The Limitation for Enforcement of Foreign Awards Conundrum – Analysis of Vedanta Judgement

Charvi Krishna*

Introduction

The Indian Judiciary has always been in a dilemma on the issue of deciding a limitation period for enforcing a foreign arbitral award in India. Various high courts have given varying judgements, which has only furthered the problem of enforcement. The Arbitration and Conciliation Act, 1996 (Hereinafter, ‘Arbitration Act’) is silent on the limitation period for enforcing a foreign award. This allows for the application of provisions laid down in the Limitation Act, 1963 (Hereinafter, ‘Limitation Act’). Though the high courts fluctuated between articles 136 and 137 of the Limitation Act, the Supreme Court has finally answered this question on 16th September 2020 in Government of India v. Vedanta Ltd. (Hereinafter, ‘Vedanta Judgement’). The author aims to understand the reasoning given by the Supreme Court in the present case and its implications in the field of arbitration. 

Background

In the instant case, the arbitral award was passed on 18.01.2011, after which the cost account statements were revised and the Respondents paid US $ 22 million to the Government of India. Further, on 10.07.2014, a show-cause notice was issued to the Respondents by the Government, raising demand of US $ 77 million, which was the Government’s share of profit under their ‘Production Sharing Contract’. Hence, the cause of action for filing the enforcement petition under section 47 (Evidence) and 49 (Enforcement of Foreign Awards) of the Arbitration Act arose on 10.07.2014. The petition was then filed on 14.10.2014. This was challenged by the Appellants by contending that the limitation period for enforcement had lapsed.

Primarily, two articles of the Limitation Act were taken into consideration, i.e., Article 136 and Article 137. The former lays down the period of limitation as 12 years for the execution of any decree or order of any civil court. Whereas the latter establishes the limitation period as 3 years for any application from ‘when the right to apply accrues’ for which no period of limitation is provided. Thus, it was the duty of the Supreme Court to decide between the two.

Precedents set by High Courts  

A single-judge bench of the Bombay High Court in Noy Vallesina Engineering Spa v. Jindal Drugs Ltd. held that the enforcement process should be carried out in two phases. Firstly, Article 137 would be applicable for deciding the enforceability of the foreign award. Secondly, after determination of enforceability, the award is deemed to be a decree and will hence be governed by Article 136. The Madras High Court, on the other hand, in Bharat Refineries Ltd. v. M/s. Compania Naviera ‘SODNOC’ held that an award is already stamped as a decree. Hence, Article 136 would be applicable. This was also reiterated by the Bombay High Court in Imax Corporation v. E-City Entertainment by taking into consideration the Supreme Court’s judgement in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. of a foreign award being stamped as a decree.

In the impugned judgement of Cairn India Ltd. v. Union of India, the Delhi High Court stated that there exist three stages for the execution of an award, namely, access, recognition, and enforcement. Since Section 47 of the Arbitration Act deals with the first two stages, the award is deemed as a ‘foreign decree’. Due to this Article 136 would be applicable. Even if Article 137 was applicable, it will be viewed as sufficient grounds for condonation of delay under Section 5 of the Limitation Act.  

Vedanta Verdict

The Supreme Court strayed away from the judgements of various high courts and gave the following verdict –

  • Since the issue of limitation is procedural in nature, it will be subjected to lex fori (law of the State), where the foreign award is sought to be enforced. Further, Section 43 of the Arbitration Act allows the Limitation Act to be applicable in all arbitration cases.
  • The period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49 of the Arbitration Act will be governed by Article 137 of the Limitation Act. This implies that the limitation period will be for a period of three years from when the right to apply accrues.
  • Article 136 will not be applicable since foreign awards are not decrees of an Indian civil court. Hence, enforcement of a foreign award as a deemed decree of the concerned High Court will be covered by the residuary provision of the Limitation Act, i.e. Article 137.
  • Moreover, Section 5 of the Limitation Act will also be applicable for condonation of delay in case the court is satisfied that there lies sufficient grounds for delay of enforcement of a foreign award.
  • Only after a foreign award satisfies the conditions laid down in Sections 47 and 48 of the Arbitration Act, it is deemed as a decree under Section 49. The court will then execute the award based on Indian laws available for execution of decrees.

