Period of Limitation for Enforcement of Foreign Awards in India.

Below is a guest from Vaisakh Shaji. Vaisakh, in this post discusses the unsettled position on application of limitation in enforcing foreign awards in India. 

The question of limitation for enforcement of foreign award is still an unsettled one. The High Courts of Bombay, Delhi & Madras in separate instances have dealt this issue but a different interpretation by each of the courts has added uncertainty.

The Bombay High Court in Noy Vallesina vs Jindal Drugs Limited[1] held that the provision for limitation as provided under article 136 and 137 of the Limitation Act would apply for enforcement of foreign award under Part II Chapter 1 of the Act.

The Court dealt with various contentions regarding the scope of limitation for enforcement of Foreign Award. The parties relied on section 43(1) of the Act which provides that Limitation Act will apply to proceedings made in arbitration as it applies to proceedings in a court. Further the definition of Court in various parts of the Act contemplates the Principal Civil Court of original jurisdiction in a district or the High Court exercising ordinary original civil jurisdiction. By referring to various Supreme Court cases, it was argued that when an application is contemplated by any law to a Civil Court then the provisions of the Limitation Act are applicable.

The Court drew attention to section 46 of the Act, which reads as, “Any foreign award which would be enforceable under this Chapter..[..]” And held that when a foreign award is yet to be found enforceable by a competent court, it cannot be relied on for any purpose in India. The award is not binding on the parties, until it is found to be enforceable in India for the purpose of executing it as a decree or for any other purpose such as using it as defence, set off etc.

The Court further held that, looking at the scheme of sections 47, 48 and 49 of the Act, the principal civil court as defined under explanation to section 47 records a finding that the award is enforceable, that award is deemed to be a decree of that court i.e it is at that point of time that the award becomes a decree of the civil court.

Further, in order to attract application of Article 136 of the Limitation Act, the decree or order of which execution is sought must be a decree or order of any civil court. And necessarily, section 136 would become applicable only after the foreign award is deemed to be a decree of the principal civil court which records finding that the award is enforceable in India. Therefore, once enforceability of foreign award is satisfied by the court under section 49, such decree can be enforced within twelve years.

Secondly, on the issue of making an application for execution of a foreign award, there is no provision given under the Limitation Act. Hence the Court held that, such application will be governed by the residuary Article 137 of the Limitation Act and therefore such application has to be made within a period of three years from the time the right to apply accrues to the party.

Therefore, as per the Court, first a party get a time period of three years to make an application under Article 137 of the Limitation Act, and in the second stage, once the application is determined by the civil court to be enforceable in India, such decree can be executed within a period of twelve years as provided under Article 136 of the Limitation Act.

On the other hand, the Madras High Court in Compania Naviera vs Bharat Refineries Ltd[2], held that a foreign award is already stamped as a decree and the party having a foreign award can straight away apply for enforcement and in such circumstances, the party having a foreign award has twelve years like that of a decree-holder. The Court did not address the issue of limitation for making an application to a civil court under Article 137 of the Limitation Act as decided in Noy Vallesina. Further, it did not clearly determine from what stage the period of limitation would commence.

The Delhi High Court in Hindustan Petroleum vs M/s Videocon Industries Ltd[3] took a different view. The Court held that no limitation period is provided under section 48 of the Act. It stated that the period of limitation provided under Section 34 of the Act in Part I come under the chapter Recourse against Arbitral Award. A similar provision is not provided for under Part II.

Secondly, section 34 provides for a mandatory period of limitation to challenge a domestic award and no such period of limitation is provided for an application under section 48 of the Act. Hence a proceeding is to be launched under section 34 to assail the limitation period, whereas under section 48 it can only be initiated once its enforcement is sought. The Court therefore held that, section 34 is proactive whereas section 48 is reactionary in nature. Further the Court held that the language of section 48 shows that it provides for initiation of independent proceedings for assailing a foreign award before a competent authority/ court and as such proceedings under section 48 cannot be one to assail the foreign award, i.e. to seek the setting aside of the award.

In each of the cases discussed above, the courts have taken different interpretations. The Supreme Court has not specifically dealt with this issue yet. It would be interesting to see if this issue is settled in the near future. Or else, will remain unsettled; similar to the issue regarding multi-tier arbitration as decided by the Supreme Court in Centrotrade Minerals vs Hindustan Cooper Ltd[4] in which a reference to a larger bench is still pending due to difference of opinion by the two-judge bench.

