‘Foreign awards need not be stamped’: Indian Supreme Court promotes pro-arbitration policy

 ‘Foreign awards need not be stamped’: Indian Supreme Court promotes pro-arbitration policy

by Amrit Singh

Introduction

Recent judgments of the judiciary, and the legislative amendments (such as those made in the Arbitration and Conciliation Act 1996) clearly reflect a change in Indian arbitral jurisprudence. Specifically, on 13 September 2018, the Supreme Court of India passed a judgment in M/S Shriram EPC Limited v. Rioglass Solar SA,[1]ruling that a foreign arbitral award does not need to be stamped to be enforceable. This facilitates the enforcement of a process of ‘foreign awards’ in India, and should be seen as a favourable step forward for the arbitral regime.

This case note begins by engaging with the facts of the case, before outlining pertinent issues related to the case and  analysing the arguments put forward by each side in the case. This case note ends by analysing the judgment itself, and emphasising the favourable change in policy regarding arbitral enforcement in India. Thus, this article argues that the case has been instrumental in improving the Indian arbitration regime.

Background & Facts

The arbitral tribunal of the case, acting as per the International Chamber of Commerce Rules, issued an arbitral award on 12 February 2015 in London, ordering Shriram EPC Ltd to pay Rioglass €4,366,598.70 (damages amounting to €4,151,570.52, with interest €215,028.18).[2] The appellant, Shriram EPC Ltd, challenged the award in India, under section 34 of the Arbitration and Conciliation Act 1996. Subsequently, on 5 August 2015, the respondent, Rioglass Solar SA, filed a petition under section 47 of the Arbitration Act 1996 for enforcement of the arbitral award in India.[3]

To the appellant’s dismay, Shriram EPC Ltd’s petition was dismissed on 27 September 2016, under the reasoning that due to the precedent case of Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.,[4] the Court could not entertain a petition challenging a foreign award under section 34 of the Arbitration and Conciliation Act 1996. The appellant also filed an appeal before the Division Bench of the Court. This appeal was once again dismissed, and the Court emphasised section 50 of the Arbitration Act 1996 as grounds; this section does not permit an appeal from an order enforcing a foreign award.

Eventually, a ʻSpecial Leave Appealʼ was allowed before the Supreme Court of India. The two-judge Bench, comprising the Honourable Justices Mr Rohiton Fali Nariman and Miss Indu Malhotra, heard the matter, pronouncing their judgment on 13 September 2018. The Supreme Court held that the foreign award is not liable to ‘stamp duty’ under the Stamp Act,[5] and that non-payment does not render it unenforceable.

Pertinent Issues

Two important issues were highlighted during the ʻSpecial Leave Appealʼ hearing, namely: (1) whether the term ʻforeign awardʼ is covered by Schedule I of the Indian Stamp Act 1899; and (2) whether a foreign award which does not have a stamp is thereby rendered unenforceable as per sections 48 and 49 of the Arbitration and Conciliation Act 1996.

These two issues form the basis of the judgment, as the enforceability of the foreign award depended on the question whether a foreign award is considered as part of the expression ʻawardʼ under Schedule I of the Indian Stamp Act 1899. If the Court found that the expression ʻawardʼ did indeed include a foreign award, then not paying stamp duty would render the award unenforceable.

Arguments Presented

In order to prove that the award was unenforceable, the counsel for the appellants contended that as per the mandate, the foreign award had to be stamped, and non-compliance must result in unenforceability. The respondent argued the opposite, when counsel submitted that the award need not be stamped, as this is not required by the Arbitration Act 1996.[6]

Shri K.V. Viswanathan, who appeared on behalf of the appellant stated quite specifically that a foreign award iscovered by the Indian Stamp Act 1899.[7]If a foreign award is not stamped, it may be rendered unenforceable, as per section 48 of the Arbitration Act 1996. The appellants thus relied on the judgment pronounced in Orient Middle East Lines Ltd., Bombay and Anr. v. Brace Transport Corporation of Monrovia &Ors.[8] Under this judgment, the Gujarat High Court held that Article III of the New York Convention 1958 clarifies that stamp duty, being in the nature of charges or fees for recognition and enforcement of a foreign award, can be requested in accordance with the rules of procedure of the territory in which the award is sought to be enforced.[9]

