Authors: Syamantak Sen* and Aadya Bansal**
| Jurisdiction: India |
Topics: Jurisdiction and Powers of the Courts in Matters of Arbitration Generally National Legislation Bankruptcy of a Party Court Decisions New York Convention |
In Agrocorp Int’l Private (PTE) Ltd. v. Nat’l Steel and Agro Indus.[1], an insolvency petition was filed by the operational creditor under Section 9 of the Insolvency and Bankruptcy Code 2016 (“IBC”) against the corporate debtor, before the National Company Law Tribunal’s Mumbai Bench (“NCLT”). The creditor sought commencement of the Corporate Insolvency Resolution Process (“CIRP”), due to the debtor’s failure to honor a London-seated arbitral award.
The arbitral tribunal had granted damages, interest and costs to the creditor in the award. The creditor sought initiation of the CIRP, without initiating proceedings for enforcement of the Award, under Part II of the (Indian) Arbitration and Conciliation Act, 1996 (“ACA”). The NCLT admitted the Award, initiating the CIRP and declaring a moratorium under Section 14 of the IBC. Such moratorium lends a protective shield to a corporate debtor, prohibiting the institution of suits or the continuation of pending suits or proceedings against the corporate debtor.
AN OVERVIEW OF THE NCLT’S DECISION
The award in this case arose out of a sales contract between the parties and directed the Corporate Debtor to pay a sum of US$ 930,000 in damages, along with US$ 38,971.84 in interest and US$ 9,536 in costs. The NCLT, while admitting the award as a claim,[2] relied upon Section 44A of the Civil of Procedure Code, 1908 (“CPC”). While the provisions of the CPC are not strictly applicable to the NCLT, their principles can be invoked to advance the cause of justice.[3]
Section 44A is an enabling provision[4] that provides for the execution of decrees passed by foreign courts in “reciprocating” territories. A reciprocating territory refers to any foreign territory which the Central Government may declare as such.[5]
The NCLT, while noting that England was a reciprocating territory,[6] admitted the Award, rejecting the Corporate Debtor’s objections that a foreign award is not binding in India until it is declared enforceable under the ACA and that the award had not attained finality.
THE NCLT’S FALLACIES
An arbitral award is considered a valid claim under the IBC.[7] However, while relying upon Section 44A, the NCLT overlooked Explanation 2 to the provision. Explanation 2, while defining the term “decree”, unambiguously states that a decree “shall in no case include an arbitration award, even if such an award is enforceable as a decree or judgment”.
Furthermore, Section 44A is based on the doctrine of reciprocity, wherein a court can only enforce foreign decrees if the court that rendered such decree is either “equivalent” or “superior” to the executing court.[8] Explanation 1 to the provision further clarifies that only those courts that have been declared to be “superior courts” by the Central Government shall be deemed as such. With respect to England, the Central Government has only recognized the English High Court and the Courts of Chancery of Lancaster and Durham as “superior courts”. Hence, it would be fair to assert that an arbitral tribunal would not be considered as a “superior court” under this provision. Thus, the CPC is not applicable to arbitral awards.[9]
Such exclusion of arbitral awards is not idiosyncratic to Indian jurisprudence. For instance, the European Union,[10] the United States,[11] and the United Kingdom,[12] have excluded arbitral awards from their civil procedural law. The reason behind such exclusion being the existence of international treaties dealing with arbitral awards, which may be in conflict with the country’s procedural law.[13]
Section 44A was initially not a part of the CPC and was added later to give effect to the Foreign Judgments (Reciprocal Enforcement) Act, 1933.[14] Arbitral awards were not erroneously excluded in India and one of the objectives behind such exclusion was that where an award is executable, there should be a procedure for the same, as opposed to mechanical execution. Such a procedure has been laid down in the ACA, a complete code for the enforcement of an arbitral award.[15]
Assuming arguendo Section 44A includes arbitral awards within its ambit, the NCLT could not have adjudicated upon the enforceability of the Award, as held by the National Company Law Appellate Tribunal (“NCLAT”) in Usha Holdings.[16]
Consequently, defying law on these grounds, the NCLT declared the Corporate Debtor’s objections against the Award repelled.
CONCLUSION
The New York Convention, which applies to insolvency scenarios,[17] lays down the basis for an argument that there exists an obligation upon contracting states to recognize foreign arbitral awards within the four corners of their national insolvency framework. The fabric of international commerce and trade would be damaged if enforcement of foreign arbitral awards is hindered[18] merely because they are sought to be enforced within an insolvency framework.
