The conundrum surrounding the issue of limitation for filing a petition for the enforcement of foreign awards under Part II of the Arbitration and Conciliation Act, 1996 ("1996 Act") stands settled with the pronouncement of the judgement by the Hon'ble Supreme Court ("Supreme Court/Court"), in Government of India v. Vedanta Limited & Others1("Judgement"). To ascertain the issue of limitation, the Supreme Court delved into the conflicting and divergent views taken by different High Courts and finally decided that the period of limitation for filing a petition for enforcement of a foreign award under Section 47 read with Section 49 of 1996 Act, would be governed by the residuary provision viz. Article 137 of the Limitation Act, 1963 ("Limitation Act"). Apart from the above, the Supreme Court also rendered a detailed view on the aspect of the enforcement of foreign award vis a vis the public policy enunciated under Section 48(2)(b) of the 1996 Act and reiterated the mandate laid down in "Renusagar Power Co. v. General Electric Co."2 ("Renusagar").
Significantly, after considering the four types of laws applicable in an international commercial arbitration viz. 'governing law, the law governing the arbitration agreement, curial law and lex fori; the Court inter alia concluded that even when a foreign award has been upheld under the curial law the same shall not prohibit the Indian Courts to examine the said foreign award within the contours of public policy of India under Section 48 of the 1996 Act. Thus, a foreign award which is violative of public policy of India would not be enforced by Indian Courts. In conjunction with the above, the Court exhaustively deliberated on the scheme of 1996 Act for the enforcement of foreign awards and laid down various parameters for the enforcement of a foreign award, which are discussed in the latter part of this article.
BRIEF FACTS OF THE CASE
The present matter arose out of the Judgement and Order dated 19.02.2020 rendered by the High Court of Delhi ("Impugned Judgment"), relating to the enforcement of a foreign award. In 1993, the Government of India ("Appellant") floated a competitive tender, inviting bids for exploring and developing petroleum resources in the Ravva Gas and Oil Fields, Andhra Pradesh. Pursuant thereto, M/s Vedanta Limited (Formerly known as M/s Cairn India Limited) and M/s Videocon Industries Limited submitted their bids to explore and develop Ravva Fields. In 1994, a Product Sharing Contract ("PSC") was executed between the Appellant and M/s Vedanta Limited, M/s Videocon Industries Limited, M/s Ravva Oil (Singapore) Pte. Ltd. and Oil and Natural Gas Corporation Limited ("Respondents"). The disputes between the parties arose on the interpretation of Article 15.5 of the PSC which pertains to Base Development Costs3 ("BDC").
On 18.08.2008 disputes between the parties were referred to arbitration as per Article 34.124 of PSC and the arbitral proceedings were accordingly conducted in Kuala Lumpur, Malaysia. Article 33 of PSC provided that the applicable law governing the PSC shall be the Indian Law. After hearing both the parties, the Arbitral Tribunal passed an Arbitral Award ("Award") which was published on 18.01.2011. Vide the said Award, the Arbitral Tribunal inter alia held that the Respondents(Claimants therein) were bound by the cap provided under Article 15.5(c) of the PSC on the BDC incurred up to and including the year 1999/2000. Therefore, Respondents/Claimants were not entitled to recover the BDC of USD 220,737,381. However, the Respondents/Claimants shall be entitled to recover the BDC of USD 278,871,668 incurred from the contract year 2000/2001 until 2008/2009.
Being aggrieved by the finding of the Arbitral Tribunal, the Appellant on 15.04.2011, filed a petition under Section 37 of the Malaysian Arbitration Act, 2005 ("Malaysia Act"), before the Malaysia High Court challenging the Award dated 18.01.2011. The challenge to the Award was dismissed by the Malaysian High Court vide Order dated 30.08.2012. Aggrieved by the said Order, the Appellant filed an appeal before the Malaysian Court of Appeal which stood dismissed vide Order dated 27.06.2014. In the meantime, the Appellant issued a show-cause notice on 10.07.2014 to the Respondents raising demand of USD 77 million towards the government's share of profit under PSC.