Naturally, counsel for the respondent vehemently opposed the submissions of the appellant, stating that ʻawardʼ, mentioned in Schedule I to the Indian Stamp Act 1899, does not apply to a foreign award –its applicability is limited to a domestic award.[10]The respondent contended that the ambit of the word ʻawardʼ has never been expanded so as to include a foreign award, even after the enactment of Arbitration (Protocol and Convention) Act 1937 and the Foreign Awards (Recognition and Enforcement) Act 1961.[11]This was supported by the fact that the prerequisites for the enforcement of an award are provided for in section 47 of the Arbitration Act 1996, and since there is no requirement which states that an award need be stamped, the foreign award must be enforceable. The respondent went on to argue that even if there is a requirement that a foreign award be stamped, the enforcement of such an award should not be regarded as opposed to the public policy of India, as per section 48(2)(b) of the Arbitration and Conciliation Act 1996.[12]

It is important to note that since the meaning of the expression ʻawardʼ under the Indian Stamp Act had not been extended or enlarged even after enactment of subsequent legislation, it is fair to say that the expression ʻawardʼ does not include a foreign award.[13]The argument aimed at determining the intent of the legislature was the main consideration for the Court.

Judgment

The Supreme Court of India, after hearing both sides, carefully examined the provisions of the Indian Stamp Act 1899. First of all, the Court considered section 1, and observed that the Act applied to the whole of British India.[14] Section 2(14) defined the term ʻinstrumentʼ. Furthermore, section 3 clarified which instruments would be chargeable with duty.[15] The Court looked closely at Item No. 12 of Schedule 1 to the Act which defined ‘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 suitʼ.[16]

The Court continued to analyse the provisions of the Indian Arbitration Act 1899 and the Indian Stamp Act 1899 together, subsequently observing that ʻthe only “award” that is being referred to in the Indian Stamp Act 1899 is an award that is made in the territory of British India.’[17]However,  such an award should not be made pursuant to a reference made by an order in the course of a suit.[18]

Here, the Court also observed that, at the time of the legislative enactment, there were several princely states in India which were not considered part of British India, as they were governed by their particular rulers, and according to different laws.[19] An arbitral award rendered in any such princely state would constitute a foreign award as per the Civil Procedure Code 1882 and the Arbitration Act 1899.[20]Hence, should an award be made in a foreign country or a princely state, if enforced by means of a suit in British India, it would not fall within the meaning of ʻawardʼ for the purposes of Item No. 12 of Schedule 1 to the Indian Stamp Act 1899.[21]

The Court also highlighted the amendment of section 1 of the Indian Stamp Act 1996 by Act 43 of 1955.[22]Before the amendment, the Indian Stamp Act applied to the whole of British India. After the amendment was introduced, the Act applied to the whole of India, except the States of Jammu and Kashmir. The Court adopted the view that ʻawardʼ for our purposes never included a foreign award.[23] From the very inception of the Act, an ʻawardʼ constitutes an internal, or domestic, award. Hence, the Supreme Court held that since a foreign award does not fall within the ambit of what was supposed to constitute an ʻawardʼ as per Item No. 12 of Schedule I to the Indian Stamp Act 1899, it is not liable to stamp duty.[24]

The Court also considered several cases cited by the parties, before arriving at its conclusion. The appellant’s counsel cited Senior Electric Inspector and Ors. v.Laxminarayan Chopra and Anr.,[25]where the Court held that it would be unreasonable to confine the intention of the legislature to the meaning attributable to a word used at the time the particular law was made. Unless a contrary intention appears, a broader interpretation should be given to the words used in the statute. Such an interpretation would need to consider new facts and changing circumstances, if such words are capable of entertaining them. The Supreme Court in M/S Shriram EPC Ltd v.Rioglass Solar SA conveniently rejected the application of this case, holding that there were no such ‘new facts’ arising in the current situation, as foreign awards existed in 1899 as they exist today.[26]

The appellant also relied on the judgment pronounced in Gujrals Co. v. M.A. Morris,[27] where the Punjab and Haryana High Court relied on section 3(c) of the Indian Stamp Act 1899 holding that an instrument mentioned in the Schedule which is executed out of India is a foreign award. Hence, as per section 3(c), stamp duty would be payable on such an award.[28] The Supreme Court in M/S Shriramwas, again, very quick to strike out this interpretation. Quite simply, the Supreme Court did not apply the ratio of the judgment of the Punjab and Haryana High Court, as the judgment did not concern the definition of ʻawardʼ.[29]

The Supreme Court also refused to apply the judgment cited by the appellants, that of Fuerst Day Lawson Ltd v. Jindal Exports Ltd.[30]Here, it was held that ʻthe only difference as found is that while under the Foreign Awards Act, a decree follows, under the new Act, the foreign award is already stamped as a decree.ʼ[31]As per the Foreign Awards Act 1961, once the Court is satisfied that the award is enforceable, the award should be filed, and following a judgment, a decree shall be issued.

