Government of India v. Vedanta Limited: Supreme Court fortifies pro-enforcement approach, clarifies limitation period

[This guest post is authored by Dhriti Mehta and Donika Wahi. They are students at Campus Law Centre, University of Delhi.]

Government of India v. Vedanta Limited: Supreme Court fortifies pro-enforcement approach, clarifies limitation period

The Supreme Court recently in a judgment titled Government of India (GOI) v Vedanta Ltd.[1] (Vedanta) has rendered a decision affirming the pro-enforcement outlook with respect to the enforcement of a foreign award in India, which had taken a step back after the decision of Supreme Court in NAFED v. Alimenta.[2] The judgment also holds significance as the Supreme Court has finally settled the ambiguity concerning the period of limitation for enforcement of a foreign award.

Facts in Vedanta

The dispute emanated from Article 15 of the Production Sharing Contract executed by the parties in 1994. The aforesaid provision  imposed a “cap” on the payment of the development costs to be made for the construction of the production capacity of 35000 barrels of oil per day to a particular “sum”. In 2008, the Arbitral Tribunal seated in Malaysia passed an award in favour of Vedanta Limited & Others.

The Indian government challenged the award in the Malaysian High Court on the grounds of public policy. However, the Malaysian High Court upon the application of Malaysian Arbitration Act, 2005 found no reason which would merit intervention with the award. The subsequent appeal to the Malaysian Court of Appeal was squarely rejected in 2014 to which the Indian government preferred a leave to appeal before the Malaysian Federal Court, which was also dismissed in 2016.

In the meantime, the Respondent filed an application under Section 47 and 49 of the Arbitration and Conciliation Act 1996 (Arbitration Act) for the enforcement of the foreign award before the Hon’ble Delhi High Court wherein the single-judge directed the enforcement of the award and rejected the contentions of the Government of India including those pertaining to limitation and public policy. Aggrieved, the Government of India filed an appeal before the Apex Court.

Approach of the Supreme Court

The Court first settled the law regarding the period of limitation for filing an application for enforcement of a foreign award. The Court relied upon its previous decision in Bank of Baroda v. Kotak Mahindra Bank [3]to expound that since Article 136 of Limitation Act, 1963 is applicable only to decrees of a civil court in India, the enforcement of a foreign award would be covered by residuary provision i.e. Article 137 of Limitation Act, which prescribes a period of three years from when the right to apply accrues.

The Apex Court then scrutinized whether foreign award was contrary to the Public Policy of India. The Court placed reliance on the decision of the Supreme Court in Renusagar Power Ltd v. General Electric Co [4] to hold that the public policy defence should apply only where enforcement of the award would violate the basic notions of morality and justice of the forum state. The Court  then referred to the works of Albert van den Berg in his Commentary on “The New York Arbitration Convention, 1958:Towards a Uniform Judicial Interpretation” as well as ICCI’s guide to conclude that it is a well settled position in law that there shall beno review on merits.

Comment

  1. Limitation for filing enforcement of a foreign award

Part II of Arbitration and Conciliation Act, 1996 does not contain any provision prescribing a period of limitation for filing an application for the enforcement of a foreign award under Section 47. Consequently, disparate views had been proffered by several High Courts on this issue. The Bombay High Court  in Noy Vallesina Engineering SPA v. Jindal Drugs Limited [5] had held that since no specific period of limitation has been specified in the Arbitration Act for enforcement of a foreign award, the period of limitation of 3 years provided in Article 137 of the limitation Act would be applicable. On the other hand, Madras High Court in  M/S Bharat Salt Refineries Ltd. v. M/S Compania Naviera [6]and the High Court of Delhi in Cairn India Limited v. Union of India[7]  had taken a contrary view by holding that the period of limitation of 12 years provided under Article 136 of the Limitation Act would be applicable both for enforcement and the execution of the foreign award.

In view of the foregoing, the Supreme Court’s decision in Vedanta is a welcome ruling. The Court has finally put to rest the ambiguity in computing the period of limitation for filing enforcement proceedings, which was long pending to be resolved because of conflicting decisions of High Courts. Importantly, the decision would not prejudice those who did not act within the three-year period as the Supreme Court has granted liberty to seek condonation of delay in filing application for the enforcement of the award and has expounded that the ambiguity on the issue of limitation period is sufficient ground to condone delays.

