Because the United States is a non-reciprocating territory, U.S. judgments do not qualify for expedited treatment under Indian civil procedural laws. As a result, the decree-holder must file a new suit to enforce the judgment in India. The U.S. judgment is, at best, afforded persuasive evidentiary value in this new suit.
As an increasing number of U.S. companies are developing lucrative business relationships with Indian counterparts, the issue of enforcing U.S. court judgments in India is becoming acute. The United States is often the preferred litigation venue for U.S. investors in India for reasons of geographic proximity, convenience, court sophistication and familiarity and comfort with the U.S. court system. However, although both India and the United States are signatories to the 1971 Convention on the Recognition and Enforcement of Foreign Judgments, neither has ratified it, and enforcing a U.S. judgment in India can be surprisingly complex and time-consuming. As such, it is important for U.S. companies to be aware of whether and how Indian courts will give effect to a U.S. judgment, especially when the Indian entity does not have any substantial assets in the United States.
Why U.S. Judgments Are Different
Victory in a U.S. court against an Indian entity can quickly become bittersweet if the judgment needs to be enforced in India. The difficulty stems primarily from India’s selective procedures for enforcing foreign judgments, which differentiate between "reciprocating" and "non-reciprocating" territories. Under Indian law, enforcement of a judgment from a reciprocating country is similar to that of a domestic judgment. Although certain territories, such as Singapore, Hong Kong, New Zealand and the United Kingdom are designated as reciprocating territories, the United States is not, and, as a result, additional measures must be taken to enforce a U.S. judgment in India. Because the United States is a non-reciprocating territory, U.S. judgments do not qualify for expedited treatment under Indian civil procedural laws. As a result, the decree-holder must file a new suit to enforce the judgment in India. The U.S. judgment is, at best, afforded persuasive evidentiary value in this new suit.
A Quick Glance at the Legal Framework
Below are certain steps a decree-holder of a U.S. judgment typically undertakes for enforcing the judgment in India.
Step One: Filing a Civil Suit
To enforce a U.S. judgment in India, the decree-holder must file a brand new suit within a period of three years to enforce the judgment in India. As noted above, the U.S. judgment is, at best, afforded persuasive evidentiary value in the new suit.
Step Two: Choosing a Cause of Action (or Not)
Indian law views a foreign judgment as a distinct cause of action, separate from the original cause of action underlying the judgment. Therefore, when initiating the Indian suit, the decree-holder may choose whether to pursue the original cause of action or the U.S. judgment, or both.
This creates an interesting dichotomy. On the one hand, assuming that the original cause of action arises in India, it gives the decree-holder a second bite at the apple, because a defeat in one cause of action will leave the other open for pursuit. On the other hand, if the original cause of action does not arise in India, an Indian court would lack jurisdiction over it, and thus, if the U.S. judgment is held unenforceable, then the decree-holder will be left without any recourse.
Step 3: Indian Court’s Review Standard
When considering the U.S. judgment as evidence, the Indian court will look at whether the U.S. court applied its judicial mind to the relevant facts and law and will not reexamine the case on the merits. Accordingly, the court will look into the following questions — and a negative answer to any one will render the U.S. judgment inconclusive and unenforceable:
- Was the judgment pronounced by a court of competent jurisdiction? Here, the decree-holder has to demonstrate that the Indian entity had submitted to the personal jurisdiction of the U.S. court.
- Was the judgment given on the merits of the case? This implies that a judgment given in absentia will seldom be enforced in India, which could be a trap for U.S. investors when the Indian party has no operations or assets in India and elects not to participate in judicial proceedings against it in the United States.
- Were the legal proceedings in conformity with the principles of natural justice? Here, the court in particular will consider whether the Indian entity was given proper notice.
- Was there an absence of fraud in obtaining the judgment?
- Does the judgment correctly apply all relevant provisions of Indian and international law?
- Are all claims sustained by the judgment, in conformity with Indian law?
Step Four: Compliance with Public Policy
During this review process, the Indian court will additionally consider whether the U.S. judgment violates the public policy of India. In the opinion of the court, the U.S. judgment must not be contrary to any fundamental policy of Indian law, any interest of India, justice or morality and must not be patently illegal. A fundamental policy of Indian law is violated when the U.S. court has acted arbitrarily, unreasonably or in discord with principles of natural justice in India.
Although originally set forth in relation to enforcement of foreign arbitral awards in India, this understanding of public policy is equally applied when enforcing foreign judgments. Notably, the judicial discretion allowed under this test is vast, and, as a result, the public policy requirement often serves as the U.S. decree-holder’s biggest foe. For instance, penalty clauses are considered to be contrary to the public policy of India because they violate Indian contract law. Therefore, U.S. judgments to enforce penalty clauses will be unenforceable in India. Similarly, a transfer of shares or a corporate guarantee that is not in compliance with procedures under Indian corporate law would be struck down for violating public policy.
Although the Indian legal process for enforcing a U.S. judgment in India is not intentionally difficult and time-consuming, numerous avenues are available to any party wanting to delay and/or prevent enforcement. As a result, international arbitration continues to be the more favorable means of dispute resolution for U.S. investors in India because both the United States and India are parties to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), and India recognizes the United States as a "designated party" under this convention.
Any litigation strategy that involves enforcing foreign judgments in India must account for the complexities of Indian law. Knowledge of Indian civil procedure may prove useful even at the drafting stage for agreements because it may influence the choice of law and dispute resolution forums. Indeed, U.S. companies doing business with India must be alert to the risks associated with enforcing judgments of U.S. courts in India and carefully weigh their dispute resolution alternatives