WHETHER THE FOREIGN ARBITRATION AWARD IS TO BE STAMPED FOR ENFORCEMENT IN INDIA

[Mr. M. GOVINDARAJAN]

Arbitral award

Section 2(1)(c) of the Arbitration and Conciliation Act, 1996 (‘Act’ for short)  defines the expression, “arbitral award” as including an interim award.

Foreign award

Section 44 of the Act defines the expression ‘foreign award’ as 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-

• in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and
• 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.

Binding of foreign award

Section 46 of the Act provides that any foreign award which would be, enforceable under this Chapter shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in India and any references in this Chapter to enforcing a foreign award shall be construed as including references to relying on; an award.

Evidence

Section 47 (1) of the Act provides that the party applying for the enforcement of a foreign award shall, at the time of the application, produce before the Court-

• the original award or a copy thereof, duly authenticated in the manner required by the law of the country in which it was made;
• the original agreement for arbitration or a duly certified copy thereof; and
• such evidence as may be necessary to prove that the award is a foreign award.

Section 47(2) of the Act provides that if the award or agreement to be produced 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.

Conditions for enforcement of foreign awards

Section 48(1) of the Act provides the conditions for the enforcement of foreign award.  The said section provides that 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-

• 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
• 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
• 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;

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

• 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
• 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.

Refusal for enforcement of foreign award

Section 48(2) of the Act provides enforcement of an arbitral award may also be refused if the court finds that-

• the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or
• the enforcement of the award would be contrary to the public policy of India. (An award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption.)

Suspension or setting aside the award

Section 48(3) provides that if an application for the setting aside or suspension of the award has been made to a competent authority 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.

Enforcement of foreign award

Section 49 of the Act provides that where the court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that court.

Issue

The issue to be discussed in this article is whether the foreign arbitral award is to be stamped under the Indian Stamps Act, 1899 for its enforcement in India, with reference to the decided case laws.

Indian Stamps Act, 1899

Section 12 of the Indian Stamps Act, 1899 defines the term ‘award’ as any decision in writing by an arbitrator or umpire, not being an award directing a partition, on a reference made otherwise than by an order of the Court in the course of a suit-

• where the amount or value of the property to which the award relates as set forth in such award does not exceed ₹ 1000/-= The same duty as a bond (No. 15) for such amount;
• in any other cases – ₹ 5/-.

The exemption from this section is for Award under the Bombay District Municipal Act, 1873 (Bom. Act 6 of 1873), Section 81, or the Bombay Hereditary Offices Act, 1874 (Bom. Act 3 of 1874), Section 18.

Case laws

The Supreme Court in M.Anasuya Devi & Anr. v. M.Manik Reddy and Ors. 2003 (10) TMI 682 - SUPREME COURT had observed that at the time of deciding objections under Section 34 of the Arbitration & Conciliation Act, 1996, the Court cannot set aside the award for want of stamping and registration. The Court while deciding enforceability of foreign award under Sections 47 & 48 cannot hold the award non-enforceable on the ground of award being not registered or unstamped.

In ‘Naval Gent Maritime Ltd. v. Shivanath Rai Harnarain (I) Ltd 2009 (9) TMI 1034 - DELHI HIGH COURT,  the Delhi High Court held that the foreign award would not require registration and can be enforced as a decree. In any case the issue of Stamp Duty cannot stand in the way of deciding whether the award is enforceable or not.

In ‘M/s Shriram EPC Limited v. Rioglass Solar RA’ – Civil Appeal No. 9515/2018 – Supreme Court, decided on 13.09.2018 [2018 (9) TMI 847 - SUPREME COURT],  an ICC award was delivered in London on 12.02.2015 by Mr. Christopher Style QC in the following terms:

• Rioglass (respondent) is not obliged to issue a Performance Bank Guarantee as provided for in clause 6 of the Agreement, as amended by Amendment No.1.
• Rioglass is entitled to sell as scrap the mirrors that it holds in storage in relation to Delivery Four.
• Shriram (the appellant) acted in breach of the Agreement in the respects set out above.
• Shriram is to pay Rioglass €4,366,598.70, consisting of damages amounting to €4,151,570.52 and interest amounting to €215,028.18.

The appellant filed objections against the award but the same was dismissed on the ground that a petitioner under section 34 of the Act is not maintainable against the foreign award.   In the meanwhile the respondent filed a petition for the enforcement of the award.  All the objections raised by the appellant against the enforcement of the said order were rejected.   The Division Bench, on the appeal filed by the respondent, dismissed by holding that an appeal under section 50 of the Act would not be maintainable.  Against the said order the appellant approached the Supreme Court.

The appellant put forth the following submissions before the Supreme Court-

• The Indian Stamp Act, 1899 provides that a foreign award would be covered by the said Act.
• The foreign award cannot be enforced without paying the required stamp duty.
• The New York Convention itself recognizes that foreign awards may have to bear stamp duty for enforcement in the country in which they are sought to be enforced.

