Supreme Court Clarifies Limitation for Enforcing Foreign Awards in Arbitration Cases: Government of India vs. Vedanta Limited (2020)

Supreme Court Clarifies Limitation for Enforcing Foreign Awards: Government of India vs. Vedanta Limited (2020)

LEGAL ISSUE: Limitation period for enforcing foreign arbitral awards in India.

CASE TYPE: Arbitration Law

Case Name: Government of India vs. Vedanta Limited

[Judgment Date]: 16 September 2020

Date of the Judgment: 16 September 2020
Citation: (2020) INSC 728
Judges: S. Abdul Nazeer, Indu Malhotra, Aniruddha Bose, JJ.

Can a foreign arbitral award be enforced in India after a delay? The Supreme Court of India recently addressed this crucial question in a case between the Government of India and Vedanta Limited. The court clarified the limitation period for enforcing foreign awards, resolving conflicting interpretations by various High Courts. This judgment has significant implications for international arbitration in India.

The Supreme Court bench comprised Justices S. Abdul Nazeer, Indu Malhotra, and Aniruddha Bose. The judgment was authored by Justice Indu Malhotra.

Table of Contents

Case Background

In 1993, the Government of India sought to develop petroleum resources in the Ravva Gas and Oil Fields. A global tender was issued, and Videocon International Ltd. and Command Petroleum Holdings NV (predecessors of the Respondents) submitted a bid.

On 28 October 1994, a Production Sharing Contract (PSC) was executed between the Government of India and several parties, including:
✓ Command Petroleum (India) Pty. Ltd. (later Cairn Energy India Pty. Ltd.)
✓ Ravva Oil (Singapore) Pte. Ltd.
✓ Videocon Industries Limited
✓ Oil and Natural Gas Corporation Ltd (ONGC).

The PSC was for 25 years, with development to be conducted as per the ‘Ravva Development Plan’. The Respondents were to carry out petroleum operations in the Ravva Field. The plan included drilling 19 oil and 2 gas wells.

Timeline:

Date	Event
1993	Government of India floats global tender for Ravva Oil and Gas Fields.
28 October 1994	Production Sharing Contract (PSC) executed.
1997-1998	Production rate of 35,000 BOPD achieved.
25 March 1998	Management Committee approved increased production of 50,000 BOPD.
1 April 1999	Government approved increased production of 50,000 BOPD.
1999-2000	Increased production rate of 50,000 BOPD achieved.
18 August 2008	Disputes referred to arbitration.
18 January 2011	Arbitral Tribunal passes the Award.
15 April 2011	Government of India challenges the Award in Malaysian High Court.
30 August 2012	Malaysian High Court rejects the challenge to the Award.
27 June 2014	Malaysian Court of Appeal dismisses the appeal.
10 July 2014	Government issues show cause notice to Respondents for US $77 million.
14 October 2014	Respondents file enforcement petition in Delhi High Court.
17 May 2016	Malaysian Federal Court rejects leave to appeal.
19 February 2020	Delhi High Court allows enforcement of the award.
16 September 2020	Supreme Court dismisses the appeal by Government of India.

Legal Framework

The dispute centered on Article 15 of the PSC, concerning the recoverability of Base Development Costs (BDC) incurred by the Respondents. Key clauses include:

✓ Article 11.2: Appendix F (Ravva Development Plan) is the approved development plan.

✓ Article 15.5:

(a) Development Costs are recoverable at 100% per annum.
(b) Contractor’s Base Development Costs are capped at 5% over the Base Development Costs.
(c) Defines “Contractor’s Base Development Costs” as costs for facilities to produce 35,000 BOPD, including drilling 19 oil and 2 gas wells, fixed at US $188.98 million.
(e) Specifies conditions for increasing the BDC cap, including changes in reservoir characteristics.

✓ Article 33: The PSC is governed and interpreted by Indian law.

✓ Article 34.12: The arbitration agreement is governed by the laws of England, and the venue of arbitration is Kuala Lumpur, Malaysia.

