By: Srishti Pandey
INTRODUCTION
It has been a long-standing aspiration to make India a pro-arbitration nation with the advent of international commercial arbitration. This topic has been a subject of debate and anticipation. However, does the Arbitration and Conciliation Act, 1996 [hereinafter ‘AC Act’] embody the spirit of arbitration or is the enforcement landscape in India filled with complexity and ambiguity?
The recent trends of the Indian jurisprudence, including the guidelines prohibiting arbitration for disputes beyond Rs. 10 crores, as well as the DMRC v. DAMEPL case where the Supreme Court, through curative petition, set aside its own judgment which had earlier upheld an arbitral award, increase concerns of portraying India as a non-arbitration friendly nation. Amidst this arises the issue of enforcement of foreign awards in the Indian landscape. The Convention on Recognition and Enforcement of Foreign Awards, called the New York Convention, seeks to create a universal framework for the recognition and enforcement of foreign arbitral awards. It has 172 countries as signatories, with India as one of them. However, complexity arises when the provision of reservations under Article I(3) of the New York Convention comes into the picture. Section 44(a) and (b) of the Arbitration and Conciliation Act, 1996, precisely cover the reservations made by India in pursuance to Article I(3) when talking about the New York Convention. This article aims to dissect the challenges posed by the dual requirements under Section 44, specifically focusing on Section 44(b), which requires a separate gazette notification by India for the enforcement of foreign awards. The article aims to explore whether both the conditions under Section 44 are strict necessary requirements, and if yes, what are the repercussions?
UNDERSTANDING SECTION 44 OF AC ACT VIS Á VIS NEW YORK CONVENTION: THE DUAL REQUIREMENT
Part II of the AC Act deals with foreign awards, defining them as awards on disputes arising out of legal relations, whether contractual or not, considered specifically as commercial under Indian Law. This has been defined under Section 44 of the AC Act.
It provides for two necessary conditions for the enforcement of such an award, also called as the reciprocity condition, to be met:
First, under Section 44(a), the award must originate from a Contracting State to the New York Convention; that is, the state shall be a signatory to the New York Convention.
Second, under Section 44(b), the Indian Government has to notify in the Official Gazette that such a state is a party to the New York Convention, specifying that an award passed by such a state shall be enforceable in India.
According to Section 44 and its interpretation by the Courts, the award necessarily arise out of differences between persons having a legal relationship that is considered commercial under Indian Law. This becomes an additional condition to be met for a valid enforcement of a foreign award.
Thus, commercial nature and reciprocity can be seen as two points qualifying the enforcement of a “foreign award”.
DISCUSSION ON SECTION 44(B) ON THE UNDERLYING ISSUE
While 172 countries are signatories to the New York Convention, only 48 countries have been notified as reciprocating territories whose award can be enforced by the Indian Government. The ICC Guide to National Procedures on Enforcement highlights that India has only notified 48 countries. This raises a crucial question: What is the value of an award passed by a country that is a party to the New York Convention but is not notified by the Government?
There has been no explicit answer given by the Supreme Court to this question. Since the provision under clause (b) itself mentions notification requirement, it is seen as a mandatory requirement.
This stance can be seen in various cases. The Supreme Court in Gemini Bay Transcription (P) Ltd. v. Integrated Sales Services Ltd. clarified that six ingredients must be met for a foreign award under Section 44, namely: legal relationship, which may be in contract or outside, but it ought to be considered “commercial” under Indian Law, and must be a New York Convention award, made on or after 11th October 1960. Most importantly, the sixth condition mentioned is that it is made in a territory which the Central Government, by notification, declares so.
This stance has also been observed by the Delhi High Court in National Ability S.A. v. Tinna Oil And Chemicals Ltd., mentioning four conditions to be met for “foreign award”, the fourth being that the Union Government may issue a notification declaring it to be a territory where New York Convention applies. Mumbai High Court Judgment of Rashmi Mehra and Ors. v. Eac Trading Ltd. and Ors. also declares the same conditions being met.
