SC gives a go ahead to enforcement of Malaysian arbitral award in Government versus Vedanta; says it doesn’t contravene public policy of India

Supreme Court:  The 3-judge bench of SA Nazeer, Indu Malhotra and Aniruddha Bose, JJ has dismissed Central Government’s plea against enforcement of a 2011 foreign award passed in favour of Vedanta Limited in a dispute arising out of a contract for exploring and developing the petroleum resources in the Ravva Gas and Oil Fields. The Court held,

“the enforcement of the foreign award does not contravene the public policy of India, or that it is contrary to the basic notions of justice.”

On 19 February 2020 the Delhi High Court had directed the enforcement of the foreign award by the Vedanta Limited.

On applicability of amended Section 48 of the Arbitration & Conciliation Act, 1996

In Renusagar Power Co. v General Electric Co., 1994 Supp (1) SCC 644, this Court held that “public policy” comprised of (1) the fundamental policy of Indian law; (2) interests of India; and (3) justice or morality.

Section 48 of the Arbitration and Conciliation Act, 1996 was amended by Act 3 of 2016. By this amendment, the public policy ground was given a narrow and specific construction by statute, by the insertion of two Explanations. The 2016 Amendment has dropped the clause “interests of India,” which was expounded by the Renusagar judgment

“The two Explanations in Section 48 begin with the words “For the avoidance of any doubt.” It cannot, however, be presumed to be clarificatory and retrospective, since the substituted Explanation 1 has introduced new sub-clauses, which have brought about a material and substantive change in the section. A new Explanation 2 has been inserted which states that 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 Court, hence, held that since the amendments have introduced specific criteria for the first time, it must be considered to be prospective, irrespective of the usage of the phrase “for the removal of doubts.”

It was, hence, held that the amended Section 48 would not be applicable to the present case, since the court proceedings for enforcement were filed by the Respondents-Claimants on 14.10.2014 i.e. prior to the 2016 Amendment having come into force on 23.10.2015.

Whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the foreign award?

The Court held that the Malaysian Courts being the seat courts were justified in applying the Malaysian Act to the public policy challenge raised by the Government of India. The enforcement court would, however, examine the challenge to the award in accordance with the grounds available under Section 48 of the Act, without being constrained by the findings of the Malaysian Courts.

“Merely because the Malaysian Courts have upheld the award, it would not be an impediment for the Indian courts to examine whether the award was opposed to the public policy of India under Section 48 of the Indian Arbitration Act, 1996.”

If the award is found to be violative of the public policy of India, it would not be enforced by the Indian courts. The enforcement court would however not second-guess or review the correctness of the judgment of the Seat Courts, while deciding the challenge to the award.

Whether the foreign award is in conflict with the Public Policy of India?

Rejecting the contention that the award may not be enforced, since it is contrary to the basic notions of justice, the Court noticed that the Government has neither been able to prove that the violation of procedural due process in the conduct of the arbitral proceedings nor have they been able to prove that the award is in conflict with the basic notions of justice, or in violation of the substantive public policy of India.

The Court noticed that the  enforcement may be refused only if it violates the enforcement State’s most basic notions of morality and justice, which has been  interpreted to mean that there should be great hesitation in refusing enforcement, unless it is obtained through “corruption or fraud, or undue means.”

On limitation for filing an enforcement/execution petition of a foreign award under Section 47 of the 1996 Act

The Court held that the period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49, would be governed by Article 137 of the Limitation Act, 1963 which prescribes a period of three years from when the right to apply accrues.

The Court noticed:

  • The limitation period for filing the enforcement / execution petition for enforcement of a foreign award in India, would be governed by Indian law. The Indian Arbitration Act, 1996 does not specify any period of limitation for filing an application for enforcement/execution of a foreign award. Section 43 however provides that the Limitation Act, 1963 shall apply to arbitrations, as it applies to proceedings in court.
  • The Limitation Act, 1963 does not contain any specific provision for enforcement of a foreign award. Articles 136 and 137 fall in the Third Division of the Schedule to the Limitation Act. 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”.
  • The legislature has omitted reference to “foreign decrees” under Article 136 of the Limitation Act. The intention of the legislature was to confine Article 136 to the decrees of a civil court in India. The application for execution of a foreign decree would be an application not covered under any other Article of the Limitation Act, and would be covered by Article 137 of the Limitation Act.
  • Foreign awards are not decrees of an Indian civil court. By a legal fiction, Section 49 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,

“Article 136 of the Limitation Act would not be applicable for the enforcement/execution of a foreign award, since it is not a decree of a civil court in India.”

  • The enforcement of a foreign award as a deemed decree of the concerned High Court [as per the amended Explanation to Section 47 by Act 3 of 2016 confers exclusive jurisdiction on the High Court for execution of foreign awards] would be covered by the residuary provision i.e. Article 137 of the Limitation Act.

On the Scheme of the 1996 Act for enforcement of New York Convention awards

The enforcement Court cannot set aside a foreign award, even if the conditions under Section 48 are made out. The power to set aside a foreign award vests only with the court at the seat of arbitration, since the supervisory or primary jurisdiction is exercised by the curial courts at the seat of arbitration.

“The enforcement court may “refuse” enforcement of a foreign award, if the conditions contained in Section 48 are made out. This would be evident from the language of the Section itself, which provides that enforcement of a foreign award may be “refused” only if the applicant furnishes proof of any of the conditions contained in Section 48 of the Act.”

Further, 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, but is conferred with the limited power to “refuse” enforcement, if the grounds are made out.

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 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.”

[Government of India v. Vedanta Limited, 2020 SCC OnLine SC 749, decided on 16.09.2020]

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