  • Public Policy Conundrum

The concept of ‘public policy’ is not immutable. By its very nature, ‘public policy’ is not capable of a precise definition. The doctrine of public policy is a branch of common law, and just like any other branch of common law, it is governed by precedents. In Indian jurisprudence, the issue pertaining to the ambit and development of “public policy” came before the Apex Court in Renusagar Power v. General Electric Co.[8] The Court in this case ruled that the defence of public policy should be construed narrowly and should be permissible with respect to a foreign award only if award is contrary to (i) fundamental policy of Indian; (ii) the interest of India; (iii) justice or morality.

But the Apex Court in Phulchand Exports Limited v. OOO Patriot [9]expanded the scope of Section 48(2)(b). The judgment was however overruled by a three- judge bench in Shri Lal Mahal v. Progetto Grano Spa[10] (Shri Lal Mahal) wherein the Court held that Section 48(2)(b) did not extend to objections based on mere errors in foreign awards, including decision allegedly contrary to the agreement between the parties. Post the judgment in Shri Lal Mahal, several High courts sought to retrench the onerous threshold for resisting enforcement under Section 48(2)(b) of the Act. Even the Supreme Court in Vijay Karia v. Prysmian Cavi Sistemi SRL,[11] refused to interfere with foreign arbitral awards, and held that Section 48(2)(b) does not permit review on merits.

However, recently in NAFED v. Alimenta[12], pronounced on 22 April 2020, the Supreme Court refused enforcement of foreign award on the account of it being in violation of public policy. In reaching its decision, the Supreme Court extensively reviewed merits of the case and terms of the contract, something which the Indian Courts have repeatedly laid down is not permissible within the scope of Section 48(2)(b). The ruling of the Supreme Court in this case thus reversed the pro-enforcement trend that the Indian Courts had developed with respect to the enforcement of a foreign award in the past few years.

Though the decision of the Supreme Court in NAFED v. Alimenta took an unprecedented overturn by unnecessarily transgressing the permissible degree of interference in enforcing a foreign award, the Supreme Court in present case by reaffirming the narrow approach enunciated in Renusagar[13] has once again fortified a pro-enforcement approach.

India, being a signatory to New York Convention, follows the approach of refusal to enforce an award on the public policy ground only if the award is so fundamentally offensive to the jurisdiction of the enforcement court’s notions of justice and morality. In view of this pro-enforcement approach, Section 48 (2) (b) does not permit a review on the merit of the foreign award. The narrow approach adopted by the Supreme Court in instant case is thus consistent with the objective of the New York Convention and in also in sync with contemporary pro-arbitration jurisprudence.

Conclusion

The Apex Court in the instant case has made a conscious attempt to ensure smooth enforcement of foreign award by resolving the ambiguity concerning the period of limitation for enforcement of the foreign award and by narrowly interpreting public policy. The judgment is thus a step in the right direction to bring Indian arbitration law in conformity with international jurisprudence.

However, on a suggestive note, the Indian Courts should also attempt to shorten the timeline for the enforcement of domestic awards, which is twelve years, to ensure speedy and cost-effective resolution of disputes that arise in international commercial arbitration.

This is especially paramount since the legislature has consciously made amendments in recent years to provide more relaxations for international commercial arbitration ( e.g. ground of patent illegality cannot be invoked in international commercial arbitration, and time line of 1 year for completion of arbitral proceedings is not applicable to international commercial arbitration.)


[1] Government of India v. Vedanta Ltd., 2020 SCC Online SC 749

[2] NAFED v. Alimenta, 2020 SCC OnLine SC 381

[3] Bank of Baroda v. Kotak Mahindra Bank, 2020 SCC OnLine SC 324

[4] Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644

[5] Noy Vallesina Engineering Spa v. Jindal Drugs Limited., 2006 SCC OnLine Bom 545

[6] Bharat Salt Refineries v. Compania, OSA No. 52/2008

[7] Cairn India Limited v. Union of India O.M.P. (EFA) (COMM.) 15/2016

[8] Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644

[9] Phulchand Exports Ltd. v. O.O.O Patriot, (2011) 10 SCC 300

[10] Shri Lal Mahal Ltd. v. Progetto Grano Spa.,(2014)2 SCC 433

[11] Vijay Karia v. Prysmian Cavi E Sistemi., 2020 SCC Online SC 177Vijay Karia v. Prysmian Cavi E Sistemi SC 177

[12] NAFED v. Alimenta, 2020 SCC OnLine SC 381

[13] Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supp (1) SCC 644

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