Srinivas Kokul, FCIArb and Gibran Naushad, Advocate
The popularity of arbitration as a mechanism for dispute resolution can surely be traced to its ability to render speedy decisions and quick reliefs to the parties. There has, however, been a growing concern in India over the timelines of the process, particularly the ability of the parties to have their arbitral awards enforced and executed. This sentiment has been echoed by Hon’ble Justice S.K. Kaul, a sitting judge of the Apex Court of India, who in a recent speech emphasized on the fact that parties (particularly government entities) should accept arbitration awards and not continue carrying litigation in courts for purposes of completing the formality of the appeal mechanism in India. Further, the Apex Court, while hearing an arbitral enforcement matter recently against the Delhi Metro Rail Corporation (“DMRC”), also came down heavily on the government for not executing a high value arbitral award of INR 7,200 Crores and emphasized that if such was the approach of the government, then India could never become an international arbitration hub.
These observations clearly open up the debate about the enforcement mechanism in India for arbitral awards. The process relating to the eventual execution of the arbitral award is rather long drawn and not as swift as one would expect it to be. If one were to take the case of domestic awards in India, the first set of barriers (or opportunity depending on which side you stand on) that a successful party faces is the multi-tiered challenge mechanism. A domestic award can be first challenged under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) which has to be made within a period of 3 months (or a further period of 30 days thereafter) from the date of the award. The result of the challenge under Section 34 can be further appealed under Section 37(1)(c) of the Arbitration Act on certain grounds. While the Arbitration Act and Supreme Court rulings mandate strict limitation timelines for filings the aforesaid appeal under Sections 34 and 37 of the Arbitration Act with minimal delay, the time period for completion of these appeal proceedings usually runs in years. Thereafter Section 37(3) of the Arbitration Act leaves open the possibility of a further third appeal to the Supreme Court. The outstretched disposition of Courts, particularly the delays and pendency of cases therein, results in the hearings and eventual rulings in these appeals usually taking unusual time to end the disputes for the parties.
While Courts have constantly tried to curtail the conditions for challenging awards under Section 34, including the often preferred challenges due to conflict with the ‘Public Policy of India’ by introducing Explanation 1 as well as Explanation 2 under the 2015 Amendment to the Section 34(2)(b) of the Arbitration Act, parties to the arbitration invariably prefer such challenges in most cases, especially when the amount involved is high.
The 2015 Amendment to the Arbitration Act provided certain reliefs to the award holder in this regard by doing away with the concept of automatic stay on arbitral awards once an application under Section 34 has been filed by the challenger. The 2015 Amendment Act added subsection (2) to Section 36 of the Arbitration Act which stipulated that the filing of an application under Section 34 of the Arbitration Act shall not by itself render the arbitral award unenforceable unless the requisite Court grants a stay on the operation of the arbitral award for reasons to be recorded in writing.
The Supreme Court thereafter further bolstered this provision in its ruling in Board of Control for Cricket in India v. Kochi Cricket Private Limited and Others [(2018) 6 SCC 287] wherein it held that Section 36, as amended by the 2015 Amendment Act, i.e., the provision of automatic stays, would even apply to pending applications under Section 34 of the Arbitration Act on or after the date of the commencement of the 2015 Amendment Act. While the above position laid down in the BCCI ruling did suffer a temporary setback with the insertion of Section 87 in the Arbitration Act by the Arbitration Amendment Act of 2019 which made the 2015 Amendment only applicable to arbitral proceedings commenced on or after the date of the 2015 Amendment, the Apex Court was quick to strike down Section 87 in its ruling in Hindustan Construction Company Limited and Ors. v. Union of India and Ors [Writ Petition (Civil) Nos. 1074 of 2019]. There is, however, still a big possibility that once an application for stay has been filed under Section 36(2) of the Act, the Court might subject to such conditions as it deem fit, stay the operation of the Award. Since the Courts need to consider provisions for the grant of stay of money decree while granting a stay under Section 36 of the Arbitration Act, stays are usually granted by Courts subject to deposit of the appeal amount in the Court or furnishing of adequate security by the challenger, unless it can be shown to the Courts that the arbitration agreement or contract which is the basis of the award or the making of the award was induced or effected by fraud or corruption as per Section 36(3) of the Arbitration Act.
