Introduction

Arbitration today has become a frequent and preferred way of dispute settlement – a far cry from the days of the Alabama claims between the United States and United Kingdom which were settled peacefully by arbitration in 1872 at the salle de l'Alabama of the Town Hall in Geneva, Switzerland. Over the years, arbitration has been used effectively to resolve a wide range of disputes – commercial, investment, trade, maritime, etc.

Yet, while there is no doubt, generally, about the efficacy of the process when compared to national court proceedings, an award rendered is of little value if it cannot be enforced or implemented swiftly.

This is perhaps all the more important in the context of awards rendered in investor-state dispute settlement (ISDS) under Bilateral Investment Treaties (BITs), International Investment Agreements (IIAs), Bilateral Investment Protection Agreements (BIPAs) and like thereof, the aim of which is to depoliticize the dispute and minimize national court interference by ensuring that an investor's grievances against a sovereign host state are heard and decided by an international tribunal.

Investment treaty arbitrations can take place under the aegis of the International Centre for Settlement of Investment Disputes (ICSID) established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) applying the rules of that institution. Similarly, ICSID may also administer investment treaty arbitration by applying the United Nations Commission on International Trade Law (UNCITRAL) Rules or ICSID Additional Facility Rules. This is dependent on the dispute settlement provision of the relevant BIT/IIA/BIPA read with whether the investor's home state and the host state are signatories to the ICSID Convention.

With that in mind, we turn to explore the avenues available to an investor in its quest to enforce an ISDS award rendered in its favor and against a foreign host state (excluding India) in India.

The legal framework for enforcing foreign awards in India

Part II, Chapter I of the Indian Arbitration and Conciliation Act, 1996 (the Act) deals with the recognition and enforcement of awards rendered pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Chapter II does so with respect to Geneva Convention Awards. Recognition and enforcement of a foreign award can be done through a common petition in India.

Section 44 of the Act1 clarifies that the "foreign award" that is sought to be enforced in India has to be made in "one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the [New York] Convention applies".

As of date around 48 countries have been notified by India as "reciprocating territories" for the purposes of Section 44 of the Act which includes key jurisdictions like Germany, France, Italy, Singapore, Spain, Switzerland, the United Kingdom and United States.

In accordance with Section 47 of the Act2, the award holder seeking to enforce the foreign award at the time of making the application will have to produce: (i) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made; (ii) the original agreement for arbitration or a duly certified copy thereof; and (iii) such evidence as may be necessary to prove that the award is a foreign award.

The court before which the application is to be made will be the relevant High Court that has the jurisdiction including territorial jurisdiction over the assets of the award debtor. Therefore, the location of the assets becomes an important factor in choosing the High Court for making the application for enforcement.

Section 48 of the Act lays down the grounds when enforcement of a foreign award may be refused at the request of the award debtor including grounds affecting the jurisdiction of the arbitrators, subject-matter arbitrability and public policy of India.3 However, Section 48 for all purposes assumes minimal judicial interference4 and does not permit the attending court to review the merits of the dispute i.e., to take a second look, even when arguments concerning contravention of the public policy of India is raised. Explanation 2 to Section 48 inserted in 2015 makes this clear by stating that "the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute".

Once the court is satisfied that the foreign award is enforceable, as per Section 49 of the Act, the award shall be deemed to be a decree of the court. The court would then enforce the award as a decree in accordance with the procedure prescribed under Order XXI of the Code of Civil Procedure, 1908 although separate proceedings are not required.

Section 50 of the Act provides for the right of appeal against an order refusing to enforce a foreign award and further "any right to appeal to the Supreme Court".

As for the time within which enforcement of a foreign award must be sought, the Act itself is silent on this aspect. In absence thereof, the Supreme Court has held that the period of limitation for filing a petition for enforcement of a foreign award would be governed by Article 137 of the Limitation Act, 1963 which prescribes a period of three years from when the right to apply commences.5

The nature of ISDS awards under Indian law

India is not a Contracting State to the ICSID Convention like other major developing economies, e.g., Brazil and Mexico. Accordingly, when it comes to enforcement, an award that has been rendered under the ICSID Convention does not benefit from the provision of Article 54 of the that Convention which mandates that "each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State".

Therefore, the recourse to enforce such an ISDS award, whether ICSID or otherwise, would normally lie pursuant to the New York Convention to which India is a signatory.

