Judicial Ambiguity in Enforcement of Investment Awards in India

[This guest post is authored by Aditya Singh Chauhan. Aditya is currently studying law at the National Law University, Jodhpur.

Aditya is also the executive editor at the Indian Journal of Arbitration Law (IJAL). He can be reached at c.adityasingh@outlook.com]

Judicial Ambiguity in Enforcement of Investment Awards in India

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States [“ICSID Convention”], under article 54(1), provides for recognition and enforcement of awards as if they were final judgments of State’s courts.[1] India, however, is not a member State of the ICSID Convention and, thus, foreign investors can potentially face a problem in the recognition and enforcement of awards in investment arbitrations.[2]

Thus, there is no obligation to recognize and enforce an investment award “as if it were a final judgment of a court.” Even for non-ICSID awards, there is no effective enforcement mechanism in India. This post will re-visit the current position on enforcement of investment awards, and explore avenues for enforcement that may be available to the investors. It will conclude with suggestions for possible enforcement mechanism for investment awards.

Requirements under the New York Convention

Part II of the Arbitration and Conciliation Act, 1996 [“Arbitration Act”] is based on Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 [“the New York Convention”]. It provides for recognition and enforcement of foreign arbitral awards in India.[3] The New York Convention allows the member States to have two reservations. First, application to the awards passed in the territory of the contracting States only, on the basis of reciprocity. Second, application to only the disputes which are commercial in nature under the national law of the State.[4]

India has adopted both of the aforesaid reservations.[5] These reservations are reflected in the definition of “foreign award” under the Arbitration Act, which is provided below:

[A]n arbitral award […] arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, […] [and made] in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.[6]

Thus, awards passed in investment arbitrations would not be recognized as foreign awards, as investment disputes are not considered to be of a commercial nature under the law in force in India. Indian courts have held that establishing the commercial in nature of an agreement is not enough for the applicability of the New York Convention, as it must also be commercial by virtue of a provision of law or legal principle in India.[7]

On the other hand, there have been instances where Indian courts have indicated otherwise. For instance, in Union of India v. Lief Hoegh & Co. (Norway), the Gujarat High Court observed the following:

 [The term ‘commerce’] is a word of the largest import and takes in its sweep all the businesses and trade transactions in any of their forms, including the transportation, purchase, sale and exchange of commodities between the citizens of different countries.[8]

The Supreme Court of India affirmed the aforesaid position in RM Investment & Trading Co Pvt Ltd (India) v. Boeing Company, where it was observed that the term “commercial” should receive a liberal construction to encompass the activities which are integral to international trade today.[9]

That said, the meaning of term “commercial” for the purpose of commercial reservation has to be determined by the States under the provisions of the New York Convention.[10]

Separately, the Commercial Courts Act, 2015 under section 2(1)(c), defines the term “commercial dispute” in an exhaustive list of twenty-two (22) items.[11] Sub-section 2(1)(c)(xxii) includes “such other commercial disputes as may be notified by the Central Government” from time to time.[12] The nature and treatment of investment arbitration are also not discussed in the 2019 amendment to the Arbitration Act or and Srikrishna Report.[13]

Judicial ambiguity

There has not been much deliberation in India on the enforcement of investment arbitral awards,[14] primarily because much of the data pertaining to India’s disputes arising under the Bilateral Investment Treaties [“BIT(s)”] has not been made publicly available.[15] Further, BIT awards are generally result in voluntary compliance by the State.

That said, there have been a few instances where Indian courts were required to decide matters pertaining to investments arbitrations. In Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS [Louis Dreyfus],[16] Calcutta High Court had presumed the applicability of the Arbitration Act. It was decided on the ground that the arbitration agreement incorporated in the BIT was only enforceable against India (and, not Kolkata Port Trust), as holding otherwise would make it oppressive.

While the court granted an anti-arbitration injunction in an investment arbitration, it narrowly laid down the circumstances in which this can be done. In addition to this being the sole case where anti-arbitration injunction was granted for a foreign investment arbitration, continuation of arbitration proceedings in Louis Dreyfus would have caused “demonstrable injustice.”

However, in Union of India v. Vodafone Group [“Vodafone”],[17] the Delhi High Court observed that investment arbitrations are not commercial arbitrations. As such, they are not governed by the Part II of the Arbitration Act; and investment awards will not be enforceable under section 49 of the Arbitration Act. This position was subsequently confirmed by the Delhi High Court in Union of India v. Khaitan Holdings (Mauritius) Ltd [“Khaitan Holdings”],[18] where the court assumed jurisdiction over the matter under the Civil Procedure Code, 1908 [“CPC”].

