Arbitration in India: Enforcement and challenges

Arbitration is a popular choice for commercial parties in India because it offers a private forum, a tribunal of the parties’ choosing and a limited route of appeal. The two stages that determine whether an award has practical value are the challenge and the enforcement. Both are governed by the Arbitration and Conciliation Act, 1996, as amended.

Challenging a domestic award

An award made in an arbitration seated in India is challenged by an application under Section 34. The grounds are narrow. They include incapacity of a party, invalidity of the arbitration agreement, lack of proper notice or inability to present one’s case, an award that deals with matters beyond the scope of the submission to arbitration, and conflict with the public policy of India. Following amendments in 2015, the public policy ground is confined to fraud or corruption, violation of the fundamental policy of Indian law, and conflict with the most basic notions of morality or justice. For domestic awards, patent illegality appearing on the face of the award is an additional ground.

The court does not re-examine the merits as an appellate court would. An application must be made within three months of receiving the award. The court may entertain it within a further period of thirty days if sufficient cause is shown, and not thereafter. The time limit is strictly applied.

Enforcing a domestic award

Once the time for a challenge has passed, or the challenge has failed, a domestic award is enforced under Section 36 as if it were a decree of the court. The 2015 amendments clarified that the mere filing of a challenge does not automatically stay enforcement. The court decides whether to grant a stay and may impose conditions, such as a deposit of the award amount or part of it. Where the court is satisfied that the award was induced or affected by fraud or corruption, the 2021 amendments provide for an unconditional stay pending the challenge.

Foreign awards

Awards made in countries that are parties to the New York Convention, and that the Government of India has notified as reciprocating territories, are enforced under Part II of the Act. The party seeking enforcement must produce the award and the arbitration agreement, with translations where necessary. The grounds for refusing enforcement are limited and are to be read narrowly. An award from a non-notified seat, or one that does not arise from a commercial relationship under Indian law, may not be enforceable under Part II.

Interim measures and time limits

• Section 9 allows a party to seek interim protection from the court, before, during or after the arbitration, for example to preserve assets.
• Section 17 empowers the tribunal itself to grant interim measures once constituted.
• Section 29A sets a time limit for domestic awards in non-international commercial arbitrations, extendable by consent or by the court.

Where problems commonly arise

• Arbitration clauses that are unclear about the seat, the rules or the appointing authority, which leads to preliminary litigation.
• Delay in the court process once an application for enforcement is filed.
• Challenges that are used mainly to postpone payment.
• Difficulty locating and securing the assets of the award debtor.

Drafting for the end of the process

The cheapest protection is a well-drafted clause: a clear seat, defined institutional rules, a workable appointment mechanism and a statement of the governing law. It is also worth considering, at the outset, where the counterparty’s assets are and which court will be asked to enforce.

Conclusion

Arbitration gives parties control over the process, but the final value of an award depends on how it fares in court. Parties who plan for challenge and enforcement from the beginning are in a stronger position when the award is made.