Arguments

Submissions on behalf of the Appellants (Government of India):

The enforcement petition was time-barred. Since there is no specific provision for enforcement of foreign awards, it falls under the residuary provision of Article 137 of the Limitation Act, 1963, which provides a limitation period of 3 years from when the right to apply accrues. The right to apply accrues from the date of the award. The award was passed on 18.01.2011, and the enforcement petition was filed on 14.10.2014, which was beyond the limitation period.
The execution petition should be treated as an application under Order XXI of the Code of Civil Procedure (CPC), which excludes the application of Section 5 of the Limitation Act, 1963, for condonation of delay. Section 5 of the Limitation Act, 1963, does not apply to applications under Order XXI of CPC.
The High Court erroneously applied Article 136 of the Limitation Act, 1963, which provides a 12-year limitation period, as it applies only to decrees of Indian civil courts, not foreign awards. A foreign award does not become a decree until it passes the muster of Sections 47 to 49 of the Arbitration and Conciliation Act, 1996.
The award is in conflict with the public policy of India. The tribunal ignored clauses of Article 15.5(c) of the PSC and Attachment 10 of the Ravva Development Plan, which formed the basis of computation of the Base Development Costs. The tribunal wrongly interpreted Article 15.5(c) by focusing only on the 35,000 BOPD production target, and not considering the drilling of 19 oil and 2 gas wells.
The Malaysian Courts erroneously applied the Malaysian Arbitration Act, 2005, while deciding the challenge to the award. The award should have been tested based on Indian law, as mandated by Article 33 of the PSC.

Submissions on behalf of the Respondents (Vedanta Limited):

The foreign award becomes a decree of an Indian court after the objections are adjudicated under Section 49 of the Arbitration and Conciliation Act, 1996. Thus, Article 136 of the Limitation Act, 1963, which provides a 12-year limitation period, applies.
Alternatively, if Article 137 applies, the limitation period commences when the right to apply accrues, which is not necessarily the date of the award. The right to apply accrued on 10.07.2014, when the Government issued a show cause notice. The limitation period would also commence when the award attained finality at the seat of arbitration (17.05.2016).
Section 5 of the Limitation Act, 1963, applies to enforcement petitions, which are substantive applications under Sections 47 and 49 of the Arbitration and Conciliation Act, 1996. The delay was justified due to uncertainty in law and the pendency of challenges in Malaysia.
The tribunal correctly interpreted Article 15.5(c) of the PSC. The cap of US $198 million applied only to facilities required to achieve the production capacity of 35,000 BOPD. The additional costs were justified due to materially different physical reservoir characteristics.
The interpretation of the PSC and the merits of the award cannot be reviewed under Section 48 of the Arbitration and Conciliation Act, 1996. The scope of inquiry under Section 48 is limited, and the Appellants cannot seek a review on merits.
The Government voluntarily chose Kuala Lumpur as the seat of arbitration and cannot invite Indian courts to revisit the merits of the case under the guise of Indian public policy.

Submissions by Parties

Main Submission	Government of India	Vedanta Limited
Limitation Period	3 years under Article 137, from the date of the award.	12 years under Article 136, or 3 years under Article 137 from the date of show cause notice or finality of award at seat.
Applicability of Section 5 of Limitation Act	Not applicable as execution petition falls under Order XXI CPC.	Applicable as enforcement petition is a substantive application under Sections 47 and 49 of the Arbitration and Conciliation Act, 1996.
Interpretation of PSC	Tribunal wrongly interpreted Article 15.5(c), ignoring the drilling of 19 oil and 2 gas wells.	Tribunal correctly interpreted Article 15.5(c), the cap applied only to 35,000 BOPD production, and the additional costs were justified.
Public Policy	Award is in conflict with public policy due to misinterpretation of PSC and Ravva Development Plan.	Award is not in conflict with public policy, and the merits of the award cannot be reviewed under Section 48.
Applicable Law at Seat Court	Malaysian Courts erroneously applied Malaysian Arbitration Act.	Malaysian Courts correctly applied Malaysian law as the curial law.

Issues Framed by the Supreme Court

What is the limitation period for filing an enforcement/execution petition of a foreign award under Section 47 of the Arbitration and Conciliation Act, 1996?
Whether the Malaysian Courts were justified in applying Malaysian law of public policy while deciding the challenge to the foreign award?
Whether the foreign award is in conflict with the Public Policy of India?

