Judicial Review of Arbitral Awards

International arbitration has been sought as the best mode of alternative dispute resolution due to the increase in commercial disputes between parties across national boundaries. The Arbitration process offers various advantages over litigation. The fundamental principle of arbitration is minimum judicial intervention, and this minimization is fulfilled through a non-substantive review of arbitral awards by national courts.

Enforcement of Arbitral Awards

The enforcement of an award is made by an arbitrator whose authority is based on a contract between the parties and who does not possess the authority of the State. International treaties, such as the New York convention, which governs the enforcement of an arbitral award, have much greater acceptance internationally than treaties for the reciprocal enforcement of court judgments.

Article V of the New York Convention states the provisions for the enforcement and recognition of an arbitral award which may be refused under the Convention. It lays that the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority, where recognition and enforcement are sought on the grounds that:

• The parties under some incapacity, or the said agreement is not valid under the law of the country where the award was made; or
• The parties were not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or were otherwise unable to present their case; or
• The award contains decisions on matters beyond the scope of the submission to arbitration; or
• The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties; or
• The award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country. 
• The arbitral award may also be refused if the competent authority finds that the subject matter of the difference is not capable of settlement by arbitration or if the recognition or enforcement of the award would be contrary to the public policy of that country.

Enforcement of Arbitral Awards in India

The Foreign arbitral awards are treated as the final on merits in India for the purposes of enforcement with limited or no scope for judicial review. India became a party to the New York Convention on 11 October 1960. India enacted the Foreign Awards (Recognition and Enforcement) Act 1961. The 1961 Act was repealed and replaced by the new Indian Arbitration and Conciliation Act 1996. The 1996 Act is the minimization of court intervention in the process and enforcement of foreign arbitral awards.

The Indian Arbitration and Conciliation Act, 1996, is a unification statute that came into enforcement to give effect to multiple international commitments undertaken by India, namely the UNCITRAL Model Law on International Commercial Arbitration, 1985, the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958, the Geneva Convention on Execution of Foreign Arbitral Awards, 1927 and the Geneva Protocol on Arbitration Clauses, 1923. The Act seeks not only to consolidate but also to unify Indian law both on domestic and international arbitration. 

Section 34 of the Arbitration and Conciliation Act 1996 states the provisions where applications could be filed to set aside arbitral awards. Section 48 of the 1996 Act provides conditions for the enforcement of foreign awards.  The Supreme Court, in the case of Fuerst Day Lawson Ltd. v. Jindal Exports Ltd.,[ii] held that there is no need for separate proceedings in order to enable the Court to decide the enforceability of an award or to make it binding as an order or decree and to execute the award. Section 34 of the Arbitration and Conciliation Act, 1996 states that an arbitral award may be set aside by the Court only if the party making the application furnishes proof that:

• The party is under some incapacity; or
• The arbitration agreement is not valid under the law to which the parties have subjected it; or
• The parties were not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or were unable to present their case; or
• The arbitral award deals with a dispute not contemplated within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.

Judicial Review of Arbitral Awards

The Arbitration and Conciliation Act 1996 came into effect with the objective of minimizing the supervisory role of courts in the arbitral process and to provide that every final arbitral award is enforced in the same manner as if it were a decree of the Court. In the case of Maharashtra State Electricity Board v. Sterlite Industries (India),[iii] the Supreme Court has observed that “An error in law on the face of the award means, that we can find in the award actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal propositions which is the basis of the award and which we can then say is erroneous.”

The Indian Courts have given different opinions as regards judicial intervention and review of arbitral awards. The courts held that the parties choose their own arbitrator. When the award is good on the face of it, object to the decision neither on law nor on facts and the award will neither be remitted nor set aside. The mere fact that the arbitrators have erred in facts or law can be no grounds for interference by the Court, and the award will be binding on the parties. However, the courts have always been consistent in their views with regard to reviewing arbitral awards. 

The Supreme Court has also observed that the Court should not substitute its own reasons for that of the arbitrator as long as the arbitrator’s reasons do not suffer from an error apparent on the face of the record or that is otherwise unreasonable. The Court also stated that interference in the award based on erroneous fact-finding is permissible. If an award is based on applying a principle of law which is patently erroneous, the award could not have been made; such an award is liable to be set aside by holding that there has been legal misconduct on the part of the arbitrator. 

The Court also observed that it is open for the Court to consider whether the award is against the specific terms of the contract and, if so, whether to interfere with it on the ground that it is patently illegal and opposed to the public policy of India. 

Vedanta Judgment

In the case of Govt. of India v. Vedanta Ltd.;[iv] it was considered that the Court had a conservative approach toward the mechanism for the enforcement of the foreign arbitral award. 

The relevant facts of the case are that a product-sharing agreement was signed between the Government and Cairn India Ltd. (later acquired by Vedanta) to separate oil and gas from the facility. A dispute arose regarding the cost, and around $499 million was recovered by the Government from Vedanta. In 2011, the dispute came before the Malaysian Tribunal, i.e. shifted to an international arbitration forum. The Tribunal ruled an award in favour of Vedanta. The Appeals were filed in the Delhi High Court with regard to the issue of “enforcement of the foreign award” in 2018. When the matter came before the Supreme Court, it was held that the foreign award was on the ground that the Government had failed to establish that the enforcement of the award would be against the public policy of the country. The Supreme Court had categorically mentioned that the courts should be reluctant in not enforce the arbitration award and should try to reduce the intervention of the Judiciary.

Further, the application of Article 136 of the Limitation Act, 1963 was considered irrelevant with regard to the enforcement of the award as it was a declaration of the common Court and would be covered under the ambit of Article 137, and thereby a time period of 3 years shall be provided to the party. As a result, in the Vedanta judgment, the Supreme Court took a step toward ensuring the seamless enforcement of the foreign judgment by eliminating loopholes in the existing legal framework and adopting a pro-enforcement bias approach. In Vedanta, the Supreme Court reiterated the need to adapt to pro-enforcement of the arbitral awards and reducing judicial intrusion in order to achieve efficient enforcement.

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Anchal Sahu has completed her B.Com. LL.B. from Mody University of Science and Technology, Lakshmangarh Masters in Constitutional and Administrative Law from NLIU, Bhopal.

[ii] (2001) 6 SCC 356.

[iii] AIR 2000 Bom 204.

[iv] (2020) 10 SCC 1.