Enforcing Foreign Arbitral Awards In India After Vijay Karia: Public Policy, FEMA And Practical Strategy

1. Introduction

India has become a critical enforcement jurisdiction for cross‑border contracts involving infrastructure, private equity, technology, and trade, given the scale of Indian counterparties' assets. Historically, foreign parties feared that "public policy" and foreign‑exchange arguments would be used expansively to resist enforcement, despite India being a New York Convention state. Over the last decade, amendments to the Arbitration and Conciliation Act, 1996 (Arbitration Act) and a series of Supreme Court decisions have shifted that balance, with Vijay Karia in 2020 marking a decisive move towards a genuinely pro‑enforcement regime for foreign awards.

For in‑house counsel, the practical questions are now sharper. When can enforcement still be resisted? what role do FEMA issues play, and how should contracts and arbitrations be structured to maximize the chances of efficient enforcement or principled resistance before Indian courts?

2. Statutory framework: New York Convention and Part II

Part II of the Arbitration Act implements the New York Convention in India. Sections 44–52 govern recognition and enforcement of "foreign awards", broadly defined as awards made in Convention countries in commercial disputes. Once a court is satisfied that an award is a "foreign award" and that none of the limited Section 48 grounds for refusal is made out, the award is deemed a decree of that court under Section 49.

Section 48 substantially mirrors Article V of the New York Convention. Enforcement may be refused only if the resisting party proves, among other things, that:

1. Invalid Arbitration Agreement: Enforcement can be refused if the underlying arbitration clause itself was not valid under the law that governs it (for example, no consent, incapacity, or the agreement is void under the chosen law).
2. Inability to present the Case: If the resisting party can show it genuinely did not have a fair opportunity to put forward its arguments or evidence (for instance, no proper notice of proceedings, or it was shut out from the hearing), a court may decline enforcement.
3. Award goes beyond the submission to arbitration: The tribunal must stay within the scope of the disputes the parties agreed to arbitrate. If it decides issues that were never referred (for example, grants relief on a contract that was not covered by the arbitration clause), enforcement can be refused for that "excess" part.
4. Wrong tribunal or wrong procedure: If the tribunal was constituted, or the procedure conducted, in a way that contradicts what the parties agreed or the mandatory law of the seat (for example, parties agreed on three arbitrators but only one was appointed, or agreed on institutional rules which were ignored), that is a ground to resist enforcement.
5. Award not yet final or has been set aside at the seat: Courts will not enforce an award that is still not binding on the parties (for example, subject to further appeal under the law of the seat), or that has already been annulled by a competent court in the country of the seat.

Separately, the court may refuse enforcement if it finds that the subject matter is not arbitrable under Indian law or that enforcement would be contrary to the "public policy of India". Crucially, the 2015 and 2019 amendments to the Arbitration Act inserted explanations clarifying that, for foreign awards, "public policy" is confined to fraud or corruption, contravention of fundamental policy of Indian law, or conflict with India's most basic notions of morality and justice, and that "patent illegality" is not a ground to refuse enforcement of foreign awards. This statutory narrowing sets the stage for Vijay Karia.

3. Vijay Karia: Facts, Holdings, and the FEMA angle

In Vijay Karia, a group of Indian shareholders in an Indian company had entered into a shareholders' agreement with an Italian investor, Prysmian, providing for LCIA (London Court of International Arbitration) arbitration seated in London. A dispute arose when the Indian shareholders breached their contractual obligation to sell shares at an agreed formula price. An LCIA tribunal ordered them to transfer shares and pay damages. The award‑debtors resisted enforcement in India under Section 48, arguing that enforcing a share transfer at a price below the fair‑value norms prescribed under the Foreign Exchange Management Act, 1999 (FEMA), violated Indian exchange‑control regulations and therefore offended public policy.

