In the recent case of Venture Global Engineering v Satyam Computer Services Limited1, the Supreme Court of India held that an arbitral award delivered in London under the Rules of the London Court of International Arbitration could be challenged before the Indian courts under the provisions of the Indian Arbitration and Conciliation Act 1996 (the "Arbitration Act"). The decision has been the subject of criticism in the international arbitration community given the implications for other parties attempting to enforce arbitration awards in India.
This newsletter considers the dispute resolution options available to companies doing business in India, and in particular the Indian courts' approach to international arbitration and the practical implications of the Venture Global decision.
Litigating in India
The Indian legal system is fraught with delays. Figures released in recent years have indicated that there are about 3.4 million cases pending between the 21 High Courts of India, including 650,000 which have been pending for over 10 years, and over 23 million cases are pending in other courts.2 It has been suggested that it might take 20 years to clear the case accumulation. The build-up is due to various factors including an insufficient number of experienced judges and the demands of an ever-increasing and diversifying economy. Clearly the experience of a litigating party in the Indian court system is not a happy one, a fact which has led many foreign investors to insist on arbitration clauses in their contracts with Indian counterparties.
Arbitration in India
With the rise in globalisation over the last 15 years there has been a huge increase in international arbitration. It is traditionally recognised that an arbitration agreement can benefit parties to multi-jurisdiction, cross-border transactions in a number of ways:
- flexibility – parties can agree to a speedy procedure or one that is tailored to the particular dispute;
- confidentiality - parties can resolve disputes without the publicity of court proceedings;
- choice – parties can choose a tribunal with expertise relevant to the particular dispute;
- neutrality - as opposed to opting for one of the parties' national courts, the parties can choose the law, procedure, language and place of arbitration; and
- binding awards - the options for challenging the award are very limited.
Additionally, where the countries in which an arbitration award is made and in which it is to be enforced are both members of a relevant convention (in particular the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention")3 to which India is a party), it can be relatively straightforward to enforce the award overseas.
Disputes involving Indian entities are becoming more common. As India plays an increasingly active role in the international economy it is inevitable that disputes will follow. Given the lengthy and often frustrating court process in India, arbitration has quickly become the dispute resolution mechanism of choice for international parties doing business in India. Recognising this increase in demand, the Indian legislature adopted the United Nations Commission on International Trade Law (UNICTRAL) Model Law on Arbitration by enacting the Arbitration Act, to consolidate previous acts and provide an effective process for domestic as well as international commercial arbitration. The purported aim of the new Arbitration Act was to keep arbitration free from unnecessary court intervention, thereby streamlining the process.
Recent developments in India
Recent case law in the Supreme Court of India has, however, jeopardized confidence in the Indian arbitral process by expanding the grounds on which a foreign arbitral award may be challenged in India. The decisions threaten the ability to enforce arbitral awards against Indian companies, as well as raising concerns about India's compliance with its New York Convention obligations.
Earlier this year, the Supreme Court in Venture Global Engineering v Satyam Computer Services Limited refused to enforce a LCIA arbitral award delivered in London on the basis that to do so would have been contrary to public policy (one of the grounds on which arbitration awards may be challenged under Part 1, section 34 of the Arbitration Act). The respondents were therefore successful in resisting an arbitral award which directed that they were to surrender, at an agreed price, their shareholding in a joint venture following breach of the shareholders agreement. Such an outcome was considered by the Supreme Court to be inconsistent with Indian law, and therefore unenforceable.
The decision has been subject to subsequent criticism for various reasons. At best, the decision risks frustrating mechanisms in shareholders agreements relating to Indian companies which provide that repeated or serious breaches by one party can lead to its shares being transferred to the claimants at an agreed contractual price. At worst, the decision represents a growing willingness of the Indian courts to subject arbitral awards to substantive scrutiny at the enforcement stage, and a willingness ultimately to frustrate enforcement by reference to the "public policy" defence. Certainly it will likely encourage parties to consider challenging awards which require enforcement in India.
The criticism of the Venture Global Engineering case may well lead to a re-think in the approach of the Indian courts the next time a similar issue comes before it. Nonetheless, unless and until such a change occurs, it would be prudent to recognise the risk to enforcement of arbitral awards in India. Practical steps to take in response may include:
- It was implicit in the decision of Venture Global Engineering v Satyam Computer Services Limited that Indian courts would not be allowed to set aside foreign arbitral awards where "the parties by agreement, express or implied" exclude the provisions of Part I of the 1996 Act. Accordingly, to preclude unwelcome Indian court interference with awards, parties may consider expressly excluding the application of Part I of the 1996 Act in India-related arbitration agreements.
- Parties should consider whether India is the only forum in which to enforce the arbitral award. Although that was likely the case in Venture Global Engineering, it may not be in some typical damages claims. With Indian companies increasingly investing in Europe and elsewhere, it may be possible for the award to be enforced in another jurisdiction where sufficient assets are held and enforcement is more straightforward.