The world is suffering due to COVID-19 (coronavirus disease 2019) and enforcing a global economic lockdown has been the only effective measure to restrain the growth of COVID-19. At the same time companies and investors are looking to shift their manufacturing units from the epicentre of the COVID-19 pandemic to other countries with potential. Indeed, India is one of the countries which will likely attract many foreign investors to shift their units to India. In fact, around 300 business enterprises are exploring the possibility of investments with the Government of India ('GoI'). India, as a host state, has to be legally equipped to attract and protect the international investor's interest.
At present there are around 20 international investment disputes pending against India. In 2011 India had suffered big defeat in the case of White Industries Australia Ltd v The Republic of India wherein the Arbitral Tribunal awarded the Australian mining company against Coal India due to the lack of quick judicial disposal. For more than nine years the Indian domestic courts failed to decide the said dispute. The dismay of the claimant has been recorded in the award "…., White wrote to India contending that by the action of its Courts, and by the actions of Coal India, it had breached the provisions of Articles 3, 4,7 and 9 of the BIT". This is the real concern for the foreign investor in India.
The GoI, in order to promote the investment in India has recently enacted laws like Commercial Courts Act, Insolvency and Bankruptcy Code, Arbitration & Conciliation Act, 1996 (as amended till 2019) ('Arbitration Act') and Companies Act 2013. In spite of all the latest enactments, India has not been able to attract sufficient foreign Investments and companies in India. Undoubtedly, foreign investors are still not confident enough for the investments in India. And still India is liked as potential host state for many foreign investors especially after the COVID pandemic. So, it becomes the duty of GoI to ensure that foreign investor shall be safe guarded with the sufficient protection as per international customary laws. The basic challenge faced by a Foreign Investor is to seek relief from the domestic courts and enforcement of foreign arbitral award. Indian is part of New York Convention ("NYC") and Geneva Convention but still there is lacuna which is necessary to be filled in the light of new International conventions such as International Centre for Settlement of Investment Disputes ('ICSID') Convention ('ICSID Convention').
There are plethora of instances where the foreign arbitral awards have been challenged by GoI at the time of execution. The Article V of the NYC pertains to the recognition and enforceability of the Foreign Arbitral Award, which has been replicated in Part II, Chapter I of the Arbitration Act. S. 48 of the Arbitration Act states the ground on which the court can refuse to enforce foreign award can be refused on the request the foreign on the request of the party against whom it is invoked. It is settled law; foreign award will not be enforced in India if it is proved that the parties to the agreement were:
- under some incapacity; or agreement was invalid under the law the parties were subjected to; or
- in the absence of indication in respect of place of the arbitration; or
- there was no due compliance with the rules of fair hearing; or
- the award exceeded the scope of the submission to the arbitrations; or
- the composition of the arbitral authority or its procedure was not in accordance with the agreement of the parties; or
- failing such agreement, was not in accordance with the law of the place of arbitration; or
- the award has not yet become on the parties or has been set-aside or suspended by competent authority of the country in which or under the law of which the award has been made; or
- the award will not be enforced by a Courts in India if it satisfied that the enforcement of such award is contrary to the public policy.
Undoubtedly, such practises leading to interference in the Foreign Arbitral Award is contrary to the International practise and international customary law. From reading both S.34 and S.48 of the Arbitration Act, the intent of legislature is very evident that the fate of the enforcement of foreign award is in the hands of Indian domestic court. The Hon'ble Supreme Court had opined that "when it comes to setting aside of an award under the public policy ground, it would not include what the Court thinks is unjust on the facts of the case seeking to substitute its view for that of the arbitrator to do what it consider to be 'justice'".
Recently in the case of National Agriculture Co-operative Marketing Federation of India vs. Alimenta S.A. the question before the Hon'ble Court was pertaining to the enforceability of a Foreign Arbitral Award on the ground that it is against the public policy. It was held that the foreign award is ex facie illegal and in contravention to the fundamental policy of India. In the present global economic scenario, where India is being seen as the country with great potential for foreign investment, there has to be system where the foreign awards are recognised and enforced without any domestic court interference.
Relevance of ICSID
The ICSID Convention (popularly known as the Washington Convention) was created in 1965 for the settlement of Investment Disputes between states and nationals of other states. It was created under the auspices of World Bank and has its seat at Washington D.C., United State of America. At present ICSID has 163 countries, excluding India. ICSID is an arbitration institution established with a purpose to stimulate economic development through the promotion of foreign investment; and to provide a neutral platform for the settlement of International investment disputes. It is pertinent to note that ICSID's jurisdiction is restricted to investment disputes and all investor's disputes submitted to the ICSID must satisfy the definition of 'investment and investor of the treaty'. It cannot be ignored that ICSID awards are recognised and enforced automatically by all ICSID members as if these were the decision of domestic courts. Under Article 52 of the ICSID Convention parties can seek the annulment of the award before the ad-hoc committee appointed under the ICSID Convention as an appellate body. Most importantly, the award passed under ICSID Convention cannot be annulled on the ground that it is contrary to the public policy. All ICSID proceedings are internationalised because the domestic courts of member states cannot interfere during or after the proceedings.
In view of the above it can be concluded that it is the need of hour, for GoI to promote India as the investment friendly country. Despite various relaxations in Foreign Direct Investment Policy, India continues to be deprived of the real financial investments. One of the reasons is the negative impression that Indian Courts are slow and conservative while settling the investment disputes. Disputes not being decided within a specific time period and foreign awards being set aside by the domestic courts, discourages investments in India. The downsizing of inbound foreign investment can be accumulated with the factor of Indian policies and Indian customary judicial practice. Now the time has come that GoI should think of adopting the ICSID Convention, which is the most, preferred Arbitration process instead of continuing with UNCITRAL Model law. At this juncture, when India is becoming a self-reliant country it is necessary that International Investment must be boosted with a positive commercial market. This establishes that to seek more investments the GoI must adopt a smooth process of dispute resolution, which could be ICSID.