In Conclusion, it can be stated that, as the issue stands today, it will be open to parties to adopt a reasoning which they find suitable based on facts and circumstances.

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[1] 2006 (3) ARBLR 510 (Bom)

[2] AIR 2007 Mad 251.

[3] 2012 (3) ARBLR 194 (Delhi)

[4] 2006 (4) ALT 18 (SC) 

EXLUSIVE: Copy of the First Petition on The Indian Arbitration Act.

India had enacted its Arbitration and Conciliation Act, 1996 after repealing and merging the earlier Acts which governed domestic arbitrations and enforcement of foreign awards separately  At the very introduction of the 1996 Act, few  problem areas were recognised by Indian Legal and Economic Forum which was led by eminent Indian Senior Counsel, Shishir Dholakia. A writ petition was filed in the Supreme Court of India with regard to that. We have secured a copy of the petition. The petition is academically very stimulating and gives a lot of food for thought to everyone involved in domestic as well as international arbitration community.  It is below:

Petition questioning validity of certain provisions of Part I of the India Arbitration and Conciliation...

Indian Supreme Court's Landmark Judgement on Arbitration: An Insight

Hence, there comes a decision to nullify the draconian effects of Bhatia International v. Bulk Trading S.A. Though many would have already understood what I am referring to, many foreign readers and new learners of the subject would be bewildered as to what is so special about the judgement delivered by the Constitutional Bench of the Supreme Court of India consisting of five judges including the Chief Justice in Bharat Aluminium Co. v Kaiser Aluminium Technical Service. 

This post shall put before the readers the context of the case and also address to some concerns which has left the lawyers, investors and academicians craving for a little more.

What led to this landmark case was the confusion on Applicability of Part I to Part II of the Arbitration and Conciliation Act.  While Part I deals with arbitration happening within India, Part II deals with enforcement of foreign awards.

In 2002, a three judge bench in Bhatia International set the precedent that Part I shall apply to Part II of the Act. As a result, all the later decisions in various cases followed the suit.  This created a lot of ruckus as almost all the foreign awards were tried and tested in the national courts as if they were domestic awards. In many situations, foreign awards were not only refused enforcement according to Part II of the Act but were also set aside, something which is only possible to the domestic awards under Part I.  This kind of treatment made the foreign awards susceptible to death by long drawn legal battles in Indian courts.

Seeing the situation getting worse with many matters reaching the Supreme Court, this Constitutional Bench was set up (Reported here). Better late than never, though it took a massive decade, the judgment is nevertheless a welcome decision. The Supreme Court has clearly decided that Part I and part II are mutually exclusive and no portion of Part I shall be applicable to Part II. Rejecting the argument of the appellant that the 1996 Act provides for delocalised arbitration, the court found that India has adopted the territorial principle, thereby limiting the applicability of Part I to arbitrations which take place in India.

“We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to International Commercial Arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996.”

This, of course means that foreign awards will not be subject to provisions of Part I. This eventually means that the court intervention would significantly reduce and foreign awards would no longer be at the mercy of Section 34 of Part I which carries enormous power of setting aside an award.  Further, the Supreme Court has also stated that a foreign award could only be set aside where the award was made and only in a rare circumstance where this is not possible, it could be set aside under the law of the country governing arbitration agreement which the award was made.

In arriving at this decision, the Supreme Court has done a commendable job by minutely going into the 1996 Act and clarifying the relevant provisions keeping in view the international standards and most importantly the objects and reasons of the Act itself.  While arriving at its decision, the court has discussed the founding concepts of international arbitration putting them in sync with the 1996 Act in a very skillful manner, as if there never was any sort of confusion in the Act.

