In today’s interconnected global economy, disputes involving international commercial contracts frequently lead to foreign judgments or arbitration awards. For Indian companies entangled in such disputes, understanding the enforceability of these foreign decisions under Indian law, particularly through the National Company Law Tribunal (“NCLT”), is vital. This article unpacks the legal framework, practical considerations, and recent judicial developments governing the enforceability of foreign judgments and arbitral awards via the NCLT.
Legal Framework Governing Enforcement
Foreign Judgments
India recognizes the enforcement of foreign judgments primarily under Section 44A of the Civil Procedure Code (“CPC”), 1908. Judgments from courts located within “reciprocating territories“, countries recognized by the Indian government as having reciprocal arrangements, can be executed as if they were Indian decrees. For judgments from non-reciprocating countries, a fresh suit is required in India to enforce the foreign judgment as evidence.
This blog is a part of our The Complete Guide to NCLT in India: Powers, Structure, and Jurisdiction Blogpost.
Foreign Arbitral Awards
The Arbitration and Conciliation Act, 1996 (the “A&C Act”) regulates the enforcement of foreign arbitral awards, distinguishing awards under the New York Convention (Sections 44 – 52) and those under the Geneva Convention (Sections 53 – 60). Enforcement involves two fundamental steps: petitioning an Indian court for recognition and declaration of enforceability, followed by execution of the award as a domestic decree.
The NCLT’s Role: What It Can and Cannot Do
The NCLT exercises jurisdiction under the Insolvency and Bankruptcy Code, 2016 (“IBC”), primarily for corporate insolvency matters. However, its role in enforcing foreign judgments or arbitral awards is limited:
- Initiating insolvency proceedings: Foreign arbitral awards can be presented before the NCLT as evidence of indebtedness or operational debt, triggering insolvency proceedings.
- Limit on direct enforcement: The NCLT cannot independently determine the enforceability or legality of a foreign judgment or award. Such determinations require prior recognition by a competent Indian court.
- Requirement of recognition: Only once a foreign arbitral award is declared enforceable and treated as a decree by an Indian court can it serve as a basis for insolvency action at the NCLT.
Types of Foreign Arbitral Awards Recognized
Only specific categories of foreign arbitral awards can proceed for enforcement before the NCLT:
- Awards from recognized convention countries: Awards rendered in countries that are signatories to the New York or Geneva Conventions and notified by the Indian government.
- Awards that meet the A&C Act’s conditions: The award must arise from a valid arbitration agreement, involve a commercial relationship, be rendered by a duly constituted tribunal, be final and binding in the country of origin, and must not contravene Indian public policy.
- Awards properly recognized by Courts: Enforcement after satisfying Indian courts, which assess compliance with grounds for refusal (e.g., due process violations, incapacity, public policy objections).
- Awards not covered: Those from non-recognized countries or unrecognized awards require initiating fresh suits in India.
Judicial Landscape: Key Rulings Influencing Enforceability
Agrocorp International Pvt. Ltd. vs National Steel and Agro Industries Ltd1. (NCLT Mumbai)
Agrocorp, a Singapore-based company, provided goods to National Steel and Agro Industries, an Indian corporate debtor. An arbitration in London under GAFTA rules awarded Agrocorp damages due to non-payment by National Steel. Agrocorp sought to initiate corporate insolvency proceedings against National Steel under Section 9 of the IBC on the strength of this foreign arbitral award.
The issue before the NCLT was whether a foreign arbitral award, unrecognized and unenforced by an Indian court, could be relied upon to initiate insolvency proceedings before the NCLT?
The NCLT admitted the petition but held that a foreign arbitral award is not automatically enforceable in India. It emphasized that enforcement requires recognition under the A&C Act, and only after such recognition can the award be treated as a decree.
This case established that foreign arbitral awards must undergo the statutory enforcement process in India before triggering insolvency proceedings at the NCLT, reinforcing adherence to the A&C Act.
Jaldhi Overseas Pvt. Ltd. vs Steer Overseas Pvt. Ltd2. (NCLT Cuttack Bench)
Jaldhi Overseas, a Singapore-incorporated operational creditor, possessed a foreign arbitral award in its favor against Steer Overseas Pvt. Ltd., an Indian company. Jaldhi attempted to initiate insolvency proceedings based on the foreign award.
The issue raised was whether a foreign arbitral award, not yet recognized and enforced by an Indian court, constitutes a debt enabling the initiation of insolvency proceedings under the IBC?
The NCLT held that a foreign award does not equate to a decree in India absent enforcement by a competent Indian court under the A&C Act. The tribunal cannot assume an undisputed debt based on merely producing the foreign award.
