Limitation Period For Enforcement Of Foreign Award In India

The objective of any arbitration proceedings is to settle the disputes between parties outside the traditional court system amicably and quickly without causing any unreasonable delay. Chapter I of Part II comprising of Sections 44 to 52 of the Arbitration and Conciliation Act, 1996 (‘Act’) deals with New York convention awards. Section 47 of the Act provides that every application for the enforcement of foreign award under the Act shall be accompanied by

  • the original award or a copy of the award as authenticated as per requirement of the country in which it was made;
  • the original arbitration agreement or a copy of the arbitration agreement; and
  • any evidence that is necessary to prove that the award is a foreign award;
  • in case, the award is in local language of the country in which the award is made then an English Translation of the award is to be accompanied with the application. The translation is to be verified by the consulate of the country in which it is made.

However, in PEC Ltd. v. Austbulk Shipping Sdn Bhd., 2018 SCC OnLine SC 2549, the Supreme Court concluded that the word “shall” appearing in Section 47 of the Act relating to the production of the evidence as specified in the provision at the time of application has to be read as “may”. Read the full case analysis in my previous post available at Supreme Court of India: Is It Mandatory For The Party Applying For Enforcement of A Foreign Award To Produce the Original Arbitration Agreement At the Time of Filing the Enforcement Application?

The explanation to Section 47 of the Act states “Court” means the High Court having original jurisdiction to decide the questions forming the subject matter of the arbitral award if the same had been the subject matter of a suit in its original civil jurisdiction and in other cases, in the High Court having jurisdiction to hear appeals from decrees of Courts subordinate to such High Court.

Section 48 of the Act lays down negatively conditions for enforcement of foreign awards. It lays down the grounds for refusal of enforcement of foreign awards. The grounds are as follows:

  • The arbitration was not valid under the law to which parties to the agreement were subjected to.
  • The parties to the arbitration agreement were under some legal incapacity in the country in which the award was made.
  • The party against whom the award is to be invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was unable to present the case.
  • The award deals with the differences not contemplated in the submission to arbitration or contains decision on matters beyond the scope of submission to arbitration.
  • The composition of the arbitral tribunal or arbitral process was not in accordance with the agreement between the parties or failing such agreement, was not in accordance to the law of the country in which the award was made.
  • The award had not become yet binding on the parties or suspended in the country in which it is made.
  • The subject matter of the difference is not capable of settlement by way of arbitration under the law of India.
  • The enforcement of foreign award was against the public policy of India. The award is said to be in conflict with the public policy in India if the making of award is induced by fraud or corruption.

Explanation 1 to Section 48 of the Act clarifies that an award is in conflict with the public policy of India only if,-

  • the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81 of the Act; or
  • it is in contravention with the fundamental policy of Indian law; or
  • it is in conflict with the most basic notions of morality or justice.

Explanation 2 to Section 48 of the Act makes it clear that the test as to whether there is contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. The Court under section 48(3) of the Act may if it considers it proper, adjourn the decision on the enforcement of the award if an application for setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of section (1) of Section 48 of the Act and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security.

As seen from Section 48 of the Act the party against whom a foreign arbitral award is sought to be enforced is empowered to raise defences for rejection of enforcement as per the grounds enumerated in Section 48(1) and (2) of the Act.

As per Section 49 of the Act only when the Court is satisfied that the foreign award is enforceable under Chapter I of Part II of the Act, the Award shall be deemed to be a decree of that Court.

Section 50 of the Act contemplates that

  • an appeal shall lie from an order refusing to-
    1. refer the parties to arbitration under section 45;
    2. enforce a foreign award under section 48;

to the Court authorised by law to hear appeals from such order.

  • No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

As seen from section 50 of the Act, 1996, no appeal is maintainable if the enforcement of foreign award is granted by the Court. But that does not take away the aggrieved party the right to appeal to the Hon’ble Supreme Court.

Award as ‘Deemed Decree’

In this regard it is useful to refer the judgment of the Hon’ble Supreme Court in Fuerst Day Lawson Ltd., V. Jindal Exports Ltd., (2001) 6 SCC 356. In that case, the Court, after considering the provisions of Part II of the Act rejected the contention that a party holding a foreign award has to file a separate application and produce evidence as contemplated under Section 47 and also satisfy the conditions laid down under Section 48 and it is only after the court decides about the enforceability of the Award, it should be deemed to be a decree under Section 49 as available for execution.