Even if the principles in the CPC were applicable to investment arbitrations, the problem of enforcement of foreign investment arbitral awards still remains, since only decrees of superior courts of a reciprocating territory can be executed in India in the manner of a decree of district court.[19] Since investment arbitration awards are not foreign decrees within the meaning of the CPC, they cannot be enforced under section 44A of the CPC.[20]

Alternatively, drawing a parallel to procedure for execution of foreign judgments of non-reciprocating territories, it should be possible for the award-holder to file a fresh suit against the award-debtor in the courts. In such a case, however, the award will only be evidentiary, thereby defeating the very purpose of arbitration.Thus, absent any certain, direct enforcement mechanism under the New York Convention or CPC, a possible option available to the award-holder will be to locate assets of the award-creditor in another jurisdiction where such an award would be enforced.

Comparative Perspective

In England and Wales, courts have exercised jurisdiction over investment awards under the (English) Arbitration Act, 1996 [“UKAA”].[21] In Republic of Ecuador v. Occidental Exploration & Production Co. [“Occidental”],[22] the England and Wales High Court [“EWHC“] allowed a challenge to an investment arbitral award under section 67 of the UKAA. The EWHC assumed substantive jurisdiction,[23] and refused enforcement of the award on grounds of serious irregularity.[24] This decision was also upheld by the Court of Appeal.[25]

Similarly, in Singapore, courts have exercised jurisdiction over investment awards under the International Arbitration Act (Cap 143A, 2002 Rev Ed) [“IAA”].[26] In Kingdom of Lesotho v. Swissbourgh Diamond Mines (Pty) Ltd [“Lesotho“],[27] the Singapore High Court set aside an investment award rendered by a Permanent Court of Arbitration tribunal on the ground that it exceeded the scope of submission, in a challenge raised under the provisions of IAA.

Unlike India, however, U.K. and Singapore have not opted for commercial reservation for the application of the New York Convention.[28] Nevertheless, experts agree that investment arbitrations can be considered as “commercial” for the purposes of the New York Convention, and various domestic courts across the globe have consistently affirmed this finding.[29]

India can also learn from the Arbitration (International Investment Disputes) Act of Singapore,[30] and the Arbitration (International Investment Disputes) Act of UK,[31] which governs the enforcement of ICSID awards, and enact a separate legislation or a new Part to the Arbitration Act governing investment awards. India may consider signing the ICSID Convention for this purpose, which is unlikely considering the trend in India, and delocalized enforcement under the ICSID Convention.

Further comments

In this context, the simplest way is perhaps the best, i.e., enforcing investment awards under the New York Convention. The commercial reservation was likely included for the benefit of civil law jurisdictions, that have a separate commercial code. There is a good possibility that it was availed by common law jurisdictions such as India in anticipation of issues pertaining to sovereign immunity.

Before interpreting the provisions of the New York Convention, the difference between inter-State and investor-State arbitration must be appreciated. The courts should consider India’s international obligations under the New York Convention and BITs. The status of a private investor should not be lifted to the pedestal of a foreign State. The private investor comes to the host State for doing business, and enforces the rights that have been conferred to it, and not its national State.

Absent any conclusive ruling by the Supreme Court of India on the application of the Arbitration Act for the purpose of enforcing investment awards, Khaitan Holdings and Vodafone may only have a persuasive value. This makes enforcement of investment awards under New York Convention a possible, progressive option, although highly unlikely.

If and when the issue arrives at the Supreme Court of India, it would be interesting to see if the findings in Occidental, Lesotho, and other similar decisions will be considered while determining the nature of investment arbitration in India.

Concluding remarks

Experts have observed that:

What India awaits is a legal and regulatory framework that is not adversarial or difficult for the foreign investor but instils confidence and faith in order to nurture smooth and beneficial economic relationships towards effective and sustainable development of both – the foreign investor and the Republic of India.[32]

Given the prevailing position, an amendment to the Arbitration Act that clears the position on the enforcement of investment arbitration awards, possibly by including them under the definition of “foreign awards” under section 44 of the Arbitration Act,[33] will go a long way in establishing India as an investor-friendly jurisdiction.

