Supreme Court of India: Applicable Limitation Period For Enforcement Of Foreign Awards In India

In recent past, various High Courts of India have taken conflicting stands on the issue of applicable limitation period for filing enforcement of foreign awards in India. The conflict is succinctly discussed in earlier post available here. In Government Of India vs Vedanta Limited (‘GOI v Vedanta’) decided on 16 September 2020, a three Judge Bench of the Supreme Court has decided this issue conclusively in its landmark ruling. The important observations made by the Supreme Court are highlighted below:

New York Convention and Limitation Period for Enforcing a Foreign Award

Article III of the New York Convention on the Recognition and Enforcement of Foreign Awards, 1958 (‘NYC’) states that recognition and enforcement of arbitral awards should be done in accordance with the rules of procedure of the State where the award was to be enforced. Thus, the issue of limitation for enforcement of foreign awards being procedural in nature, is subject to the lex fori i.e. the law of the forum (State) where the foreign award is sought to be enforced.[1] The time limit may be specifically provided in the national legislation for recognition or enforcement of Convention awards, or it may be a general rule applicable to court proceedings.[2] Thus, as per Article III of NYC, the national courts apply their respective lex fori regarding limitation periods applicable for recognition and enforcement proceedings; the date from which the limitation period would commence, whether there is power to extend the period of limitation.[3]

Indian Arbitration Act, Limitation Act and Applicable Limitation Period for Enforcing a Foreign Award in India

The Arbitration & Conciliation Act, 1996 (‘Indian Arbitration Act’) does not specify any period of limitation for filing an application for enforcement / execution of a foreign award. Section 43 however provides that the Limitation Act, 1963 (‘Limitation Act’) shall apply to arbitrations, as it applies to proceedings in court.[4]

The Limitation Act does not contain any specific provision for enforcement of a foreign award. However, Article 136 of the Limitation Act provides that the period of limitation for the execution of any decree or order of a “civil court” is 12 years from the date when the decree or order becomes enforceable. The legislature has omitted reference to “foreign decrees” under Article 136 of the Limitation Act. It is also noteworthy that the Supreme Court in Bank of Baroda v Kotak Mahindra Bank[5], took the view that Article 136 of the Limitation Act deals only with decrees passed by Indian courts. In view thereof, the Supreme Court in GOI v Vedanta observed that the intention of the legislature was to confine Article 136 to the decrees of a civil court in India.

In this regard, Article 137 attain relevance which is the residuary provision in the Limitation Act and provides that the period of limitation for any application where no period of limitation is provided in the Act, would be three years from “when the right to apply accrues”. Thus, in GOI v Vedanta, the Supreme Court observed that the application for execution of a foreign decree would be an application not covered under any other Article of the Limitation Act, and would be covered by Article 137 of the Limitation Act.[6]

Whether Foreign Awards are Deemed Decrees of the Indian Courts?

Answering this question in negative, the Supreme Court observed that foreign awards are not decrees of an Indian civil court. By a legal fiction, Section 49 of the Indian Arbitration provides that a foreign award, after it is granted recognition and enforcement under Section 48 of the said Act, would be deemed to be a decree of “that Court” for the limited purpose of enforcement. The phrase “that Court” refers to the Court which has adjudicated upon the petition filed under Sections 47 and 49 for enforcement of the foreign award.

Therefore, on co-joint reading of the provisions of the Indian Arbitration Act and the Limitation Act as mentioned above, the Court held that Article 136 of the Limitation Act would not be applicable for the enforcement / execution of a foreign award, since it is not a decree of a civil court in India.[7] As a sequitur, the enforcement of a foreign award as a deemed decree of the concerned High Court[8] would be covered by the residuary provision i.e. Article 137 of the Limitation Act.[9] Thus, the period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49, would be governed by Article 137 of the Limitation Act, 1963 which prescribes a period of three years from when the right to apply accrues.[10]

Whether Condonation of Delay As Provided Under Section 5 Of The Limitation Act Is Applicable On Application For Enforcement Of Foreign Award

Section 5 of the Limitation Act reads as under

5. Extension of prescribed period in certain cases.—Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908 (5 of 1908), may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period.

