Supreme Court of India: Is It Mandatory For The Party Applying For Enforcement of A Foreign Award To Produce the Original Arbitration Agreement At the Time of Filing the Enforcement Application?

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In PEC Ltd. v. Austbulk Shipping Sdn Bhd., 2018 SCC OnLine SC 2549 decided on 14 November 2018, the Supreme Court of India addressed the issue of whether an application for enforcement of a foreign award made under Section 47 of the Arbitration and Conciliation Act, 1996, (‘Act’) is liable to be dismissed if it is not accompanied by the arbitration agreement. In other words, by virtue of the word “shall” appearing in Section 47 of the Act, is it mandatory to produce an authenticated copy of the original arbitration agreement at the time of filing of an application for the enforcement of a foreign award in India and can its non-compliance result in dismissal of the enforcement application?

Keeping in view the object and purpose of the New York Convention and placing reliance on the relevant provisions of UNCITRAL Model Law, the Court inter alia held that the word “shall” in Section 47 of the Act relating to the production of the evidence for the enforcement of foreign award has to be read as “may”. However, it is pertinent to note that the said interpretation of the word “shall” as “may” is restricted only to the initial stage of the filing of such application and not thereafter. Detailed case analysis given below:

Factual Matrix

The Appellant (‘PEC’) had entered into a charter party agreement (‘Charter Party’) with the Respondent (‘Austbulk’) containing an arbitration clause for transporting certain quantities of Chickpeas from Australia to India. The Charter Party was duly signed on behalf of PEC and was forwarded to the Austbulk’s broker M/s.Forbes Gokak Limited, Patvolk Division, Mumbai (‘Forbes’) for obtaining signature of the under FAX. PEC arranged a vessel for the said purpose for carriage of Chickpeas to be carried to Delhi. The Vessel arrived at the discharge port and notice of readiness was duly served on Austbulk by FAX. The said FAX was replied to by the Austbulk wherein a request was made to the PEC to change the discharge port to Mumbai.

Subsequently, Austbulk undertook to indemnify the PEC and its agents in respect of any liability, loss, damage or expenses of whatsoever nature, which it may sustain by reason of the Vessel proceeding and giving delivery of the cargo in accordance with their request. In terms thereof, PEC submitted Austbulk their statement of amount due to them due to the change of port and demurrage charges. Austbulk in its letter to its brokers, admitted the receipt of laytime statement forwarded by PEC and instructed them to proceed further in the matter with PEC for amicable settlement of demurrage.

As no payment was made in terms of the request of PEC, it invoked the arbitration clause in the Charter party agreement and appointed its arbitrator claiming for balance of freight and demurrage in terms of the said Charter Party. PEC also requested Austbulk to appoint its Arbitrator in respect of the aforesaid claim but it failed to do so. Since the Austbulk failed to appoint its own Arbitrator, therefore, PEC had appointed its arbitrator as the Sole Arbitrator.

The Sole Arbitrator directed Austbulk to serve their submission of defense together with counter-claim. Austbulk responded contending that it had not signed any Charter Party, nor is it was a party to the said Charter Party and hence it is not liable under the arbitration agreement contained therein. The Sole Arbitrator proceeded with the reference and passed an award in respect of the claim as also in respect of cost. For enforcement and execution of the said foreign award, a petition was filed in the Delhi High Court.

The main point that was considered by the High Court was the maintainability of the petition for enforcement of the award without an authenticated copy of the original agreement being filed at the time of presentation of the application. The High Court was of the view that there was substantial compliance with the provisions of the Act as a certified copy of the arbitration agreement was placed on record by both the parties. According to the High Court, the application filed for enforcement under Section 47 of the Act was in the nature of an execution and in case the relevant documents were not filed along with the application, the adjudicating forum has an obligation to return the same for compliance with the requirements of the Act. Re-filing of the Petition after curing defects is not barred by any law. The High Court refused to accept the submission of the Appellant that the award sought to be enforced was not a valid foreign award as defined under Section 44 of the Act. Later, the execution of award was stayed by the Supreme Court.

Applicable Legal Principles

Section 47 of the Act

Evidence

(1) The party applying for the enforcement of a foreign award shall, at the time of the application, produce before the court—

(a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;

(b) the original agreement for arbitration or a duly certified copy thereof; and

(c) such evidence as may be necessary to prove that the aware is a foreign award.

