Apex court asks Law Commission to review award execution rules

The Supreme Court on Wednesday said that delay in execution of arbitral awards strikes at the very rationale of adopting arbitration over conventional litigation and asked the Law Commission of India to make legislative and procedural recommendations to strengthen the execution regime.

A bench headed by justice Vikram Nath said, “The efficacy of an arbitral regime cannot be measured merely by the expedition with which an award is rendered or the circumscribed grounds upon which it may be challenged. It must equally be assessed by the ability of the successful party to realise the fruits of the award within a reasonable time.”

The court was deciding an appeal filed by Royal Construction Company Pvt. Ltd. which had won an award against National Projects Construction Corporation Ltd. (NPCC) in 2002 and was awaiting its execution for the past 24 years.

The bench, also comprising justices Sandeep Mehta and Aparesh Kumar Singh said, “More than 24 years after the arbitral award was rendered, the parties continue to litigate over its enforcement. Such a state of affairs strikes at the very rationale underlying the adoption of arbitration as an effective alternative to conventional civil litigation.”

The court said that the present case was not a solitary instance as the experience of similar cases calls for a closer examination of whether this framework under the Arbitration and Conciliation Act, 1996 has adequately served the objectives it was meant to achieve.

“The promise of arbitration remains unfulfilled if a party, having traversed the arbitral process, is compelled to embark upon another protracted course of litigation to secure the benefit of the award,” the court said, as it entrusted the Law Commission to make “such legislative or procedural recommendations” necessary to ensure that the enforcement of arbitral awards is commensurate with the objectives of the 1996 Act and India’s commitment to establishing itself as an arbitration-friendly jurisdiction.

“In these circumstances, we request the Law Commission of India to undertake a focused study of the statutory and procedural framework governing the enforcement and execution of arbitral awards,” the judgment said. The study will also include identification of the practical impediments to timely recovery while examining existing practice in global jurisdictions. The court further allowed the commission to consider whether domestic and foreign arbitral awards warrant distinct enforcement procedures or a common framework with appropriate safeguards.

The Royal Construction represented by advocate Rishabh Sancheti informed the court that the 2002 arbitral award was upheld up to the Supreme Court in 2015. The court further dismissed an application moved by NPCC seeking modification of the 2023 judgment.

The 2002 award had directed NPCC to pay Royal Iraqi Dinars 2,23,777.14 and ₹20 lakh, each with interest at 12% p.a. The Supreme Court restored the award in full and in 2023 held it to be payable in foreign currency. In the earlier round of litigation, NPCC had deposited about ₹1.5 crore in Indian rupees, which Royal Construction had withdrawn. However, there remained and sought execution of the remaining sum.

In the execution proceedings, NPCC contended that its deposit had covered the principal sum (without interest). The matter was agitated before the Delhi High Court which in February this year granted liberty to the parties to seek clarification from the top court.