The Hon’ble Karnataka High Court pronounced a judgement which allowed parties foreign to Indian jurisdiction to enforce international commercial arbitration awards passed in countries that are a signatory to the NY Convention and that are reciprocating territories with India.

By Shreyas Jayasimha, Brendon Pereira and Pulkit Dhawan.

Over last two decades, India has taken a positive turn towards becoming an arbitration friendly regime. This transformation is being brought by means of legislative amendments as well as judicial developments in the field of arbitration law, more particularly in the avenue of enforcement of foreign awards. This change in judicial approach is evident by the landmark ruling in the case of PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited^[1] wherein the Supreme Court of India clarified that two Indian parties are free to choose a foreign seat of arbitration for adjudication of their dispute.

As a first in India, the Karnataka High Court has recently passed a Judgement which now makes it possible for Parties that have no legal presence in India to seek enforcement of a foreign arbitral award in India. The only pre-requisite being that the Award Debtor has its assets present within the jurisdiction of the Indian Courts at the time of enforcement^[2].

Brief Facts:

The Petitioner (Award Holder), CTI Future Corporation (“CTI”) is a corporate entity registered under the laws of South Korea. The Respondent (Award Debtor), Ducgiang Chemical and Detergent Powder Joint Stock Company (“DCDP”) is a corporate entity registered under the laws of Vietnam. CTI and DCDP entered into a supply agreement on 30.05.2018 (“Supply Agreement”).

A dispute arose between the parties, which, pursuant to the terms of the supply agreement was referred to the Singapore International Arbitration Centre (“SIAC”) for arbitration. Subsequently the SIAC passed an award (“arbitral award”) in favour of CTI.

Issues before the Court:

1. Maintainability
   Whether a proceeding for the enforcement of a foreign award is maintainable before the Court, as against a person who is not a resident of, registered in, or carries on business within the jurisdiction of the Court?
2. Multiplicity of Proceedings
   Whether once a proceeding for enforcement of a foreign award is filed before this Court could any other proceedings be filed during the pendency of this matter within the jurisdiction of the Court where respondent is registered or carries on his business?
3. Whether this Court can exercise jurisdiction under Arbitration and Conciliation Act, 1996 against the respondent merely because the award passed in Singapore is recognised by Republic of India to be enforceable in terms of Section 44(b) of the Arbitration and Conciliation Act, 1996 when there are no properties of the award debtors situated within the jurisdiction of this Court?

Court’s Analyses:

The Karnataka High Court analysed the dispute considering the above three key issues of maintainability, multiplicity of proceedings & jurisdiction.

1. Maintainability

   The Hon’ble High Court while addressing this issue observed that although both the parties were incorporated outside India, Part II of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) specifically provided for enforcement of foreign arbitral awards as per the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (“New York Convention”). Further, Section 44(b), A&C Act, provides that the central government of India by notification may declare a territory to which the convention applies.

   The Court observed that in general, there are six essential requirements for enforcement of a foreign arbitral award in India:

   • It must be an arbitral award on differences between persons arising out of legal relationships.
   • The differences may be in contract or outside of contract, for example, in tort.
   • The legal relationship so spoken of ought to be considered “commercial” under the law in India.
   • The award must be made on or after the 11^th day of October 1960.
   • The award must be a New York Convention award, in short it must be in pursuance of an agreement in writing to which the New York Convention applies and be in one of such territories; and
   • It must be made in one of such territories which the Central Government by notification declares to be territories to which the New York Convention applies. ^[3]

   The Hon’ble High Court analysed that as per New York Convention, Singapore has been notified as a reciprocating territory^[4] by India and as such observed that the arbitral award met the six essential elements as per the Arbitration Act. The Court further ascertained that it had jurisdiction as per Section 2(e)(ii)^[5] of the Arbitration Act and also confirmed that the award in question was in consonance with Section 2(f)^[6] which defines ‘international commercial arbitration’.

   The Court also observed that a foreign award under the convention has been given a special status^[7] and held that the arbitral award was maintainable in India irrespective of whether the Award Debtor is a resident or normally carries business within the jurisdiction of the Court, as long as the award is passed by a territory that is a signatory to the convention and a reciprocating territory as per Section 44(b) of the Arbitration Act.

