A country that wants its economy to flourish, cannot ignore the global market. It needs to foster international trade and transnational commerce. Undeniably, India's prominence in the global economy has been on the rise. However, to increase transnational commerce and transactions, foreign parties need some assurance that in case of disputes, court judgments or decrees they obtain in foreign countries will be recognised and enforced in India.
The Code of Civil Procedure, 1908 (CPC) provides a mechanism to enforce certain types of foreign decrees and judgements passed by superior courts of notified reciprocal foreign countries, as if such decree(s) were passed by an Indian court. This direct enforcement mechanism under the CPC recognises the principles of res judicata if such matter is determined on merits between the parties before a foreign court, subject to compliance with certain conditions. Further for this mechanism to apply, the Government of India must notify the country where the decree was issued, as a reciprocal territory. The Government of India has so far notified 12 countries as reciprocal territories.
Outside of this direct enforcement mechanism, one would have no choice but to file a suit before the appropriate court seeking recognition and then enforcement of the decree passed by a non-reciprocal territory or a separate suit on the original cause of action itself.
This article aims to cover the key legal framework of enforcement of foreign decrees in India including a recent judgment of the Supreme Court of India in the matter of Bank of Baroda v. Kotak Mahindra Bank, dated 17th March 2020 in [Civil Appeal No. 2175 of 2020] (BOB Judgement) that answered some important questions regarding enforcement of foreign decrees in India especially the issue of limitation.
- The Legal Framework for Enforcing Foreign Decrees / Judgments
A foreign judgment is defined under Section 2(6) of the CPC as, "the judgement of a foreign court." A judgment is defined by Section 2 (9) as "a statement given by the judge of the grounds of a decree or order". As you note, these definitions are very generic.
The mechanism for executing decrees passed by courts in reciprocating territories is set out in Section 44-A of the CPC. This Section also explains what a reciprocating territory and a decree is. Further, the definition of a foreign judgement contained in Section 2 (6) of the CPC has to be read with reference to Explanation 2 of the Section 44-A of the CPC for the purpose of direct enforcement.
The relevant parts of Section 44-A of the CPC read as under:
"44-A. Execution of decrees passed by Courts in reciprocating territory. -
(1) Where a certified copy of decree of any of the superior Courts of any reciprocating territory has been filed in a District Court, the decree may be executed in India as if it had been passed by the District Court.
(3) The provisions of section 47 shall as from the filing of the certified copy of the decree apply to the proceedings of a District Court executing a decree under this section, and the District Court shall refuse execution of any such decree, if it is shown to the satisfaction of the Court that the decree falls within any of the exceptions specified in clauses (a) to (f) of section 13.
Explanation I. - "Reciprocating territory" means any country or territory outside India which the Central Government may, by notification in the Official Gazette, declare to be a reciprocating territory for the purposes of this section; and "superior courts" with reference to any such territory, means such Courts as may be specified in the said notification.
Explanation 2.- "Decree" with reference to a superior Court means any decree or judgment of such Court under which a sum of money is payable, not being a sum payable in respect of taxes or other charges of a like nature or in respect to a fine or other penalty, but shall in no case include an arbitration award, even if such an award is enforceable as a decree or judgment." (Emphasis Supplied)
Therefore, a decree passed by a court of a reciprocating territory may be executed in India as if it has been passed by a 'District Court'1 subject to the requirements of Section 44-A (2) and (3). Section 44(3) of the CPC provides that a decree that is passed by a court in a reciprocating territory shall not be executed if it is shown to the court hearing an application for execution of the decree, that the decree falls within one of the following exceptions under Section 13 of the CPC:
- where it has not been pronounced by a Court of competent jurisdiction;
- where it has not been given on the merits of the case;
- where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable;
- where the proceedings in which the judgement was obtained are opposed to natural justice;
- where it has been obtained by fraud; and
- where it sustains a claim founded on a breach of any law in force in India.
These exceptions are generally limited and do not require the Indian courts to re-examine the dispute on merits but are in place to ensure that the decree is the outcome of a fair trial, after following the principles of natural justice. These are checks and balances on the enforcement of a foreign decree that an Indian Court is required to examine.