The Appellant thereafter, on 21.07.2014 applied for Leave To Appeal before the Malaysian Federal Court, which was rejected vide Order dated 17.05.2016. Whilst the Application for Leave to Appeal was pending before the Malaysian Federal Court, the Respondents on 14.10.2014, filed a petition for enforcement of the Award under Section 475 read with Section 496 of the 1996 Act before the High Court of Delhi ("Delhi High Court"), along with an Application for condonation of delay. On knowledge of the enforcement petition being filed by the Respondents, the Appellant filed an Application under Section 48 of the 1996 Act7, praying for refusal of the enforcement of the Award. The Delhi High Court vide, the Impugned Judgment rejected the Application filed by the Appellant and allowed the Application for condonation of delay filed by the Respondents and further directed enforcement of the Award.
The Appellant aggrieved by the Impugned Judgment preferred an appeal before the Supreme Court. The Court vide its judgement dated 16.09.2020 decided the matter in the favour of the Respondents after considering the issues enumerated below
ISSUES RAISED FOR CONSIDERATION BEFORE THE SUPREME COURT
While appreciating the facts of the case, the Supreme Court decided the matter after careful consideration of the following issues:
- What should be the limitation period for filing a petition for enforcement/ execution of a foreign award under Section 47 of the 1996 Act?
- Whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the foreign award?
- Whether the foreign award is in conflict with the public policy of India?
SUMMARY OF DISCUSSIONS AND FINDINGS.
The discussions and findings of the Supreme Court are divided into four parts which can be adumbrated as follows:
A. What should be the limitation period for filing a petition for enforcement/ execution of a foreign award under Section 47 of the Arbitration Act?
While adjudicating the abovementioned issue, the Court discussed the ambiguity created by the conflicting decisions of different High Courts in Louis Dreyfous Commodities Suisse v Sakuma Exports Limited8, Imax Corporation v E-City Entertainment (I) Pvt. Limited9 and M/s. Compania Naviera 'SODNOC' v Bharat Refineries Limited10 and proceeded to settle the law.
The Supreme Court observed that the issue of limitation for the enforcement of foreign awards, being procedural in nature, is subject to the lex fori, where the foreign award is sought to be enforced. Pertinently, the limitation period for filing the enforcement petition would be governed by Indian Law. The Court observed that under Article 136 of the Limitation Act, the period of limitation for the execution of any decree or order of a "civil court" is twelve years from the date when the decree or order becomes enforceable. Whilst, Article 137 is the residuary provision in the Limitation Act, which provides that the period of limitation "for any application", where no period of limitation is provided in the Limitation Act, would be three years from "when the right to apply accrues".
On a careful evaluation of Section 36 and Section 49 of the 1996 Act, the Court noted that Section 36 of the 1996 Act creates a legal fiction for the limited purpose of enforcement of a 'domestic award' as a decree of a court. The domestic award does not get transformed into a decree of a civil court. It rather retains its characteristics as an award itself. The Court further observed that the Section 49 of the 1996 Act, in comparison with Section 36, creates a legal fiction and provides that a foreign award, after it is granted recognition and enforcement under Section 48 of the 1996 Act, would be deemed to be a decree of "that Court" for the limited purpose of enforcement.
Referring to the above, the Court held that Article 136 of the Limitation Act would not be applicable for the enforcement/execution of a foreign award, since it is not a decree of a civil court in India. The foreign award is deemed to be a decree for the limited purposes of enforcement of the award and would be covered by the residuary provision i.e. Article 137 of the Limitation Act.
