Indian Business Law Assignment

Student Name: Dwijen D. Joshi

INTRODUCTION
International Investment Arbitration is an area under the international arbitration
where the Indian Legal Scenario is not yet well settled. This area is still murky owing
to the lack of proper enforcement regime of the awards under Investment Treaty
Arbitration. Indian protectionist legal set-up coupled with the pro-state stance of the
Indian Courts while enforcing the foreign arbitral award is one of the main reasons for
this situation. Moreover, India not being a party to the ICSID1 convention makes the
investment scenario little unpredictable for the investors. Every investor has to rely on
the respective Bilateral Investment Treaty of its country with India for the purpose of
enforcement of the rights. The white industries case in 2002, was the first case under
the Bilateral Investment Treaty against India which brought to the fore several
lacunas and difficulties pertaining to the International Investment Arbitration regime
in India. The situation is not same as it was when this case came up, there has been
development in the jurisprudence in this area but there is still an anxiety amongst the
investors. At the backdrop of this legal scenario, the present paper highlights the gaps
and legal hurdles pertaining to the enforcement of arbitral awards under the
Investment Treaty Arbitration.
A. INTERNATIONAL INVESTMENT ARBITRATION REGIME IN INDIA
India not being a party to ICSID has developed a unique legal regime for the
International Investment Arbitration by entering into numerous BITs with several
countries. The investors can initiate arbitration against India under these BITs. Most
of the BITs provide that the dispute shall be referred to ICSID additional facility2 or

International Centre for Settlement of Investment Disputes Convention

This facility is available to the non-contracting state to ICSID.

ad-hoc arbitral tribunal under UNCITRAL arbitration rules3. There are three main
hurdles, which may arise while enforcing the investment arbitration award in India.

Enforcement under New York Convention

State Immunity

Public Policy
B. ENFORCEMENT UNDER NEW YORK CONVENTION

Both ICSID additional facility and UNCTRIAL Arbitration Rules provide that the
award so rendered will be enforced under the New York Convention. India being a
signatory to the New York Convention can take the defense of public policy while
enforcing the award. It is held by one expert in the area that the objective of the New
York convention was not to deal with the state contracts and the disputes arising from
them. However, the arbitral awards passed against the states can be enforced under
the New York convention4. India can take two defenses of state immunity against the
enforcement of the award under the convention. Firstly, under Article V (2)(b) of the
New York Convention, public policy can be an exception to enforcement of the
award. Secondly, the Article III of the convention provides that enforcement of
awards by the states can be in accordance with the laws in force in that state. Thus,
the enforcement of the award will be possible after the award is tested on the
touchstone of the municipal laws in India.
C. STATE IMMUNITY: IMMUNITY FROM EXECUTION VS IMMUNITY FROM JURISDICTION
Under the principles of Customary International Law, a state will enjoy immunity in
respect of itself and its property from the exercise of jurisdiction by the foreign court5.
This immunity is not absolute6. With respect to international arbitration the courts of

3

For e.g. - Article 9(3)(b) and Article 9(3)(c) of the India-Netherlands BIT provides that dispute will

be referred to the Additional Facility of ICSID or the ad-hoc tribunal constituted under the UNCTRAL
Arbitral Rules.
4

Sonarajah, The settlement of Foreign Investment Disputes, 308 (2000)

Higgins, Certain Unresolved Aspects of the Law of State Immunity 29 Netherlands International Law

Review 265 (1982)

6

Sinclair, Law of Sovereign Immunity: Recent Developments 167 Recueil Des Cours 113

the forum state will exercise supervisory jurisdiction, in such case the waiver from the
state immunity is implied7. Also, International court of justice has held that there is a
difference between the immunity from execution and immunity from jurisdiction8
India has consented to arbitration under the ICSID rules and UNCITRAL
rules. Such consent will imply a waiver from the immunity of the jurisdiction of the
arbitral tribunal under these rules. But the question still remains whether such waiver
will also amount to a waiver of immunity from execution? There is no concrete
answer to this question as different courts have expressed different views. For
instance, the courts in Sweden and United States have held that consent to arbitration
will amount to a waiver of state immunity from execution9. Whereas English courts
have held that unless there is an express waiver of immunity from execution, the
property of the state cannot be attached10.
If India were party to ICSID convention under Section 54 of the convention,
the arbitral award would be enforceable as if it were the final judgment of the court of
the contracting state where the award is enforced11. Since, India is not party to ICSID,
the arbitral rules of the institution referred in the BIT will be applicable. Therefore,
the problem of enforcement arises. This anomaly can be addressed by resorting to the
rules of the institution conducting the arbitration. For instance, ICSID Additional
Facility Rules and UNCITRAL rules do not provide for state immunity. In
contradistinction, ICC rules provide for the deemed waiver of immunity. So,
enforcement will depend largely on the type of arbitral institution that the parties
choose.
SETTING ASIDE OF ARBITRAL AWARD UNDER INDIAN ARBITRATION ACT 1996
Section 34 of the Indian Arbitration Act provides for the setting aside of the arbitral
award. It provides for various grounds under which the arbitral award can be set aside
public policy being one of the grounds. Section 2 (2) of the act provides that part I of