The eventual result is that decree holder doesn’t receive any pie of the award till the challenge mechanism is over and that takes years. There is of course the additional risk of the losing party not paying up even after the challenge process is over. The only recourse is to knock the doors of the Court for contempt under the Contempt of Courts Act, 1971 which ends up kickstarting yet another round of litigation that is more often than not met with similar delays and costs.
The biggest challenge for the arbitral enforcement mechanism is its linkage with the Court process herein and the shortcomings of such process. There is definitely a need for a quicker enforcement mechanism in India, particularly in terms of the protracted process faced by the parties in arbitration related litigation, or else the trust and confidence of parties on arbitration as a mechanism for dispute resolution would surely wither away with time. A good example in this direction has been set by the Supreme Court in its ruling in Vijay Karia v. Prysmian Cavi Sistemi Srl and Ors. (Civil Appeal No. 1544 of 2020) wherein on a second challenge to the foreign arbitral award to the Supreme Court under Article 136 of the Constitution, the Supreme Court imposed a hefty cost of INR 50 Lakhs while dismissing the appeal in view of the speculative litigation preferred by the Appellants and needless continuous challenges to the Award.
Having answered each of the submissions of Dr. Singhvi on behalf of the Appellants, we cannot help but be left with a feeling that the Appellants are indulging in a speculative litigation with the fond hope that by flinging mud on a foreign arbitral award, some of the mud so flung would stick. We have no doubt whatsoever that all the pleas taken by the Appellants are, in reality, pleas going to the unfairness of the conclusions reached by the award, which is plainly a foray into the merits of the matter, and which is plainly proscribed by Section 48 of the Arbitration Act read with the New York Convention. We have read, in detail, the four awards passed by the learned sole arbitrator and are satisfied that he has exhaustively discussed the evidence and arrived at detailed findings for each of the issues, claims and counter-claims, and finally accepted the Respondent’s case and rejected the Appellants’. Given the fact that our jurisdiction under Article 136 of the Constitution is itself limited, and given the fact that this Court’s time has unnecessarily been taken by a case which has already been dealt with by four exhaustive awards on merits and also by the impugned judgment of the Bombay High Court, we dismiss these appeals with costs of INR 50 lakhs, to be paid by the Appellant to Respondent No.1 within 4 weeks from today.
Similarly, in the order of Supreme Court in the DMRC matter mentioned above, the government has categorically stipulated that ‘the law with regard to execution is not different either for the Government or the Statutory Corporation’ and accordingly one would hope that the Government would now pull up its socks when it comes to enforcement of arbitral awards in India. Mr. V.K. Rajah, SC Former Attorney General of Singapore and Former Judge, Singapore Supreme Court, recently on his visit to India expressed that young Indian practitioners have the potential to become global thought leaders in international arbitration. However, at the same time he emphasized that there were tremendous amounts of work that had to be done before an Indian city could become a preferred international arbitration centre. It is precisely this progressive and learning approach that the Indian arbitration mechanism has to deal with in the near future and pro-arbitration judgments like the ones mentioned above can surely pave the way forward for the same.
 Coverage of the speech by Live Law, available at https://www.livelaw.in/news-updates/justice-sk-kaul-courts-strictly-following-principles-non-interference-arbitral-awards-parties-arbitration-accept-awards-221970
 Oral observations of the Supreme Court of India relating to SLP (C) Nos. 21396/2022, available at https://www.business-standard.com/article/current-affairs/law-for-enforcement-of-arbitral-award-no-different-for-govt-sc-to-dmrc-122121401052_1.html
 Section 34 of the Act provides for a maximum period of 120 days (including a grace period of 30 days) for filing an appeal. Further, the Supreme Court in its ruling in Government of Maharashtra v. M/s Borse Brothers Engineers and Contractors Pvt. Ltd. (Civil Appeal No. 995 of 2021) has held that while the limitation period of 60 days would apply to appeals under Section 37 (1)(c) of the Arbitration Act, any condonation of delay under Section 5 of the Limitation Act, 1963 shall take into account the object of the Arbitration Act of ‘speedy disposal of disputes’ and accordingly such condonations shall be limited.