India and the United Arab Emirates (UAE) have witnessed dynamic bilateral relations in the recent past. The leadership of both countries have endeavoured to bolster ties of the two economies. This has aligned India to achieve its insatiable ambition of emerging as a USD 5 trillion economy.
To further augment their strategic partnership, the Central Government on January 17, 2020, declared UAE to be a reciprocating territory for the purposes of Section 44A of the Code of Civil Procedure, 1908 (CPC).
The said provision indicates an independent right conferred on a foreign decree holder for enforcement of a decree/order in India subject to certain limited grounds under Section 13 of the CPC.
The raison d'être behind the declaration is very evident and it could not have come at a better time, as UAE investments in key sectors in India are growing manifold.
The authors explore how this declaration will expedite the process of enforcement of civil judgments through Indian courts, thereby encouraging investment and increased economic activity.
Position prior to the notification
Under the CPC, direct enforceability of a foreign decree finds its genesis under Sections 13, 14 and 44A. In turn, Section 44A can only be invoked if there is a decree passed by a superior court of a country/territory outside India, which the Centre may declare to be a reciprocating territory for the purposes of the said Section.
Therefore, despite the principles of comity of nations followed by Indian courts, decrees passed by courts in a non-reciprocating territory are not directly executable in the same way a decree passed by a domestic court is. In such cases, a fresh suit may be filed on the basis of the decree or judgment, which may be construed as a cause of action for the said suit. In the suit, the decree will be treated as another piece of evidence against the defendant.
In both cases, the decree must pass the muster of Section 13 CPC, which specifies certain exceptions under which the foreign judgment becomes inconclusive and is therefore not executable or enforceable in India.
Until January 17, UAE formed a part of the other end of the spectrum i.e. a non-reciprocating territory. India and UAE, however, were part of an Agreement on Juridical and Judicial Cooperation in Civil and Commercial Matters for the Service of Summons, Judicial Documents, Commissions, Execution of Judgements and Arbitral Awards (Agreement).
Though this Agreement was ratified by India, UAE was not notified as a reciprocating territory under Section 44A of the CPC, owing to lack of information regarding the designation of courts.
The net effect was that a decree passed by a Court in UAE could not be directly executed by invoking the provisions of Section 44A of the CPC. This conundrum impeded smooth execution of decrees passed by courts in both countries, thereby dissuading stakeholders from pursuing debt recovery action.
Curiously, the ratified Agreement did not help ironing the creases since a decree holder would have to overcome the rigors associated with a civil suit in India, rendering the Agreement practically inoperative.
Post notification era: A glimmer of hope
The recent notification will immensely benefit foreign decree holders from the standpoints of expedited recoveries, increased limitation period, reduced costs and additional alternatives for realizing debts. The benefits are summarised below:
Decrees/orders from notified Courts in UAE can be executed directly before courts of appropriate jurisdiction in India as decrees passed by the domestic court. Such foreign decrees/judgments may operate as res judicata except in the six cases specified in the Section 13 of the CPC;
A foreign decree holder who has sought a decree in its favour from a notified court in the UAE could transgress the comprehensive procedure followed in adjudicating civil suits by leading evidence, examining witnesses, framing issues etc. Such decree holders would only be required to satisfy the executing Court that the decree passes the test under Section 13 of the CPC;
The time period for executing decrees passed by the notified courts in UAE and India will be considerably reduced. An interesting facet which is inversely proportional to the decrease in time for realizing monies through execution of such decrees is the increase in limitation period for executing decrees passed by Courts in reciprocating territories.
Triggering the mechanism under the Insolvency and Bankruptcy Code
One of the main objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up the insolvency process.
Briefly, the Code provides that where any corporate debtor commits a default, a financial creditor or an operational creditor may initiate the corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under the Code.
Some case laws suggest that Tribunals constituted for the purpose of inter-alia discharging powers and functions conferred under the Code, may take cognizance of a foreign decree and treat it as debt for the purposes of the Code. In fact, this position emerges from a judgment passed by the National Company Law Tribunal, Chennai, upheld by the National Company Law Appellate Tribunal. In the said judgment, the Tribunal took note of Section 44A and Section 13 of the CPC, observing that there is a prima-facie case made out under the Code and a debt is payable.
In view of the above, reciprocity between India and UAE for execution of decrees under Section 44A of the CPC could give credence to foreign decree holders to invoke the mechanism under the Code as a measure for debt realization.
Some may argue as to whether the Code recognizes a distinction between decrees from non-reciprocating and reciprocating territories from the standpoint of debt. In the authors' view, the answer would lie in the mode of enforcement of the decrees. This is substantiated by the fact that enforcement of a decree passed in a non-reciprocating territory will entail filing a suit as set out earlier. This could provide fodder to the corporate debtor to wriggle out of the clutches of the Code, inter-alia, on the ground of a pre-existing dispute or a disputed debt.
Position on enforcement of Arbitration Awards seated in UAE
The Government of India’s latest notification is restricted to the enforcement mechanism under Section 44A of the CPC. It does not change the position on enforcement of arbitral awards passed by Arbitral Tribunals seated in UAE.
Part II of the Indian Arbitration and Conciliation Act, 1996 (Arbitration Act), deals with enforcement of New York Convention awards. A foreign award may be executed in India, if it is a New York Convention award, on fulfilling two conditions as per Section 44 of the Arbitration Act. UAE does not feature in the list of territories notified by the Indian government under Section 44 of the Arbitration Act.
Consequently, the position on enforcement of UAE-seated arbitration awards remains unaffected. Having said that, the fruits of the present notification could be witnessed by exploring the following method:
Where a UAE-seated award is passed in favour of an award holder, they can apply to the court within whose jurisdiction such award is passed to be made a Rule of the Court. Subsequently, such decree can be executed in India under the provisions of Section 44A of the CPC since UAE is notified as a reciprocating territory.
Ambiguities of the notification
Will the notification apply prospectively or retrospectively since it could be argued that the notification is in the realm of procedure?
Some decree holders may have attained decrees in their favour passed by courts in the UAE which do not form a part of the notification. Therefore, could this invite a recipe for litigation for such decree holders?
Under the Code, the limitation period is prescribed as 3 years from the date of default. Consequently, what would be the position for decree holders in whose favour decrees were passed more than three years ago, particularly when these decrees can now form the basis for invoking the Code?
Can arbitral award holders approach the appropriate courts in UAE to get their awards declared as a Rule of the Court for subsequent enforcement in India?
The present notification would give much-desired impetus to enforce civil judgments passed by the notified courts in UAE. This is a welcome change and could further strengthen the economic ties and strategic investments between the two age-old trading partners.