Stumbling Stone in the Enforceability of Investment Arbitral Awards in India
By Kanchan & Himanshu Vashistha
INTRODUCTION
Investment arbitration has emerged as a noteworthy platform for seeking redressal of disputes arising between foreign investors and the host state. The concluding purpose of arbitration is enforcement of an award and with time, the field of commercial arbitration has been developed to an adequate extent. Nevertheless, the same has not been the case with investment treaty arbitration. Over, the last two decades, the Foreign Direct Investment (FDI) inflows in India has grown from US $4 billion to US $44 billion¹. However, despite India being the most attractive destination for FDI, it is not a party to the International Centre for Settlement of Investment Disputes Convention (‘ICSID’) and thus inevitably, is under no compulsion to recognize any investment arbitral award as a final judgments of its own courts, as provided for by Art. 54 of the ICSID Convention². However, the fundamental issue before the Indian courts is of the enforcement of an investment arbitration award.
NON-APPLICABILITY OF THE ARBITRATION AND CONCILIATION ACT, 1996
The Arbitration and Conciliation Act, 1996 (‘the Act’) does not specifically mention its applicability to investment disputes awards. Section 44³ of the Act, restricts the New York Convention’s (‘the NYC’) applicability in India to foreign awards arising out of a legal relationship ‘considered as commercial under Indian Law’ and also limits the definition of ‘foreign award’ as ‘an arbitral award on differences between persons’.
The NYC gave the right to the enforcing jurisdictions to determine what ‘commercial’ is as there is no uniform meaning of the term in the convention. Art. 1(3) of the NYC⁴ gives a right to the state concerned to declare that the Convention will apply ‘only to differences arising out of legal relationships … which are considered as commercial under the national law of the State making such declaration’. Separately, “commercial dispute” has been defined in an exhaustive list of twenty-two items under Section 2(1) of the Commercial Courts Act, 2015⁵ including entry twenty-two, “such other commercial disputes as may be notified by the Central Government” from time to time. In addition to this, the Gujarat High Court in Union of India v. Lief Hoegh Co.⁶, observed that a commercial relationship would include all business and trade transactions in any of their forms, including the transportation, purchase, sale, and the exchange of commodities between citizens of different countries. This understanding limits the interpretation of the term ‘commercial’ to a relationship between individuals⁷.
However, the relationship between investors and the host state is governed by treaties under public international law. Besides, Bilateral Investment Treaties (‘the BITs’) do not provide any guidance on enforcement of awards. Thus, in India neither the expression ‘foreign award’ under section 44 of the Act includes an investment award, nor there is any uniform understanding of the term “commercial” under Indian Law.
Heretofore, in the absence of any legislative framework for the regulation of investment treaty arbitration in India, some judgments can be referred for understanding the nuances relating to applicability of the Act.
The Calcutta High court in Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armaturs SAS & Ors⁸, delivered the first decision on investment treaty arbitration. An application under section 45 of the Act was made concerning an anti-arbitration injunction against Louis Dreyfus prohibiting it from proceeding an investment treaty claim under India-France BIT. The court granted an injunction against Louis Dreyfus from continuing proceedings against the Port of Kolkata on the ground that the Republic of India was a party to the “arbitration agreement” in the BIT not the Port Trust. The court presumed that the Act applied to investment arbitration in the same way as it does to commercial arbitrations.
Further, in Union of India (‘UOI’) v. Vodafone Group PLC United Kingdom & Anr.⁹ UOI requested for an anti-arbitration injunction against the Vodafone Group barring it from proceeding under India-UK BIT, as on the same cause of action, another arbitration proceeding under the India- Netherland BIT had already been initiated by its Dutch holding company. Denying the request, the Delhi High court held that investment arbitration disputes are fundamentally different from commercial disputes as their cause of action is grounded on State guarantees and assurances and hence, are not commercial in nature. The roots of investment arbitration lie in public international law, State obligations, and administrative law.
On similar lines, the Delhi High court in Union of India v. Khaitan Holdings (Mauritius) Ltd & Ors¹⁰, relying upon its Vodafone judgment held that the arbitral proceedings under a BIT are separate species of arbitration and are outside the purview of the Act. The court also adopted the view that investment arbitrations should be ‘oppressive, vexatious, inequitable or constitutes an abuse of the legal process’ for the purpose of granting an anti-arbitration injunction.
ANALYSIS WITH THE POSITION OF UK AND US
Both the UK and the US are signatories to the ICSID Convention. The Calcutta High Court’s position in the matter of Louis Dreyfus has a notable advantage when an investment award is brought for enforcement under Part II of the Act. The judgment of Louis Dreyfus is in order of the standard practice in the UK. In the case of Occidental Exploration & Production Company v. Republic of Ecuador¹¹, a challenge was made under section 67 and 68 of the English Arbitration Act, 1996¹². These sections apply to commercial arbitrations and while the challenge was made to an investment arbitral award, the court affirmed that the English courts have the jurisdiction to consider the challenges of investment arbitration awards under these provisions, even if they arise out of treaties to which the UK is not a party.
In parallel, the non-ICSID awards are enforceable as Convention awards in the US by the Federation Arbitration Act, 1925¹³. In Chevron Corporation and Texaco Petroleum Co v. Republic of Ecuador¹⁴, Ecuador in the Dutch court challenged an UNCITRAL¹⁵ arbitral award rendered at the Hague. The court upheld the award, Chevron then applied for enforcement in the US. The District Court held that award was enforceable under the NYC.
