SUPREME COURT OF INDIA
Government of India v. Vedanta Limited & Anr.
CIVIL APPEAL NO. 3185 OF 2020 | 16.09.2020
In 1994, the Production Sharing Contract (“PSC”) was signed between Government of India (“GOI”) on one side and Vedanta Limited, Ravva Oil Singapore Pte. Ltd. and Videocon Industries Ltd. (“Respondents”) on the other side to commercially explore and develop Ravva Oil and Gas Field. The dispute in the present appeal arose out of Article 15 of the PSC which provided for recovery of Base Development Costs (“BDC”) incurred by Respondents for developing the Ravva Oil Field.
The dispute was referred to arbitration under Article 34 of the PSC. The Arbitral Tribunal ruled in the favour of the Respondents. The GOI challenged the award before the Malaysian High Court wherein the Court rejected the challenge to the Award and subsequently an appeal was also preferred to Malaysian Court of Appeal which was also dismissed.
Meanwhile, a show-cause notice was issued by the GOI to the Respondents for raising the demand of USD 77 million of the GOI’s share of profit from petroleum under the PSC. By such notice, the Respondents were directed to show a cause why such amount ought not to be directly recovered from the amounts payable by the oil marketing companies. The GOI also filed an Application for Leave to Appeal which was also rejected by the Malaysian Federal Court.
The Respondents filed a petition for enforcement of the Award under Sections 47 read with Section 49 of the Arbitration and Conciliation Act, 1996 (“ the Act”). The GOI also filed an application under Section 48 of the Act resisting the enforcement of the Award on the grounds that it was filed beyond the period of limitation, enforcement was contrary to public policy and the matter was beyond the scope of the submission to arbitration.
The High Court of Delhi rejected the application under Section 48 and gave a direction to enforce the Award. Aggrieved by the order, the GOI preferred this Civil Appeal before the Supreme Court.
ISSUES BEFORE THE SUPREME COURT
1. Whether the application filed for enforcement of the award under Section 47 was barred by the limitation?
2. Whether the foreign award conflicts with the Public Policy of India?
CONTENTIONS OF THE PARTIES
I. The GOI contended that since there is no specific provision in the Limitation Act, 1963 for enforcement of foreign awards it would necessarily fall under Section 137 of the Limitation Act, 1963 that provides for 3 years and the right to apply would accrue from the date of making the award.
The Award was passed on 18.01.2011 and the petition was filed on 14.10.2014 which makes the petition barred by 268 days beyond the period of limitation. Additionally, the Respondents have not shown a sufficient cause for condonation of delay if they decide to invoke Section 5 of the Limitation Act, 1963.
Moreover, the conclusion arrived at by the High Court of Delhi that the enforcement of an arbitral award would be governed by a limitation period of 12 years as provided by Article 136 of the Limitation Act, 1963 is erroneous as Section 136 of the Limitation Act, 1963 applies only to a decree or order passed by the Indian Court. A foreign award couldn’t be treated as a decree of a Civil Court unless it passes the muster of Sections 47 to 49 i.e. only after it acquires the status of a decree.
The enquiry of enforceability needs to be done and thus the purposive interpretation given by the High Court could not be used to negate the express terms of statute which presupposed an enquiry. Thus, the reasoning adopted by the High Court is faulty.
Per-contra the Respondents contended that the Award didn’t attain the finality on 18.01.2011 when it was passed, it attained the finality at the seat Court on 10.05.2016 when the Federal Court of Malaysia rejected the application of Government of India seeking leave to appeal.
Moreover, in the Award passed the counterclaim of the GOI was allowed and on 10.07.2014 the Government issued the show-cause notice. Thus the right to apply for enforcement of award accrued on 10.07.2014.
Additionally, the application filed by the Respondents under Sections 47 and 49 of the 1996 Act was a composite application for enforcement and execution as per judgements of the Court in Fuerst Day Lawson Limited v. Jindal Exports Limited 2001 (6) SCC 356 and LMJ International Limited v. Sleepwell Industries Co. Ltd. 2019 (5) SCC 302.
Furthermore, there was uncertainty in the law as High Court of Madras has opined that limitation for enforcement of a foreign award would be 12 years while High Court of Bombay has termed it to be of 3 years. Thus, there was sufficient ground to condone the delay.
