Divergent views have been taken by some High Courts with respect to the period of limitation for filing a petition for enforcement of a foreign award and the procedure applicable for enforcement/execution of foreign awards under the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). A three judge bench of the Supreme Court recently clarified the issue in Government of India v. Vedanta Limited and Ors.1
In 1994 the Government of India had executed a Product Sharing Contract ("PSC") to develop the Ravva Oil and Gas Field with the Respondents. The contract scheme was such that the Respondents could recover the costs incurred for petroleum operations from the Government. Disputes had arisen on the interpretation of Article 15.5 of the contract which pertains to development costs.
In 2008, the disputes were referred to arbitration under Article 34 of the PSC which provided as follows -
"34.12 Venue and Law of Arbitration Agreement
The venue of sole expert, conciliation or arbitration proceedings pursuant to this Article, unless the Parties otherwise agree, shall be Kuala Lumpur, Malaysia and use the English Language. In so far as practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of arbitral proceedings and any pending claim or dispute. Notwithstanding the provisions of Article 33.1 the arbitration agreement contained in Article 34 shall be governed by the laws of England."
The Arbitration Award was passed in 2011 following which, the Government of India challenged the Award and was unsuccessful before the Malaysian High Court, the Malaysian Court of Appeal and the Malaysian Federal Court.
In 2014, pending the challenge before the Malaysian Court of Appeal, the Respondents filed a petition for enforcement under sections 47 read with 49 of the Arbitration Act before the Delhi High Court along with an application for condonation of delay.
The Government resisted the enforcement on the ground that:
- the petition was filed beyond the period of limitation,
- the enforcement of the award was contrary to the public policy of India, and
- the award contained decisions on matters beyond the scope of the submission to arbitration.
The Delhi High Court rejected the Government's petition under section 48 of the Arbitration Act and allowed the application for condonation of delay. Further, the Delhi High Court directed the enforcement of the Award. Aggrieved by the order of the Delhi High Court, the Government appealed to the Supreme Court.
The judgement of the bench is authored by Hon'ble Justice Indu Malhotra and is divided into four parts:
- Limitation for filing a petition for enforcement/ execution of a foreign award under Section 47 of the Arbitration Act.
- Scheme of the Arbitration Act for enforcement of New York Convention awards.
- 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?
A. Limitation for filing a petition for enforcement/ execution of a foreign award under Section 47 of the Arbitration Act
- The Appellant raised an objection to the maintainability of the application on the ground that the petition for enforcement / execution of the foreign award under Section 47 was barred by limitation. It was submitted that Article 137 of the Limitation Act, 1963 ("Limitation Act") applies to the enforcement of foreign awards, which provides a period of 3 years from "when the right to apply accrues". It was submitted that the right to apply would accrue from the date of making the award i.e. 18th January 2011. Further, it was stated that the delay in filing the application for enforcement / execution could not be condoned as the Respondents failed to show sufficient cause for condonation of delay in filing the enforcement petition and pendency of challenge before Malaysian Courts was not sufficient cause for invoking Section 5 of the Limitation Act.
- The Respondent contended that Article 136 of the Limitation Act shall be applicable for filing a petition for enforcement / execution of a foreign award under Section 47 under the Arbitration Act. Accordingly, it was submitted that the limitation period is 12 years from the date of the award and therefore the petition was not barred by limitation. In the alternative, it was contended that if Article 137 of the Limitation Act is held to be applicable, the limitation period would commence from "when the right to apply accrues", which does not necessarily mean the date of the award. Had this been the intention of the legislature, it would have been expressly provided so. It was contended that the right to apply may accrue even on a later date, such as in the present case.
- It was further pointed out that the Award was passed on 18th January 2011 granting a declaration in favour of the Respondents-Claimants. The counter claim of the Appellant was partly allowed, directing the Respondents to revise the cost recovery statements. Consequently, an amount of US $ 22 million became payable by the Respondents-Claimants to the Government of India. On 10th July 2014, the Appellants issued a notice to the Claimants to show cause as to why US $ 77 million ought not to be directly recovered from the amounts payable by the Oil Marketing Companies. It was thus contended that the right to apply for enforcement of the award accrued on 10th July 2014.
