Introduction
The enforcement of arbitral awards in India is governed by the Arbitration and Conciliation Act, 1996 (the Act). Part-I of the Act includes enforcement of a domestic award, which is done in accordance with the procedure for enforcement of a court decree under the Code of Civil Procedure, 1908 (CPC). The procedure related to enforcement of foreign awards is incorporated under the Part-II of the Act. Once a foreign award meets the threshold of enforceability as stipulated in Part-II, it is also deemed to be a decree of a court for the purpose of enforcement.
The present article will explain the procedure of enforcement of domestic awards in India. It will address general aspects of their enforcement in India and clarify the position regarding imposition of stay on enforcement.
Enforcement of Domestic Award in India
The enforcement of domestic arbitral awards is governed by Section 36 of the Act which is titled as ‘Enforcement’. According to Section 36, the award-holder can get the award enforced only after the time for filing a petition seeking to set aside the award (Section 34) i.e. three months after receiving the receipt of the award, has expired. This standing period is provided to the award-debtor to grant it an option of challenging the award under Section 34 of the Act. Thereafter, the Court can enforce the award. No challenge regarding the validity of an enforceable award is allowed at the stage of execution.
- Requirement of Stamping and Registering of Arbitral Award
The requirement of stamping and registering of domestic award is deduced from the Indian Stamp Act, 1899 and the Registration Act, 1908. A domestic award has to be compulsory registered under Section 17 of the Registration Act, 1908, if it pertains to any right, title or interest in an immovable property. The non-registration of such an award would render it invalid. The issues regarding the inadmissibility of an unstamped and unregistered award can be raised during the enforcement of the domestic award.[3]
According to Section 35 of the Indian Stamp Act, 1899, an unstamped or inappropriately stamped domestic award will be inadmissible before a court of law. Thus, proper stamp duty, as imposed by each state, has to be paid to get an award enforced. Otherwise, the award can be made admissible and thereafter enforced only after the defect is cured by paying the correct stamp duty and any further penalty, if applicable.
Setting Aside of Domestic Award in India
The provision for setting aside of a domestic award has been incorporated under Section 34 of the Act which is titled as ‘Application for setting aside arbitral award’. Under Section 34, there are certain grounds for setting aside an award. If any of these grounds is satisfied, then the award will be set aside. The grounds are as follows-
- Either party to the agreement was under some incapacity. [Section 34(2)(a)(i)]
- The domestic award is ultra vires the arbitral agreement.
- The subject matter of domestic award is non-arbitrable under Indian legal regime.
- The domestic award is in contravention to the public policy.
- The notice regarding the appointment of arbitrator or arbitration proceedings has not been served to the party making the application for setting aside of domestic award.
- The composition of the arbitral tribunal or the arbitral procedure was in contravention to the arbitration agreement or failing such agreement was in contravention of Part- I of the Act.
2.1 Public Policy as a Ground to Set Aside Domestic Award
An arbitral award can be set aside by a court if it is against the ‘public policy of India’, according to Section 34(2)(b)(ii) of the Act. Because the term ‘public policy’ is not defined in any law, this ground for annulling domestic awards has produced ambiguity in the Indian Arbitration regime.
In Renusagar Power Co. Ltd. v. General Electric Co.[4], the Supreme Court for the first-time classified public policy into three categories: (i) fundamental policy of Indian law, (ii) national interests of India and (iii) justice or morality. ONGC Ltd. v. Saw Pipes Ltd.[5] established a fourth category to the interpretation of public policy, namely ‘patent illegality’.
Explanation 1 to Section 34(2) of the Act was later added by the 2015 amendment on the suggestion of 246th Law Commission Report, which clarified that an award can only be set aside on the grounds that it is against India’s public policy if, and only if the award (i) is tainted by fraud or corruption; or (ii) is in violation of Indian law’s fundamental policy; or (iii) is in conflict with basic notions of morality and justice.
2.1.1 Fundamental Policy of Indian Law
The above phrase has been defined by the Supreme Court in the landmark judgement of ONGC Ltd. v. Western Geco International Ltd.[6] In the above-mentioned ruling, the Bench held that the fundamental policy of Indian law should contain all fundamental concepts that serve as a foundation for the administration of justice and the enforcement of the law in this country.
