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Supreme Court clarifies several Issues in the Enforcement of Foreign Awards

Contributed by: Samvad Partners

The Supreme Court has decided an appeal arising out of enforcement of a foreign award under a Product Sharing Contract (‘PSC’) for exploring and developing the Ravva oil and gas fields in the Bay of Bengal, in the judgement Government of India v. Vedanta Limited & Ors., CA No. 3185/2020 dated 16 September 2020 (‘Judgement’). The Supreme Court rejected all the objections raised by the Government of India (‘GoI’) and held that the award rendered by an arbitral tribunal seated in Malaysia was enforceable in India.

Background to the Dispute

In 1994, GoI entered into the concerned PSC with the Respondents for a period of 25 years. The PSC was governed by Indian law, and the arbitration clause in the PSC provided that ‘venue’ of the arbitration proceedings shall be Kuala Lumpur, Malaysia. The arbitration clause further provided that the arbitration agreement under the PSC shall be governed by English law.

Disputes arose among the parties and the same were referred to arbitration under the PSC on August 2008 before a 3-member arbitral tribunal. The tribunal passed its award on 18 January 2011 (“Award”), finding in favour of the Respondents and awarded excess development costs of about USD 278.87 million to the Respondents. The Award also provided that GoI would be entitled to a credit for a sum of about USD 22 million in the final settlement recovery accounts, which had been wrongly recovered by the Respondents during the operation of the PSC.

GoI applied to set aside the Award under the Malaysian Arbitration Act, 2005 (‘Malaysian Act’) before the Malaysian High Court. The said challenge to the Award was dismissed, which had also been confirmed in appeal by the Malaysian Court of Appeal in 27 June 2014. GoI’s application for leave to appeal before the Malaysian Federal Court against the same was also rejected on 17 May 2016.

While the proceedings before the Malaysian Federal Court were pending, the Respondents had filed a petition for enforcement of the Award under Sections 47 and 49 of the Arbitration and Conciliation Act, 1996 (‘A&C Act’) before the Delhi High Court, along with an application for condonation of delay.

GoI also filed an application under Section 48 of the A&C Act before the Delhi High Court resisting the enforcement of the Award on grounds including that the enforcement petition was barred by limitation, that the enforcement was contrary to the public policy of India, and that the Award contained decision on matters beyond the scope of the submission to arbitration. The Delhi High Court rejected GoI’s objections to enforcement of the Award, and directed enforcement by way of its judgement dated 19 February 2020, which was impugned before the Supreme Court.

Decision of the Supreme Court

  1. Period of Limitation for Initiating Enforcement of Foreign Awards: The Judgement held that Article 137 of the Limitation Act, 1963 (‘Limitation Act’) would apply for proceedings under Sections 47 and 49 of the A&C Act. Article 137 of the Limitation Act is the residuary provision and provides for a limitation period of 3 years from ‘when the right to apply accrues’. In contrast, the period of limitation for enforcement of a civil court decree is 12 years. It has also been clarified that Section 5 of the Limitation Act would apply for such proceedings, which enables the court to extend the period of limitation where sufficient cause is shown.

  2. When Foreign Awards becomes Enforceable as a Decree: The Judgement held that a foreign award becomes enforceable as a deemed decree of a court after the stages of Sections 47 (provides for filing of proper evidence of award) and 48 (provides for grounds to object to the enforcement) of the A&C Act are completed before a court in the jurisdiction where enforcement is sought.

  3. Grounds for Refusing Enforcement: The Judgement has clarified and streamlined the role of courts in deciding the objections to enforcement of a foreign award, which represents a significant pro-enforcement inclination. A few prominent findings are as follows:

  4. The enforcement court cannot set aside a foreign award, as setting aside proceedings are governed by the jurisdiction of the seat of the arbitration and the enforcement court does not sit in appeal over the same.

  5. The court has the discretion to not refuse enforcement if it finds that overall justice has been done between the parties, even when the existence of one or more grounds under Section 48 of the A&C Act had been shown to have existed.

  6. In this case, the Court found that the Malaysian Courts were justified in applying the Malaysian Act to the public-policy challenge raised by GoI in the setting-aside proceedings (GoI’s position was that Malaysian courts should have decided the public-policy ground as per Indian law in view of the governing law of PSC). However, it was also held that the enforcement court in India need not be constrained by the findings in the setting aside proceedings to examine the grounds under Section 48 of the A&C Act: in this case, the Indian court was to examine the Award on whether it violated public policy of India.

  7. In examining a foreign award the enforcement court must be guided by the principles of: (i) no review on merits; (ii) narrow interpretation of the grounds for refusal; and (iii) limited discretionary power.

  8. The Court affirmed the position that there should be great hesitation in refusing enforcement unless an award is obtained through corruption, fraud, or undue means. In this case, GoI’s public-policy objection that the Award was contrary to the basic notions of justice were rejected as no case was made out for violation of procedural due process in the conduct of the arbitration.

  9. The enforcement court cannot reassess the evidence or sit in appeal over the merits of the foreign award, and cannot refuse enforcement by taking a different interpretation of the terms of the contract.

Contributed by Samvad Partners

The above article has been authored by Mr. Arjun Krishnan(Partner) and Mr. Kaustav Som(Associate)

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