Another fundamental criteria for enforcement of a foreign decree under Section 44-A of the CPC, is that the country in which the foreign decree is passed must have been notified as a reciprocal territory and the court which passed such a decree was notified as a superior court of that reciprocal territory by the Government under Section 44-A of the CPC. Therefore for the purposes of Section 44-A, a foreign decree would have to be a decree passed by superior court of a reciprocating territory, under which a sum of money is payable, not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty. However, the same shall also not include an arbitral award, even if such an award is enforceable as a decree or judgment.
- the Notification issued by Government of India in accordance with section 44-A of the CPC
The Government of India has notified various countries as reciprocating territories and has also identified which of their courts are to be considered as superior courts. These include inter alia United Kingdom, Singapore, Bangladesh, Malaysia, New Zealand and Hong Kong. Most recently, pursuant to a treaty that India and the United Arab Emirates (UAE) had entered into on 25 October 19992, the Government of India on 17 January 2020 notified UAE to be a reciprocating territory3 (Notification).
- Issues To Be Considered While Enforcing Foreign Decrees In India
Foreign parties who have favourable foreign decrees, must keep in mind the following issues while seeking recognition and enforcement of foreign decrees in India- (i) does filing of an application under Section 44-A of the CPC gives rise to a new cause of action; (ii) what is the period of limitation in filing necessary applications seeking such enforcement; and (iii) from what date would this period of limitation be deemed to have commenced?
The Supreme Court of India has answered some of these issues in the case BOB Judgment.
The Bank of Baroda had filed a suit for recovery of certain dues from the respondent on 19 April 1993 in London. The suit was decreed by the High Court of Justice, Queens Bench on 20 February 1995, in favour of Bank of Baroda. This decree was not challenged and had become final. After almost 14 years, on 5 August 2009, Bank of Baroda filed an execution petition (in terms of Section 44-A of the CPC) before the City Civil Court Bangalore. This petition was contested by the Kotak Mahindra, who alleged that this petition was barred by limitation. The City Civil Court held against Bank of Baroda who then filed an appeal with the Karnataka High Court4, which also held against Bank of Baroda. Finally, Bank of Baroda approached the Supreme Court of India.
The Supreme Court while dismissing the petition laid down certain key principles with respect to enforcement of foreign decrees of reciprocal territories.
Does the filing of an application under Section 44-A, CPC give rise to a new cause of action?
The Supreme Court in its judgement in the matter of M. V. AL. Qumar v. Tsavliris Salvage (International) Limited (Tsavliris Judgment), held that Section 44-A gives a new cause of action irrespective of its original character.
In the BOB Case, the Supreme Court differed from the Tsavliris Judgment and held that there is no concept of 'cause of action' insofar as an execution petition is concerned. Cause of action is a concept relating to civil suits and not to execution petitions. It is nothing but a bundle of facts which give rise to a legal right enabling the plaintiff to file a suit. On the other hand, a decree is a determination already made by a court on the basis of reasoned judgement. A decree becomes enforceable the day it is passed. Hence it came to the finding that filing an application under Section 44-A (of the CPC) will not create a fresh cause of action.
Would the applicable law of limitation be that of the reciprocal territory or the country in which the decree ought to be executed?
The Supreme Court in the BOB Case clarified that the law of limitation could not be treated as a procedural law but as a substantive law. The old position under common law was that limitation was treated as a procedural law, whereas in civil jurisdiction, it was treated as substantive law. However, in recent years, almost all the common law countries, either through legislations or by way of judicial decisions, have taken the view that the law of limitation cannot be treated as purely procedural law.
The Court also observed that in cases where the remedy had already been extinguished in the cause country, such remedy was virtually extinguished even in the 'forum country' i.e., where the decree was sought to be executed. This also created a corresponding right in the judgment debtor to challenge the execution. These rights, the Court held are substantive and could not be called procedural.
Hence the Supreme Court unequivocally said that for the purpose of executing a decree in India which has been passed by a court in a reciprocal territory, the applicable limitation period would be the one prescribed in the reciprocating territory where the decree was passed.
What is the period of limitation for executing a Foreign Decree, and from what date would this period commence?