The Supreme Court rejected this argument on several important grounds:

1. Minimal‑interference standard: The Court reiterated that an enforcement court is not an appellate forum over the arbitral tribunal. It cannot re‑examine facts or law on the merits and must confine itself to the narrow Section 48 grounds. Disagreement with the tribunal's interpretation of contract or foreign law does not justify refusal.
2. FEMA vs. FERA - regulatory, not prohibitory: The Court drew a sharp distinction between the old Foreign Exchange Regulation Act, 1973 (FERA), which was criminal and prohibitory in nature, and FEMA, which is essentially regulatory and facilitative. A possible FEMA contravention does not automatically amount to a breach of "fundamental policy of Indian law" for public‑policy purposes.
3. Regulatory issues can be regularised: Even if a particular aspect of performance, like remitting consideration or registering a share transfer, raises FEMA issues, those can be addressed by seeking RBI approval or compounding, rather than denying enforcement of the award itself. The Court emphasised that enforcement of the award and compliance with exchange‑control requirements are distinct inquiries.
4. Costs for abusive resistance: The Court went further and imposed significant costs on the award‑debtors for what it considered an unmeritorious challenge, signalling that Indian courts will not encourage tactical resistance under the guise of public policy or regulatory concern.

In doctrinal terms, Vijay Karia confirms that public‑policy review of foreign awards is narrow, that FEMA is not a trump card, and that New York Convention pro‑enforcement principles must guide Indian courts.

4. Post Vijay Karia Trends: 2020–2025

Commentary and case law since 2020 show High Courts consistently citing Vijay Karia to reject Section 48 challenges that invite merits review or rely on minor regulatory points. Several decisions have underscored that:

1. Courts will not reweigh evidence or reinterpret contractual clauses merely because the award is seen as harsh or commercially unfavourable.
2. Alleged violations of FEMA, company‑law technicalities, or sectoral regulations, without more, rarely meet the high threshold of "fundamental policy" or "basic notions of morality or justice".
3. Procedural complaints, such as limited cross‑examination or strict timetable management, must amount to a real denial of opportunity to present the case, not just disagreement with the tribunal's procedural choices.

A notable 2025 analysis of a Supreme Court order has also clarified that RBI or FEMA approval is generally not a precondition for an Indian court to declare a foreign award enforceable, even if such approval may be required at the stage of actual remittance or transfer. This aligns with Vijay Karia, which states that enforceability under the Arbitration Act and regulatory permissions for capital‑account transactions are related but conceptually distinct.

At the same time, commentators note that courts remain willing to deny enforcement where there is clear evidence of fraud, corruption, serious due process violations, or when the subject matter is non‑arbitrable (for example, certain kinds of insolvency or criminal issues). However, the burden of proof for such objections is high, and generic allegations are increasingly dismissed at the threshold.

5. FEMA, regulatory contraventions, and enforcement strategy

Vijay Karia and post 2020 practice suggest a helpful way to think about FEMA and other regulatory issues in foreign‑award enforcement as two partially separate "tracks".

1. Enforcement track: The enforcing court examines whether the award falls within Part II and whether any Section 48 ground is proven. Public‑policy review is narrow, and FEMA contraventions generally do not qualify as fundamental‑policy violations except in extreme cases.
2. Regulatory track: RBI and other regulators apply FEMA, sectoral caps, pricing norms, and reporting requirements to how the award is implemented; share transfers, remittances, issuance of securities, or restructuring of debt. Approvals, compounding, or conditions may be required, but that goes to performance mechanics, not the existence or enforceability of the award.

For parties, the implications are practical:

1. Award‑debtors can no longer expect that raising FEMA objections at the enforcement stage will stop a decree. However, they may still need to engage with RBI or other regulators on how payments or transfers are executed.
2. Award‑creditors should plan early for regulatory steps necessary to convert an enforceable award into actual recovery, especially in cases involving share transfers, capital‑account payments, external commercial borrowings, or sectoral investment caps.
3. Where there is genuine regulatory impossibility or illegality in performance, parties should develop coherent, documented positions that could support limited tailoring of enforcement orders, rather than outright refusal.

In this sense, Vijay Karia shifts the battleground. The main fights are increasingly about execution logistics and regulatory engagement, not about blocking enforcement altogether.

6. Drafting and seat‑selection implications

The jurisprudence following Vijay Karia has concrete consequences for how cross‑border contracts with Indian connections should be structured.

For foreign counterparties

1. Seat and rules matter: Choosing a reputable foreign seat (for example, London, Singapore, Paris) under well‑regarded institutional rules reduces the scope for procedural challenges and gives comfort that the courts at the seat will robustly supervise the arbitration. Indian courts have repeatedly shown deference to seat‑court decisions on setting‑aside, consistent with the New York Convention model.
2. Align structure with FEMA from day one: Investments and financing arrangements should be mapped carefully to FEMA categories (FDI, ODI, ECB, trade credits), with pricing, put/call options, and security structured to comply with RBI norms. This reduces the risk that the performance of a later award collides with Indian exchange‑control rules.
3. Clarity on governing law and remedies: Clear governing‑law clauses and remedial frameworks (for example, share‑transfer vs. damages vs. restitution) help tribunals fashion awards that can be implemented in India without unnecessary regulatory friction.