 

 [1]     Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Mar 18, 1965, 17 U.S.T. 1270, T.I.A.S. No. 6090, 575 U.N.T.S. 159, art. 54(1). [hereinafter “ICSID Convention”]

[2]     See Union of India v. Khaitan Holdings (Mauritius) Ltd, 2019 SCC OnLine Del 6755 (India). [hereinafter “Khaitan Holdings”]

[3]     Arbitration and Conciliation Act, No. 26 of 1996, Pt. II (India) [hereinafter “Arbitration Act”].

[4]     Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (June 10, 1958), 330 U.N.T.S. 38, art. I(3).

[5]     See India, Declarations and Reservations, Contracting States, New York Arbitration Convention (June 10, 1958), available at http://www.newyorkconvention.org/countries.

[6]     Arbitration Act, § 44.

[7]     Alan Redfern & Martin Hunter, Law and Practice of International Commercial Arbitration 443 (Sweet & Maxwell, 2004) (citing Indian Organic Chemical Limited v. Subsidiary 1 (US) Subsidiary 2 (US) & Chemtex Fibres Inc. (US), Vol. IV (1979) Y.B. Com. Arb. 273).

[8]     Union of India v. Lief Hoegh & Co (Norway), Vol. IX (1984) Y.B. Com. Arb. 405, 407.

[9]     RM Investment & Trading Co Pvt Ltd (India) v. Boeing Company Vol. XXII (1997) Y.B. Com. Arb. 711.

[10]   Supra note 9.

[11]   The Commercial Courts Act, No. 04 of 2016, §§ 2(1)(c)(i)-2(1)(c)(xxii).

[12]   Id., § 2(1)(c)(xxii)

[13]   Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India (July 30, 2017), p. 99 et seq.

[14]   Bilateral Investment Treaty Arbitration and India: With special focus on India Model BIT, 2016, Nishith Desai Associates (Feb. 18, 2019), p. 2, available at http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Bilateral_Investment_Treaty_Arbitration_and_India-PRINT-2.pdf.

[15]   The Baker McKenzie International Arbitration Yearbook: India 9 (12th ed., 2019).

[16]   Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armatures SAS 2014 SCC OnLine Cal 17695 ¶ 100. [hereinafter “Louis Drefus”]

[17]   Union of India v. Vodafone Group, 2018 SCC OnLine Del 8842 ¶¶ 72, 144 (India).

[18]   Khaitan Holdings, SCC OnLine Del 6755 ¶¶ 29-30 (India).

[19]   Code of Civil Procedure, No. 5 of 1908, § 44A.

[20]   See generally Noy Vallesina v. Jindal Drugs Ltd., 2006 (5) Bom CR 155, ¶¶ 5-6 (India); Cf. Compania Naviera Sodnoc v. Bharat Refineries Ltd., AIR 2007 Mad 251 ¶ 42 (India).

[21]   See, for e.g., European Media Ventures SA v. Czech Republic [2008] 1 All ER (Comm) 531.; GPF GP Sàrl v. Republic of Poland [2018] EWHC 409 (Comm).

[22]   Republic of Ecuador v. Occidental Exploration & Production Co. [2005] EWHC 774 ¶ 1 (Comm).

[23]   See Arbitration Act, 1996, c. 23, § 67 (UK).

[24]   Id., § 68.

[25]   See Republic of Ecuador v. Occidental Exploration & Production Co. [2007] EWCA Civ 656 (Eng.).

[26]   See, for e.g., Sanum Investments Ltd. v. Government of the Lao People’s Democratic Republic [2016] 5 SLR 536.

[27]   Kingdom of Lesotho v. Swissbourgh Diamond Mines (Pty) Ltd. [2017] SGHC 195.

[28]   Contracting States, New York Convention, available at http://www.newyorkconvention.org/countries.

[29]   N. Jansen Calamita, UNCITRAL Working Group III Debate: Enforceability of awards by an appellate mechanism or an investment court under the ICSID and New York Conventions, Investment Treaty News (Mar. 10, 2020), available at https://cf.iisd.net/itn/2020/03/10/uncitral-working-group-iii-debate-enforceability-of-awards-by-an-appellate-mechanism-or-an-investment-court-under-the-icsid-and-new-york-conventions-jansen-calamita/#_ftn14.

[30]   See Arbitration (International Investment Disputes) Act, No. 18 of 1968, revised Mar. 31, 2012 (Singapore).

[31]   Arbitration (International Investment Disputes) Act, 1966 (Eng.).

[32]   Supra note 16, p. 59.

[33]   Arbitration Act, § 44.

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