However, India has availed the reservation under Article I:3 of the New York Convention restricting its applicability to awards passed in disputes arising out of only such relationships that are considered to be "commercial" under the laws in force in India. Accordingly, as per Section 44 of the Act, "'foreign award' means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India". (emphasis added)

The key question that is therefore open for consideration is, whether an ISDS award rendered pursuant to a dispute arising under a BIT/IIA/BIPA or like thereof can be said to arise out of a legal relationship that is considered as commercial under Indian law.

While considering an anti-arbitration injunction petition filed by the Government of India against a foreign investor, the Delhi High Court considered that an investment treaty arbitration "is neither an [i]nternational [c]ommercial [a]rbitration ... nor a domestic arbitration" within the meaning of the Act. The Delhi High Court found that Part II, Chapter I of the Act does not apply proprio vigore to an investment protection treaty since the application of the Act concerns "an arbitration considered to be commercial under the Indian law" and recalled India's reservation noted above.6

Instead, the Delhi High Court reasoned that investment treaty disputes and consequent arbitrations are "fundamentally different from commercial disputes as the cause of action (whether contractual or not) is grounded on State guarantees and assurances (and are not commercial in nature)". The Court reasoned that "the roots of Investment Arbitrations are in public international law, obligations of State and administrative law." These findings were reiterated by the Delhi High Court in a subsequent judgment.7

On the other hand, the Calcutta High Court while also deciding an anti-arbitration injunction petition appears to have considered that the Act applies to investment treaty arbitrations and ISDS awards.8

Thus, courts in India seem to have taken divergent views regarding the nature of investment treaty arbitrations, ISDS awards and the applicability of the Act thereto, with the Supreme Court yet to rule conclusively on this issue.

Remarks

To our minds, strong arguments can be advanced in favor of asserting that investment treaty arbitrations and ISDS awards rendered under a BIT/IIA/BIPA or like thereof can be said to arise out of a legal relationship that is considered as commercial under Indian law.

To begin with, the very nature of investments pursuant to a BIT/IIA/BIPA are steeped in commercial considerations and the same is evident from the definition of the term "investment" in various BITs.

For example, Article 1 of the US Model BIT, 2012 defines the term "investment" to mean "every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk." In providing an illustrative list, it states that forms that an investment may take include: (a) an enterprise; (b) shares, stock, and other forms of equity participation in an enterprise; (c) bonds, debentures, other debt instruments, and loans; (d) futures, options, and other derivatives; (e) turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts; (f) intellectual property rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and (h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges.

In the same vein, the Indian Model BIT, 2016 in Article 1.4 defines "investment" to mean "an enterprise constituted, organised and operated in good faith by an investor in accordance with the law of the Party in whose territory the investment is made, taken together with the assets of the enterprise, has the characteristics of an investment such as the commitment of capital or other resources, certain duration, the expectation of gain or profit, the assumption of risk and a significance for the development of the Party in whose territory the investment is made".

More importantly, the UNCITRAL Model Law in footnote 2 to Article 1 clarifies that the term "commercial" should be given a "wide interpretation" to cover matters arising from all relationships of a commercial nature, whether contractual or not and provides an illustrative list of examples which includes investment.9

Pursuant thereto, an arbitration proceeding under the North American Free Trade Agreement (NAFTA) between an investor and a state was considered to be a commercial arbitration as the primary relationship between the investor and the host state related to investment.10

Further support can be drawn from the fact that the Supreme Court has repeatedly emphasized that the Act should be interpreted keeping in mind the UNCITRAL Model Law and to take note of the corresponding provisions therein.11

Although not in the context of the Act, the Supreme Court, while interpreting the term "commercial" in Section 2 of the Foreign Awards (Recognition and Enforcement) Act, 1961 (now repealed by the 1996 Act) considered that the 1961 Act was "calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration and any expression or phrase occurring therein should receive, consistent with its literal and grammatical sense, a liberal construction."12 Accordingly, the Supreme Court found that the term "commercial" should, therefore, be construed "broadly having regard to the manifold activities which are integral part of international trade". (emphasis added)

Similarly, the Gujarat High Court has considered that the term "commerce" is "a word of the largest import and takes in its sweep all the business and trade transactions in any of their forms including the transportation, purchase, sale and exchange of commodities between the citizens of different countries".13

Additional support can be found from India's Model BIT, 2016 that categorically states in Article 27.5 housed under "Finality and enforcement of awards" that "a claim that is submitted to arbitration under this Article shall be considered to arise out of a commercial relationship or transaction for purposes of Article I of the New York Convention." (emphasis added)

The above provision, in turn, has been replicated in Articles 27.5 of the India – Kyrgyzstan BIT, 2019 (signed but not yet in force) and Belarus – India BIT, 2019 (signed but not yet in force).