Analysis

The Vedanta judgement has certainly resolved various ambiguities that existed about the limitation period for enforcement of foreign awards. It has been established that Article 137 of the Limitation Act will be applicable for enforcement. Therefore, the verdict given by the Supreme Court depicts the following implications –

  1. Upholds the Pro-Enforcement Bias of the New York Convention

Article V of the New York Convention, 1958 lays down conditions for refusal of recognition and enforcement of arbitral awards. However, there exists a pro-enforcement bias with respect to this Article. The same has been reflected under Section 48 of the Arbitration Act. Moreover, the Supreme Court in various judgements including Fuerst Day Lawson, Kandla Export Corporation, among others have upheld the pro-enforcement bias under Section 48. Similarly, the Vedanta judgement has maintained this stance on the enforcement of foreign awards.

The Supreme Court, in the instant case, has decided 3 years to be the limitation period for filing a petition for the enforcement. This implies that a foreign award should be enforced at the earliest opportunity once it satisfies the conditions laid down in Sections 47 and 48. It is highly probable that the losing party would want to object to enforcement by stating limitation. To avoid a situation that would unnecessarily delay enforcement of an award, Article 137 was accepted as the period for limitation. In fact, the court has also stated that the grounds of refusal should be interpreted narrowly to uphold the pro-enforcement stance of the New York Convention. Thus, there will be prompt disposal of enforcement petitions without raising the objection of limitation

2. No scope for unfairness in enforcement

The enforcement petitions have certainly been filed by taking into consideration Article 136 of the Limitation Act. Since the Vedanta judgement has established Article 137 as the valid provision, any enforcement petition filed after 3 years will lapse. However, the Supreme Court has considered this by allowing the party condonation of delay under Section 5 of the Limitation Act. Further, the bar contained under Section 5 which excludes any application filed under the provisions of Order XXI of the Code of Civil Procedure, 1908, will not apply to any substantive petition filed under the Arbitration Act. Though this will be subjective in nature, varying on the facts and circumstances of the case, nonetheless, it has certainly bridged the gap between any form of unfairness that might arise while enforcing the award.

3. ‘When the Right to Apply Accrues’

Though the Supreme Court has answered the question of the limitation period for enforcement of foreign awards, there exists an uncertainty regarding when exactly the right to apply accrues under Article 137. One could assume that the right to apply accrues on the date of the award. However, it may differ on the basis of facts and circumstances of various cases. The duty would thus lie upon the courts to decide the accurate time to apply for enforcement.

Conclusion

The Supreme Court in its Vedanta judgement has cleared several obscurities pertaining to the limitation period for enforcement of foreign awards. There now exists uniformity in the Judiciary with respect to the applicable provision from the Limitation Act. The apex court has accurately analyzed the issue by allowing 3 years to be the limitation period. Further, upholding the pro-enforcement bias of the New York Convention through the Limitation Act has primarily led to the development of arbitration in India. Had Article 136 been applicable it would have taken an immense amount of time to first, establish the award as a decree, and then enforce it in Indian courts. Arbitration finds relevance from its nature of disposing cases expeditiously. Allowing 12 years to be the limitation period under Article 136 would defeat the purpose of the arbitration.

Hence, Article 137 is better suited to the limitation period for the enforcement of foreign awards. The basic principles of arbitration must be maintained. The foreign award would be rendered ineffective if it is not allowed to be enforced. This would also result in loss of money and time spent in the arbitration process. Establishing Article 137 as the valid provision not only clears all confusion but also upholds the standard and basic premise of arbitration. Since the Arbitration Act in itself is a self-contained code, the Legislature need not add an additional provision for limitation. However, at the same time, there lies a need for the Supreme Court to elaborate on when the right to apply accrues.


*The author is a third-year student at Symbiosis Law School Pune.


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