However, section 49 of the Arbitration and Conciliation Act 1996, commonly referred to as the ‘new Act’, states that if the Court is satisfied that the foreign award is enforceable under Chapter II, the award shall be deemed to be a decree of that Court automatically. In the case of Fuerst Day Lawson Ltd v. Jindal Exports Ltd, the Court used the word ʻstampedʼ instead of ʻdeemedʼ. The difference between the Foreign Awards Act and the Arbitration and Conciliation Act 1996 in this respect is that while under the Foreign Awards Act a decree follows, under the Arbitration and Conciliation Act 1996 the foreign award is already stamped and considered to be the decree. The Apex Court in M/S Shriram EPC Ltd v. Rioglass Solar SAheld that this sentence does not automatically lead to the conclusion that the 1996 Act allows a foreign award to be considered ‘stamped’ already.[32] The interpretation offered instead stated that ʻstampedʼ merely indicates that a foreign award has been considered to be a decree. In other words, the term ʻstampedʼ should not be interpreted literally, and instead means ʻregarded’ as stamped only.[33]

The Supreme Court referred to the judgment laid down in Narayan Trading Co. v. Abcom Trading Pvt. Ltd,[34] (a case on the question  of why foreign awards do not have to have stamp duty). Under this case, the Court  had held that, in 1996, when the Arbitration and Conciliation Bill was to be passed into law, no amendment was made to the definition of ʻawardʼ provided for by the preceding act: the Indian Stamp Act 1899.[35] Nor was any amendment brought to Schedule I, laying down the stamp duty as payable on award. Thus, the Court concluded that the legislature of the time was of the view that foreign awards should be enforceable as decrees of Court, and that no amendment was necessary either in the definition of ʻawardʼ.[36]

The respondent had contended that even if the stamp duty is payable as per the provisions of the Indian Arbitration and Conciliation Act 1996,[37]and in particular section 48, and if this stamp duty is not paid, the enforcement of such an award would not be contrary to the fundamental policy of Indian law.[38] The Supreme Court rejected this argument, and relied on the law laid down in Renusagar Power Co. Ltd v. General Electric Co. [39] and Associate Builders v. Delhi Development Authority.[40]Where a statute like the Foreign Exchange Regulation Act 1973 is concerned, which deals with the economy of the country, it would come under the ambit of the expression ʻpublic policy of Indiaʼ.[41] Therefore, if there is a violation of the provisions of the Foreign Exchange Regulation Act, then that would be contrary to the public policy of India. The Supreme Court also held that since the Indian Stamp Act 1899 is a fiscal statute, this qualifies under the expression ʻfundamental policy of Indian lawʼ and so the argument of the respondent fails.[42]

In sum, the Court looked at Item No. 12 of Schedule I to the Indian Stamp Act, and held that a foreign award was never included in the expression ʻawardʼ from the inception of the Stamp Act until today. Thus, stamp duty shall not be imposed. Regarding the second issue, the Court observed that when the Arbitration and Conciliation Act 1996 was enacted, no amendment was brought to the definition of ʻawardʼ as provided under the Indian Stamp Act 1999.[43] The Schedule relating to stamp duty payable on award was also not amended by including the foreign award.[44] Therefore, this indicates the intention of the legislature to enforce a foreign award as if it were a decree of a court. Thus, the Supreme Court held that the Madras High Court was correct: a foreign award that has not been stamped is not unenforceable.

Concluding Remarks

Overall, the Supreme Court has delivered a judgment that should be welcomed in the field of arbitration. It ensures that there is no impediment when enforcing foreign awards in India, and that a foreign award is not rendered unenforceable merely on the basis of it not being stamped as per the provisions of the Indian Stamp Act 1899.[45] The Indian judiciary has gone the extra mile in relation to enforcement proceedings of foreign-seated arbitrations, to ensure that an objection to non-payment of any stamp duty is not sustained, thereby easing the process of enforcing foreign arbitration awards in India.

To improve the present system of arbitration, both the judiciary and the legislature have to collectively ensure parties opting for this alternative dispute resolution mechanism are not hindered from doing so. The judgment of the Supreme Court in M/S Shriram EPC Ltd v. Rioglass Solar SA is crucial in this regard. The Court, in this case, carefully analysed all the submissions and authorities cited by the two sides of the case, and applied the ratio of only those judgments which have similar facts and circumstances. Thus, this case is an integral step towards a pro-arbitration regime in India where the process of enforcing foreign awards in does not discourage the use of arbitration in the first place.