Conversely, the position in the Delhi High court decisions have left no remedy accessible to parties seeking enforcement of investment awards. In case of Khaitan Holdings, the court did assumed jurisdiction under the Civil Procedure Code, 1908 (‘the CPC’) but even if the principles of CPC were applicable to investment arbitrations, the problem of enforcement of foreign investment awards still remains, as only decrees of superior courts of a reciprocating territory can be executed in India in the manner of a decree of district court. Since investment arbitration awards are not foreign decrees within the meaning of the CPC, they cannot be enforced under section 44A of the CPC¹⁶.
Thus, after the Vodafone¹⁷ and Khaitan Holdings¹⁸ judgments, the remedy available for BIT award holders for enforcement of an award, is to try and identify assets of BIT award debtors in jurisdictions outside India having mechanisms for enforcing BIT awards such as Singapore, US, etc.
CONCLUSION - SOLUTION TO CURRENT EXIGENCY
The credibility of a jurisdiction as an arbitration-friendly one rests primarily on the efficiency and efficacy of its award enforcement regime. Indian courts, so far, have limited the scope of investment arbitration. Investor-State Dispute Settlement (‘ISDS’) framework is negatively adjudged by developing nations as India because of the fear of regulatory freedom which is considered as a part of economic sovereignty.
‘India 2016 Model BIT’¹⁹ was drafted to avoid the expensive interpretation of ICSID convention as certain features of model BIT, such as the definition of ‘investment’ and ‘applicable law’, are in harmony with this convention. Furthermore, Art. 42(1)²⁰ of the ICSID enables parties to choose the law governing their relationship. In addition to this, Art. 25(4)²¹ of the ICSID also allows contracting states at the time of ratification of this convention, to notify the kinds of disputes which it considers submitting to the jurisdiction of the Centre. Owing to India’s aim to become a hub for investment, India must possibly look at ICSID with a fresh perspective.
In a recent significant development, the Arbitration and Conciliation (Amendment) Act, 2019²² was introduced to make India a hub of commercial arbitration. The Act aims at providing for a robust mechanism to deal with institutional disputes and ensures the accountability of the arbitrator. It provides for the setting up of an independent body to frame arbitral institutions. However, on a sad note, this Act does not try to boost the investment treaty arbitration regime in India.
However, in the present global economic scenario, where India is being seen as the country having great potential for foreign investment, sooner or later, Indian courts are going to struggle with the enforceability of investment awards. Hence, there has to be an amendment of the scope of 1996 Act or some system where foreign awards are enforced without the intervention of domestic courts.
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[1] Kshama A Loya & Moazzam Khan, Enforcement of BIT Awards at Bay in India as the Courts Rule Out the Applicability of the Arbitration and Conciliation Act 1996, Asian Dispute Review ( January, 2020), http://www.nishithdesai.com/fileadmin/user_upload/pdfs/NDA%20In%20The%20Media/News%20Articles/200122_A_Asian_Dispute_Review_Jan_2020.pdf .
[2] International Centre for Settlement of Investment Disputes Convention, 1966.
[3] Arbitration and Conciliation Act, 1996, №26, Acts of Parliament, 1996 (India).
[4] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), 1958.
[5] The Commercial Courts Act, 2015, №4, Acts of Parliament, 2016 (India).
[6] Union of India v. Owner & Parties Interested in Motor Vessel M/V. Hoegh Orchid, Bhavnagar and ors., AIR 1983 Guj 34.
[7] Siddharth S. Aatreya, Can investment arbitral awards be enforced in India? ( April 4, 2019), http://arbitrationblog.kluwerarbitration.com/2019/04/04/can-investment-arbitral-awards-be-enforced-in-india/?doing_wp_cron=1595398577.0939168930053710937500#:~:text=Thus%2C%20in%20Union%20of%20India,the%20citizens%20of%20different%20countries%E2%80%9D.
[8] Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armaturs SAS & Ors, 2014 SCC Online Cal 17695.
[9] Union of India (‘UOI’) v. Vodafone Group PLC United Kingdom & Anr., 2017 SCC Online Del 9930.
[10] Union of India v. Khaitan Holdings (Mauritius) Ltd & Ors, 2019 SCC Online Del 6755.
[11] Occidental Exploration & Production Company v. Republic of Ecuador, LCIA Case No. UN3467 (2004), https://www.italaw.com/cases/761.
[12] English Arbitartion Act SS. 67, 68 (1996).
[13] Federation Arbitration Act (1925).
[14] Chevron Corporation and Texaco Petroleum Co v. Republic of Ecuador, UNCITRAL PCA Case №34877 (2006).
[15] United Nations Commission on International Trade Law, 1966.
[16] Code of Civil Procedure, 1908, №5, Acts of Parliament, 1908 (India).
[17] Supra note 9.
[18] Supra note 10.
[19] Indian Model BIT, 2016, https://dea.gov.in/sites/default/files/ModelTextIndia_BIT_0.pdf.
[20] International Centre for Settlement of Investment Disputes Convention, 1966.
[21] Ibid.
[22] Arbitration and Conciliation (Amendment) Act, 2019, №33, Acts of Parliament, 2019 (India).
The authors are Year IV B.A. LL.B (Hons.) student at the Faculty of Law, Banaras Hindu University.
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