2.1.2 Basic Notions of Morality and Justice
It is the third criteria of public policy on basis of which domestic arbitral award can be set aside. This ground can be invoked only when the arbitral award is in violation of “justice and morality”. In the case of Associate Builders v. DDA[7], the SC has explained the phrase “morality and justice” as notions which would shake the conscience of the Court.
2.1.3 Patent Illegality
The ground of ‘patent illegality’ for setting aside of domestic arbitral award has been incorporated under Clause 2A of Section 34 of the Act. This ground is applied in situations when the domestic arbitral award is “patently” against the law in force in India or it was passed in violation of “Right to hear” of both the parties or without giving any reason in a case where parties have not agreed that no reasons are to be recorded. In all of these circumstances, the award must be overturned on the grounds of patent illegality. The 2015 Amendment emphasized that the ground of ‘patently unlawful’ cannot be used to challenge an award in international arbitrations, although it can be used in domestic arbitrations.
There are two major issues regarding setting aside of award-
- Issue regarding “automatic stay of arbitration proceedings for enforcement of domestic awards”.
- Issue regarding “unconditional stays on enforcement of domestic awards”.
- Issue Regarding “Automatic Stay of Arbitration Proceedings”
The issue regarding automatic stay on arbitration proceedings for execution of domestic awards merely on filing an application for the setting aside an award has been considered as a major loophole of the Indian Arbitration legal regime. The provisions regarding the “automatic stay” have been incorporated in the Arbitration and Conciliation Act, 1996.
2.2.1 Position Prior 2015-Amendment
Under the Arbitration and Conciliation Act, 1996, the rule of automatic stay on proceedings for execution of domestic arbitral award was introduced. According to Section 36 of the said Act, the enforcement of the domestic arbitral award can be initiated only after the rejection of any setting aside application initiated under Section 34 of the Act. Any challenge to the arbitral award results into rendering it un-executable. The rule of automatic stay was also recognised by the Apex Court as a part of Section 34 in the landmark case of National Aluminum Company Ltd. v. Pressteel & Fabrications Ltd. and Anr.[8] Though, under Section 34 of the Act, the Courts are only empowered to set aside the award and this Section do not grant powers to Courts to “remit, modify or correct” the awards as Section 34 also talks “about minimal judicial interference”.[9]
This rule, earlier seems to be beneficial for the award debtor, but has always left the award creditor in a fix as in India usually all the awards are challenged sooner or later. The provisions pertaining to the “rule of automatic stay” used to act as a hindrance in the enforcement and execution of domestic arbitral award. Hence, this leads to obvious delay in accessing justice via arbitration proceedings. It results in violation of legal rights of public and very purpose of arbitration as an Alternate Dispute Resolution Mechanism in India. Thus, the rule of “automatic stay” arbitration regime of India is indirectly promoting “Litigation” as a preferred dispute resolution mechanism over “Arbitration”.
2.2.2 Position Post 2015-Amendment
The enactment of the Arbitration and Conciliation (Amendment) Act, 2015 overturned the position regarding the automatic stay of proceedings for the execution of arbitral award. The Amendment Act amended Section 36 of the Arbitration and Conciliation Act, 1996 and abolished the rule of automatic stays. After the amendment, the initiation of any application for setting aside of arbitral award, initiated under Section 34 of the Act, will not result in automatic stay of proceedings regarding execution of arbitral award. Rather, a party challenging an award would have to move a separate application in order to seek a stay on the execution of an award.
The position regarding the applicability of the 2015 Amendment Act has been established by the SC in the landmark case of BCCI v. Kochi Cricket Pvt. Ltd.[10]. The SC referred the 246th Law Commission Report suggesting the suspension of ‘automatic stay rule’ and held that the Arbitration and Conciliation (Amendment) Act, 2015 will have retrospective application in respect to the enforcement of domestic arbitral awards under Section 36 of Act. The rationale behind the same was that the right to obtain an automatic stay under Section 36 was not a vested one. Therefore, there would be no automatic stay of an award unless a separate application was successfully made for such a stay.
