Better enforcement of foreign arbitration awards, minimum interference in arbitration key for judiciary to enable businesses: Lawyers

Delhi Airport Metro Express Pvt Ltd had won a Rs 2,782-crore arbitral award in 2017 along with interest against Delhi Metro Rail Corporation Ltd. However, the Supreme Court was dismayed to note that the total dues were not paid as late as 2022, and told the government on December 14 that India cannot become an international arbitration hub if there was no sanctity in arbitration awards.

This has been the state of many arbitration awards in India, where despite the arbitration having concluded on time, the enforcement of an award takes time owing to appeals in courts.

As of 2020, India ranked 163rd in the enforcing contracts indicator by the World Bank, for taking nearly four years to finalize a commercial arbitration/litigation. Further, the litigating parties spend 31 percent of the disputed amount just to ensure that a judgment is passed.

This ranking, compared with that of other developing economies such as Brazil (58) and Mexico (43), is concerning. Enforcing a contract takes 801 days in Brazil while it takes less than a year in Mexico.

Speaking at the closing ceremony of the Delhi Arbitration Weekend (DAW) on February 19, law minister Kiren Rijiju said that ease of doing business in India will remain a distant dream without the support of the judiciary. The law minister made this statement in the context of arbitration playing a key role in enforcing contracts, an important indicator that can enhance the ease of doing business. Rijiju added that all stakeholders involved in arbitrations will have to be mindful of the time taken to resolve commercial disputes in the country so as to enhance the ease of doing business.

The Arbitration Act of 1996 governs arbitration proceedings domestically, while allowing parties to choose to use foreign jurisdictions depending on their preference. While the law itself is close to 30 years old, it was amended in 2019 to bring it in line with international standards. The 2019 amendment reduced judicial interference in arbitrations and sought to institutionalise arbitrations to bring discipline to the proceedings.

While there are provisions in the arbitration laws that permit the courts to interfere and modify arbitral awards, the courts can choose to not do so by imposing preconditions before even hearing the appeal. Appeals against awards contribute significantly to major delays in enforcing contracts. To discourage litigants from filing endless appeals, commercial courts ask litigating parties to pre-deposit a certain percentage of the disputed amount, which is not released by the court until the litigation is concluded.

Pranav Vyas, partner at DSK Legal, noted that enforcing such conditions when a party seeks a stay on the enforcement of an award can improve the arbitral process. He said, “This will provide adequate protection to award holders from the award becoming a mere paper decree.”

Vyas added, “Given that the Arbitration Act now mandates for domestic arbitrations to be concluded within one year from completion of pleadings, courts can help by directing parties to adhere to strict timelines in any interim proceedings during the pendency of arbitration so that the overall timelines are not disturbed.”

While foreign arbitrations are increasing at a rapid pace, enforcement of the award is still a long-drawn process. In January 2023, the Supreme Court pulled up the government again for trying to halt a long-pending international arbitration initiated by Reliance Industries, on the ground that it did not have faith in the arbitral tribunal. Chief Justice of India DY Chandrachud remarked, “On the one hand, we are crying hoarse that we want to encourage foreign investment, encourage business. And is this the kind of business environment you want to create?”

Sameer Jain, managing partner at PSL Advocates and Solicitors, pointed out that the international business community has major concerns when it comes to ambiguities and delays in the enforcement of foreign judgments and awards in India.  He said, “The Indian judiciary has been doing a lot in bringing certainty and pace in enforcement. However, there is always much scope for improvement in other jurisdictions. In recent times, the Supreme Court is under a constitutional bench dealing with a reference to the validity of arbitration agreements under contracts that are compulsorily registrable but are not. Disposal of matters like these will ensure more clarity on otherwise grey areas as on date.”

Tamal Mandal, partner at Luthra and Luthra Law Offices India, opined that the judiciary can play an important role in aiding the ease of doing business in India by ensuring that foreign companies with business interests in India get quicker relief in arbitration proceedings. He said, “Whether it is a petition seeking interim relief or appointment of arbitrators or applications seeking to set aside arbitral awards or opposing the enforcement of foreign awards, Indian courts could seek to ensure speedy disposal of such cases.”