Viewed in that light, the Delhi High Court's view that, an award rendered pursuant to a BIT/IIA/BIPA does not concern differences that can be construed to be commercial and accordingly, the Act is not applicable with respect to the enforcement of such an award appears to be erroneous and based on an incorrect understanding of the nature of "investment" under a given BIT/IIA/BIPA, and consequent disputes arising therefrom. While the Court rightly noted that the "roots" of investment treaty arbitrations are grounded in public international law, yet it missed the point that disputes between an investor and a host state under a BIT/IIA/BIPA arise from commercial dealings which are inherent in the very nature and definition of investment.

That said, curiously the Delhi High Court observed that "if the argument of lack of jurisdiction ... is accepted, then this Court would be powerless to execute a BIPA award against the State, even if the foreign investor were to approach this Court for enforcement and execution". This statement is at odds with its finding above i.e., if investment treaty arbitrations are outside the purview of the Act, one cannot help but wonder how a court in India could then be approached for enforcing and executing an ISDS award stemming from the very same investment treaty arbitration.

In our view, to the extent that an investment treaty arbitration, whether ICSID or otherwise, pursuant to which an ISDS award is rendered is seated in one of the reciprocating territories notified by India under Section 44 of the Act and the assets of the award debtor (i.e., the foreign state) can be identified in India, the ISDS award should be capable of being enforced in India under Part II, Chapter I of the Act.

As parting remarks, we note that while countries like Canada, France, Switzerland, the United Kingdom and United States are preferred jurisdictions for enforcing investor-state dispute settlement (ISDS) awards, India, on the other hand, certainly has catching-up to do in order to live up to the moniker of being an "arbitration friendly" hub.

Footnotes

1 Section 44 of the Act states that: "In this Chapter, unless the context otherwise requires, "foreign award" means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960 —

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies."

2 Section 47 of the Act states that: "(1) The party applying for the enforcement of a foreign award shall, at the time of the application, produce before the court—

(a) the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;

(b) the original agreement for arbitration or a duly certified copy thereof; and

(c) such evidence as may be necessary to prove that the award is a foreign award.

(2) If the award or agreement to be produced under sub-section (1) is in a foreign language, the party seeking to enforce the award shall produce a translation into English certified as correct by a diplomatic or consular agent of the country to which that party belongs or certified as correct in such other manner as may be sufficient according to the law in force in India.

Explanation. — In this section and in the sections following in this Chapter, "Court" means the High Court having original jurisdiction to decide the questions forming the subject-matter of the arbitral award if the same had been the subject-matter of a suit on its original civil jurisdiction and in other cases, in the High Court having jurisdiction to hear appeals from decrees of courts subordinate to such High Court."

3 Section 48 of the Act states that: "(1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that—

(a) the parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place ; or

(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

(2) Enforcement of an arbitral award may also be refused if the Court finds that—

(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

(b) the enforcement of the award would be contrary to the public policy of India.

Explanation 1.—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—

(i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or

(ii) it is in contravention with the fundamental policy of Indian law; or

(iii) it is in conflict with the most basic notions of morality or justice.

Explanation 2.—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.

(3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the Court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security."

4 Vijay Karia v. Prysmian Cavi E Sistemi SRL, 2020 (11) SCC 1.

5 Government of India v. Vedanta Limited, 2020 (10) SCC 1

6 Union of India v. Vodafone Group PLC, 2018 SCC OnLine Del 8842.

7 Union of India v. Khaitan Holdings (Mauritius) Ltd. & Ors, 2019 SCC OnLine Del 6755.

8 Board of Trustees of the Port of Kolkata v. Louis Dreyfus, 2014 SCC OnLine Cal 17695.

9 Footnote 2 to Article 1 of the UNCITRAL Model Law states that: "The term "commercial" should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road."

10 The United Mexican States v. Metalclad Corporation, (2001) BCTC 664.

11 See Sundaram Finance Ltd. v. NEPC India Ltd., 1999 (2) SCC 479; Gas Authority of India Ltd. v Keti Construction (I) Ltd., 2007 (5) SCC 38.

12 R.M. Investments Trading Co. Pvt. Ltd. v. Boeing Co., 1994 (4) SCC 541.

13 Union of India v. Owners & Parties interested in Motor Vessel M/V Hoegh Orchid, 1982 SCC OnLine Guj 57.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.