2.2.3 Position Post 2019-Amendment- Present Position
The Arbitration and Conciliation (Amendment) Act, 2019 eliminated Section 26 from the Act and inserted Section 87 in the Act according to which the retrospective application of 2015 Amendment Act will be subjected to the choice of the parties to dispute. The general rule will be prospective application of 2015 Amendment Act. Hence, this brings the rule of automatic stays back in the Indian arbitration legal regime.
However, the SC again abolished the rule of automatic stays in the landmark case of Hindustan Construction Company v. UOI[11]. The SC declared Section 87 of the Act, inserted by 2019 Amendment Act, as “un-constitutional and arbitrary” and revived Section 26 of the Act. Thus, by the way of this judgement, the SC upheld the position established by it in the case of BCCI v. Kochi Cricket and provided award creditors with the immediate benefit of an award by way of security and not letting any automatic stay stymie the execution for several years.
- Issue Regarding Unconditional Stays on Enforcement of Domestic Awards
A new rule of unconditional and mandatory stay has been incorporated in the Indian arbitration law by the introduction of Arbitration and Conciliation (Amendment) Act, 2021, passed by the Lok Sabha on February 12, 2021. The 2021 Amendment Act introduced second proviso to Section 36(3) of the Act. According to the second proviso, the rule of unconditional and mandatory stay will apply on enforcement proceedings of domestic awards if the court is of prima facie view that-
- The arbitration agreement or contract which is the basis of the award; or
- The making of the award itself
is “induced or effected by fraud or corruption”.
Thus, according to this proviso, the unconditional stay can be imposed upon the domestic award if the domestic award is challenged by a party on either of the two above-stated conditions and the court forms a prima facie view of satisfaction of the said condition. The stay will continue until and unless the challenging application under Section 34 of the Act gets decided. The 2021 Amendment Act is deemed to come into effect retrospectively from October 23, 2015. It is noteworthy that it was on the same day that abolition of the rule of automatic stays was brought into effect by the 2015 Amendment Act. Since the legislature intended to retain the rule of unconditional stay on grounds of fraud and corruption as an exception to the otherwise unavailable remedy of automatic stay, it was logical to bring both the rule and the exception into effect from the same day.
The purpose behind the introduction of 2021 Amendment Act is to address a situation where either the arbitration agreement or contract forming basis of the award or the making of the award is induced or affected by fraud or corruption. The primary aim is to provide secure environment for the parties choosing arbitration as a dispute resolution mechanism to promote arbitration in India and decrease the burden of Indian courts. This could have been only possible by enacting law to prevent fraudulent and corrupt practices, by giving a right to the aggrieved party to demand an unconditional stay for the same.
Limitation of Courts to Appraise Evidence Under Section 34
Under the Act the courts are not empowered to reassess the evidence even in the case of error committed by the arbitrator. There is no jurisdiction vested in courts to overrule arbitrator’s analysis with its own appreciation of evidence. Moreover, the examination of reasonability is also not permitted by the Courts in case of reasoned arbitral awards given by Arbitrators as the deciding forum, as chosen by the parties, is authorized to appraise the evidence. Otherwise, the acts of the court will be considered ultra vires of Section 34 of the Arbitration and Conciliation Act as it talks about minimal judicial interference.
The court is not allowed to shift the responsibility of an arbitrator upon itself regarding the appraisal of evidence in the capacity of judge of evidence. The Act has vested the arbitrator with the final power to appreciate the evidence produced before it and to arrive at a decision based on the said evidence. The courts are not empowered to sit in judgment over the grounds of acceptance or rejection of evidence by the arbitrator. Hence, the domestic award cannot be challenged on the basis of ‘inadequacy, inadmissibility or impropriety of evidence’.
The court can interfere in matters of prime facie violation of rules of natural justice that may have taken place during the conduction of arbitral proceeding by the arbitrator. The award can be challenged on the ground of ‘judicial misconduct’ if the arbitrator fails to consider any significant evidence or documents while deciding the matter.
There are few provisions under the Act which permit judicial interference in arbitration proceedings. Following the initiation of arbitration and the formation of the arbitral tribunal, the court’s reference or assistance can be requested under Section 27 of the Act. Either a party or the arbitral tribunal may request for the court’s assistance in gathering evidence by compelling the presence of a witness, the production of a document, or access to a property for examination. But the court has no authority to decide on the admission, relevancy, materiality, or weight of any evidence. The court’s judicial interference is limited to ensuring that it is conducted in conformity with its rules on taking evidence.