The Court also held that the enforcement applications filed under Section 47 read with Section 49 is a "substantive petition" filed under the 1996 Act. The Court opined that the application under Section 47 of 1996 Act is not an application filed under any of the provisions of Order XXI of the CPC. The application filed for enforcement of an Award shall take recourse to the provisions of Order XXI of the CPC only for the purposes of execution of the foreign award as a deemed decree. Thus, the bar contained in Section 511, which excludes an application filed under any of the provisions of Order XXI of the CPC, would not apply to a "substantive petition" filed under the 1996 Act. Consequently, a party who has applied for the enforcement of an award may file an application under Section 5 of the Limitation Act for condonation of delay, if required under the facts and circumstances of the case.
Based on the above discussion, the Court noted that the cause of action for filing the enforcement petition arose on 10.07.2014 and the Respondents filed the same on 14.10.2014 i.e. within 3 months from the date when the right to apply accrued. Hence, the petition for enforcement of the foreign award was filed within the period of limitation prescribed by Article 137 of the Limitation Act.
B. Whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the foreign award?
While adjudicating this issue, the Supreme Court endeavoured to touch upon the different laws which are applicable in international commercial arbitration and court proceedings arising therefrom viz. the Governing Law for the Contract, the Law Governing the Arbitration Agreement, the Law of Forum (Lex Fori) and the Curial law of the Arbitration. The Court noted that the curial law of the arbitration is determined by the seat of arbitration. The conduct of the arbitral proceedings in an international commercial arbitration must be connected with the law of the seat of arbitration, which would regulate the various aspects of the arbitral proceedings.
Based on the above discussion, the court held that in the present matter, the Malaysian Courts, being the seat courts, were justified in applying the curial law i.e. Malaysian law to the public policy challenge. The Court, however, held that the enforcement court would examine the challenge to the award on the grounds available under Section 48 of the 1996 Act, without being constrained by the findings of Malaysian Courts. It was observed by the Court that, if the award is found violative of the public policy of India, the award shall not be enforced by Indian Courts.
C. Whether the foreign award is in conflict with the public policy of India?
While deliberating on this issue, the Court initially discussed, the retrospective or prospective applicability of amended Section 48 of the 1996 Act which came into force w.e.f. 23.10.2015. The Court observed that the amendment added two new Explanations in Section 48 of the 1996 Act. Relying on the judgment in Ssangyong Engineering & Construction Co. Ltd. v NHAI"12, the Court reiterated that since the Explanation 1 and Explanation 2 in amended Section 48 of 1996 Act has been introduced for the first time, it must be considered to have a prospective application. In view of the above discussion and while referring to Section 2613 of the 1996 Act, the Court held that the amended Section 48 of 1996 Act, would not be applicable in the facts and circumstances of the present case, since the court proceedings for enforcement were filed by the Respondents on 14.10.2014 i.e. prior to the Arbitration and Conciliation (Amendment) Act, 2015, which came into force on 23.10.2015.
With respect to the issue relating to the award being in conflict with the public policy of India, the Supreme Court observed that the enforceability of an award in the present case has to be tested on the parameters prior to the amendments, as had been laid down in Renusagar. The Court also placed its reliance on Parsons & Whittemore Overseas Co. Inc. v Societe Generale de L'Industrie du Papier (RAKTA)14, and noticed that the enforcement of an award may be refused only if it violates the State's most basic notions of morality and justice. The Court noticed that there should be great hesitation in refusing enforcement unless it is obtained through "corruption or fraud, or undue means".
Referring to the contentions made by the Appellant, that the award may not be enforced, the Court held that the Appellant had neither made out a case for violation of due process in the conduct of the arbitral proceedings nor they have been able to make out that the award is in conflict with the basic notions of justice or in violation of the public policy of India. Consequently, the Court held that the enforcement of the foreign award does not contravene the fundamental policy of India or the interests of India or that it is in contrary to the basic notions of justice.