Moreover, there is a substantive difference between the execution of a foreign decree under Order XXI of the CPC and the enforcement application under Section 49 of the Act. The application was for enforcement under Section 47 of the Act and thus Section 5 would apply to empower the High Court to condone the delay.
II. The GOI contended that the Award was in conflict with the Public Policy of India as the Tribunal had ignored the Article 15.5(c) of the PSC which if read with Ravva Development Plan provides guidance for computation of the sum.
The GOI also submitted that the Tribunal ignored the other relevant provisions pf of the PSC which effectively substituted the language of the contract. Thus, the Award passed was in conflict with the Public Policy of India.
Additionally, the Counter Claim raised by the GOI was decided in such a way that was contrary to express provision of the contract. Lastly, by placing reliance on Reliance Industries v. Union of India (2014) 7 SCC 603 the GOI also contended that Malayasian Courts have erroneously applied Arbitration Act of Malaysia to uphold the validity of the Award where they were required to apply the Indian Law of Public Policy.
On the other hand, the Respondents contended that at this stage the issue of interpretation of the PSC and the review of the merits of the award could not be raised as the scope for inquiry under Section 48 of the Act is very limited and for this contention, reliance was placed on Shri Lal Mahal Ltd v. Progretto Grano Spa (2014) 2 SCC 433 and the Explanation 2 of Section 48 (2) of the Act.
By relying on Vijay Karia v. Prysmian Cavi E Sistemi Srl 2020 SCC OnLine SC 177 it was contended that the enforcement of an award can’t be refused by deducing a different interpretation of the contract. It was also submitted by the Respondents that they had chosen Kuala Lumpur, Malaysia as a seat of arbitration and now Indian Courts can’t be invited to relook at the merits of the case.
Lastly, it was contended that the view taken by the Tribunal was plausible as Article 15.5(e)(iii)(dd) is an exception and the range of physical characteristics of existing recoveries was materially different. Thus, the Award was not in conflict with the Public Policy of India.
DISCUSSION AND FINDINGS
I. The Supreme Court analysed the divergent views taken by the High Courts in Noy Vallesina Engineering Spa v Jindal Drugs Limited 2006 (3) Arb LR 510, Louis Dreyfous Commodities Suisse v Sakuma Exports Limited 2 (2015) 6 Bom CR 258 and Cairn India Limited v Union of India 2020 SCC Online SC 324 and then decided to discuss the issue at length.
The Court relying on Article III of the New York Convention on the Recognition and Enforcement of Foreign Awards, 1958 and Report of the General Assembly of the UN Commission on International Trade Law in its 41st Session dated 16th June – 3rd July, pertaining to the legislative implementation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards held that the enforcement is subject lex fori i.e law of the forum.
The Court later analysed Articles 136 and 137 of the Third Division of the Schedule to the Limitation Act, 1963 which provides a limitation period of 12 years and 3 years for execution of a foreign decree and residual purpose, respectively. Thereafter, the Court deduced that Section 36 of the Act created a statutory fiction for the enforcement of a ‘domestic award’ as a decree of the Court.
The Court relied on Bengal Immunity v State of Bihar & Ors., (1955) 2 SCR 603, and concluded that a statutory fiction is limited to the purpose for which it was created and it would be illegitimate to extend it beyond the scope of that purpose. So, Article 136 of the Limitation Act, 1963 couldn’t be applicable for enforcement and execution of a foreign award.
The Court ultimately concluded that as a foreign award is considered to be a deemed decree of the concerned High Court, according to the amended Explanation to Section 47 which confers exclusive jurisdiction on the High Court for the execution of foreign awards would be covered by Article 137 of the Limitation Act which prescribes a period of three years from when the right to apply accrues.
Moreover, the bar under Section 5 excludes any application filed under any of the provisions of Order XXI of the CPC would not be applicable to any substantive application filed under the Act and a party is at a liberty to file an application under Section 5 for condonation of delay.
The Court concluded on the issue that such an application was not barred by the time as on 10.07.2014, a show-cause notice was issued to the Respondents and the enforcement petition was filed on 14.10.2014 i.e. within three years of when the right to apply accrued. Thus, the application was not barred by limitation.
II. The Court firstly, discussed the scheme for enforcement of a foreign award in light of the anomalies in the impugned judgement. The Court held that a foreign award is not a decree by itself, the enforcement shall only take place when an Indian Court is satisfied that award is enforceable i.e. after having passed the muster of Sections 47 and 48 of the Act.