Critical Analysis
There are various procedural and practical challenges which one can face during the enforcement process. Most common practical challenges which occur during the process are lapse of limitation period, lack of adequate infrastructure required for enforcement of award, incompetency of lower courts in handling arbitration matters, inappropriate jurisdiction and non-fulfillment of mandatory procedural requirements like sending of notice, non-registration or stamping of award etc. Often, due to these reasons, the purpose of arbitration fails as a speedy dispute resolution mechanism in India. Thus, people show reluctance towards choosing arbitration as a resolution mechanism over litigation.
The repealing of rule of automatic stays by 2015 Amendment Act has been treated as a welcome step in the Indian arbitration regime. The automatic stay provisions used to give rise to frequent frivolous objections by the award debtor in order to create an escape gate for themselves from the obligations arising from the enforcement of domestic award. Consequently, the award holders were unable to enjoy the benefits of the award despite being the award holder. This was preventing people from choosing arbitration as the justice was being delayed and sometimes also being denied in arbitration. Moreover, the elimination of rule of automatic stays restored the enjoyment of vested right of enforcement and binding nature of an arbitral award along with maintaining its very purpose of speedy justice.
Thereafter, the introduction of rule of unconditional stay by 2021 Amendment Act in the case of award or arbitration agreement induced by fraud or corruption has also left a grey area in the Indian arbitration regime. The reason behind the same is lack of definition of “fraud or corruption” in the Act. This has created the ambiguity and has left it to judicial interpretation. The courts need to be reasonable while deciding stay application regarding enforcement of arbitral awards. Otherwise, this rule again will give rise to the frivolous objections by the award debtor and prevent award creditor to enjoy fruits of his victory, resulting in violation of purpose of arbitration as a speedy alternate dispute resolution mechanism.
[1] (2018) 3 SCC 622.
[2] Section 36, The Arbitration and Conciliation Act, 1996.
[3] M. Anasuya Devi and Anr v. M. Manik Reddy and Ors., (2003) 8 SCC 565.
[4] Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644.
[5] ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705.
[6] ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263.
[7] Associate Builders v. DDA, (2015) 3 SCC 49.
[8] National Aluminum Company Ltd. v. Pressteel & Fabrications Ltd. and Anr., AIR 2005 SC 1514.
[9] The Project Director, NHAI v. M. Hakeem, SLP (Civil) No. 13020 of 2020.
[10] BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287.
[11] Hindustan Construction Company v. UOI, WP (Civil) No. 1074 of 2019.
– Arushi Agarwal
- Limitation Period and Execution
Since arbitral award is deemed to be a decree of a court for the purpose of enforcement, the limitation period for enforcement of a domestic arbitral award is also same as that for enforcement of a court’s decree in India. Thus, according to Article 136 of the Limitation Act, 1963 the limitation period for the enforcement of award is 12 years.
For the purpose of execution, an arbitral award is deemed as “decree” passed by the Civil Courts of India.[2] The court passes an execution order of a domestic award on receiving an application for the same from the award-holder. There are various modes of execution of award via which the Court can execute the award, which are by-attachment or sale of property, detention or arrest, delivery of property, appointment of receiver and granting relief as per the requirement.
- Requirement of Stamping and Registering of Arbitral Award
The requirement of stamping and registering of domestic award is deduced from the Indian Stamp Act, 1899 and the Registration Act, 1908. A domestic award has to be compulsory registered under Section 17 of the Registration Act, 1908, if it pertains to any right, title or interest in an immovable property. The non-registration of such an award would render it invalid. The issues regarding the inadmissibility of an unstamped and unregistered award can be raised during the enforcement of the domestic award.[3]
According to Section 35 of the Indian Stamp Act, 1899, an unstamped or inappropriately stamped domestic award will be inadmissible before a court of law. Thus, proper stamp duty, as imposed by each state, has to be paid to get an award enforced. Otherwise, the award can be made admissible and thereafter enforced only after the defect is cured by paying the correct stamp duty and any further penalty, if applicable.