- The Supreme Court considered the divergent views taken in
various cases by the High Courts in India. A few important cases
were discussed as follows:
- In 2006 and 2015 the Bombay High Court in its judgements in Noy Vallesina Engineering Spa v Jindal Drugs Limited2 and Louis Dreyfous Commodities Suisse v Sakuma Exports Limited 3 respectively held that the enforcement of a foreign award must take place in two stages. In the first stage, the enforceability of the foreign award would be decided, which would be governed by the residuary provision i.e. Article 137 of the Limitation Act which provides for 3 years from when the right to apply accrues. After the issue of enforceability of award is determined, the award is deemed to be a decree, and the execution of the award as a deemed decree would be governed by Article 136 of the Limitation Act which provides a period of 12 years.
- The Madras High Court on the other hand, in its judgement of 2008 in M/s. Compania Naviera 'SODNOC' v Bharat Refineries Limited4 held that under the Arbitration Act since the 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, and would have a period of 12 years for its enforcement.
- Subsequently, in 2020 the Bombay High Court took a divergent stand in its judgement in Imax Corporation v E-City Entertainment (I) Pvt. Limited5 wherein it held that there may be different stages in one proceedings; the first stage being that the court would be required to decide on the enforceability of the award, having regard to the requirement of the said provisions; and thereafter, proceed to take further steps for execution of the award. Having stated thus, the Court concluded that Article 136 of the Limitation Act would be applicable for the enforcement of a foreign award.
- The impugned judgement in Cairn India Limited v Union of India6 of the Delhi High Court also held that Article 136 of the Limitation Act would be applicable for the enforcement of a foreign award.
- In order to consider the applicable Article under the
Limitation Act for enforcement of a foreign arbitration award, the
Supreme Court noted the following points:
- The issue of limitation for enforcement of foreign awards being procedural in nature, is subject to the lex fori i.e. the law of the forum (State) where the foreign award is sought to be enforced. Hence, the limitation period for filing the petition for enforcement / execution of a foreign award in India, would be governed by Indian law.
- The Arbitration Act does not specify any period of limitation for filing an petition for enforcement / execution of a foreign award. However, section 43 of the Limitation Act states that it shall apply to arbitrations as it applies to proceedings in court.
- The Limitation Act does not contain any specific provision for
enforcement of a foreign award. Articles 136 and 137 fall under the
Third Division of the Schedule to the Limitation Act and state as
- Article 136 provides that 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.
- 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 Act, would be three years from "when the right to apply accrues".
- Section 36 of the Arbitration Act creates a statutory fiction for the limited purpose of enforcement of a domestic award as a decree of the court, even though it is otherwise an award in an arbitral proceeding. By this deeming fiction, a domestic award is deemed to be a decree of the court, even though it is as such not a decree passed by a civil court. The deeming fiction is restricted only to treat the award as a decree of the court for the purposes of execution, even though it is, as a matter of fact, only an award in an arbitral proceeding.
- Further, by a legal fiction, Section 49 of the Arbitration Act provides that a foreign award, after it is granted recognition and enforcement under Section 48, would be deemed to be a decree of "that Court" for the limited purpose of enforcement. The phrase "that Court" refers to the Court which has adjudicated upon the petition filed under Sections 47 and 49 for enforcement of the foreign award.
- Hence, the Supreme Court held that Article 136 of the Limitation Act would not be applicable for enforcement/execution of a foreign award since a foreign award is not a decree of a civil court in India. Instead, a foreign award would be covered by the residuary provision i.e. Article 137 of the Limitation Act which provides for a period of 3 years from when the right to apply accrues.
- However, a party may file an application for condonation of delay under Section 5 of the Limitation Act and the provisions of Order XXI of the CPC would not be applicable to a substantive petition under the Arbitration Act.
