Supreme Court Rules against Challenging a Foreign Arbitration Award under Section 34

Part I of the Act has no application to international commercial arbitration held outside India. The arbitral award in such a case would only be subject to the jurisdiction of the Indian courts when the same is sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration and Conciliation Act, 1996.

The Supreme Court of India in the case of Noy Vallesina Engineering SpA v. Jindal Drugs Ltd. ruled against maintainability of an appeal against an order granting enforcement of a foreign arbitration award under Section 34 of the Arbitration and Conciliation Act 1996 (The Act).

Facts and Procedural Background of the Case: 
  • The parties had referred their disputes for arbitration under the ECAAP before the International Court of Arbitration (ICC), Paris.
  • After considering the claims and counter claims, the tribunal made a partial award. The tribunal then called  upon  the  parties  to present  written  representations  on  interest  and  costs in  terms  of Article  20 of the ICC Rules of Arbitration to enable it to frame the final award.
  • A petition was filed before the Bombay High Court under Section 34 of the Act challenging the partial award. An interim injunction restraining the respondents from receiving any further submissions, and/or passing any further direction and/or Ruling and/or Award in the arbitration proceedings was issued.
  • The ICC tribunal in the meanwhile was of the view that the interim order passed by the high court was not binding on it and consequently, made its final Award.
  • This award was challenged before the High Court where it was held that since the partial award was a foreign award, a challenge through a petition was not maintainable under Section 34 of the Act.
  • During the pendency of the appeal, NV Engineering had applied for enforcement of the partial and final awards, under Sections 47 and 48 of the Act, in the chapter relating to foreign awards. This petition was allowed by the Single Bench and Jindal’s objections against the two awards’ enforceability were overruled.
  • However, the Division Bench of the High Court held that proceedings under Section 34 of the Act could be validly maintained to challenge a foreign award.
Status of Appeals against a Foreign Arbitration Award under Section 34:

The Supreme Court in the present case relied on its decision in Bharat Aluminium Company v Kaiser Aluminium Technical Services Inc, (BALCO) where it had ruled that resort to remedies under Part I of the Act can be made in respect of foreign awards, despite the clear dichotomy in the enactment between domestic awards (covered by Part I) and foreign awards (covered by Part II). This understanding was re-visited by the Court:
  • The place of arbitration is generally the place chosen  by  or  on  behalf  of  the  parties;  and  it  will  be designated  in  the  arbitration  agreement.
  • International commercial arbitration involves parties of different nationalities, which is why it is not unusual for an Arbitral Tribunal to hold meetings—or even hearings —in a place other than the designated place of arbitration, either for its own convenience or for the convenience of the parties or their witnesses.
  • It must be pointed out that the law of the seat or place where the arbitration is held, is normally the law to govern that arbitration. The territorial link between the place of arbitration and the law governing that  arbitration  is  well  established  in  the  international  instruments, namely,  the  New  York  Convention of  1958  and  the UNCITRAL Model Law of 1985.
  • Part I of the Act has no application to international commercial arbitration held outside India. Therefore, the awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Act.
Following are the four types of laws which are applicable in an international commercial arbitration, and court proceedings arising therefrom:
  • The governing law determines the substantive rights and obligations of the parties in the underlying commercial contract. The parties normally make a choice of the governing law of the substantive contract; in the absence of a choice of the governing law, it would be determined by the tribunal in accordance with the conflict of law rules, which are considered to be applicable.
  • The   law   governing   the   arbitration   agreement   must   be determined separately from the law applicable to the substantive contract. The   arbitration   agreement   constitutes   a   separate   and autonomous agreement, which would determine the validity and extent of the arbitration agreement; limits of party autonomy, the jurisdiction of the tribunal, etc.
  • The  curial  law  of  the  arbitration  is  determined  by  the  seat  of arbitration. In an international commercial arbitration, it is necessary that the conduct of the arbitral proceedings are connected with the law of the seat of arbitration, which would regulate the various aspects of the arbitral proceedings. The parties have the autonomy to determine the choice of law, which would govern the arbitral procedure, which is referred to as the lex arbitri,and is expressed in the choice of the seat of arbitration.
  • The lex fori governs    the    proceedings    for    recognition    and enforcement of the award in other jurisdictions. Article III of the New York   Convention   provides   that   the   national   courts   apply   their respective lex  fori regarding    limitation    periods    applicable    for recognition  and  enforcement  proceedings;  the  date  from  which  the limitation period  would  commence,  whether there is  power  to  extend the  period  of  limitation.  The lex  fori determines  the  court  which  is competent  and  has  the  jurisdiction  to  decide  the  issue  of  recognition and enforcement of the foreign award, and the legal remedies available to the parties for enforcement of the foreign award.
 
Conclusion:

The Supreme Court of India in the present case held that since the parties had referred their dispute to the ECAAP for resolution, this ruled out the maintainability of any appeal against an order granting enforcement of a foreign arbitration award. In the present case, both the partial and final awards were foreign awards. Therefore, the provision of Sections 47 and Section 48 were correctly invoked for enforcement of the awards.
Section 50 of the Act provides for a restrictive category of appealable subject matters, and prohibits appeals in other matters. In all arbitration  cases  of  enforcement  of  foreign  awards,  it  is  Section  50 of the Act alone  that  provides  an  appeal.  Having provided for an appeal, the forum of appeal is left “to the Court authorised by law to hear appeals from such orders”.