Bombay High Court on the Rights Available under the Arbitration and Conciliation Act if the Seat of Arbitration is London

[Gourav Mohanty is a lawyer in Mumbai] 

The judgment of Bombay High Court earlier this year in Prysmian Cavi E Sisteni S.r.l v Viiay Karia may have struck a death knell to the prospects of choosing London as a seat of arbitration for Indian parties. This post will examine whether pursuing a London-seated arbitration would deprive an award debtor of its right to resist an award on jurisdictional grounds under section 48 of Arbitration and Conciliation Act, 1996 (A&C Act).

Background: Challenges to an award in England

The number of challenges to an arbitral process the English law provides is probably more than any other jurisdiction which has adopted the New York Convention, 1958:

(i)        Challenge on the ground of lack of substantive jurisdiction: A party to the arbitral proceedings has a right to challenge an award by an application under section 67 of the English Arbitration Act, 1996 (EAC) on the ground of lack of substantive jurisdiction in relation to it;

(ii)       Challenge on the ground of irregularity: Under section 68 of the EAC, a party to an arbitration proceeding may apply to the English court for challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or even the award; and

(iii)      Challenge on the ground of question of law:  Under section 69 of the EAC, the party to the arbitration proceedings may also file an appeal to the court on a question of law arising out of an award made in the proceedings.

In this regard, section 73(2) of the EAC provides for ‘loss or right of party to object’ where, if a party to arbitral proceedings who could have challenged the ruling of an arbitrator on jurisdiction under EAC does not do so within the time allowed, it loses his right to object to it later. In a nutshell, if an award debtor does not challenge the London-seated award on jurisdiction in London within the specified time limits stipulated in the EAC, the award becomes final in United Kingdom. But does that mean the foreign award attains finality in India?

International Jurisprudence on the effect of failure to challenge an arbitral award in the seat of arbitration

It has been globally recognized that the failure to challenge the award in the seat of the arbitration does not curtail the right of a party to resist enforcement of the award in another jurisdiction where the award is sought to be enforced. A five judge bench of the Supreme Court of United Kingdom in Dallah Real Estate and Tourism Holding Company v. the Ministry of Religious Affairs, Government of Pakistan (2010) UKSC 46 held that even if an arbitral award may become final in the seat of the arbitral award, the award debtor’s substantive right to resist the recognition of the award in another country is not eradicated. The relevant portion of Dallah is set out below:

“23…a person who denies being party to any relevant arbitration agreement has no obligation to participate in the arbitration or to take any steps in the country of the seat of what he maintains to be an invalid arbitration leading to an invalid award against him. The party initiating the arbitration must try to enforce the award where it can. Only then and there is it incumbent on the defendant denying the existence of any valid award to resist enforcement.  

[Emphasis supplied]

The judgment of the Court of Appeal of Singapore in PT First Media TBK v Astro Nusantara International BV and others [2013] SGCA 57 is another seminal one in arbitration jurisprudence on the “active remedy” of setting aside an award and “passive remedy” of resisting enforcement of a foreign award. The Court ruled that a party could choose to pursue either an active remedy – by challenging the preliminary award on jurisdiction – or a passive remedy – by challenging enforcement. It held that the New York Convention recognised the “choice of remedies” as one such interstitial doctrine, so that a party is not precluded from resisting the enforcement of an award by virtue of its failure to utilise an available active remedy, i.e. to not to challenge the tribunal’s preliminary ruling on its jurisdiction.

The Trifecta of Ark Shipping, POL India and Prysmian

Ark Shipping: The High Court of Bombay in ARK Shipping Co. Ltd. V. CRI Shipmanagement Pvt. Ltd., 2007 SCC Online Bom 663, held that when the grounds in reference to the non-existence of the arbitration agreement have already been ruled upon by the London-based arbitral tribunal, and the same has not been challenged in England under the EAC, a party resisting the enforcement of an award cannot raise the same ground under section 48 of the A&C Act.

POL India: While Ark Shipping did not expressly deny the right of the party to resist enforcement of a London-based arbitral award merely because it has become final in the seat of the arbitration, the Bombay High Court in POL India Projects Ltd. V. Aurelia Reederei Eugen Friederich GmbH left no room for doubt as to the impact of a party’s choice to not challenge a London-based arbitral award. In POL India, the fact that the composition of the tribunal was not in accordance with arbitration agreement was raised at the time of enforcement of the award, which was however not challenged in England under the EAC. The Bombay High Court held that:

97… the petitioners not having exercised such remedy under the provisions of English Arbitration Act has lost its right to object the correctness of such declaratory arbitration award in this proceeding filed under section 34 or while raising objection to the enforcement of the foreign award under section 48 in the arbitration petition filed by the respondents.

Prysmian: Recently, the Bombay High Court in Prysmian had the opportunity to resolve the controversy arising from the conflict between POL India, PT First Media and Dallah. The Bombay High Court seems to have tempered the approach adopted by POL India by acknowledging that the right to resist enforcement is not incumbent to a prior challenge at the seat of arbitration and is available to an award debtor even at the stage of enforcement. While the Bombay High Court kept the right of an award debtor to resist an arbitral award on jurisdictional grounds alive as a general rule, in the same breath it denied the right of an award debtor to challenge an award under the same grounds if the arbitral award had become final in the seat of the arbitration like in the case of a London-seated arbitration. The relevant portion of Prysmian is set out below:

71. …Merely because the decree has not being challenged does not render resistance to its execution under legitimate legal grounds invalid. This excluded cases where a challenge in the seat was necessary such as in Ark Shipping and Pol India (Supra) but otherwise a party cannot be prevented from attempting to resist enforcement of a foreign award

[Emphasis supplied]

Therefore, Prysmian holds that although failure to challenge an award in the seat of arbitration would not impact that the right of the party to resist enforcement in India, the exception to this rule is cases where a challenge in the seat was necessary such as in ARK Shipping and POL India. The decision in both Ark Shipping and POL India involved a case where the seat of the arbitration was London and the award was subject to English law, in which a challenge to the jurisdictional finding was specifically provided and the party had failed to question the ruling of the tribunal on its jurisdiction within the time prescribed under the EAC.

Conclusion

With respect to the Bombay High Court, a right accrued in favour a party to use a jurisdictional challenge under section 48 of A&C Act is a substantive right, and cannot be waived by mere refusal to challenge the award in the seat of the arbitration for the following reasons:

(a)        There are no pre-conditions stipulated in law for adopting grounds to resist an award under section 48.

(b)       No party can be compelled to challenge the award in a foreign seated arbitration. Resisting enforcement of an award under section 48 is akin to judgment debtor resisting execution on just and valid grounds. Merely because the decree has not been challenged does not render resistance to its execution under legitimate legal grounds invalid.

Consider a scenario where disputes pertaining to oppression and mismanagement or trust disputes are arbitrated upon by a tribunal in United Kingdom. If Prysmian is to be applied, a party will be precluded from challenging the award on the grounds of arbitrability merely because it did not challenge the award before the court in the seat of the arbitration. And this will be case regardless of the fact that English courts might invariably hold the trust disputes to be arbitrable under their own laws and would not be concerned with the arbitrability of a matter in a foreign jurisdiction. Even in Dallah, a French arbitral award was enforced in the seat, i.e. France, while denied enforcement in another enforcing country, i.e. UK.  It is respectfully submitted that it could not have been the intention of the legislature to read such a pervasive restriction into section 48 of A&C Act.

– Gourav Mohanty