- In light of the aforesaid, the Supreme Court held that considering the facts of the case the Respondent had filed the petition for enforcement within the period of limitation prescribed by Article 137 of the Limitation Act.
B. Scheme of the Arbitration Act for enforcement of New York Convention awards
- Taking into account the scheme of the Arbitration Act, the Supreme Court held that the Delhi High Court's finding that a foreign award is "enforceable on its own strength, and is not necessarily dependent on whether or not it goes through the process of Section 48 proceedings" was erroneous and contrary to law.
- It was further held that the other findings of the Delhi High
Court that "a reading of Section 49 would show that it
does not contain anything which would relate it to Section 48 of
the Act is not correct" and that "Section 49
pre-supposes that a foreign award is a decree
whose execution can only be impeded by a party
against whom it is sought to be executed if it is able to discharge
its burden that its objections can be sustained under one or more
clauses of Section 48 of the Act" were anomalous. The
Supreme Court went on to hold as follows:
- A foreign award is not a decree by itself, which is executable as such under Section 49 of the Arbitration Act. The enforcement of a foreign award takes place only after the court is satisfied that the foreign award is enforceable under Chapter 1 in Part II of the Arbitration Act.
- After the stages under Sections 47 and 48 are completed, the award becomes enforceable as a deemed decree, as provided by Section 49.
- A foreign award is enforced as a deemed decree of the Indian Court which has adjudicated upon the petition filed under Section 47 and the objections raised under Section 48 by the party which is resisting the enforcement of the award.
- There is no concept of a "foreign decree" in the Arbitration Act. Thus, the procedure for enforcement of a foreign decree is not covered by the Arbitration Act but is governed by the provisions of Section 44A read with Section 13 of the CPC.
- The Supreme Court traced the scheme in the Arbitration Act for
enforcement of New York Convention awards and noted as
- "The double exequatur"7 requirement under the Geneva Convention, 1927, was done away with under the New York Convention. Similarly, leave from the court of the seat in which or under the laws of which the award was made was also held to be unnecessary.
- A foreign award holder is entitled to apply for recognition and enforcement of the foreign award by way of an application to the High Court referred to in the Arbitration Act. Reference was made in this regard to the Supreme Court's judgement in Fuerst Day Lawson Ltd. v Jindal Exports Ltd.,8 where the foreign award was proceeded with under Part II, in different stages albeit one proceeding: i) in the first stage, the Court would decide about the enforceability of the award having regard to the requirements of Sections 47 and 48 of the Arbitration Act; ii) once the enforceability of the foreign award is decided, it would proceed to take further effective steps towards the execution of the award. This would avoid multiplicity of proceedings as the award holder would not be required to apply separately for enforcement and then for execution of the award.
- The foreign award once it is enforceable shall be treated as final and binding on the parties, and can be relied upon by way of defence, set off, or otherwise, in any legal proceeding in India.
- Section 48 of the Arbitration Act sets out limited conditions under which the enforcement of a foreign award may be refused. Under Section 48(1), five grounds may be raised by the losing party for refusal of enforcement of the foreign award, and under Section 48(2) two grounds may be raised by the court ex officio to refuse enforcement of the award i.e. non-arbitrability of the subject-matter of the dispute under the laws of India, and the award being in conflict with the public policy of India. The grounds specified in Section 48(1) for refusing enforcement of foreign awards are exhaustive, which is clear from the words "only if" used in the provision.
- The enforcement Court cannot "set aside" a foreign award even if the conditions under Section 48 are made out.9 The enforcement court is not to correct the errors in the award under Section 48, or undertake a review on the merits of the award. The enforcement court may only "refuse enforcement" of a foreign award if the conditions contained in Section 48 are made out.
- The executing court still retains a residual discretion to overrule the objections to the enforcement raised under Section 48, if it finds that overall justice has been done between the parties. As such the Court may nonetheless direct the enforcement of the award.10 The Court considered the opening words of Section 48 which use permissive, rather than mandatory language, that enforcement "may be" refused.
