was not given by the arbitrator to the parties. Read along with the first part of Section 48(1)(b), it is clear that this expression would apply at the hearing stage and not after the award has been delivered, as has been held in Ssangyong (supra). A good working test for determining whether a party has been unable to present his case is to see whether factors outside the party’s control have combined to deny the party a fair hearing. Thus, where no opportunity was given to deal with an argument which goes to the root of the case or findings based on evidence which go behind the back of the party and which results in a denial of justice to the prejudice of the party; or additional or new evidence is taken which forms the basis of the award on which a party has been given no opportunity of rebuttal, would, on the facts of a given case, render a foreign award liable to be set aside on the ground that a party has been unable to present his case. This must, of course, be with the caveat that such breach be clearly made out on the facts of a given case, and that awards must always be read supportively with an inclination to uphold rather than destroy, given the minimal interference possible with foreign awards under Section 48.