After a detailed discussion on the limitation period for filing a petition for enforcement of a foreign award under the 1996 Act, and a subsequent determination of the fact that the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the award and the award was not in conflict with the public policy, the Supreme Court adjudicated the issues in favour of the Respondents and affirmed the Judgment and Order dated 19.02.2020 passed by the Delhi High Court. The Court also held the Award passed by the Arbitral Tribunal to be enforceable in accordance with the provisions of Section 47 read with Section 49 of the 1996 Act.
KEY TAKEAWAYS REGARDING SCHEME OF THE 1996 ACT FOR ENFORCEMENT OF FOREIGN AWARDS
The Court, apart from deciding the issues raised for consideration, laid down various parameters with respect to the enforcement of a foreign award. Some of the imperative and important takeaways are the following:
- The enforcement of the foreign award takes place only after the court is satisfied that the foreign award is enforceable under Part II of the 1996 Act. It is only after the stages under Sections 47 and 48 of the 1996 Act are completed, the award becomes enforceable as a deemed decree.
- The procedure for enforcement of a foreign decree is not covered by the 1996 Act but is governed by the provisions of Section 44A read with Section 13 of the CPC.
- A foreign award would be enforceable if the award is with respect to a commercial dispute, covered by a written agreement in a State with which the Government of India has a reciprocal relationship, as notified in the Official Gazette.
- The award holder is entitled to apply for recognition and enforcement of the foreign award by way of a common petition.
- The enforcement court is not to correct the errors in the award under Section 48 of the 1996 Act or undertake a review on the merits of the award. The enforcement court has only the limited power to "refuse" enforcement if the grounds are made out. The enforcement court cannot set aside a foreign award, even if the conditions under Section 48 are made out. The power to set aside a foreign award vests only with the court at the seat of arbitration.
The Apex Court judgment is a welcome step towards promotion of arbitration by the Indian judiciary by making India an increasingly arbitration-friendly jurisdiction. However, the parties who have not yet commenced enforcement proceedings for awards passed three years ago will have to rise from the slumber and move to Courts for enforcement of the award. The lack of clarity with respect to the limitation period because of divergent views of the courts can, however, be one of the adequate grounds to seek condonation of delay.
1. 2020 SCC OnLine SC 749.
2. 1994 Supp (1) SCC 644.
3. Base Development Cost were the costs incurred by the Respondents, after the effective date, relating to the construction and/ or establishment of such facilities as are necessary to produce, process and transport petroleum within the "existing discoveries" in order to enable crude oil production of 35,000 Barrels of Oil Per Day (BOPD).
4. The Article provided that the applicable governing the arbitration agreement shall be the laws of England and the venue of the arbitration proceedings shall be Kuala Lumpur, Malaysia.
5. Section 47 of 1996 Act provides the manner and procedure for filing the enforcement application before the Court of law.
6. Section 49 of 1996 Act provides that where the Court is satisfied that the foreign award is enforceable, the award shall be deemed decree of the Court.
7. Section 48 of 1996 Act provides for the conditions for the enforcement of foreign award. It lays out the conditions on the basis of which the enforcement court may refuse to enforce an award.
8. 2006 (3) Arb LR 510. The Bombay High Court, in the present case has held that an application for the enforcement of a foreign award will be governed by Article 137 of the Limitation Act, 1963.
9. (2020) 1 AIR Bom 82. The Bombay High Court, in the instant case has held that an application for the enforcement of a foreign award will be governed by Article 136 of the Limitation Act, 1963.
10. (2008) 1 Arb LR 344. The Madras High Court in the present case has held that, since foreign award is already stamped as a decree, the award holder can straight away apply for enforcement of the foreign award as a decree holder. Consequently Article 136 of the Limitation Act would be applicable for the enforcement of an arbitral award.
11. Section 5 reads as follows:- "Extension of prescribed period in certain cases. - Any appeal or any application, (other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908) (5 of 1908), may be admitted after the prescribed period, if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period.
12. (2019) 15 SCC 131.
13. "Section 26: Act not to apply to pending arbitral proceedings -Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act."
14. 508 F.2d 969 (2d Cir. 1974)
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