 

 

[1] M/S Shriram EPC Limited v. Rioglass Solar SA, Civil Appeal no 9515, 2018˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[2] ibid [3.1].

[3] ibid [3.2].

[4] Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552. ˂https://indiankanoon.org/doc/173015163/˃accessed 30 March 2019.

[5] Indian Stamp Act 1899; Stamp duty is a duty levied on the legal recognition of certain documents.

[6] Arbitration and Conciliation Act 1996.

[7] M/S Shriram EPC Limited v. Rioglass Solar SA, Civil Appeal no 9515, 2018[4] ˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[8] Orient Middle East Lines Ltd., Bombay and Anr. v. Brace Transport Corporation of Monrovia & Ors., AIR 1986 Guj 62  ˂https://www.casemine.com/judgement/in/56091131e4b0149711183813˃accessed 1 April 2019.

[9] ibid.

[10]M/S Shriram EPC Limited v. Rioglass Solar SA, Civil Appeal no 9515, 2018 [5] ˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[11] ibid.

[12] ibid.

[13] ibid.

[14] Indian Stamp Act 1899, s 1 (2).

[15] Indian Stamp Act 1899, s 2 (14).

[16] Indian Stamp Act 1899, sch 1 (12).

[17] M/S Shriram EPC Limited v. Rioglass Solar SA, Civil Appeal No. 9515 of 2018, para 10 ˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[18] ibid.

[19] ibid.

[20] ibid.

[21] Indian Stamp Act 1899, sch 1 (12).

[22] Indian Stamp Act 1899, s 1.

[23] M/S Shriram EPC Limited v. Rioglass Solar SA, Civil Appeal No. 9515 of 2018, para 16 ˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[24] ibid [23].

[25] Senior Electric Inspector and Ors. v. Laxminarayan Chopra and Anr., AIR 1962 SC 159 ˂https://indiankanoon.org/doc/838066/˃accessed 03 April 2019.

[26] M/S Shriram EPC Limited v. Rioglass Solar SA, Civil Appeal No. 9515 of 2018 [17] ˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[27] Gujrals Co. v. M. A. Morris, AIR 1962 P&H 167 ˂https://indiankanoon.org/doc/911531/˃accessed 05 April 2019.

[28] M/S Shriram EPC Ltd v. Rioglass Solar SA, Civil Appeal No. 9515 of 2018 [18] ˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[29] ibid.

[30] Fuerst Day Lawson Ltd v. Jindal Exports Ltd, AIR 2001 SC 2293 ˂https://indiankanoon.org/doc/546691/˃accessed 5 April 2019.

[31] ibid 31.

[32] M/S Shriram EPC Ltd v. Rioglass Solar SA, Civil Appeal No. 9515 of 2018 [19] ˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[33] ibid.

[34] Narayan Trading Co. v. Abcom Trading Pvt. Ltd,(2013) 2 MP LJ 252 ˂https://indiankanoon.org/doc/56818675/˃accessed 5 April 2019.

[35] ibid 12; Indian Stamp Act 1899.

[36] ibid 12.

[37] Arbitration and Conciliation Act 1996, s 48.

[38] M/S Shriram EPC Limited v. Rioglass Solar SA, Civil Appeal No. 9515 of 201 ,[ 5] ˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[39] Renusagar Power Co. Ltd v. General Electric Co., AIR 1994 SC 8 ˂https://indiankanoon.org/doc/86594/˃accessed 05 April 2019.

[40] Associate Builders v. Delhi Development Authority, AIR 2015 SC 620 ˂https://indiankanoon.org/doc/31621011/˃accessed 05 April 2019.

[41] M/S Shriram EPC Ltd v. Rioglass Solar SA, Civil Appeal No. 9515 of 2018 [24] ˂https://www.sci.gov.in/supremecourt/2018/16428/16428_2018_Judgement_13-Sep-2018.pdf˃accessed 30 March 2019.

[42] S Das & T Kulkarni, ‘India: Supreme Court holds that stamp duty is not necessary for enforcement of foreign awards in India’ Mondaq(21 September 2018) <http://www.mondaq.com/india/x/738558/Arbitration+Dispute+Resolution/Supreme+Court+holds+that+stamp+duty+is+not+necessary+for+enforcement+of+foreign+awards+in+India> accessed 26 April 2019.

[43] Narayan Trading Co. v. Abcom Trading Pvt. Ltd,(2013) 2 MP LJ 252 [12] ˂https://indiankanoon.org/doc/56818675/˃accessed 5 April 2019; Indian Stamp Act 1899.

[44] ibid.

[45] Indian Stamp Act 1899.