Though the Supreme Court in BOB Case held that the period of limitation would be as per the reciprocal territory in which the foreign decree was passed, it still analysed which provision of the Limitation Act, 1963 (Limitation Act) would apply.
The Karnataka High Court had held that the period of limitation under the Limitation Act would be 12 years, as per Article 136. The Supreme Court disagreed. It held that Article 136 of the Limitation Act would not be applicable and noted that it would be confined to decrees of Indian courts and that the decree or order should be of a civil court (as the definition of 'civil court' may differ in other jurisdictions). It also held that the applicable limitation period would be that as prescribed by the reciprocating territory.
The Court also noted that for the purpose of filing a petition under Section 44-A, a certified copy of the decree [in terms of 44-A (1) and (2)] and also a certificate from the foreign court, stating the extent to which (if any) the decree has been satisfied/adjusted, are also to be filed. These are pre-requisites, in the absence of which a decree cannot be enforced/executed.
The Supreme Court also noted that procedurally, alongwith the aforesaid documents, a party filing a petition for execution of a foreign decree must also necessarily file a written application in terms of Order 21 Rule 11 clause (2) of the CPC (providing certain information pertaining to the judgement debtor and its properties). In the absence of such an application, it would be impossible for the court to execute the decree. Therefore, such an application for executing a foreign decree would not be covered under any other article of the limitation act but only under Article 137 of the law of limitation which provides the limitation period to be 3 years.
This discussion however was not purely academic but is of importance in certain situations. Regarding the date from which the period of limitation would commence, the Supreme Court envisaged two situations. One, where the decree holder has not taken any steps for execution of the decree in the cause country during the period of limitation prescribed in that country. Two, where the decree holder has taken steps-in-aid to execute the decree in the cause country.
In the first situation, the Supreme Court said that a party that has not taken any steps to execute the decree in the reciprocal territory during the period of limitation prescribed in such country, had lost its right to do so. It would be a travesty of justice if such a person was allowed to execute a decree in India. Hence, the Supreme Court said that the period of limitation would start running from the date the decree was passed in the reciprocal territory and the period of limitation prescribed in India would not be applicable.
In the second situation, the Supreme Court said that the right to apply under Section 44-A of the CPC would accrue only after execution proceedings in the reciprocal territory had been finalised, provided that such decree has not been fully satisfied. An application under Section 44-A of the CPC could then be filed within three years (limitation period provided under Indian law) of the execution proceedings having concluded without complete recovery in a reciprocal territory. The Supreme Court however clarified that applying for a certified copy of the decree or certificate of part satisfaction would not be steps-in-aid to execute the decree in the reciprocal territory.
While the Supreme Court has clarified certain long-pending issues, there are still various issues that require deliberation. Such as if the Notification will apply to decrees passed prior to the Notification coming to effect or only to decrees passed after this day. Additionally, in the authors' opinion, categorizing certain courts of the reciprocal territories as 'superior courts', puts the decree holders in an unfair position. The question would then be as to what the available remedies for such decree holders are, where the judgements and decrees are passed by courts not covered by the Notification.
The Notification is definitely a move towards improving trade and commerce between the UAE and India. However, a comparison of the number of countries considered reciprocal for enforcement of decrees is much less as compared to countries considered reciprocal for enforcement of a foreign award. Hopefully, the Government of India will take proactive steps to notify more countries as reciprocal territories under Section 44-A of the CPC and re-visit the kinds of Judgements that can be enforced directly in India.
1 As per Section 2 (4), CPC - It is a principal civil court that exercises original jurisdiction over a certain district. This definition includes a High Court vis-à-vis the territory over which it exercises ordinary original civil jurisdiction.
2 'Agreement on Juridical and Judicial Cooperation in Civil and Commercial Matters for the Service of Summons, Judicial Documents, Commissions, Execution of Judgements and Arbitral Awards.'
3 Notification, 17th January 2020, Ministry of Law and Justice (Department of Legal Affairs)
4 Judgement dated 13th November 2014 in Civil Revision Petition 433 / 2013 (Bank of Baroda v. ING Vysya Bank Ltd.)
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