Arbitral proceedings do not always culminate in an adjudication of the contest between parties. In certain situations, the parties realise that prolonging a contest may not be commercially feasible and arrive at a settlement during the course of the arbitral proceedings. At this point, parties may either terminate the arbitration simpliciter or may choose to convert the settlement into an arbitral award.

Section 30 of the Arbitration and Conciliation Act, 1996 recognizes such arbitral awards passed with the consent of parties.

This provision, however, applies in the context of India-seated arbitrations. The enforceability of consent awards passed in foreign jurisdictions but under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York Convention) has remained somewhat in doubt. Certain academic commentary, which can be found here, has pointed out from the travaux préparatories of the New York Convention that although consent awards were discussed, they were not expressly recognized. As for India, there is no direct decision on the subject, at least subsequent to the passing of the 1996 Act.

In this context, the Delhi High Court’s decision in Nuovo Pignone International SRL v. Cargo Motors Private Limited & Anr assumes significance. The High Court adopted a pro-arbitration approach and relying on certain foreign decisions on this issue, rejected an argument that foreign consent awards were not enforceable under Part II of the Act. Part II, Chapter I [Sections 44 to 52] recognizes and enforces foreign arbitral awards to which the New York Convention is applicable.

Recognition and enforcement of consent awards under the New York Convention

Unlike Part I of the Act, which expressly recognizes consent awards through Section 30, Part II of the Act does not expressly contemplate consent awards. In fact, Section 44 defines a foreign award to mean “arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960…” On first glance, it may appear that the nature of a foreign award is limited by the scope of definition in contrast with arbitral awards issued under Part I of the Act. Interestingly, the definition of 'award' in Part I of the Act is strikingly vague. Section 2(1)(c) defines an award to simply include an “interim award”.

This seeming ambiguity was sought to be relied upon by the respondents in Nuovo Pignone to argue that the New York Convention did not contemplate enforcement of consent awards. The Court rejected this argument.  After considering the definition of 'award' under Article I of the New York Convention, the Court came to the conclusion that the said Article did not expressly exclude “consent awards”. Further, the Court observed that Article V did not provide for any ground for not enforcing an arbitral award on the basis that it was passed by consent.

Pertinently, the Court observed that arbitration was recognized as a dispute resolution mechanism which could be adopted once a dispute had arisen between parties, and therefore, the trigger of an arbitral process demonstrated the existence of a dispute or a ‘difference’ within the meaning of Section 44 of the Act and Article I of the New York Convention.

In this context, the Court observed that none of the provisions under the New York Convention prohibited arbitral proceedings from being closed once parties arrived at a settlement. In fact, these settlements assisted the tribunal to close the disputes that once arose between the parties and the adoption of such terms of a settlement agreement in the arbitral award ensured that it would bind parties and would be enforceable in law against such parties.

The decisions of the United States District Courts in Albtelecom SHA and Transocean dealt with a similar issue of inclusion of consent awards under the New York Convention. Pertinently, in these cases, the courts had observed that the nature of a settlement agreement after commencement of arbitration was different, as in such situations, settlement was arrived at during the course of the arbitration proceedings and such settlements ought to be encouraged to give finality to the lis between the parties. The Delhi High Court agreed with the principles enunciated in Albtelecom SHA and Transocean and followed them in this case.

The High Court further observed that multiple jurisdictions have recognized inclusion and enforceability of consent awards. Moreover, the arbitration rules of the International Chamber of Commerce, Singapore International Arbitration Centre and the London Court of International Arbitration, amongst others, highlight that consent awards are a part of arbitration proceedings. Thus, the Court, while considering the unanimous opinions across jurisdictions which also form basis of the Act, held that recognition and enforcement of consent awards could not be considered to be against the public policy of India and would be considered as enforceable under Part II of the Act.

Objection of economic duress and coercion in executing a settlement

In addition to the argument of non-enforceability of consent awards, the respondents in Nuovo Pignone also argued that the consent award had been procured through economic duress. The High Court rejected this argument and pointed out that in cases where parties have adequate legal representation throughout all stages of the arbitral proceedings and choose not to register their protest of economic duress with the arbitrator at the time of drafting the award basis a settlement, they could not take a defence of economic duress and coercion at the time of enforcement of the award.

In fact, the parties had themselves confirmed the contents of the award and had not raised any objection at the time of drafting of the award. Relying on the principles enunciated in Pao On and Sara International, the Court concluded that once the parties failed to object to the coercion even after adequate legal representation and confirmed the award with the arbitral tribunal, an objection of economic duress and coercion would not stand.

The way ahead

The judgment in Nuovo Pignone conclusively resolves the issue of enforceability of foreign consent awards and puts them on the same pedestal as domestic consent awards passed under Section 30 of the Act. The High Court followed an international pro-arbitration approach and, relying on foreign decisions, upheld the spirit of the New York Convention by observing that absent any express proscription, consent awards would be enforceable. Coupled with the rejection of the argument of economic duress and coercion, the judgment in Nuovo Pignone demonstrates that Indian courts will continue to hold parties to their commitments.

Abhijnan Jha is a Partner, Bhagya K Yadav is a Senior Associate and Sadhvi Chhabra is an Associate at AZB & Partners.

Disclaimer: The authors represented Nuovo Pignone International SRL in the proceedings before the Delhi High Court in OMP (EFA) (COMM) No. 11 of 2021.