Section 48 of the Act

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.

Parties’ Contentions

PEC contended as under:

  • that it is mandatory for the party applying for enforcement of a foreign award to produce the original agreement for arbitration before the Court at the time of filing the application
  • that the application for enforcement ought to have been dismissed on the sole ground that the arbitration agreement was not produced at the time of filing of the application.
  • that PEC did not sign the Charter Party and there was no arbitration agreement between the parties.

Issue

Whether an application for enforcement under Section 47 of the Act is liable to be dismissed if it is not accompanied by the arbitration agreement?

Judgement

The Court discarded PEC’s argument that by virtue of word “shall” appearing in Section 47 of the Act, the production of the arbitration agreement at the time of filing of the award is mandatory, the non-compliance of which ought to have resulted in the dismissal of the application.

The Court concluded that the word “shall” appearing in Section 47 of the Act relating to the production of the evidence as specified in the provision at the time of application has to be read as “may”.

The Court further observed that the word “shall”, though prima facie gives an impression of being of mandatory character, is required to be considered in light of the intention of the legislature by carefully attending to the scope of the Statute, its nature and design and the consequences that would flow from the construction thereof one way or the other.

The Court made reference to Article III of the New York Convention which provides for recognition of arbitral awards by each contracting State as binding and noted that Article III restricts imposition of substantial onerous conditions for enforcement of the arbitral awards.

Further, the Court also noticed Article IV of the New York Convention which also mentions the word “shall” and which requires the party applying for recognition and enforcement to file an authenticated original award or duly certified copy thereof and the original agreement referred to in Article II of the New York Convention or a duly certified copy thereof at the time of the application.

The Court then discussed the object and purpose of the New York Convention as summarized by the Guide to Interpretation of the New York Convention issued by the International Council for Commercial Arbitration (‘ICCA’) and concluded that

  • the object and purpose of the New York Convention is to facilitate the recognition of the arbitration agreement within its purview and the enforcement of the foreign arbitral awards.
  • this object and purpose must, in the first place, be seen in the light of enhancing the effectiveness of the legal regime governing international commercial arbitration.

The Court then placed reliance on the UNCITRAL Model Law (‘Model Law’) which is the genesis of the Act. The Court emphasised on Chapter VIII of the Model Law that governs the recognition and enforcement of Awards. More particularly, Article 35(2) provides that the party applying for enforcement of the award shall supply the original award or a copy thereof.

The Court noted that the Model Law does not lay down procedural details of recognition and enforcement, which are left to national procedural laws and practices. However, Article 35 (2) was amended in 2006 to liberalise formal requirements. Presentation of a copy of the arbitration agreement is no longer required under Article 35(2).

The Court also clarified that reading the word “shall” in Section 47 of the Act as “may” would only mean that a party applying for enforcement of the award need not necessarily produce before the Court a document mentioned therein “at the time of the application”. However, the said interpretation of the word “shall” as “may” is restricted only to the initial stage of the filing of the application and not thereafter.

Therefore, the Court upheld the decision of the Delhi High Court directing enforcement and execution of a foreign award.

My Comments

By this judgement, the Supreme Court of India had eased out the proof requirements under Article IV of the New York Convention taking practical and relatively flexible approach towards proof requirements. It has excused the technical non-compliance with Article IV of the New York Convention citing the Convention’s pro-enforcement policies and principle of good faith.

It would be germane to compare the changes brought in the UNCITRAL Model Law with regard to proof of requirement of foreign award.

UNCITRAL Model Law

Text of the Model Law (original 1985 version) Text of the Model Law (amended in 2006) – Explanatory Note
(2) The party relying on an award or applying for its enforcement shall supply the duly authenticated original award or a duly certified copy thereof, and the original arbitration agreement referred to in article 7 or a duly certified copy thereof. If the award or agreement is not made in an official language of this State, the party shall supply a duly certified translation thereof into such language.