The respondent submitted the following-

• The expression “award” which occurs in Schedule I of the Indian Stamp Act, 1899 applies only to a domestic award and not toa foreign award.
• The Indian Stamp Act was enacted in 1899, in which “award” has never been enlarged so as to include foreign awards after the Arbitration (Protocol and Convention) Act, 1937 and/or the Foreign Awards (Recognition and Enforcement) Act, 1961 were enacted.
• The only requirement for the enforcement of a foreign award is laid down in Section 47 of the Act, which does not require the award to be stamped.
• Under Section 48(2)(b), even if a foreign award were required to be stamped, but is not stamped, enforcement of such award would not be contrary to the fundamental policy of Indian law.

The Supreme Court analyzed the provisions of Indian Stamps Act, 1899. The Supreme Court framed an issue as to whether the ‘award’ contained in Indian Stamps Act, 1899 would include foreign awards also.  During the year when the Indian Stamps Act, 1899 was enacted, there were two sets of laws dealing with arbitration.  Second is the Arbitration Act, 1899. 

In Part V, Chapter XXXVII of Code of Civil Procedure spoke of reference to arbitration. Under Sections 506 to 522 of the Code of Civil Procedure, 1882, parties to a suit may apply for an order of reference to arbitration, in which case, the arbitrator or umpire, as the case may be, may deliver an award which ultimately may be enforced by a judgment which is to be according to the award and a decree to follow. By Sections 523 to 526, agreements to refer disputes to arbitration may be filed in Court, and awards delivered thereon.

Section 2 of the Arbitration Act, 1899 made it clear that the Act will apply only in cases where the subject matter submitted to arbitration, if it were the subject of a suit, could be instituted in a Presidency Town.  It becomes clear that the only “award” that is referred to in the Indian Stamp Act, 1899 is an award that is made in the territory of British India provided that such award is not made pursuant to a reference made by an order of the Court in the course of a suit.  An award made in a princely state, or in a foreign country, if enforced by means of a suit in British India, would not be covered by the expression “award” contained in Item 12 of Schedule I of the Indian Stamp Act, 1899. Only awards which are decisions in writing by an arbitrator or umpire, made in British India, on a reference made otherwise than by an order of the Court in the course of a suit would be included.  This position continued even when the Code of Civil Procedure, 1908 contained a Second Schedule, which substituted the arbitration provisions contained in the Code of Civil Procedure, 1882.

Next the Supreme Court analyzed the provisions contained in Arbitration (Protocol and Convention) Act, 1937.  In this Act certain foreign awards governed by the Geneva Convention of 1923 were to be recognized and enforced in signatory countries, India being one.  The Supreme Court further analyzed the provisions of the Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961,

The present Arbitration and Conciliation Act, 1996 then came into force and repealed-

• The Arbitration (Protocol and Convention) Act, 1937;
• The Arbitration Act, 1940, and
• The Foreign Awards (Recognition and Enforcement) Act, 1961

The new Act brings with certain important changes, domestic awards within Part I, foreign awards relatable to the New York Convention within Chapter I of Part II, and foreign awards relatable to the Geneva Convention within Chapter II of Part II.

From the analysis of the provisions of above said Acts, the Supreme Court inferred that “award” under Item 12 of Schedule I of the Indian Stamp Act, 1899 has remained unchanged till date.   This “award” would refer only to a decision in writing by an arbitrator or umpire in a reference not made by an order of the Court in the course of a suit. This would apply only to such award made at the time in British India, and today, after the amendment of Section 1(2) of the Indian Stamp Act, 1899 by Act 43 of 1955, to awards made in the whole of India except the State of Jammu and Kashmir.  Therefore the Supreme Court is of the view that this “award” would refer only to a decision in writing by an arbitrator or umpire in a reference not made by an order of the Court in the course of a suit. This would apply only to such award made at the time in British India.  The amendment of Section 1(2) of the Indian Stamp Act, 1899 by Act 43 of 1955, provides that the awards made in the whole of India except the State of Jammu and Kashmir are applicable.

The Supreme Court held that the expression “award” has never included a foreign award from the very inception till date. Consequently, a foreign award not being includible in Schedule I of the Indian Stamp Act, 1899, is not liable for stamp duty.

The Supreme Court further observed that in no manner does Section 47 of the Act

interdict the payment of stamp duty if it is otherwise payable in law.

The Supreme Court relied on its earlier judgment in ‘Fuerst Day Lawson Ltd. v. Jindal Exports Ltd.,’ -  2001 (5) TMI 881 - SUPREME COURT OF INDIA it was held that under the new Act the foreign award is already stamped as decree.  The Supreme Court, therefore, held that under the present state of the law, foreign awards are not liable to stamp duty under the Indian Stamp Act, 1899.