The petition was dismissed, confirming the principle that enforcement of foreign awards requires judicial recognition in India, safeguarding statutory procedures, and ensuring that the Insolvency Code is not misused.
K. Kishan vs Vijay Nirman Company Pvt. Ltd.3 (Supreme Court, 2018)
In a contractual dispute involving construction work, an arbitral tribunal awarded Vijay Nirman monetary relief. However, the award was under challenge via a Section 34 petition before the courts when Vijay Nirman initiated insolvency proceedings.
The issue before the Supreme Court was whether insolvency proceedings could be initiated on an arbitral award that is under judicial challenge and thus not final.
The Supreme Court ruled that the pendency of a judicial challenge amounts to a pre-existing dispute, thereby barring insolvency commencement. The Court stressed that the IBC is not to be used as a substitute for adjudication and enforcement under arbitration law.
The Court set aside the insolvency admission, emphasizing that insolvency proceedings cannot proceed while substantial disputes over debt validity endure, protecting against premature insolvency actions.
Usha Holdings LLC & Anr vs Francorp Advisors Pvt. Ltd.4 (NCLAT, 2018)
Usha Holdings sought to enforce a foreign (US) arbitral award against Francorp (an Indian company), filing a petition under the IBC. The award, however, was uncertified, not recognized by an Indian court, and lacked a binding nature under Indian reciprocal enforcement laws.
The issue was whether an uncertified foreign award is enforceable in India before the NCLT and can it be the basis of insolvency proceedings?
The NCLAT held that the NCLT lacks jurisdiction to decide the enforceability or validity of foreign awards and judgments, which are exclusively within the civil courts’ purview. The award was held unenforceable for want of certification and recognition.
The petition was dismissed, reinforcing that foreign awards not duly certified and recognized cannot trigger insolvency proceedings, underscoring the exclusivity of Indian courts in the enforcement process.
Dena Bank (Now Bank of Baroda) vs C. Shivakumar Reddy5 (Supreme Court, 2021)
Dena Bank extended loans to C. Shivakumar Reddy’s company, which defaulted, resulting in a recovery decree by the Debt Recovery Tribunal (DRT). Subsequent financial statements and debt acknowledgments were produced. The Bank initiated insolvency proceedings under the IBC, which were contested on limitation grounds.
The issue before the Court was whether an acknowledgment of debt and fresh recovery decrees revive the limitation period for initiating insolvency proceedings.
The Supreme Court held that acknowledgments in writing, including financial statements and proposals for settlement, extend the limitation under Section 18 of the Limitation Act. Recovery decrees by DRT constitute fresh causes of action restarting limitation.
The Court reinstated the insolvency proceedings, clarifying that insolvency actions on financial debts are not barred if initiated within limitation periods renewed by acknowledgment or recovery decrees.
Cheran Properties Ltd. vs Kasturi & Sons Ltd.6 (Supreme Court, 2018)
Shares of a company were transferred to Cheran Properties and related nominees by KCP as part of a group transaction involving Kasturi. A dispute arose, and an arbitration award directed specific transfer obligations. Cheran Properties argued non-liability as it was not a party to the arbitration agreement.
The issue was whether a non-signatory affiliate or nominee would be bound by an arbitral award under Indian law, and is the NCLT is empowered to order registry rectification to enforce the award?
The Supreme Court affirmed the doctrine of “persons claiming under” and the “group of companies” principle, holding that non-signatory affiliates can be bound if acting as nominees or beneficiaries under the contract. It validated the NCLT’s jurisdiction to order registry rectification as part of award enforcement.
The appeal was dismissed, confirming the enforceability of awards against non-signatories where warranted by intent and affiliation, and affirming procedural routes via the NCLT for carrying out award effects.
Conclusion of Arbitration Awards by the NCLT
- Foreign arbitral awards must be recognized and declared enforceable by an Indian court before triggering insolvency proceedings at the NCLT.
- The tribunal does not serve as an enforcement forum for foreign awards or judgments without prior court recognition.
- Courts have consistently held that pending challenges, disputes, or lack of enforceability prevent premature insolvency actions.
- Relevant financial acknowledgments or recovery certificates can revive otherwise barred claims.
- Corporate affiliates and nominees may be bound by arbitration agreements under the group of companies doctrine, expanding the efficacy of arbitral awards.
In an evolving cross-border commercial landscape, these legal safeguards ensure balance, protecting debtors from premature insolvency while enabling creditors with duly recognized awards to effectively enforce their rights under Indian law.
