BACKGROUND

The ambiguity with regard to the limitation period involved in the enforcement of foreign arbitral awards has been an issue since a very long time with different High Courts passing contrary judgements1. The longstanding ambiguity has finally been settled by the Supreme Court in the case of Government of India v. Vedanta Limited2.

The Court in this case interpreted the two sections namely section 136 and 137 of the Limitation Act at length in order to ascertain the applicability of the respective sections in case of the limitation period involved in the execution of the Foreign Arbitral Award and held that the limitation period involved in the execution of the Foreign Arbitral Award would be governed by Section 137 of the Limitation Act.

FACTS IN BRIEF

The present case is an appeal filed by the Government of India challenging the judgement of the Delhi Court dated 19.02.2020. The case revolves around the Product Sharing Agreement (PSC) being executed between the two parties for commercial exploration and development of the Rava Oil and Gas Field. Disputes arose between the parties with regards to the recovery of the Based Development Costs incurred by the Respondents as per Article 15 of the PSC which was referred for arbitration seated in Malaysia, subsequent to which an award was passed in favor of the Respondent on 18.01.2011.

The Respondents filed an execution of the award before the Delhi High Court and the Government, interalia, was accordingly instructed to make the payments. Thereafter, the Government filed an application challenging the enforcement of the award on grounds of Limitation Period under Article 136 of the Act.

ISSUES IN QUESTION

  • Whether Malaysian Courts were justified in applying the Malysian Law of public policy while dealing with the challenge of the arbitral award?
  • Whether enforcement of the award was beyond the Limitation period permitted for the enforcement of the foreign arbitral award under the Limitation Act?

CONTENTIONS OF THE PARTIES

CONTENTIONS ON BEHALF OF THE PETITIONERS:

The contentions on behalf of the Government included the non- maintainability of the petition on grounds of it being barred by limitation. It was argued that since there is no stand-alone provision in the Limitation Act for the enforcement of the foreign arbitral award therefore the enforceability of the award would be governed as per the residuary provision of article 137 of the Limitation Act. Applying the arguments to the facts at hand, since the award was passed on 18.01.2011 and the enforcement petition was filed on 14.10.2014, it was argued that the petition is beyond the period of limitation and hence barred.

The Government further contended that the execution petition has to be treated in parity with Order XXI of the CPC thereby stating that the execution of the Foreign Award is to be carried out as per Order XXI of the CPC.3 Since , Section 5 of the Limitation Act excludes from its purview the applications filed under Order XXI of the CPC therefore, the delay in filing the application could not be condoned. The erroneous finding of the High Court4 pertaining to the applicability of Article 136 of the Limitation Act in case of execution of foreign arbitral award was also bought forth by the Government so as to distinguish the applicability of the said article only to a decree or order passed by the Indian Court and not on the foreign award which is not a decree of a civil Court.

With regard to the issue of the public policy, it was vehemently argued by the Government that the findings arrived at by the tribunal are in contravention to the express provisions of the contract further stating that the Malaysian Courts have wrongly applied the Malaysian Arbitration Act, 2005 while deciding upon the challenge as the Award ought to be tested as per the Indian Law in accordance with Article 33 of the PSC executed between the two parties.

CONTENTIONS ON BEHALF OF RESPONDENTS:

The Respondents argued that once the foreign award has been duly adjudicated by the Courts enforcing the award, it becomes a decree of the Court thus prompting the applicability of Article 136 of the Limitation Act. The Respondents argued that the foreign award was passed on 18.01.2011 and the enforcement of the award was called for well within the limitation period i.e. within 12 years as per Article 136 of the Limitation Act.

Further, opposing the contentions of the Government, the Respondent argued that Section 5 of the Limitation Act would be applicable in case of any appeal or application irrespective of Foreign Award being governed under the provisions of Article 136 or Article 137 of the Limitation Act.5 Further, the enforcement of the domestic award as provided under Section 36 refers to the provisions of CPC particularly the applicability of Order XXI, however Section 49 dealing with the Foreign Award does not provide for the governance of CPC in the enforcement process thereby suggesting that the application filed for enforcing the foreign award is a substantive application under Section 47 and not under Order XXI of the CPC. Thus, section 5 would be applicable thereby giving High Courts the statutory power to condone the delay in filing the application for enforcement of the award.

The Respondents further submitted that the Tribunal had taken reasoned decision while computing the amount to be paid to the Respondents and with regard to issue of interpretation of the PSC, the review of the Award on merits cannot be raised in light of the limited scope of Section 48 of the Arbitration and Conciliation Act.6 Lastly, it was submitted that the seat of arbitration was voluntarily chosen by the parties to be Kuala Lampur, Malaysia and the Government cannot take the defense of Indian public policy for revisiting the merits of the case under the limited scope of Section 49.7

HELD:

Limitation Period for the execution of the application filed under Section 47 and Section 49 for the enforcement of the Foreign Arbitral award would be governed by Article 137 of the Limitation Act providing for a period of 3 years from which the right to apply accrues.