Based on this understanding, according to the interpretation of courts, it is understood that the AC Act goes further than just putting a reservation on the commercial nature of the relation, and adds another layer for enforcement of the award. Based on this, only awards made in the countries which the Central Government of India has notified in the Official Gazette are “foreign awards”, notwithstanding that the country is a signatory to the New York Convention. An award of a country otherwise not notified will not be enforceable. It must be reminded here that only 48 such countries have been notified by the Central Government, making it complex and ambiguous to enforce awards of other signatory countries, 172 in total. This confusion raises up issues in the pro-arbitration stance of India.
IS THE COURT RIGID IN ITS REQUIREMENT OF SECTION 44(B): THE OTHER SIDE
The Transocean Shipping Agency (P) Ltd. v. Black Sea Shipping case by the Supreme Court comes into consideration. In this case, an award was made in 1995 in Ukraine. Here, Ukraine was not a gazetted country. However, the court still interpreted this to be a “foreign award” under the AC Act. The reasoning provided by the court was that the USSR was recognized as a New York Convention territory by way of a gazetted notification dated 7th February 1972 and that, at that point, Ukraine was, in fact, a part of the USSR. Even after the breakup of the USSR in 1991, Ukraine remained a signatory to the New York Convention as it signed it in 1960 and so the reciprocating requirement is met. This was one of the reasons, amongst others, to claim it as a foreign award. Although, on the date of the award, India had not notified Ukraine separately as a notified country in the Gazette, the Court still, at least in essence, was liberal in its interpretation of this requirement.
Further, the recent case of PASL Wind Solutions Pvt. Ltd. v. GE Power Conversion India Pvt. Ltd. is widely discussed in respect to the enforcement of foreign awards under Section 44. Like the previous judgments, this also goes on to mention four conditions, the fourth being worded as “it must be disputes that arise between persons (without regard to their nationality, residence, or domicile), and the arbitration must be conducted in a country which is a signatory to the New York Convention”.
The court further went on to mention that all the four ingredients are met under Section 44, stating that “the disputes are between two persons, i.e. two Indian companies, and the arbitration is conducted at the seat designated by the parties, i.e. Zurich, being in Switzerland, a signatory to the New York Convention”.
The complete silence of the Supreme Court on the notification requirement has raised questions among a few researchers. They have mentioned that the court merely addressed the fact that the arbitration is conducted in a contracting country and did not address the crucial requirement of Section 44(b) of the AC Act, hence going over the prerequisite statutory condition. In this case, it is to be noted that Switzerland, the chosen seat, is a notified country, and hence, the award is essentially enforceable in that regard. However, this aspect went unaddressed by the Supreme Court.
A minor observation in this regard is the reference to the New York Convention Guide, which mentions the reservations of India as, “India will apply the Convention only to recognition and enforcement of awards made in the territory of another contracting State. India will apply the Convention only to differences arising out of legal relationships, whether contractual or not, that are considered commercial under the national law”.
Interestingly, the notification requirement is silent. Moreover, only two conditions have been mentioned, namely, awards made in the territory of another contracting state and the commercial nature of the relationship under the national law.
Again, it is crucial to point out that these are all inferences as opposed to the explicit strict statutory requirement mentioned in the section itself. However, these hint at the need for reducing the strict threshold of the statutory requirement. There is no clear Supreme Court answer on the issue of only 48 states being notified out of the 172 contracting states.
ISSUE AND CONCLUSION
This added layer of complexity and ambiguity thus presents a significant challenge to India’s arbitration regime. The amendments brought to the AC Act also do not address this. Neither the Arbitration and Conciliation (Amendment) Act, 2015, nor the 2019 amendment addresses this issue. Possibly, unequivocal judicial pronouncements that lay down the role of Section 44(b) might help. However, as of now, the judicial trend leans towards observing the requirement of notification as necessary. This ambiguity only reduces India as a pro-arbitration hub.
(Srishti Pandey is a law undergraduate from National Law university, Jodhpur. The author may be contacted via mail at srishtipandey59@gmail.com)
Cite as: Srishti Pandey, Section 44(b) of the Arbitration and Conciliation Act, 1996: Roadblock to Pro-Arbitration India?, 24th September 2024, <https://rmlnlulawreview.com/2024/09/24/section-44b-of-the-arbitration-and-conciliation-act-1996-roadblock-to-pro-arbitration-india/> date of access.
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