Treatment of the Issue by the Court

Issue	Court’s Decision	Reason
Limitation Period for Foreign Award Enforcement	Article 137 of the Limitation Act, 1963, applies (3 years from when the right to apply accrues).	Foreign awards are not decrees of Indian civil courts, and the application under Section 47 is a substantive petition not covered under Order XXI of CPC.
Applicability of Malaysian Law at Seat Court	Malaysian Courts were justified in applying Malaysian Law.	The curial law of the seat of arbitration (Kuala Lumpur) is Malaysian law.
Conflict with Public Policy of India	The foreign award is not in conflict with the public policy of India.	The tribunal’s interpretation of the PSC was a plausible view and did not violate the fundamental policy of Indian law or basic notions of justice.

Authorities

Cases Relied Upon by the Court:

Legal Provisions Considered by the Court:

Provision	Statute	Description
Article 136	Limitation Act, 1963	Period of limitation for execution of decrees or orders of civil courts (12 years).
Article 137	Limitation Act, 1963	Residuary provision for applications where no specific period is provided (3 years).
Section 5	Limitation Act, 1963	Extension of prescribed period in certain cases.
Section 47	Arbitration and Conciliation Act, 1996	Procedure for filing a petition for enforcement of a foreign award.
Section 48	Arbitration and Conciliation Act, 1996	Conditions for enforcement of foreign awards.
Section 49	Arbitration and Conciliation Act, 1996	Enforcement of foreign award as a deemed decree.
Section 37	Malaysian Arbitration Act, 2005	Application for setting aside an award.
Article 15.5	Production Sharing Contract	Recovery of Development Costs and 5% Cost Cap.

Judgment

How each submission made by the Parties was treated by the Court?

Submission	Court’s Treatment
Government’s submission that enforcement petition was time-barred under Article 137.	Rejected. Court held that Article 137 applies, but the petition was within the 3-year period or delay was condoned.
Government’s submission that execution petition falls under Order XXI CPC, excluding Section 5 of Limitation Act.	Rejected. Court held that Section 5 applies to substantive petitions under Sections 47 and 49 of the Arbitration and Conciliation Act, 1996.
Government’s submission that High Court erred in applying Article 136 of Limitation Act.	Accepted. Court held that Article 136 applies only to decrees of Indian civil courts.
Government’s submission that award is in conflict with public policy.	Rejected. Court held that the tribunal’s interpretation was plausible and did not violate public policy.
Government’s submission that Malaysian Courts erroneously applied Malaysian law.	Rejected. Court held that Malaysian Courts were justified in applying Malaysian law as the curial law at the seat of arbitration.
Respondents’ submission that Article 136 of Limitation Act applies.	Rejected. Court held that Article 136 applies only to decrees of Indian civil courts.
Respondents’ submission that the right to apply accrued later.	Accepted. Court held that the right to apply accrued when the Government issued the show cause notice, and the petition was filed within 3 months.
Respondents’ submission that Section 5 of Limitation Act applies.	Accepted. Court held that Section 5 applies to substantive petitions under Sections 47 and 49 of the Arbitration and Conciliation Act, 1996.
Respondents’ submission that the tribunal correctly interpreted Article 15.5(c).	Accepted. Court held that the tribunal’s interpretation was plausible.
Respondents’ submission that the merits of the award cannot be reviewed under Section 48.	Accepted. Court held that the enforcement court cannot review the merits of the award.
Respondents’ submission that Government voluntarily chose Kuala Lumpur as the seat of arbitration.	Accepted. Court held that the Government could not invite Indian courts to revisit the merits of the case under the guise of Indian public policy.

How each authority was viewed by the Court?

✓ BCCI v Kochi Cricket (P) Ltd. [2018] 6 SCC 287: Cited to state that execution of a foreign award is carried out under Order XXI CPC.

✓ Bank of Baroda v Kotak Mahindra Bank 2020 SCC OnLine SC 324: Cited to establish that Article 136 of the Limitation Act applies only to decrees passed by Indian courts.

✓ Renusagar Power Co. Ltd. v General Electric Co. 1994 Supp (1) SCC 644: Cited to define the scope of “public policy” as fundamental policy of Indian law, interests of India, or justice or morality

✓ Reliance Industries v. Union of India (2014) 7 SCC 603: Cited by the Appellants to argue that the Malaysian Courts should have applied Indian law.

✓ Shri Lal Mahal Ltd v Progretto Grano Spa (2014) 2 SCC 433: Cited to state that the enforcement of a foreign award does not allow for a second look at the merits of the award.