Order XXI of the Code of Civil Procedure (‘CPC’) deals with the solemn act of execution of the decrees passed by the Indian Courts from grassroots to the top.[11] Further, Article 137 of the Limitation Act reads as under:

Description of the ApplicationPeriod of LimitationTime from which period begins to run
Any other application for which no period of limitation is provided elsewhere in this divisionThree yearsWhen the right to apply accrues.

In The Kerala State Electricity Board, Trivandrum v T.P. Kunhaliumma[12] the Supreme Court held that the phrase “any other application” in Article 137 cannot be interpreted on the principle of ejusedem generis to be applications under CPC. The phrase “any other application” used in Article 137 would include petitions within the word “applications,” filed under any special enactment (Indian Arbitration Act being one such special statute). This would be evident from the definition of “application” under Section 2(b) of the Limitation Act, which includes a petition.[13]  

Thus, the Court held that “the application under Sections 47 and 49 of the Indian Arbitration Act for enforcement of the foreign award, is a substantive petition filed under the said Act. It is a well-settled position that the Arbitration Act is a self-contained code.[14] The application under Section 47 is not an application filed under any of the provisions of Order XXI of the CPC. The application is filed before the appropriate High Court for enforcement, which would take recourse to the provisions of Order XXI of the CPC only for the purposes of execution of the foreign award as a deemed decree. The bar contained in Section 5, which excludes an application filed under any of the provisions of Order XXI of the CPC, would not be applicable to a substantive petition filed under the Arbitration Act, 1996. Consequently, a party may file an application under Section 5 for condonation of delay, if required in the facts and circumstances of the case.”

Significant Observations in respect of Enforcement of NYC Awards In India

A foreign award does not become a “foreign decree” at any stage of the proceedings. The foreign award is enforced as a deemed decree of the Indian Court which has adjudicated upon the petition filed under Section 47 of the Indian Arbitration Act, and the objections raised under Section 48 by the party which is resisting enforcement of the award.[15]

A foreign award is not a decree by itself, which is executable as such under Section 49 of the Indian Arbitration Act. The enforcement of the foreign award takes place only after the court is satisfied that the foreign award is enforceable under Chapter 1 in Part II of the Indian Arbitration Act. After the stages of Sections 47 and 48 are completed, the award becomes enforceable as a deemed decree, as provided by Section 49.[16]

The procedure for enforcement of a foreign decree is not covered by the Indian Arbitration  Act, but is governed by the provisions of Section 44A read with Section 13 of the CPC.[17]

Under the Indian Arbitration Act, there is no requirement for the foreign award to be filed before the seat court, and obtain a decree thereon, after which it becomes enforceable as a foreign decree. Under the said Act, a party may apply for recognition and enforcement of a foreign award, after it is passed by the arbitral tribunal. The applicant is not required to obtain leave from the court of the seat in which, or under the laws of which, the award was made.[18]

The award holder is entitled to apply for recognition and enforcement of the foreign award by way of a common petition.[19] The enforcement / execution petition is required to be filed before the concerned High Court, as per the amendment to Section 47 by Act 3 of 2016 (which came into force on 23.10.2015)[20]

Section 48 replicates Article V of the NYC, and sets out the limited conditions on which the enforcement of a foreign award may be refused.[21]

The enforcement Court cannot set aside a foreign award, even if the conditions under Section 48 are made out. The power to set aside a foreign award vests only with the court at the seat of arbitration, since the supervisory or primary jurisdiction is exercised by the curial courts at the seat of arbitration.[22]

The opening words of Section 48 use permissive, rather than mandatory language, that enforcement “may be” refused. The use of the words “may be” indicate that even if the party against whom the award is passed, proves the existence of one or more grounds for refusal of enforcement, the court would retain a residual discretion to overrule the objections, if it finds that overall justice has been done between the parties, and may direct the enforcement of the award.[23]

The grounds for refusing enforcement of foreign awards contained in Section 48 are exhaustive, which is evident from the language of the Section, which provides that enforcement may be refused “only if” the applicant furnishes proof of any of the conditions contained in that provision,[24]

The enforcement court is not to correct the errors in the award under Section 48, or undertake a review on the merits of the award, but is conferred with the limited power to “refuse” enforcement, if the grounds are made out.[25]