It held that the object of the Act is to minimize the supervisory role of the Courts in the arbitral process and to give speedy justice and this would be defeated if it is held that a party must separately apply before filing an application for execution of a foreign award; that if separate proceedings are to be taken, one for deciding the enforceability of a foreign award and the other thereafter for execution, it would only contribute to protracting the litigation.

The Court further held that a party holding a foreign award can apply for enforcement of it, but the Court, before taking further effective steps for the execution of the Award has to proceed in accordance with Sections 47 to 49. In one proceeding there may be different stages. In first stage, the Court may have to decide about the enforceability of the award and with regard to the requirement of the said provisions and once the court decides that the foreign award is enforceable, it can proceed to take further effective steps for execution of the same and there arises no question of making foreign award a rule of Court/decree again. The relevant paragraph is reproduced below:

30. Part II of the Act relates to enforcement of certain foreign awards. Chapter 1 of this Part deals with New York Convention Awards. Section 46 of the Act speaks as to when a foreign award is binding. Section 47 states as to what evidence the party applying for the enforcement of a foreign award should produce before the court. Section 48 states as to the conditions for enforcement of foreign awards. As per Section 49, if the Court is satisfied that a foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that court and that court has to proceed further to execute the foreign award as a decree of that court.

The Court observed that it is also clear from objectives contained in the statement of objects and reasons that in view of sections 47 to 49 and the scheme of the Act every final arbitral award is to be enforced as if it were a decree of the court.

Noy Vallesina Engineering Spa v. Jindal Drugs Limited 2006 (3) ARBLR 510 (Bom)

In this case, a petition was filed by an Italian company under Section 47 of the Act for enforcement of a partial foreign arbitral award. The Indian company facing enforcement challenged the partial award under Section 34 of the Act. Such challenge petition was admitted by the Bombay High Court and records and pleadings were called for.

Shortly thereafter, the Indian party applied to the Court for an interim relief by way of Section 9 of the Act, seeking an injunction against the members of the ICC arbitral tribunal so that they could not receive any further submission or pass any further direction or ruling or award in the relevant arbitral reference.

An ad interim order was passed, restraining the members of the arbitral tribunal as sought and the order continued till the petition for enforcement of the partial foreign award was decided. The ICC arbitral tribunal took note of the interim order passed by the Bombay High Court, observed that it was not binding on the tribunal and decided to proceed with the arbitral reference.

The Italian party made its submission and filed written notes before the tribunal, but the Indian party informed the tribunal that it did not intend to make any submission in view of the subsisting order of injunction. The Indian party’s nominee on the ICC arbitral tribunal also indicated that he was unable to continue on the arbitral tribunal in view of the interim order passed by the Bombay High Court.

The ICC decided to replace such member on the arbitral tribunal and the arbitral tribunal passed a final award thereafter. Thus, at the time that the final arbitral award was passed by the ICC arbitral tribunal in Paris, the earlier petition of the Italian party for the implementation of the partial order and the pre-final award petition of the Indian party seeking an injunction on the arbitral tribunal from proceeding with the foreign arbitral reference were pending and an injunction was subsisting in respect of the further conduct of the foreign arbitral reference.

The court held, in the Indian party’s challenge to the partial foreign award, that such a challenge was not maintainable in this county or under Section 34 of the Act. The Indian party’s petition challenging the further continuation of the arbitral proceedings was also disposed of without any further relief by a common order. An appeal against such order was filed by the Indian party.

During the pendency of such appeal, the Italian party applied for enforcement of the partial award and the final award, asserting that no period of limitation had been prescribed in any Indian law for the implementation of a foreign award. The Indian party applied for rejection of the petition for enforcement on the ground of limitation, following which the Italian party applied for condonation of delay, without prejudice to its contention that there was no prescribed period of limitation for such purpose.

The Bombay High Court held that the period of limitation for applying to court for enforcement of a foreign arbitral award was governed by Article 137 of the Schedule to the Limitation Act, 1963 and, upon the court finding the foreign award to be enforceable in India, the execution proceedings for such purpose could be lodged and carried on within 12 years of the date of the relevant order. Article 137 of Limitation Act, 1963 provides as under:

Sl. No. Description of Suit Period of Limitation Time from which period begins to run
137. Any other application for which no period of limitation is provided elsewhere in this Division. 3 years When the right to apply accrues.