After having discussed the scheme of the Act for enforcement of New York Convention and having placed reliance on Indian as well as foreign judgements the Court ruled that the enforcement Court couldn’t take a review of the merits of the award and is conferred with the limited power to refuse the enforcement, only if the grounds mentioned in Section 48 are made out.
Second, the Court addressed the contention of the GOI regarding the applicability of the Malaysian Act. The Court after placing reliance on BALCO v Kaiser Aluminium (2012) 9 SCC 552 concluded that the Malaysian Courts being the seat Courts were justified in applying the Malaysian Act to the public policy contentions raised by the GOI. Additionally, even if the Malaysian Courts have upheld the Award, the Indian Courts could still scrutinize the Award under Section 48 of the Act to check whether the award was opposed to the public policy of India.
Third, the Court addressed the public policy challenge to the Award. The Court observed that the amended Section 48 would not be applicable to the present case, since the Court proceedings were initiated by the Respondents on 14.10.2014 and the 2016 Amendment Act came into force later on 23.10.2015.
Thereafter, the Court placed reliance on the judgment of the U.S. Court of Appeals for the 2nd Circuit in Parsons & Whittemore Overseas Co. Inc. v. Societe Generale De L’industrie du Papier (RAKTA) 508 F. 2d 969 (2nd Cir 1974) wherein it was held that “… the Convention’s public policy defense should be construed narrowly. Enforcement of foreign arbitral awards may be denied on this basis only where enforcement would violate the forum state’s most basic notions of morality and justice”
The Court also relied upon the Albert Van Den Berg’s opinion from his commentary The New York Arbitration Convention, 1958: Towards a Uniform Judicial Interpretation” at pp. 267-268 wherein it was opined that
“…under the Convention the task of the enforcement judge is a limited one. The control exercised by him is limited to verifying whether an objection of a respondent on the basis of the grounds for refusal of Article V (1) is justified and whether the enforcement of the award would violate the public policy of the law of his country. This limitation must be seen in the light of the principle of international commercial arbitration that a national Court should not interfere with the substance of the arbitration.”
Ultimately by relying on recommendations of the International Law Association in the 70th Conference known as the “ILA Recommendations, 2002” on Public Policy the Court rejected the submission of the GOI that the Award is contrary to the basic notions of justice on following grounds:
1. The GOI have not made a case of violation of procedural due process in the conduct of the arbitral proceeding.
2. The GOI have failed to show how the award conflicts the basic notions of justice or is in violation of the substantive public policy of India. Moreover, as held in Renusagar Power Co. Ltd. v General Electric Co. (1994) Suppl. (1) SCC 644 there should be great hesitation in refusing enforcement of the award unless it is shown that it was obtained by corruption, fraud or any other undue means. None of this was shown in the present case
3. The argument that the tribunal gave an erroneous interpretation of the PSC in such a manner that was equal to rewriting the contract also was not sustained as the Tribunal’s finding was based on evidence of Expert Witness who has concluded that there was a material change in the physical characteristics which were materially different from that contemplated in Ravva Development Plan.
4. The tribunal was justified to give interpretation to the terms of the PSC and Respondents can’t impeach the award on merits before an enforcing Court. The enforcing Court under Section 48 of the Act can’t refuse enforcement by giving an altogether different interpretation to the terms of the contract.
The Supreme Court regarding settled that the limitation period for filing an application for enforcement of a foreign award would be governed by Article 137 of the Limitation Act which prescribes a period of three years from when the right to apply accrues. In the view of the different positions taken by the various High Courts, it was extremely important to settle the issue of the limitation period which is very crucial for enforcing a right. Certainty in the law increases the confidence of the masses in the justice system. Additionally, addressing the contentious issues pertaining to arbitration also boosts the confidence of investors and motivates them to resort to alternate dispute resolution mechanisms.
Further, the Court held that an enforcing Court can’t examine the merits of the dispute and the role of the enforcing Court is limited to examine whether the Award violates the grounds mentioned in Section 48 of the Act. The Court restricted the scope of assailing the award on the ground of Public Policy which is indeed a great interpretation as the ground of Public Policy was being misused by the Indian Courts. Respecting the sanctity of the arbitral awards is extremely important to motivate the masses to take up alternate dispute resolution mechanisms as a means of resolving the disputes. The focus of the Courts should be reaching the finality of the disputes quickly. This approach will only aid the Indian judiciary to reduce the burden of arrears.
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