If the Court is satisfied that the application under Section 48 is without merit, and the foreign award is found to be enforceable, then under Section 49, the award shall be deemed to be a decree of “that Court”. The limited purpose of the legal fiction is for the purpose of the enforcement of the foreign award. The concerned High Court would then enforce the award by taking recourse to the provisions of Order XXI of the CPC.[26]

Jurisdiction of Executing Court vs Seat Court And Various Applicable Laws In ICA

The enforcement of the award is a subsequent and distinct proceeding from the setting aside proceedings at the seat. The enforcement court would independently determine the issue of recognition and enforceability of the foreign award in India, in accordance with the provisions of Chapter 1 Part II of the Indian Arbitration Act.[27]

The courts having jurisdiction to annul or suspend a NYC award are the courts of the State where the award was made, or is determined to have been made i.e. at the seat of arbitration. The courts at the seat of arbitration are referred to as the courts which exercise “supervisory” or “primary” jurisdiction over the award. The “laws under which the award was made” used in Article V (1)(e) of the NYC, is mirrored in Section 48(1)(e) of the Indian Arbitration Act, which refers to the country of the seat of the arbitration, and not the State whose laws govern the substantive contract. [28]

The courts before which the foreign award is brought for recognition and enforcement would exercise “secondary” or “enforcement” jurisdiction over the award, to determine the recognition and enforceability of the award in that jurisdiction.[29]

Four types of laws which are applicable in an international commercial arbitration are[30]

  • The governing law determines the substantive rights and obligations of the parties in the underlying commercial contract.
  • The law governing the arbitration agreement must be determined separately from the law applicable to the substantive contract
  • The curial law of the arbitration lex arbitri, which is determined by the seat of arbitration.
  • The lex fori governs the proceedings for recognition and enforcement of the award in other jurisdictions

____________________________________________________________________________________________________________

Footnotes

  • [1] VII. Discussion and Analysis, Part A at [(ii)] of GOI v Vedanta
  • [2] Ibid at [(iii)] of GOI v Vedanta
  • [3] Discussion and Findings at iv(d) of GOI v Vedanta
  • [4] VII. Discussion and Analysis, Part A at [(iv)] of GOI v Vedanta
  • [5] (2020) SCC OnLine 324
  • [6] VII. Discussion and Analysis, Part A at [(ix)] of GOI v Vedanta
  • [7] VII. Discussion and Analysis, Part A at [(x)] of GOI v Vedanta
  • [8] As per the amended Explanation to Section 47 by Act 3 of 2016 confers exclusive jurisdiction on the High Court for execution of foreign awards
  • [9] VII. Discussion and Analysis, Part A at [(xi)] of GOI v Vedanta
  • [10] Ibid at [(xiv)] of GOI v Vedanta
  • [11] Chandigarh Judicial Academy available at http://cja.gov.in/data/Executions.pdf
  • [12] (1976) 4 SCC 634.
  • [13] VII. Discussion and Analysis, Part A at [(xi)] of GOI v Vedanta
  • [14] Fuerst Day Lawson Ltd. v Jindal Exports Ltd. (2011) 8 SCC 333. Kandla Export Corporation and Anr. v. OCI Corporation and Anr., (2018) 14 SCC 715; Shivnath Rai Harnarain India Co. v. G.G. Rotterdam 164 (2009) DLT 197; Usha Drager Pvt. Ltd. v. Dragerwerk AG, (170) DLT 628; Sumitomo Corporation v. CDC Financial Services (Mauritius) Limited (2008) 4 SCC 91; Conros Steels Pvt. Ltd. v. Lu Qin (Hong Kong) Company Ltd. and Ors., 2015 (1) Arb LR 463 (Bombay): (2015) 2 Bom CR 1.
  • [15] Part B Scheme of the 1996 Act for enforcement of New York Convention awards at [(ii)]
  • [16] Ibid
  • [17] Ibid
  • [18] Ibid at [(a)]
  • [19] Ibid at [(f)]
  • [20] Ibid at [(g)]
  • [21] Ibid at [(h)]
  • [22] Ibid at [(i)]
  • [23] Ibid at [(j)]
  • [24] Ibid at [(k)]
  • [25] Ibid at [(l)]
  • [26] Ibid at [(m)]
  • [27] Part C, Discussion and Findings at [(i)]
  • [28] Ibid at [(ii)]
  • [29] Ibid at [(iii)]
  • [30] Ibid at [(iv) (a-d)]

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