Arbitration -Enforcement Court May Refuse Enforcement Of Foreign Award, But Cannot Set Aside Or Correct It: SC [Read Judgment]

The Supreme Court, in Vedanta case, observed that though enforcement courts may "refuse" enforcement of a foreign award, if the conditions contained in Section 48 are made out, but it cannot set aside or correct a foreign award, even if such conditions are made out.

The above observations were made by the bench headed by Justice S. Abdul Nazeer while disagreeing with the view expressed by the High Court that a foreign award is enforceable on its own strength, and is not necessarily dependent on whether or not it goes through the process of Section 48 proceedings. The bench, also comprising Justices Indu Malhotra and Aniruddha Bose observed that, it is only after the stages of Sections 47 and 48 are completed, the award becomes enforceable as a deemed decree, as provided by Section 49. It said:

"A foreign award does not become a "foreign decree" at any stage of the proceedings. The foreign award is enforced as a deemed decree of the Indian Court which has adjudicated upon the petition filed under Section 47, and the objections raised under Section 48 by the party which is resisting enforcement of the award. A foreign award is not a decree by itself, which is executable as such under Section 49 of the Act. The enforcement of the foreign award takes place only after the court is satisfied that the foreign award is enforceable under Chapter 1 in Part II of the 1996 Act. After the stages of Sections 47 and 48 are completed, the award becomes enforceable as a deemed decree, as provided by Section 49. The phrase "that court" refers to the Indian court which has adjudicated on the petition filed under Section 47, and the application under Section 48."

The bench then noted the scheme of the Act for enforcement of New York Convention awards. It also noted that Sub-sections (1) and (2) of Sections 48 contain seven grounds for refusal to enforce a foreign award. Sub-section (1) contains five grounds which may be raised by the losing party for refusal of enforcement of the foreign award, while sub-section (2) contains two grounds which the court may ex officio invoke to refuse enforcement of the award, i.e. non-arbitrability of the subject-matter of the dispute under the laws of India; and second, the award is in conflict with the public policy of India. It observed:

"The enforcement Court cannot set aside a foreign award, even if the conditions under Section 48 are made out. The power to set aside a foreign award vests only with the court at the seat of arbitration, since the supervisory or primary jurisdiction is exercised by the curial courts at the seat of arbitration. The enforcement court may "refuse" enforcement of a foreign award, if the conditions contained in Section 48 are made out.

"The enforcement court is not to correct the errors in the award under Section 48, or undertake a review on the merits of the award, but is conferred with the limited power to "refuse" enforcement, if the grounds are made out."

The bench also observed that the courts retain a residual discretion to overrule the objections, if it finds that overall justice has been done between the parties, and may direct the enforcement of the award. It added:

"The opening words of Section 48 use permissive, rather than mandatory language, that enforcement "may be" refused. 32 The use of the words "may be" indicate that even if the party against whom the award is passed, proves the existence of one or more grounds for refusal of enforcement, the court would retain a residual discretion to overrule the objections, if it finds that overall justice has been done between the parties, and may direct the enforcement of the award.33 This is generally done where the ground for refusal concerns a minor violation of the procedural rules applicable to the arbitration, or if the ground for refusal was not raised in the arbitration. A court may also take the view that the violation is not such as to prevent enforcement of the award in international relations.35 (k) The grounds for refusing enforcement of foreign awards contained in Section 48 are exhaustive, which is evident from the language of the Section, which provides that enforcement may be refused "only if" the applicant furnishes proof of any of the conditions contained in that provision. "

The bench added that the procedure for enforcement of a foreign decree is not covered by the 1996 Act, but is governed by the provisions of Section 44A read with Section 13 of the CPC. It said:

"If the Court is satisfied that the application under Section 48 is without merit, and the foreign award is found to be enforceable, then under Section 49, the award shall be deemed to be a decree of "that Court". The limited purpose of the legal fiction is for the purpose of the enforcement of the foreign award. The concerned High Court would then enforce the award by taking recourse to the provisions of Order XXI of the CPC."

Case name: GOVERNMENT OF INDIA vs. VEDANTA LIMITED

Case no.: CIVIL APPEAL NO. 3185 OF 2020

Coram: Justices S. Abdul Nazeer, Indu Malhotra and Aniruddha Bose

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