Enforcement of arbitral awards and foreign awards

1. Finality: section 35

Subject to Part I, an arbitral award is final and binding on the parties and persons claiming under them. It operates as res judicata between them on the matters decided.

2. Enforcement of domestic awards: section 36

• Section 36(1): once the time for applying under section 34 has expired, the award is enforced under the CPC in the same manner as if it were a decree of the court. No separate decree is needed; the award holder files an execution petition.
• Section 36(2): filing a section 34 application does not by itself make the award unenforceable. The award debtor must apply separately for a stay.
• Section 36(3): the court may grant a stay on conditions, for reasons recorded in writing; for money awards it has regard to the CPC provisions on stay of a money decree, which usually means deposit or security.
• Second proviso to section 36(3) (inserted by the 2021 amendment, deemed from 23 October 2015): where the court is satisfied that a prima facie case is made out that the arbitration agreement or contract, or the making of the award, was induced or effected by fraud or corruption, it shall stay the award unconditionally pending the challenge.

Before 2015 the mere filing of a section 34 petition stayed the award automatically. The 2015 amendment removed that. Parliament in 2019 inserted section 87 to say the 2015 amendments would not apply to court proceedings arising from arbitrations commenced before 23 October 2015. In Hindustan Construction Company Limited v. Union of India, 2019 INSC 1289, the Court struck down section 87 as manifestly arbitrary, restoring the position that there is no automatic stay.

3. Deposits, lien and costs: sections 38 and 39

• The tribunal may fix a deposit as an advance for costs, payable in equal shares; if one party fails to pay, the other may pay it; if neither pays, the tribunal may suspend or terminate the proceedings on that claim or counterclaim (section 38).
• The tribunal has a lien on the award for unpaid costs (section 39(1)). If it refuses to deliver the award except on payment, the court may order delivery on the applicant paying the demanded costs into court, and then pay the tribunal a reasonable sum and refund the balance (section 39(2)).
• Costs directed by an award are part of the award and are recoverable in execution like any other sum under it.

4. Foreign awards: Part II, Chapter I (New York Convention)

Definition (section 44): an arbitral award on differences arising out of legal relationships, contractual or not, considered commercial under Indian law, made on or after 11 October 1960, in pursuance of a written agreement to which the New York Convention applies, and in a territory notified by the Central Government as a reciprocating territory. The two reservations India made to the Convention, commercial relationship and reciprocity, are built into this definition.

• Reference (section 45): a judicial authority seized of a matter covered by such an agreement shall refer the parties to arbitration unless it prima facie finds the agreement null and void, inoperative or incapable of being performed.
• Binding effect (section 46): a foreign award is binding and may be relied on by way of defence, set-off or otherwise.
• Evidence (section 47): the applicant produces the original or authenticated award, the original or certified agreement, and evidence that it is a foreign award, with an English translation if needed. The “Court” is the High Court with original jurisdiction, or the High Court hearing appeals from subordinate courts.
• Refusal (section 48): enforcement may be refused only if the party resisting proves: incapacity or invalid agreement; lack of proper notice or inability to present his case; award beyond the submission (the valid part may be enforced if separable); composition or procedure not in accordance with the agreement or the law of the seat; or the award is not yet binding, or has been set aside or suspended in the country of the seat (section 48(1)). The court may also refuse if the subject matter is not arbitrable under Indian law or enforcement would be contrary to the public policy of India, which bears the same narrow meaning as in section 34 after 2015 (section 48(2) and Explanations).
• Enforcement (section 49): once the court is satisfied, the award is deemed a decree of that court.
• Appeal (section 50): only against an order refusing reference under section 45 or refusing enforcement under section 48. An order allowing enforcement is not appealable.

Chapter II (sections 53 to 60) makes parallel provision for awards under the Geneva Protocol, 1923 and Geneva Convention, 1927.

5. Cases on foreign awards

• Renusagar Power Co. Ltd. v. General Electric Co., 1993 INSC 342, 1994 Supp (1) SCC 644. Under the 1961 Act, enforcement could be refused on public policy only if it was contrary to the fundamental policy of Indian law, the interests of India, or justice or morality. Mere violation of Indian law was not enough. This narrow meaning is now the statutory test.
• Shri Lal Mahal Ltd. v. Progetto Grano SpA, 2013 INSC 423, (2014) 2 SCC 433. The wider Saw Pipes meaning of public policy does not apply to foreign awards; section 48 does not permit a review of the merits.
• Vijay Karia v. Prysmian Cavi E Sistemi SRL, 2020 INSC 178, (2020) 11 SCC 1. The grounds in section 48 are to be construed narrowly, and “otherwise unable to present his case” means a denial of a fair hearing, not an adverse finding. Where the court enforces, no appeal lies, and the Supreme Court will interfere under Article 136 only in rare cases.
• Government of India v. Vedanta Limited, 2020 INSC 548, (2020) 10 SCC 1. An application to enforce a foreign award is governed by Article 137 of the Limitation Act, 1963: three years from when the right to apply accrues. The petition for enforcement and execution may be filed together.

6. Problem

An arbitral tribunal passes an award and orders the parties to pay the cost of the arbitration in equal shares. One party refuses to pay. Decide. (November 2021)

Issue. Whether a direction on costs in an award can be enforced against a party who refuses to pay, and how.

Law. The tribunal fixes costs under sections 31(8) and 31A; it may depart from the general rule that the loser pays, for reasons recorded, and an equal split is a permissible order. The award, including the costs direction, is final and binding (section 35) and, once the three-month period under section 34(3) expires without a challenge, is enforceable as a decree under section 36(1). The tribunal has a lien on the award for unpaid costs and the court can order delivery against payment into court (section 39).

Application. If the defaulting party has not challenged the award within time, the other party may file an execution petition under section 36(1) read with Order XXI CPC and recover the defaulter's share by attachment and sale of his property, as on any money decree. If the other party has already paid the defaulter's share of the deposit under the first proviso to section 38(2), it may recover that sum in execution. If the tribunal is withholding the award because its fees are unpaid, either party may apply under section 39(2). The defaulter can avoid execution only by applying under section 34 within time and obtaining a stay under section 36(3), usually on deposit. Refusal to pay is not a ground to set aside.

Conclusion. The costs direction is enforceable as a decree. The aggrieved party should execute the award under section 36(1).

How this is examined

Enforcement appears inside salient-features answers and in problems on unpaid costs or refused compliance. Write section 35, then section 36(1) to (3) with the 2015 change and the 2021 proviso, then sections 38 and 39. For foreign awards, give section 44, the grounds in section 48, sections 49 and 50, and Renusagar, Shri Lal Mahal and Vijay Karia.