 

(2) The party relying on an award or applying for its enforcement shall supply the original award or a copy thereof. If the award is not made in an official language of this State, the court may request the party to supply a translation thereof into such language

The part in bold is deleted from the text of Model Law, 1985. In this regard, the explanatory note by the UNCITRAL Secretariat states as under:

The Model Law does not lay down procedural details of recognition and enforcement, which are left to national procedural laws and practices. The Model Law merely sets certain conditions for obtaining enforcement under article 35 (2). It was amended in 2006 to liberalize formal requirements and reflect the amendment made to article 7 on the form of the arbitration agreement. Presentation of a copy of the arbitration agreement is no longer required under article 35 (2).

Position the England and Wales

In Dardana Ltd v Yukos Oil Co. [2002] EWCA Civ 543 the English Court of Appeal noted that there is no mechanism in English Procedural law for copy of award or arbitration agreement to be “duly certified” (Gary B, Born, International Commercial Arbitration, 2nd Ed., Vol.III, Pg. 3397, Footnote 11).

Mance LJ held (at [9]) that this would:

… lead to a curious duplication and, moreover, an inconsistency in onus. On the one hand, the respondents would have to prove the actual existence of a valid arbitration agreement in writing, before the award could be recognized or enforced. On the other hand, under s. 103(2) [the English equivalent of Section 48 of the Indian Arbitration Act and Section 31(2) of the International Arbitration Act of Singapore (‘IAA’)], recognition or enforcement “may be refused” if the appellants could prove one of the matters there listed, which include the absence of any valid arbitration agreement.

Mance LJ further held at [10] and [12]:

I consider that the scheme of the [Arbitration Act 1996 (c 23) (UK)] is reasonably clear. A successful party to a New York Convention award… has a prima facie right to recognition and enforcement. At the first stage, a party seeking recognition or enforcement must, under [the English equivalent of Section 47 of the Indian Arbitration Act Order 69A Rule 6 of the Rules of Superior Courts (‘RSC’)], produce the duly authenticated award or a duly certified copy and the original arbitration agreement or a duly certified copy. … Once such documents have been produced, recognition or enforcement may be refused at the second stage only if the other party proves that the situation falls within one of the heads set out in s. 103(2). The issue before us concerns the content of and relationship between the first and second stages. …

[A]t the first stage, all that is required by law of an arbitration agreement is apparently valid documentation, containing an arbitration clause, by reference to which the arbitrators have accepted that the parties had agreed on arbitration or in which the arbitrators have accepted that an agreement to arbitrate was recorded with the parties’ authority. On that basis, it is at the second stage, under Section 103(2), that the other party has to prove that no such agreement was ever made or validly made.

Thus, the English Court of Appeal considered the enforcement proceedings to be a two stage process in which the fulfillment of the first stage consisting of a submission of the documents required under Article IV of the New York Convention gave the applicant a prima facie right to recognition and enforcement. At the second stage, the other party could then refute this right by successfully pleading the defences listed in Article V.

Position in Singapore

The leading authority in Singapore on this issue is Aloe Vera of America Inc v Asianic Food (S) Pte Ltd [2006] 3 SLR(R) 174 wherein the Singapore High Court had adopted the English Court of Appeal’s position above. In words of Justice Quentin Loh (in Strandore Invest A/S v Soh Kim Wat [2010] SGHC 151, Para 22) this case lays down the rule that the enforcement of a foreign arbitration award under Section 30 of IAA (which is equivalent of Section 47 of the Indian Arbitration Act) and Order 69A Rule 6 of RSC (Enforcement of awards and foreign awards), is a mechanistic process. All the applicant seeking enforcement has to do is to produce the arbitration agreement, prove that the defendant was mentioned in the arbitration agreement exhibited by the applicant, and that an Arbitral Tribunal had made a finding that the defendant was a party to that agreement and that the Arbitral Tribunal had made an award against him, exhibiting the duly authenticated original award or a duly certified copy thereof. It does not require a judicial investigation by the court enforcing the award under the IAA, the examination that the court must make of the documents under Order 69A Rule 6 RSC is a formalistic and not substantive one. Section 31(1) IAA supports this approach. This approach has also been endorsed in Denmark Skibstekniske Konsulenter A/s I Likvidation (formerly known as Knud Hansen A/S) v Ultrapolis 300 Investments Ltd (formerly known as Ultrapolis 3000 Theme Park Investments Ltd [2010] SGHC 108.

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