For Indian counterparties

1. Regulatory issues are not silver bullets: After Vijay Karia, raising FEMA objections late in the day is unlikely to defeat enforcement, and may attract adverse costs if perceived as tactical. Regulatory constraints should be addressed at the deal‑structuring stage and, where disputes arise, during the arbitration.
2. Preserve procedural objections early: Parties wishing to rely later on Article V / Section 48(1)(b) (inability to present case) or (d) (improper procedure) grounds must take timely objections before the tribunal and, where relevant, before courts at the seat. Silence during the arbitration weakens subsequent challenges in India.
3. Think about asset location and security: Enforcement will be smoother if counterparties have Indian assets or if security is structured with India in mind (for example, charged Indian shares, guarantees from Indian group entities), rather than relying solely on foreign assets with minimal Indian nexus.
4. Practical checklist for in‑house counsel

For in‑house teams and deal counsel, a simple lifecycle‑based checklist can help internalise the lessons of Vijay Karia and subsequent cases.

At the contracting stage

1. Map the transaction to FEMA/sectoral rules (FDI vs. ECB vs. ODI, pricing norms, caps) and document the analysis.
2. Choose a clear, convention‑state seat and robust institutional rules; avoid ad hoc procedures unless there is a strong reason.
3. Ensure dispute‑resolution clauses are precise on seat, venue, language and governing law.

During the arbitration

1. Raise and record any serious due‑process concerns (e.g., inability to present key evidence) contemporaneously; consider appropriate procedural applications rather than waiting for enforcement.
2. Avoid taking regulatory positions before the RBI or other authorities that contradict positions taken in the arbitration, as this may undercut later reliance on public‑policy arguments.
3. Start early asset‑tracing and consider interim‑relief applications in India (under Section 9) to preserve assets where appropriate.

At the enforcement/execution stage

1. Conduct a realistic assessment of Section 48 grounds like whether there is genuine non‑arbitrability, clear fraud, or serious due‑process failure, or only disagreement on merits?
2. Engage, where necessary, with RBI or sectoral regulators in parallel to enforcement to resolve any genuine FEMA or regulatory issues affecting payment mechanics.
3. For award‑creditors, plan for phased recovery and security realisation, including possible settlement leveraging the pro‑enforcement stance of Indian courts.
4. Key takeaways

First, the public‑policy defence against foreign awards is now genuinely narrow and codified, with Vijay Karia confirming that Indian courts are not appellate bodies over arbitral tribunals and will not use FEMA as a broad veto power. Second, alleged FEMA or regulatory contraventions typically concern how an award is implemented rather than whether it is enforced at all. Regularisation through approvals or compounding is the expected pathway, rather than the refusal of enforcement.

Third, success in enforcing or resisting the enforcement of foreign awards in India increasingly depends on front‑loaded planning. Well drafted arbitration clauses, coherent FEMA compliant structuring, and timely procedural objections during the arbitration. For boards and general counsel, the message is clear; in the post Vijay Karia era, regulatory anxieties are no substitute for robust contract design, disciplined arbitration strategy, and early realistic engagement with India's evolving pro‑enforcement jurisprudence.

REFERENCES

1. Supreme Court of India, Vijay Karia & Ors v. Prysmian Cavi e Sistemi Srl & Ors, Civil Appeal No. 1544 of 2020 – judgment dated 13 February 2020
2. Arbitration and Conciliation Act, 1996 – Part II (Enforcement of Certain Foreign Awards), particularly Sections 44–52 and the 2015/2019 amendments to Section 48 (public policy explanation).
3. Supreme Court's judgment in Vijay Karia v. Prysmian Cavi e Sistemi SRL: Impact on Challenges to Awards Passed in International Commercial Arbitrations.
4. Supreme Court Clarifies RBI Approval under FEMA Not Needed to Satisfy Arbitral Awards (2025 note on enforcement vs regulatory approval).
5. Minimal Interference, Maximum Efficacy: Enforcement of Foreign Commercial Arbitral Awards in India.
6. Fundamental Policy of Indian Law and Public Policy: Supreme Court and High Court Trends under the Arbitration Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.