- If the Court is satisfied that the application under Section 48 is without merit, and the foreign award is found to be enforceable, then under Section 49, the award shall be deemed to be a decree of "that Court". The phrase "that Court" refers to the Indian court which has adjudicated on the petition filed under Section 47, and the application under Section 48 and not any other court.
- The limited purpose of the legal fiction is for the purpose of the enforcement of the foreign award. The concerned High Court would then enforce the award by taking recourse to the provisions of Order XXI of the CPC.
C. Whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the foreign award?
- Before the Supreme Court, the Appellant contended that the
Malaysian courts, while deciding the challenge to the award, ought
to have applied the substantive law of the contract (in this case
Indian Law) and particularly the issue regarding conflict with the
public policy ought to have been decided in accordance with the law
expounded in Reliance Industries v. Union of
India11. The Supreme
Court, in order to answer this contention, endeavored to restate
the laws which are commonly applicable to international
arbitrations; enlisted as follows:
- Governing law- The governing law determines the substantive rights and obligations of the parties in the underlying commercial contract. This law would be applied by the Arbitral Tribunal to determine the merits of the claim before it.
- Law governing the arbitration agreement- The arbitration agreement constitutes a separate and autonomous agreement. The law governing the Arbitration Agreement would determine the validity and extent of the arbitration agreement, limits of party autonomy, the jurisdiction of the tribunal, etc.
- Curial law of the arbitration- The curial law is determined by the seat of the arbitration and governs the procedure of the arbitration, the commencement of the arbitration, appointment of arbitrator/s, grant of provisional measures, collection of evidence, hearings, and challenge to the award. The courts at the seat of arbitration exercise supervisory or "primary" jurisdiction over the arbitral proceedings.
- Lex Fori- the Lex Fori governs the proceedings for recognition and enforcement of the award in other jurisdictions.
- The Supreme Court reiterated that the courts having jurisdiction to annul or suspend the award are the courts of the State where the award was made or is determined to have been made i.e. at the seat of arbitration. The seat which is akin to the home of the arbitration in the present case, was Malaysia and the Malaysian Courts being the seat courts were justified in applying the Malaysian Act while deciding the public policy challenge raised by the Appellant. The Supreme Court held that the judgement in Reliance was inapplicable to the facts of the case.
- The Supreme Court further held that India being the enforcement court would examine whether the award was opposed to the public policy of India at the stage of enforcement under Section 48 of the Arbitration Act and the findings of the Malaysian Courts would not act as an impediment to such an adjudication. The Court held that if the award is found to be violative of the public policy of India, it would not be enforced by the Indian courts.
D. Whether the foreign award is in conflict with the public policy of India?
- The Supreme Court restated the definition of public policy as
has evolved since Renusagar Power Co. Ltd. v General
Electric Co. 12 and
noted as follows:
- As held in Renusagar, three categories constitute the expression "public policy of India" - "(1) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality",
- In Shri Lal Mahal Ltd. v Progetto Grano SPA13 the Supreme Court held that the Renusagar definition of public policy was applicable to challenges to foreign awards under the Arbitration Act but also held that a narrower interpretation was warranted in the context of enforcement of foreign awards as compared to challenges to a domestic award.
- Internationally, it was settled that in order to refuse enforcement on the ground of public policy, the decision would have to directly contradict the foreign law in such a manner, so as to make compliance with one a violation of the other.
- The Supreme Court also noted the legislative intent of narrowing down the definition of public policy by way of the amendments to Section 48 in the Amendment Act No. 3 of 2016, which came into force w.e.f. 23rd October 2015.14 Negating the argument of the Respondent that the amended provisions must be considered retrospectively and be made applicable to the dispute at hand, the Supreme Court noted that the amendments had introduced specific criteria for the first time and thus must be held to be prospective, irrespective of the use of clarificatory language. The Supreme Court, noting that the proceedings for enforcement were filed by the Respondents-Claimants on 14th October 2014 i.e. prior to the 2016 Amendment, further held that the amendments to Section 48 would not be applicable to the dispute. The challenge to the enforceability of the foreign award being contrary to public policy was thus to be tested on the parameters prior to the amendments as had been laid down in Renusagar.
