Is India the promised arbitration hub or an enforcement/execution nightmare?
The expansion of international trade and commerce necessitates the growth of cross-border dispute resolution mechanisms which are honoured and effective. The soaring popularity of international commercial arbitration is a direct result of this. In this context, it is no surprise that arbitral awards passed in one country find themselves at the mercy of the courts of another for their enforcement. The ease of this enforcement is perhaps the plinth on which the international arbitration framework stands.
The ease of enforcement of arbitral awards in a particular jurisdiction also contributes, in no small measure, to its value as a business destination. Ultimately, no prudent enterprise would like to engage in business with an entity with assets in a jurisdiction where awards go to die.
India has undoubtedly evolved into a pro-arbitration jurisdiction. This credential stands burnished by successive judicial pronouncements and laws. Save a few exceptions, the pro-arbitration and enforcement attitude of the Indian judiciary and legislature is manifest. However, certain cases show that this trend may be more theoretical than practical. This begs the question: is India the enforcement haven that it needs to be?
The Supreme Court of India in M/s Fuerst Day Lawson Ltd v. Jindal Exports Ltd observed that a single proceeding may have multiple stages. Enforcement of an award may only be the first stage, while its execution may take several more steps.
In 2018, the Delhi High Court delivered a landmark decision by upholding an arbitral award passed in Singapore in an international commercial arbitration between the erstwhile owners of Ranbaxy Laboratories Limited and the Japanese multi-national pharmaceutical company, Daiichi Sankyo. However, nearly six years later, Daiichi’s struggle to execute and realise the award in its favour continues, with no end in sight. The identification of courts of competent jurisdiction when assets are scattered across the country; legal battles over the scope of precepts under Section 46 of the Code of Civil Procedure, 1908; multiplicity of proceedings across various states; conflict with laws such as the Insolvency and Bankruptcy Code, 2016; and unnecessary legal interventions by award debtors which are invariably entertained by courts and take years to dispose, are only some of the challenges that award holders face in India. A keen study of the public record reveals all of the above. To the watchful eye, these struggles serve as a deterrent to doing business in India. The case of Daiichi is a case study on how post enforcement execution is a separate, protracted and painful battle in India.
The case of Amazon.com NV Investment Holdings LLC (‘Amazon’) v. Future Retail Limited (‘FRL’) is yet another example of how, despite having an emergency award passed by the Singapore International Arbitration Centre in its favour, Amazon practically lost its investment in FRL. Interestingly, in line with its pro-arbitration approach, the Supreme Court of India held the emergency award in favour of Amazon enforceable under Indian law. However, amidst the storm of litigation initiated by FRL before various fora such as the Competition Commission of India, the Delhi High Court, the National Company Law Tribunal and the involvement of regulators like the Securities and Exchange Board of India, the emergency award lost its value.
While the dispute between Amazon and FRL gave India a shiny new judicial precedent on the recognition of emergency awards, the emergency award in question died a miserable death. The Supreme Court did allow the post-emergency award arbitration to continue and Amazon may well emerge victorious in this arbitration. However, the enforcement and execution proceedings that will follow, will send shivers down any investor’s spine. The Amazon – FRL battle is among the most widely reported legal disputes and paints a rather bleak picture of the enforcement and execution of foreign awards in India.
In a recent judgment titled Avitel Post Studioz Ltd and Ors v. HSBC PI Holdings (Mauritius) Ltd, the Supreme Court lamented HSBC’s inability to reap the fruits of an award in its favor for nearly a decade. In the words of the Supreme Court:
"This long list of events points to a saga of the award-holder’s protracted and arduous struggle to gather the fruits of the Award…In this backdrop, the travails of the Award holder suggest a Pyrrhic victory..."
The Court further noted,
"Even as the appeals filed by the award debtors are dismissed, the respondents, notwithstanding their victory in all legal battles until now, must not be allowed to feel that theirs is a case of winning the battle but losing the war. In the circumstances, we emphasize the need for early enforcement of the foreign award by the competent forum, without showing further indulgence to the award debtors."
Recently, an ICC Tribunal seated in Chicago, USA has passed an arbitral award in favor of UpHealth Holdings, a company incorporated in the USA. The award debtors, M/s Glocal Healthcare Systems Private Limited, an Indian company, are reportedly poised to resist the enforcement and execution of this award. The award has already been called ‘one-sided’, ‘perverse’, ‘oppressive’ and ‘vexatious’ among other things. Even before the mounting of any legal challenge to the award or its enforcement as per law, a media trial seems to have commenced. This media diatribe against the award is despite the fact that the award has been passed by a tribunal of formidable international repute. Regardless of whether the award is correct, legally firm, conscientious etc, it remains to be seen whether the Indian legal system upholds its sanctity. It is also to be seen how swiftly the courts act to safeguard the award and prevent it from being frustrated by disgruntled award-debtors.
Despite successive events like the Delhi Arbitration Week and the growing knowledge sharing between India and other leading arbitration jurisdictions, the intensifying narrative in favour of arbitration and enforcement appears to be mere lip service to the cause.
Another case where an international arbitration agreement has been run over by India’s domestic laws is the dispute between Westbridge Ventures and People Interactive. In this case, the parties had an agreement to arbitrate their disputes under the aegis of the Singapore International Arbitration Centre. When disputes arose between the parties, the arbitration proceedings were stayed by the National Company Law Tribunal (NCLT), Mumbai. The founder of People Interactive had approached the NCLT following an order of the Bombay High Court which stayed an anti-suit injunction order passed against his company by the Singapore High Court. The Bombay High Court had stayed the Singapore High Court's order for eight weeks for People Interactive to approach the NCLT.
The NCLT stayed the arbitration proceedings owing to allegations of oppression and mismanagement by People Interactive. Such allegations, as per Indian law, are non-arbitrable. On the other hand, Westbridge Ventures had argued that the dispute between the parties was purely contractual, and the arbitral tribunal had the jurisdiction to adjudicate these disputes. This argument, however, did not find favour with the NCLT. It must be noted that in Singapore, disputes relating to or arising from oppression and mismanagement are arbitrable. In exercise of their autonomy, the parties had chosen Singapore to be the seat of the arbitration. Thus, the NCLT’s decision serves to negate party autonomy and is a dangerous precedent for multiple reasons. This case sheds light on how India’s legal framework requires a hard relook to promote arbitration as an efficient dispute resolution mechanism.
The intention of the lawmakers is clearly to give effect to awards. This is clear from the very narrow and limited grounds to resist enforcement under the Arbitration and Conciliation Act, 1996. The interplay of laws surrounding the Arbitration Act and the conflict of laws with the Arbitration Act sometimes make it impossible for an award to survive. More often than not, foreign awards are defeated even before their enforcement can be refused by a competent court in India. The foregoing examples are not very encouraging, to say the least. The languishing foreign awards in India serve as hurdles in its path to becoming a global arbitration hub. It is time that the inordinately prolonged enforcement and execution proceedings of foreign awards in India draw legislative and judicial attention so that a path may be paved for their smoother realisation.
In 1872, the Privy Council had observed that “…the difficulties of a litigant in India begin when he has obtained a Decree…” Unfortunately, these words hold true for the enforcement and execution of foreign arbitral awards in 2024, a reality that must change.
Priyanshu Upadhyay is an Advocate on Record, practicing before the Supreme Court of India among various other fora. He can be reached at chambersofpriyanshu@gmail.com