✓ Vijay Karia v Prysmian Cavi E Sistemi Srl 2020 SCC OnLine SC 177: Cited to state that the enforcement court cannot refuse enforcement by taking a different interpretation of the contract.

✓ Bharat Aluminium Co. v Kaiser Aluminium Technical Services Inc (2012) 9 SCC 648: Cited to state that the choice of another country as the seat of arbitration implies acceptance of the law of that country.

✓ Fuerst Day Lawson Limited v. Jindal Exports Limited 2001 (6) SCC 356: Cited to state that a party holding a foreign award can apply for enforcement, but the court has to proceed in accordance with Sections 47 to 49.

✓ LMJ International Limited v. Sleepwell Industries Co. Ltd. 2019 (5) SCC 302: Cited to state that enforcement petition and adjudication of objections are to be decided in a common proceeding.

✓ The Kerala State Electricity Board, Trivandrum v T.P. Kunhaliumma (1976) 4 SCC 634: Cited to state that the phrase “any other application” in Article 137 includes petitions filed under any special enactment.

✓ Param Singh Patheja v ICDS Ltd. (2006) 13 SCC 322: Cited to state that the legal fiction is limited to the purpose for which it was created.

✓ Bengal Immunity v State of Bihar & Ors. (1955) 2 SCR 603: Cited to state that legal fictions are created only for some definite purpose.

✓ State of Karnataka v State of Tamil Nadu 2017 (3) SCC 274: Cited to state that a legal fiction is meant to serve the purpose for which the fiction has been created and not intended to travel beyond it.

✓ ONGC v Saw Pipes (2003) 5 SCC 705: Cited by the Appellants to argue that the Malaysian Courts should have applied Indian law.

✓ ONGC v Western Geco (2014) 9 SCC 263: Cited to show the expansion of judicial review.

✓ Sedco Forex International Drill v Commissioner of Income Tax, Dehradun (2005) 12 SCC 717: Cited to state that an Explanation cannot be presumed to be retrospective, if it changes the law.

✓ Ssangyong Engineering & Construction Co. Ltd. v NHAI (2019) 15 SCC 131: Cited to state that even in cases where “for avoidance of doubt”, something is clarified by way of an amendment, such clarification cannot have retrospective effect if the earlier law has been changed substantially.

✓ Hindustan Construction Co. Ltd v. Union of India & Ors. 2019 (6) Arb LR 171 (SC): Cited to restore Section 26 of the 2016 Amendment Act.

✓ Parsons & Whittemore Overseas Co. Inc. v. Societe Generale De L’industrie du Papier (RAKTA) 508 F . 2d 969 (2nd Cir 1974): Cited to state that the public policy defense should be construed narrowly.

✓ International Navigation Ltd. v Waterside Ocean Navigation Co. Inc. 737 F.2d 150 (Second Circuit, 1984): Cited to state that the public policy defence must be interpreted in light of the overriding object of the New York Convention.

✓ PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2006] SGCA 41: Cited to state that public policy under the Act encompasses a narrow scope.

Decision

The Supreme Court held that:

✓ The limitation period for filing an enforcement petition of a foreign award is 3 years from the date when the right to apply accrues under Article 137 of the Limitation Act, 1963.

✓ The enforcement petition is a substantive application under Sections 47 and 49 of the Arbitration and Conciliation Act, 1996, and Section 5 of the Limitation Act, 1963, applies to it.

✓ The Malaysian Courts were justified in applying Malaysian law as the curial law of the seat of arbitration.

✓ The foreign award was not in conflict with the public policy of India.

The Court dismissed the appeal filed by the Government of India and upheld the Delhi High Court’s decision to enforce the foreign award.

Flowchart: Enforcement of Foreign Arbitral Award

Foreign Arbitral Award

↓

Filing of Enforcement Petition in Indian Court (Section 47)

↓

Adjudication of Objections (Section 48)

↓

Enforcement of Award as a Decree (Section 49)

↓

Execution of Decree (Order XXI CPC)

Ratio Decidendi

Ratio
The limitation period for enforcing a foreign arbitral award in India is governed by Article 137 of the Limitation Act, 1963, which provides a 3-year period from when the right to apply accrues. The court also clarified that the enforcement petition is a substantive application and Section 5 of the Limitation Act, 1963, applies to it.

Source: Government of India vs. Vedanta Limited