- Dealing with the challenge on the grounds of public policy, the
Supreme Court considered various domestic and international
authorities with respect to the finality of awards in international
commercial arbitrations and the limits of judicial intervention on
the grounds of public policy of the enforcement State and held
- the Appellant had not made out a case for violation of due process in the conduct of the arbitral proceedings; and
- the Appellant had also not made out how the award conflicts with the basic notions of justice, or in violation of the substantive public policy of India.
- the challenge to the foreign award on the grounds of erroneous interpretation of the clauses of the PSC Agreement by the arbitral tribunal could not be sustained as it was not open for the Appellant to impeach the award on merits before the enforcement court. The interpretation of the terms of the PSC was held to lie within the domain of the arbitral tribunal.
- in any event, the interpretation taken by the arbitral tribunal was a plausible view.
- The Supreme Court reaffirmed that the enforcement court cannot re-assess or re-appreciate the evidence led in the arbitration and held that the enforcement court exercising jurisdiction under Section 48, cannot refuse enforcement by taking a different interpretation of the terms of the contract.
III. KEY TAKE AWAYS:
- Article 136 of the Limitation Act would not be applicable for enforcement/execution of a foreign award since a foreign award is not a decree of a civil court in India. Instead, the residuary provision i.e. Article 137 of the Limitation Act would apply which provides for a period of 3 years from when the right to apply accrues.
- In case there is a delay in filing the petition for enforcement/execution of a foreign award under the Arbitration Act, a party may file an application for condonation of delay under Section 5 of the Limitation Act. It would be open to a party to apply for condonation of delay on account of lack of clarity with respect to the period of limitation for enforcement of a foreign award.
- Before a foreign award is executed, an application must be made to seek enforcement of the award under Section 47 of the Arbitration Act. It is only after the Court considers the application under Section 47 and the objections under Section 48, that the foreign award may be executed as a decree of the Court under Order XXI of the CPC. It is however not necessary to file two separate applications for enforcement and execution of the award and both can be combined into one proceeding.
- The amendments to the definition of public policy in the Amendment Act No. 6 of 2016 would not be applicable to cases where proceedings have been filed prior to the coming into force of the amendments. However, in cases where the challenge to public policy has been raised, courts must still adopt a narrow definition when dealing with foreign awards contradistinguished from the cases involving challenges to domestic awards. The parameters on which the enforcement court could consider challenges to foreign awards on the grounds of public policy and in the interpretation of the terms of the contract have also been held to be narrow and without scope to reassess or reappreciate the evidence led in the arbitration.
1. Passed on 16th September 2020 in CIVIL APPEAL NO. 3185 OF 2020 (Arising out of SLP (Civil) No.7172 of 2020)
2. 2006 (3) Arb LR 510.
3. (2015) 6 Bom CR 258.
4. (2008) 1 Arb LR 344
5. (2020) 1 AIR Bom 82.
6. 2020 SCC Online SC 324
7. Under the "double execquatur" the foreign award was required to be filed before the seat court and a decree was to be obtained. The decree would then become enforceable.
8. (2001) 6 SCC 356.
9. Setting aside of a foreign award is a power which only vests with the court at the seat of arbitration.
10. Such as in cases such as when there is a minor violation of the procedural rules applicable to the arbitration, or if the ground for refusal was not raised in the arbitration.
11. (2014) 7 SCC 603
12. (1994) Suppl. (1) SCC 644.
13. (2014) 2 SCC 433.
14. W.e.f. 10-2015. Relevant provision of Section 48 after the amendment would read as follows: "48. Conditions for enforcement of foreign awards. –
(2) Enforcement of an arbitral award may also be refused if the Court finds that—
(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or
( b ) the enforcement of the award would be contrary to the public policy of India.
Explanation 1 .—For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,—
(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is in conflict with the most basic notions of morality or justice.
Explanation 2 .—For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
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.