Analysis Of The Scope Of Principle Of Preclusion In International Commercial Arbitration

Introduction

India is one of the first signatories of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter, “New York Convention”) and holds a pro-enforcement stance. As such, to attain the objective of emanating a final resolution to a dispute between two parties, every foreign Arbitral Award (hereinafter, “Award”) carries a ‘preclusive effect’ in terms of its enforcement. The scheme of the Arbitration & Conciliation Act 1996 (hereinafter, “the Act”) takes after the UNCITRAL Model Law and resultantly obligates parties to conform to the terms of an Award. However, there are instances where a dissatisfied Award Debtor challenges the outcome of an international arbitration by commencing litigation before the national Court.

Thus, to ward off eventualities such as re-litigation based on new claims relating to similar or identical issues, signatories to the New York Convention such as India itself follow the principle of preclusion. This principle of preclusion offers a final and binding character to the Award, ensuring that the pro-enforcement stance is maintained, and provided that such Award does not derogate from the legal framework and public policy of India.

Preclusion and its Operability in Common Law Jurisdictions

The principle of preclusion is not particularly codified and is largely based upon jurisprudential development¹. Further, it would not be out of place to allude that it derives its relevance also from the theory of ‘Comity of Nations’, which commands that judgments passed by Courts in other jurisdictions will not be commented upon.

The scope of this doctrine presently is cloudy and convoluted. Yet, in most common law jurisdictions, an Award either allowing or rejecting any claims of a party, binds such a party to its terms, and the party that has been unsuccessful in securing its claims will be ‘precluded’ from asserting that claim again in national Courts. As such, for the principle of preclusion to apply, it is to be checked if the issues raised in re-litigation were also ‘litigated between the parties and must have been significant to the Court’s decision in the earlier judgment’².

Scope of Enforcement in India: Reading Section 48 with reference to Preclusion

Following the ethos of the New York Convention, the language of Section 48 of the Act is also suggestive of the preclusive element. Section 48 states that the enforcement may be refused on the conditions enumerated by it. That is, only when the Courts find that the challenge is tenable, and the contents of the Award do actually cross the bounds of Section 48, will the Award not be granted enforcement in India.

Further, as already stated, India holds a pro-enforcement stance, and several Court pronouncements are reflective of the same. In Fuerst Day Lawson v. Jindal Exports Ltd³., the Hon’ble Supreme Court of India (hereinafter, “SC”) rejected the contention that prior to enforcement of an Award, a separate-independent proceedings to decide upon such enforcement shall be conducted. The Hon’ble SC simply laid down that Courts shall proceed in accordance with Sections 47 to 49 of the Act before resorting to take steps towards execution. As such, the element of preclusion has been long engrained in the recourse taken by Courts when adjudicating matters of enforcement of Awards in India.

In Union of India v. Vedanta Ltd⁴., the Hon’ble SC has laid down caution when assessing the force of enforceability of a foreign Award. In this case, the SC went to the extent to note that ‘Article 136 of the Limitation Act would not be applicable for the enforcement/execution of a foreign award, since it is not a decree of the Civil Court of India’⁵. Further, the SC further laid down that in the assessment of enforceability, (Indian) Courts are required to take a pragmatic, flexible and non-formalist approach. The Court also observed that Section 47 to 49 contain only procedural requirement to be complied with, which shall not be strictly construed, and the party seeking enforcement ‘may be permitted to produce the evidence during the course of the proceedings’⁶.

Upon conducting a quantitative analysis, one would discover that is only seldom that Indian Courts have restricted enforcement. As such, more or less, the Courts have always endeavored to grant enforcement to foreign awards, unless they are blatantly against the scheme of Section 48 of the 1996 Act or the public policy of India⁷.

Restriction to Enforcement: A Detour from Preclusion?

In all the very few instances wherein the doctrine of preclusion has lost its operability are those wherein the Courts have found the foreign award to be against the fundamental policy of Indian Law. In this regard, the Hon’ble SC’s decision in National Agriculture Cooperative Marketing of India v. Alimenta S.A. is a classic example. In this case, NAFED (appellant) was rendered incapable to make certain exports owing to permission not being granted by the Government of India on various grounds. As such, the contract became void and unenforceable in view of the FOSFA agreement. Thereafter, due to consequent dispute and unfavorable award to NAFED, the Hon’ble SC refused enforcement of such Award as it was in contravention to the fundamental policy of Indian law. The Court laid down that ‘it was not open because of the clear terms of the arbitration agreement to saddle the liability upon NAFED to pay damages as the contract [had become] void. There was no permission to export commodity of the previous year in the next season, and the government declined permission to NAFED to supply.”⁸

Principles of Natural Justice are again an important component that determine the fate of enforcement of foreign awards. In Mitsui OSK Lines Ltd. (Japan) v. Orient Ship Agency Pvt. Ltd, 2020 SCC OnLine Bom 217, the Hon’ble Bombay High Court rejected enforcement while noting that the party against whom the award is to be enforced shall be given an opportunity to explain as to why such enforcement shall not be allowed. In this light, the Court held that foreign awards are enforceable only against those who are party to the arbitration agreement and not against additional respondents who are neither party to such agreement not the Award.

The other considerable factor to restrict enforcement is non-appreciation or failure to make a proper appreciation of evidence by the international arbitral tribunal. As such, in Agritrade International Pvt. Ltd. v. National Agriculture Co-operative Marketing Federation of India,⁹ the Hon’ble Delhi High Court noted that if the conclusion of the Arbitral Tribunal appears to be based on ‘surmises and conjectures’, rendering it incapable to establish if there was firm contract between the parties, then in such situations, the Award thereof shall succeed challenge to enforcement.

In addition to the above, factors that may restrict enforcement can also be those where prima facie there is no arbitration agreement between two parties¹⁰, or where there is no material accompanying the execution petition which would establish that the business of the parent company was also of the subsidiary company¹¹, and so on.

Conclusion

To boost India’s vision to become the hub of dispute settlement, it is essential these principles such as that of Preclusion play out well, so that varying jurisdictions with different laws can maintain a tryst amongst themselves when it comes to business and adjudication of disputes emanating from the same. However, at the same time, it is important that such doctrines as that of Preclusion shall not become functional with its full force. The idea here is that – something observed or held in the foreign tribunal that vitiates the fundamental policy of Indian law, should not be allowed enforcement in India, as the same stands in contravention to the scheme of the 1996 Act.