Considering the very nature of insolvency, an important objective for any insolvency framework is to enable the creditor to proceed in the quickest possible manner with regards to enforcement of its claims.[19] Providing for enforcement of such awards, directly under the insolvency framework concerned, instead of under a separate enforcement mechanism such as the ACA, will help achieve such objective. Barring India, most major jurisdictions allow for recognition of such awards as claims under their national insolvency law framework.[20] For instance, the United States,[21] England[22]and France[23] allow such recognition.
The silence of the IBC, on this count, seems to be a misstep on the part of the Indian Legislature. Consequently, the NCLT could not have rendered a procedurally correct decision had it chosen to align itself with the global practice of admitting foreign arbitral awards as insolvency claims. Therefore, one may hope that the Indian Legislature reconsiders its decision to exclude foreign arbitral awards from the ambit of the IBC and makes the appropriate legislative amendments in line with the prevalent global practice on this count.
[1] Agrocorp Int’l Private (PTE) Ltd. v. Nat’l Steel and Agro Indus. Ltd., CP(IB) No. 798/MB/C-IV/2019, (India).
[2] Claims can be admitted under Sections 7, 9 or 10 of the Insolvency Bankruptcy Code, 2016. In this case, the claim was admitted under the Insolvency & Bankruptcy Code, § 9(5), No. 31 of 2016, India Code.
[3] Gurpartap Singh & Anr v. Vista Hospitality Pvt Ltd. & Ors., [2014] 186 Comp Cas 202 at 30.
[4] Bank of Baroda v. Kotak Mahindra Bank Ltd., Civil Appeal No. 2175 of 2020 (Mar. 17, 2020) at 19.
[5] The Code of Civil Procedure, §44A, Explanation 1, No. 5 of 1908, India Code.
[6] Government of India – Ministry of Law, Notification No. SRO. 399 dated 01.03.1953.
[7] Annapurna Infrastructure (P) Ltd. & Anr. v. Soril Infra Res. Ltd, Company Appeal (AT) (Insolvency) No. 32 of 2017 at 25, 31.
[8] Kevin George Vaz v. Cotton Textiles Exps., 2006 (5) Bom CR 555, at 41.
[9] The Arbitration and Conciliation Act, §19, No. 26 of 1996, India Code.
[10] Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ L 351, 20.12.2012, 1, 2.
[11] 28 U.S.C. § 2467 (West 2020).
[12] Civil Procedure Rules 1998, Part 70.5 (UK).
[13] Report by Mr P. Jenard on the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters, 1979 O.J. (C59) 1, 13.
[14] Alcon Elecs. Pvt Ltd v. Celem S.A. of Fos 34320 Roujan, (2017) 2 SCC 253 at 20 (India).
[15] Marina World Shipping Co. Ltd. v. Jindal Exps. Pvt. Ltd., 2004 54 SCL 312 at 33 (India).
[16] Usha Holdings L.L.C. & Anr. v. Francorp Advisors Pvt. Ltd., CP(IB) No. 196(PB)/2017 at 14 (India).
[17] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38.
[18] Scherk v. Alberto-Culver Co., 417 U.S. 506, 517 (1974).
[19] MF Global Holdings Ltd. v. Allied World Assurance Co., 561 B.R. 608, 626 (2016).
[20] Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation 240 (1981).
[21] 11 U.S.C. § 501 (West 2020); Fotochrome. Inc. v. Copal Co. Ltd., 517 F.2d 512, 519 (2d Cir. 1975).
[22] Insolvency Act 1986, c. 45 §123 (Eng.); Baker & McKenzie International Arbitration Yearbook: 2010-2011, 475 (Baker & McKenzie ed., 2011).
[23] Code de Commerce, Art. L. 621-40; Pierre Mayer, La sentence contraire a l’ordre public au fond, Rev. Arb. 615, 641 (1994); José Rosell & Harvey Prager, International Arbitration and Bankruptcy: United States, France and the ICC, 18 J. of Int’l Arb. 417, 429 (2001); Alexis Mourre, Arbitrability of Antitrust Law from the European and US Perspectives, in EU and US Antitrust Arbitration: a Handbook of Practitioners 1, 161 (Gordon Blanke & Philip Landolt eds., 2011).
*Syamantak is an undergraduate student at the National Law Institute University, India and serves as a Senior Editor for the King’s Student Law Review and Content Review Head for the Indian Arbitration Law Review.
**Aadya is an undergraduate student at the National Law Institute University, India.