On September 16, 2020, the Indian Supreme Court in Government of India v. Vedanta Ltd (‘Vedanta’) settled the ambiguity regarding the applicability of the limitation period for the enforcement of foreign arbitral awards in India. In the year 2008, arbitral proceedings were initiated between Government of India (‘GOI’) and Vedanta Ltd., with Malaysia as the seat. Subsequently, the arbitral tribunal declared the award in favour of Vedanta Ltd. In 2011, the same was challenged by GOI in several Malaysian Courts. In 2014, the Malaysian Court of Appeal ruled in favour of Vedanta Ltd., thereby rejecting the appeal filed by GOI.
Thereafter, under section 47 and 49 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’), Vedanta Ltd. filed an application for the enforcement of the foreign arbitral award before the Delhi High Court. It upheld the enforcement of the award. Subsequently, the GOI filed an appeal before the Hon’ble Supreme Court of India (‘SC’) against the order of Delhi High Court. However, the SC upheld the ruling of the Delhi High Court but adopted a different approach regarding the applicability of the Limitation Act, 1963 (‘the Limitation Act’) on the foreign arbitral awards.
In this post, the authors will try to explain the applicability of the Limitation Act upon the enforcement of foreign arbitral awards in India. This post also seeks to analyse several divergent opinions rendered by various High Courts. Subsequently, the authors will discern the impact of Vedanta judgement on the aforementioned contradictory rulings of the High Courts. Finally, the post will critically appraise the Vedanta judgement as the authors firmly believe that irrespective of this judgement, the courts have not adequately delved into the issue pertaining to when does the limitation period initiates in context of the foreign arbitral award i.e., the courts have left a wide aperture for ambiguity as to when does the right to apply accrues.
Lack of Statutory Mechanism for enforcement
The enforcement of a foreign arbitral award is governed under Part II of the Arbitration Act – section 47 to 49. Section 47 provides the procedure for the actual enforcement of foreign awards, whereas section 48 lays down certain grounds based on which enforcement of foreign arbitral awards can be rejected. Now, according to section 49, any foreign award that passes the muster of section 48 is to be deemed as a decree of the civil court for the limited purpose of enforcement. In India, the Limitation Act governs the limitation period for initiating legal actions.
However, the Limitation Act and Part II of the Arbitration Act are silent regarding the time-frame of limitation for filing an application for enforcement of foreign awards. Article 136 of the schedule to the Limitation Act prescribes a limitation period of 12 years for execution of any decree or order of a civil court. Whereas, Article 137 provides a limitation period of 3 years for any other application other than those mentioned in the schedule.
Now, the prominent question before the court is whether the limitation period for foreign awards will be governed by Article 136 or 137, i.e. whether the limitation period is 12 years or 3 years respectively. This issue will be dealt at length in this post by a conspectus of several judicial rulings.
Inconsistent Judicial Rulings & The Vedanta Judgement
In the case of Noy Vallesina Engineering SPA v. Jindal Drugs Ltd, the division bench of the Bombay High Court opined that execution of a foreign award is a two-fold procedure- enforcement and execution. The first stage (enforcement) will be in accordance with Section 48 of the Arbitration Act, and the same shall have the limitation period of three years under Article 137 of the Limitation Act. In the second stage (execution), a foreign award is deemed to be a decree of a civil court, and thus Article 136 of the Limitation Act will be applicable, i.e., the execution stage shall have a limitation period of 12 years. This stance was confirmed again in 2015 by the Bombay High Court itself in the case of Louis Dreyfus Commodities Suisse v. Sakuma Exports Limited.
However, in M/s Bharat Salt Refineries Ltd. v. M/s Compania Naviera “SODNAC” & Anr, the Madras High Court was of the opinion that both the stages would have a limitation period of 12 years under Article 136 of the Limitations Act. By relying on the SC judgement of Fuerst Day Lawson v. Jindal Exports, the Madras High Court ruled that, since the foreign award is already stamped, it can be deemed to be a decree of a civil court and the award holder can straight away file for the enforcement of such award in the capacity of the decree-holder. The SC already put forth a similar opinion in the case of Thyssen Stahlunion GMBH v. Steel Authority of India Ltd.
Furthermore, in Cairn India Limited v. Union of India, the Delhi High Court resorted to a very maverick approach- since foreign award following the procedure under Section 47 of the Arbitration Act is in itself an independent foreign decree, it need not undergo the hurdle of section 48. Such award will be governed by Article 136 of the Limitation Act. Thus, the limitation period will be of 12 years. The Bombay High Court confirmed this view in Imax Corporation v. E-City Entertainment (I) Pvt. Limited.
These conflicting judgements show that there is an inconsistency in the Limitation period. The Apex Court settled this conundrum of application of Article 136 and 137 in Vedanta.
The SC, through Justice Indu Malhotra, in the Vedanta judgement, took a divergent approach and resolved the confusion regarding the application of Article 136 and 137 of the Limitation Act. The foreign arbitral award will be enforced according to Article 137, i.e. the limitation period for the enforcement of foreign award will be three years from when the right to apply accrues. The court went forward to reject the application of Article 136 as the court was of the opinion that the foreign arbitral award is not a decree of the civil court.
Analysis and Concluding Remarks
On a separate issue, the Vedanta judgement held that the courts should be reluctant to examine the foreign awards on merits and went forward to say that section 48 of the Arbitration Act must be interpreted in a very narrow way. Now, since the courts have resorted to a narrow interpretation on the grounds of refusal under section 48, the only challenge from the losing party’s end will be on the basis of limitation. Unclear position of the limitation period will result in an unreasonable delay for the execution of an award. However, this issue has been settled by Vedanta judgement as it brings adequate clarity on the perspective of the limitation period.
The Apex Court has achieved a laudable objective of settling the position regarding the applicability of the limitation period. However, the said judgement fails to answer the question when does the limitation period initiates in the context of Article 137 of the Limitation Act i.e., from when does the right to apply accrues. Does the limitation period initiate from the date of declaration of the foreign arbitral award? Or the limitation period commences from the date of execution? The court has not clarified this issue.
For instance, in an International Commercial Arbitration between P and Q where P is directed to pay $ 10 million to Q, the latter does not possess adequate assets. Instead of going to the court, Q negotiates with P as he believes that such negotiation will have a better possibility to satisfy Q’s claims. Now, if the negotiation requires more than 3 years, will Q be left remediless (limitation period of 3 years under Article 137 of the Limitation Act)? Thus, keeping in mind such obscurities, the courts must provide certain direction as to when does the limitation period commences.
From the above illustration, it is more or less clear that the court must refer each case individually on merits in order to determine from when does the limitation period commences. The authors wish to point out that no straight jacket formula can be imposed for this question. The Vedanta judgement is an ideal step in settling the confusion regarding the application of Article 136 and 137 of the Limitation Act. However, the Apex Court needs to provide a direction about the commencement of the limitation period.
By Ved Thakur, Gujarat National Law University, and Ishaan Paranjape, Adv. Balasaheb Apte College of Law