2. Multiplicity of Proceedings

   The Hon’ble High Court while considering the issue of multiplicity of proceedings observed that the Award Debtor might have assets in multiple jurisdictions and raised concern pertaining to the eligibility of the Award Holder to simultaneously initiate multiple proceedings in different jurisdictions to satisfy the award. The Court while noting that the convention had so far not considered such a circumstance and held that as a temporary solution, the Award Holder must solemnly swear and affirm on oath the number of execution proceedings it has filed across jurisdictions and also state the recovery that has already been made in such proceedings towards the satisfaction of award.

   Pursuant to the analyses and the lacunae which allows multiple proceedings, the Court observed that proceedings filed prior and even during the pendency of the present execution would have to be fully disclosed before the Court. The Court further reiterated that in case of doubt, the Court could request the court where the proceedings for execution are already filed, disposed and/or pending to forward copies of the proceedings filed and status of the matter to prevent abuse of the process of courts.

   The Court further clarified that a proceeding for enforcement of a foreign award could be filed during the pendency of the present matter, so long as the requirements of law in that country are satisfied and full disclosure of all proceedings and status thereof is made on oath by the Award Holder.

3. Jurisdiction

   The Hon’ble High Court analysed whether it has the jurisdiction to deal with the present matter, given that there were no properties of the award debtors situated within India. The court observed that the essential condition for execution of an award is the existence of properties within the jurisdiction of the Court, however since the court’s decree could not be executed on any asset at that time, it would not be possible for the court to pass an order on execution.

   The Court nevertheless observed that that in commercial disputes speed being vital to the Award Holder, it is beneficial if the Award Holder can get the arbitral award recognised so that future enforcement can be much faster. The court further reaffirmed that an recognition of arbitral award by one court in India would be sufficient to enforce the same in any other court in India, as treaty obligations and statutory compliance was duly verified by the court while allowing recognition of the award.

   In the given factual scenario where the Award Debtor is a foreign entity, the property against which the Award Debtor will be allowed to pursue would most likely be moveable properties, The Court thus clarified that while enforcing the award, the Award Holder will have to establish that the properties do belong to the Award Debtor and no third party would be at loss due to the enforcement award passed by the Court.

Court’s Ruling:

The Court thus held that even in a matter pertaining to foreign award between two foreign parties, Indian courts can maintain jurisdiction for enforcement, if there is an underlying asset of the Award Debtor within Indian territory. Although there was no asset of the Award Debtor which remained in India, the court gave a more commercially sound relief of allowing recognition which allows a quicker execution as soon as an asset of the Award Debtor is identified by the Award Holder.

Change effected by this ruling:

This ruling gave a practical backing to the existing theory of international legal order for international arbitration.^[8] The Court by recognising the a foreign award irrespective of Award Debtor’s nationality or assets in the country, strengthens the purpose New York Convention aimed to achieve. This ruling moves India closer to the norm adopted by arbitration friendly regimes such as England & Wales, wherein presence of assets within the jurisdiction is not a precondition for enforcement of award.^[9]

Allowing recognition of award in absence of assets in jurisdiction enables the Award Holder to save precious time and file execution proceedings across India in case multiple assets of the Award Debtor are identified. Further, the recognition of the arbitral award acts as protection from re-agitation of the case on merits in the future. This move by the Court is not only a major step ahead towards India’s growth as international arbitration hub, but also allows demonstrates Indian judiciary’s advanced approach towards commercial aspects within such international disputes.

Aarna Law LLP, a boutique law firm practice having office in India and Singapore has successfully represented the award holder in the proceedings before the Hon’ble High Court and was able to seek a favourable award and attach requisite assets of the Award Debtor once they were located within the territory of India.

[1] (2021) 7 SCC 1

[2] CTI Future Corporation v. Ducgiang Chemical & Detergent Powder Joint Stock Company [AP.EFA 1 of 2022]

[3] Gemini Bay Transcription (P) Ltd. v. Integrated Sales Service Ltd., (2022) 1 SCC 753.

[4] Section 44(b) – Arbitration and Conciliation Act, 1996

[5] (e) “Court” means (ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court

[6] (f) “international commercial arbitration” means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is— (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) an association or a body of individuals whose central management and control is exercised in any country other than India; or (iv) the Government of a foreign country;

[7] Art.51(c) The state shall endeavour to (c) foster respect for international law and treaty obligations in dealings of organised peoples with one another

[8] The theory discussed by Jan Paulson in his paper ‘Arbitration in Three Dimensions’ www.lse.ac.uk/collections/law/wps/wps.htm 

[9] Rosseel NV v Oriental Commercial & Shipping Co (UK) Ltd [1991] 2 Lloyd’s Rep 625