Enforcement of Foreign Arbitration Awards in India, Malaysia and Indonesia

in Alternative Dispute Resolution, Arbitration, Study Materials

Risha Sharma, Research Associate

What is arbitration? Black’s Law Dictionary defines arbitration as ‘a method of dispute resolution involving one or more neutral third parties, who are agreed to by the disputing parties and whose decision is binding’. It has been recognised as an effective form of dispute resolution mechanism. It primarily consists of dispute resolution processes and techniques which enable the disagreeing parties to come to an agreement without resorting to litigation. The parties normally resolve their disputes with or without the aid of a third party. It entails the submission of disputes to an independent authority by whose decision the parties generally abide. In today’s world of shrinking boundaries, free trade and international commerce have become global necessities. Increasing competitiveness often leads to conflicts between entrepreneurs, resulting in commercial disputes. Arbitration is chosen as a means of effective consensual and speedy dispute resolution ((Suri Preeti, Enforcement of foreign awards in India: Simplification under the 1996 Act, at www.psalegal.com, on p. 1 as seen on July 14, 2013 at 23.07)). When a dispute arises between two parties, they mutually refer the dispute to a third impartial authority which is also referred to as the arbitral tribunal and the decision undertaken by the said authority is called the arbitral award. These awards are not always binding in nature. A jurisdiction’s credibility as an arbitration friendly one rests primarily on the efficiency and the efficacy of its award enforcement regime ((Kachwaha Sumeet, Enforcement Of Arbitration Awards In India, at www.kaplegal.com on p. 1 as seen on July 15, 2013, at 00.27)).

ENFORCEMENT REGIME IN INDIA:

‘Foreign arbitration’ is an award or arbitration conducted in a place outside India. The resultant award is an award, if sought to be enforced in India, constitutes a foreign award. It was realised that the economic reforms may not become fully effective as long as the law dealing with enforcement of both domestic and international commercial disputes remains out of touch with these reforms. In India, foreign arbitral awards can be enforced under the international conventions of Geneva Convention of 1927 and the New York Convention of 1958, both of which India is a signatory of.  Prior to January 1996, the law of enforcement of arbitration awards in India was spread between three enactments: enforcement of domestic awards was dealt with under a 1940 Act, enforcement of foreign awards was divided between two statutes — a 1937 Act to give effect to the Geneva Convention awards and a 1961 Act to give effect to the New York Convention awards.  It was established that the awards have to be made in the country which has ratified the respective convention. The Geneva Convention is virtually non-applicable due to Article VII of the New York Convention which states that the Geneva Convention ceases to have effect when the latter comes into play. Hence for all practical purposes, enforcement of arbitral awards in India came to be governed by New York Convention and the Act of 1940 for international and domestic awards respectively. The 1961 Act confined challenge to an arbitral award only on the limited grounds permitted under the New York Convention.

In January 1996, India enacted a new Arbitration Act which repealed all the three previous statutes (the 1937 Act, the 1961 Act and the 1940 Act). The new Act is divided in two parts. Part I provides for any arbitration conducted in India and enforcement of awards therein. Part II provides for enforcement of foreign awards. Any arbitration conducted in India or enforcement of award therein (whether domestic or international) is governed by Part I, while enforcement of any foreign award to which the New York Convention or the Geneva Convention applies, is governed by Part II of the Act.  Previously, the Supreme Court had held in Bhatia International v. Bulk Trading S.A. and and Venture Global Engineering v Satyam Computer Services Limited that provisions of Part I would apply to international commercial arbitration as well unless the parties have excluded the applicability of Part I. As a result, Indian courts were empowered to set aside foreign awards using section 34 of the 1996 Act. This decision was criticised for ignoring the wordings of the statute. Recently, in Bharat Aluminium Co. v Kaiser Aluminium Technical Services the Court overruled Bhatia’s case and held that such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996 and that there can be no intermingling between the two parts of the Act as per the New York Convention and the UNCITRAL model. This decision lays to rest the long drawn debate of India not being an arbitration friendly jurisdiction.

ENFORCEMENT REGIME IN MALAYSIA:

In Malaysia, the Arbitration Act of 2005 was enacted to regulate all aspects related to arbitration to ensure synchronisation between Malaysian arbitration and the UNCITRAL model of International Commercial Arbitration.  Malaysia is also a signatory ((http://www.newyorkconvention.org/contracting-states/list-of-contracting-states))to the New York Convention of enforcement of Arbitral Awards. It is a mandated rule that the venue of arbitration is the country that has adopted the New York Convention. The Malaysian legal system is based upon the English common law system which Malaysia inherited from the British colonial rulers ((http://jurist.law.pitt.edu/world/malaysia.htm)). The Arbitration Act, 2005 is modeled on the basis of the New Zealand Arbitration Act, 1996 and the UNCITRAL Model of International Commercial Arbitration ((supranote1)). A clear distinction was brought between domestic arbitration and international arbitration. In case of international arbitration, when the seat of arbitration is in Malaysia, the court’s intervention under Part III of the Arbitration Act (which is the Part regulating Judicial Intervention during arbitral proceedings) is non- mandatory ((Section 3(3) of the Arbitration Act, 2005))unless the parties mutually decide to ‘opt in’, that is, the parties mutually decide the application of Part III with respect to arbitral proceedings ((Section 3(4)of the Arbitration Act, 2005)). The distinction brought forth between the domestic arbitration and international arbitration aims to put a restriction on judicial control over the arbitral proceedings depending upon the kind of arbitration. Court’s intervention is limited to instances mentioned in the Act and the courts are not allowed to intervene in the arbitral proceedings using inherent jurisdiction of the court ((Section 8 of the Arbitration Act, 2005)). Part III restricts the intervention of the court to the following instances:

  • Determination of any preliminary points of law by any party with consent of the arbitral tribunal or with consent of other parties ((Section 41 of the Arbitration Act, 2005)).
  • Reference of question of law arising out of the arbitral award ((Section 42 of the Arbitration Act, 2005)).

The changes in the arbitration law to be at par with the UNCITRAL Model of International Commercial Arbitration and the pro-arbitration judicial decisions by the Courts adhering to the doctrine of minimal judicial intervention in arbitration ((http://www.baliraif2012.com/assets/pdf/session1/SundraRajoo_NATIONALCOURTSANDINTERACTIONWITHARBITRAL%20TRIBUNALS.pdf pages 5-8;))along with the fact that it being a common law country and being a signatory of the New York Convention on enforceability of foreign award has made Malaysia an ideal spot for arbitration.

ENFORCEMENT REGIME IN INDONESIA:

Arbitration in Indonesia is governed by the Arbitration and Dispute Resolution Act, 1999. Indonesia is a signatory to the New York Convention of Enforcement of Foreign Awards ((http://www.newyorkconvention.org/contracting-states/list-of-contracting-states)). The Arbitration and Dispute Resolution Act, 1999 does not follow the UNCITRAL Model of International Commercial Arbitration. The Indonesian legal system is a civil law system based on the Roman-Dutch model and influenced by customary law ((https://www.cia.gov/library/publications/the-world-factbook/geos/id.html)). The Roman-Dutch model of civil law system was inherited by Indonesia due to the Dutch Colonial Rulers. The Indonesian law takes territorial approach to bring a distinction between domestic and international arbitration. Article 1(9) of the Arbitration Law makes it clear that all arbitrations held within Indonesia are considered ‘domestic’ and all those held outside Indonesia are characterised as ‘international’ arbitrations, regardless of the nationality of the parties, location of the subject of the dispute, and governing law. Thus if the seat of arbitration is Indonesia, then it will be considered as a domestic arbitration irrespective of a foreign party to the arbitration proceeding. The enforcement of the award whether domestic or international, may be refused by the Court on the following grounds ((Article 62 and Arbitration Guide, IBA Arbitration Committee, Indonesia, April 2013, pg 21: www.ibanet.org/Document/Default.aspx?DocumentUid=06406456-22F4-4035-BF04-75B85A5E903F)):

  1. Arbitration agreement no valid
  2. Subject matter not arbitrable under Article 5 of the Act
  3. Against public morality and order.

International arbitral awards will only be recognized and enforced by the Indonesian courts if the following conditions are met ((Article 66)):

  1. The award is rendered in a country which has signed a bilateral or multilateral treaty on the recognition and enforcement of International Arbitration Awards with the Republic of Indonesia.
  2. The award falls within the scope of commercial law.
  3. The award is not against public morality and order.

International awards must be registered with the District Court of Central Jakarta ((Article 65 and 67)). There is no time limit for registration of international awards. There is no time limit for registering of the international arbitral award. The application for enforcement should be accompanied with ((Article 67)):

  1. the original Award, or a copy authenticated in accordance with the provisions on authentication of foreign documents, along with an official translation of the award in Indonesian
  2. the original Arbitration Agreement, or a copy authenticated in accordance with the provisions on authentication of foreign documents, along with an official translation of the award in Indonesian
  3. a certification from the diplomatic representative of the Republic of Indonesia in the country in which the International Arbitration Award was rendered stating that such country and the Republic of Indonesia are both bound by a bilateral or multilateral treaty on the recognition and implementation of International Arbitration Awards.

An order of Exequatur from the Chief Judge of the District Court of Central Jakarta needs to be obtained for the enforcement of the award. If the respondent stays in any other court’s jurisdiction other than the District Court of the Central Jakarta, the exequatur order will be send to that court for execution ((Article 69)). Indonesia can be made a seat of arbitration since the Court’s intervention is a bare minimum and even though the Arbitration and Dispute Resolution Act, 1999 is not based on the UNCITRAL Model on International Commercial Arbitration, almost all principles of the same is incorporated in the Arbitration and Dispute Resolution Act, 1999.