P.E.C. Limited vs Austbulk Shipping SDN BHD - Supreme Court Important Judgment

 P.E.C. Limited vs Austbulk Shipping SDN BHD - Supreme Court Important Judgment 2018 - 

On 14th November, 2018, in the case of P.E.C. Limited v. Austbulk Shipping SDN BHD [Civil Appeal No.4834 of 2007], enforcement and execution of a foreign award was in issue. The question for consideration was whether an application for enforcement under Section 47 of the Arbitration and Conciliation Act, 1996 is liable to be dismissed if it is not accompanied by the arbitration agreement. Section 47 postulates that the party applying for the enforcement of a foreign award “shall” produce before the Court at the time of application certain documents including the original agreement for arbitration. 

 It was held that, at the initial stage of filing of an application for enforcement of a foreign award, “non-compliance of the production of the documents mentioned in Section 47” of the Arbitration and Conciliation Act “should not entail in dismissal of the application for enforcement of an award.” The Supreme Court held that “the party seeking enforcement can be asked to cure the defect of non-filing of the arbitration agreement. The validity of the agreement is decided only at a later stage of the enforcement proceedings.”

 Keeping in view the object and purpose of the Convention on the Recognition & Enforcement of Foreign Arbitration Awards, 1958 (New York Convention) set forth in the First Schedule of the Arbitration and Conciliation Act, 1996, the Supreme Court was of the view that the word “shall” in Section 47 of the Arbitration and Conciliation Act has to be read as “may”. It was observed that “the opposite view that it is obligatory for a party to file the arbitration agreement or the original award or the evidence to prove that the award is a foreign award at the time of filing the application would have the effect of stultifying the enforcement proceedings. The object of the New York Convention will be defeated if the filing of the arbitration agreement at the time of filing the application is made compulsory.”

However, it was also clarified that reading the word “shall” in Section 47 of the Act as “may” would “only mean that a party applying for enforcement of the award need not necessarily produce before the Court” a document mentioned therein “at the time of the application”. The Court made it clear that the said interpretation of the word “shall” as “may” is “restricted only to the initial stage of the filing of the application and not thereafter”.