Thus, the Court held that the foreign award is only deemed to be a decree under section 49 of the Act after the stages contemplated in sections 47 and 48 are completed and the Court is satisfied that the foreign award is enforceable, till then, it cannot be considered to be a decree.

The Court further held that Article 136 of the Schedule to Limitation Act, 1963 is not attracted until the stage contemplated under section 49 is reached.

Thus, the Bombay High Court has taken the view that the foreign award is deemed to be a decree of Civil Court only after the finding is recorded by the Court that it is enforceable and therefore to the execution of that ground, Article 136 of the Limitation Act, 1963 would become applicable only after that award is deemed to be a decree of the Court which records the finding that it is enforceable by virtue of the provision of section 49 of the Act and at no earlier point of time.

In the said judgment, the Court also held that an application for enforcement of the foreign award would attract Article 137 and according to that Article, the period of limitation is three years and would commence from the date when right to apply occurs.

Compania Naviera ‘ SODNOC ‘ vs. Bharat Refineries Ltd. and Ors. AIR 2007 Mad 251

In this case, a petition was filed under Section 47 & 49 of the Act seeking declaration from the court that an arbitral award made in London should be deemed to be a decree of the Court. It was contended on behalf of the Award Creditor that the award is a foreign award within the meaning of the Act and as such it is straight away enforceable and executable before the court by the Award Creditor.

The Court implicitly relied on Article 136 of Limitation Act, 1963 which states under:

Sl. No. Description of Suit Period of Limitation Time from which period begins to run
136. For the execution of any decree (other than a decree granting a mandatory injunction) or order of any civil court. Twelve years Where the decree or order becomes enforceable or where the decree or any subsequent order directs any payment of money or the delivery of any property to be made at a certain date or at recurring period, when default in making the payment or delivery in respect of which execution is sought, takes place:

 

Provided that an application for the enforcement or execution of a decree granting a perpetual injunction shall not be subject to any period of limitation.

Further, the Court inter alia held that under the Act, the foreign award is already stamped as a decree and the party having a foreign award can straight away apply for enforcement of it and in such circumstances, the party having a foreign award has got 12 years time like that of a decree holder. Therefore, it cannot be said that the present petition is barred by limitation.

My views

A cursory glance of the Bombay High Court dictum in Noy Vallesina Engineering Spa (Supra) may look plausible, but a deep look reveals its inconsistency (atleast to me) with the Supreme Court dicta in Fuerst Day Lawson (Supra).

In Fuerst Day Lawson (Supra) the Court inter alia held that for the enforcement of a foreign award there is no need to file separate proceedings i.e. one for deciding the enforceability of the award to make it a rule of the court or decree and the other to take up execution thereafter. Meaning thereby there ought to be one single execution cum enforcement application that needs to be filed by a foreign Award Creditor for its enforcement.

To explain it in a better way let’s use algebra. If execution is A and enforcement is B then as per Fuerst Day Lawson (Supra) A is equal to B. Then, as per Noy Vallesina Engineering Spa (Supra) the limitation period for A by virtue of Article 136 of the Limitation Act, 1963 is 12 years and the limitation period for B by virtue of Article 137 of the Limitation Act, 1963 is 3 years.

But then as per Fuerst Day Lawson (Supra) A is equal to B then the limitation periods for A and B ought to be equal as well. Meaning thereby if a foreign Award Creditor is required to file a single application for execution and for enforcement as per Fuerst Day Lawson (Supra) then the ruling of Bombay High Court in Noy Vallesina Engineering Spa (Supra) becomes infructuous since application under Section 49 of the Act should not be filed separately and thus it cannot have separate limitation period for enforcement application.

In my view (and I stand to be corrected), in light of Fuerst Day Lawson (Supra) the entire gamut of issues regarding execution and enforcement of a foreign award ought to be decided in one single application and if the foreign award is upheld in such single application, of course after passing the filters of Section 48 and 47 of the Act, then it is implied that such award is deemed decree in terms of Section 49 of the Act thereby attracting the limitation period prescribed under Article 136 of the Limitation Act, 1963 i.e. 12 years since it is then both executable and enforceable.

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