7
8

Fox, The Law of State Immunity 495-496 (2008)

Duff Development v. Kelantan Government [1924] AC 797 224 , Germany v. Italy ICJ General List

No. 143 paragraph 113

9

LIAMCO v. Libya 62 ILR 225 (1980)

10

Orascom Telecom Holding SAE v Republic of Chad & Ors. [2008] EWHC 1841 (Comm)

11

See - https://icsid.worldbank.org/ICSID/StaticFiles/model-clauses-en/15.htm (September 27, 2013)

the act will apply where the arbitration was held in India. Section 34 is in part I of the
Act. The question arises is whether u/s 34 Indian courts can set-aside international
investment arbitral awards? In the case of Bhatia International, three-judge bench of
the Supreme Court of India held that Part I will be applicable to the foreign arbitral
award also12. It was held that even though the seat of arbitration was not in India, the
arbitral award could be challenged before Indian courts u/s 34. This position was
again reiterated in the case of Venture Global v. Satyam Computers13
The above-discussed position was reversed in the case of BALCO v Kaiser
Aluminium Technical Services Inc14. It was held that decision in the above cases,
which provided that Part I applied to arbitrations seated outside India did not find
proper basis in the provisions of the 1996 Act15. Thus, the current legal position is the
one as stipulated in the BALCO case. But the BALCO judgment is not applicable
retrospectively, the court in its judgment held that its findings in the case would be
applicable to the arbitration agreements entered into after 6 September 2012.
Therefore, as most of the BITs were entered into by India before the decision in
BALCO, Indian courts will have jurisdiction to set aside award delivered outside
India u/s 34 of the Indian Arbitration Act, 1996.
PUBLIC POLICY
As discussed above, Indian courts will have jurisdiction to set-aside an award u/s 34
of the arbitration act. Public policy being one of the grounds u/s 34, any award in
violation of the public-policy India will be subject to challenge. Public Policy was
defined in the case of Venture Global to include (a) the fundamental policy of India;
or (b) the interests of India; or (c) justice or morality or (d) if it is patently illegal16. In
the case of Shri Lal Mahal Limited v Progetto Grano Spa17 the above definition was

12

Bhatia International v. Bulk Trading AIR 2002 SC 143 257

13

Venture Global Engineering v. Satyam Computer Services Ltd. AIR 2008 SC 1061. 259

14

2012(9) SCC 552

15

Vivekananda N. Lessons from the BALCO dicta of the Indian Supreme Court, SIAC

http://www.siac.org.sg/index.php?option=com_content&view=article&id=409:lessons-from-the-balcodicta-of-the-indian-supreme-court&catid=56:articles&Itemid=171 (September 27, 2013)

16

Venture Global Engineering v. Satyam Computer Services Ltd. AIR 2008 SC 1061 19.

17 2013 Indlaw SC 413 (Civil Appeal No. 5058 of 2013

narrowed down. It was held that narrow scope should be applied to the ground of
public policy in the context of challenges to foreign arbitration awards, and that such
a challenge did not permit the Indian courts to revisit the merits of an award18.
CONCLUSION
The Indian courts are adopting a favorable stance towards the enforcement of
International arbitration awards in India. The decision in BALCO and Lal Mahal are
two major developments in this regard. But as the ruling in BALCO is prospective in
nature, it does little to protect the enforcement of the awards passed under the
Bilateral Investment Treaties entered into before the decision. Thus, even though
there is a development of jurisprudence in this area, there still remains certain issues
which are to be addressed.

18 See

- http://www.taylorwessing.com/news-insights/details/indian-supreme-court-continues-pro-

international-arbitration-stance-2013-08-08.html (September 27, 2013)