ANALYSIS

[1] LIMITATION PERIOD FOR FILING THE ENFORCEMENT PETITION OF THE FOREIGN ARBITRAL AWARD:

To answer this issue, the Court took into consideration the divergent views taken by different High Courts particularly the Bombay High Court8 wherein it was held that the enforcement of the Foreign Award would be done in two stages In the first stage, the enforceability of the foreign award is to be decided which would be governed as per the residuary provision of article 137 and the second stage would be when the issue of enforceability is settled and the award would be deemed as a decree of the Court which would be governed by the provisions of Article 136 of the Limitation Act. However, in the subsequent case9, the Bombay High Court held that the limitation period for the enforcement of the foreign arbitral award would be taken as 3 years from the date when the right to apply accrues. While taking into account various decisions pertaining to the issues in question and the Reports of the General assembly, the Supreme Court came to the conclusion that the recognition and the enforcement of the foreign arbitral award should be done as per the rules and procedures of the State where the award is to be enforced holding that the time limit of which shall be specifically stated in the national legislation for the enforcement of the Award or under the General rules as applicable to the Court proceedings.

Thus, the period of limitation for enforcement of the Foreign Arbitral Award shall be governed by the provisions of the Indian Law. Since the Arbitration Act of 1996 does not expressly provide for the limitation period for the execution of the Foreign Arbitral Award, the sections have to be interpreted accordingly. Section 43 of the Act provides that the Limitation Act shall be applicable to the arbitrations akin to its applicability in the proceedings of the Court. Interpreting the provisions, the Court analyzed that Section 36 of the Arbitration Act creates a statutory fiction for the purpose of enforcing the domestic award as the decree of the Court even though in the essence it is not a decree of the civil Court. Therefore, it can be interpreted that it is only for the purpose of enforcement that the domestic award is considered as the decree of the Court. Thus, Arbitral Tribunal can neither be taken to be a Court and nor can the arbitral proceedings be taken as the Civil Proceedings. Keeping in view the intention of the legislature of omitting foreign decrees from the purview of Article 136 to confine its applicability in the execution of the foreign decree as it is not the decree of the civil Court, it is only fair to consider that the execution of the foreign decree would not be covered under Article 136 of the Limitation Act but would be governed by the residuary provision of Article 137 providing for a 3 year limitation span for the execution of the Foreign award.

The issue pertaining to the bar contained in Section 5 would not be applicable in cases of substantive petitions that are filed under the Arbitration and Conciliation Act thus the party is free to file an application for condonation of delay as per the facts and circumstances of the case.

In light of the facts and circumstances of the case, the cause of action for filing of the petition for enforcement as per Section 47 and 49 arose on 10.07.2014 and the enforcement petition was filed on 14.10.2014 that is well within the prescribed limitation period under Article 137 of the Limitation Act, 1963.

[2] MALAYSIAN COURTS WAS JUSTIFIED AND AT PAR WITH THE PUBLIC POLICY OF INDIA

With regard to the issue of the public policy, the Judiciary opined that since the seat of the arbitration was voluntarily chosen as Kuala Lumpur, Malaysia the crucial law would be Malaysian Law. The Malaysian Act states that the defense of public policy is to be determined as per the Malaysian Law which is in parity with the New York Convention. The seat Courts however while deciding upon the public policy aspect would decide as per its own domestic public policy.

The Court answered the issue in affirmative holding that the Malaysian Courts have rightly examined the aspect of public policy in line with the Malaysian Act. While placing reliance on the landmark judgements10 with regard to the public Policy, the Court concluded that the Public policy defense should be construed in a narrow sense. The enforcement of the foreign arbitral award may be denied if the enforcement of the award would violate the Forum State's most basic notions of morality and justice. Since the appellants have not made out the particulars as to why the award violates the most basic notions of morality and justice, the public policy defense cannot be claimed.

CONCLUSION

This case can be taken as a welcome step in settling the divergent views taken by the High Courts with regard to the applicability of Article 136 and Article 137 of the Limitation Act in deciding upon the Limitation Period. However, the Judgement does not clarify the stance with respect to the pending enforcement applications that are filed after 3 years from when the right accrued. Also, no clarification was provided as to when the right to apply shall accrue in the enforcement of a Foreign Arbitral Award which needs to be clarified by the Legislature which aligns with the Pro enforcement approach taken by the Apex Court.

Footnotes

1. Louis Dreyfous Commodities Suisse v. Sakuma Exports Limited, (2015) 6 Bomb CR 258; Cairn India Ltd. v Union of India , 2020 SCC Online SC 324; Imax Corporation v. E-City Entertainment (I) Pvt. Limited (2020) 1 AIR Bomb 82

2. Government of India v. Vedanta Limited , AIR 2020 SC 4550

3. BCCI v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287

4. Bank of Baroda v. Kotak Mahindra Bank AIR 2020 SC 1474

5. International Limited v. Sleepwell Industries Co. Ltd,2019 (5) SCC 302; Fuerst Day Lawson Limited. v. Jindal Exports Limited, 2001 (6) SCC 356

6. Sri Lal Mahal Ltd. V. Progretto Grano Spa, (2014) 2 SCC 433

7. Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc, (2012) 9 SCC 648

8. Noy Vallesina Engineering Spa v. Jindal Drugs limited, 2006 (3) Arb 510

9. Louis Dreyfous Commodities Suisse v. Sakuma Exports Limited, (2015) 6 Bomb CR 258

10. Renusagar Power Co. Ltd. v. General Electric Co. AIR 1994 SC 860; Reliance Industries v. Union of India, (2014) 7 SCC 603

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