Though, all may seem hunky-dory, the judgment comes with its own unique concerns. The Supreme Court while strictly demarcating the divide between Part I and Part II has afforded to leave the parties remediless in international arbitration taking outside India in terms of approaching the court for interim measures which falls under Part I under Section 9, allowing  the option only for domestic arbitration. According to the Supreme Court it is better to leave it to the legislature to do the needful; the court cannot enter in its shoes.  Similarly, the fate of awards from non-convention (non signatories to New York Convention) countries has been left in lurch as Act will not apply at all to such awards unlike the earlier position where Part I applied to such awards. The next cause of concern being that in the very last sentence of the judgment where the court specifies that law declared by it through this judgment shall only apply to prospective arbitration agreements.  Does that mean all the cases coming to courts till then would be decided as per the old precedent as laid down in Bhatia and Venture? Well, only time will tell how the courts across the nation treat the numerous cases where the arbitration agreements have been entered into and which may come before the court anytime in future.

As for now, the judgement has given many reasons to celebrate. How about declaring 6th September, the Indian Arbitration Day?

Foreign awards that patently violate Indian substantive law are not enforceable: Supreme Court

Phulchand Exports Ltd. v. OOO Patriot is yet another case of a foreign award being challenged before Indian courts for non-conformity with substantive provisions of Indian law, but this time with more disastrous consequences.

The case surrounded the enforceability of an award dated October 18, 1999 (yes, it has been 12 years!) given by the International Court of Commercial Arbitration at the Chamber of Commerce and Industry of Russian Federation, Moscow in a dispute between an Indian seller and a Russian buyer. The arbitral tribunal had found that the seller was in breach and passed an award directing the seller to make partial reimbursement under a contractual clause providing for reimbursement in case of breach. The seller challenged the enforcement of the award claiming that the reimbursement clause was in nature of a penalty and hence violated Section 74 of the Indian Contract Act.

The Supreme Court on October 12th passed its judgment in the matter. It relied on ONGC v Saw Pipes to hold that an award that patently contravenes substantive laws of India will be against the public policy of India. However, the Court refused to engage in detail with the submission that the Saw Pipes judgment dealt with the definition of public policy under Section 34 of the Arbitration and Conciliation Act and there was no reason to extend the same definition to Section 48. The only observation of the Court in this regard is, "There is merit in the submission of learned senior counsel that in view of the decision of this Court in Saw Pipes Ltd., the expression `public policy of India' used in Section 48 (2)(b) has to be given wider meaning and the award could be set aside, `if it is patently illegal'."

This is extremely unfortunate as the Court has pronounced a position that can have far reaching implications without giving reasons for the same or considering submissions on this point with the due consideration they deserve. This hurry on the part of the Court to dispose off the matter has is explained by the following sentences in the judgment: "At the first blush we thought of remanding the matter to the High Court, but on a deeper thought, we decided to hear the objections relating to patent illegality in the award ourselves as the award by the Arbitral Tribunal was given as far back as on October 18, 1999 and about 12 years have elapsed since then. We thought that the issue relating to enforceability of the subject award must be brought to an end finally one way or the other." The Court went on to examine whehter the impugned award in this case was patently illegal and held it was not, allowing the enforcement of the award. Thus, the hurried decision of the Court appears to be motivated by the good intention of allowing enforcement of the award without any further delay. But just like the well intentioned judgment in Bhatia (which was motivated by the consideration that if the Court took a different stance, interim measures in support of arbitration could not be granted), this judgment will have devastating effects on the enforceability of foreign awards and the institution of arbitration as a whole.

It is well accepted in statutory interpretation that the same word, when used in different parts of the same statute carries the same meaning. But this is not so, if the context requires the word to be accorded different meanings in different parts of the same statute.

Section 34 is located in Part I and is concerned with the setting aside of awards. Section 48 is located in Part II and deals with the enforcement of awards. Great harm has already been done by Indian decisions holding that 'public policy' under Section 34 includes patent illegality and even foreign awards can be set aside for non-conformity with Indian law. While extending this definition to Section 48 too, the Court appears to have forgotten its own earlier judgment in Renusagar, which drew a clear distinction between public policy considerations in setting aside an award before a domestic court and public policy considerations while enforcing a foreign award:

"The Foreign Awards Act is, therefore, intended to reduce the time taken in recognition and enforcement of foreign arbitral awards. The New York Convention seeks to achieve this objective by dispensing with the requirement of the leave to enforce the award by the courts where the award is made and thereby avoid the problem of "double exequatue'. It also restricts the scope of enquiry before the court enforcing the award by eliminating the requirement that the award should not be contrary to the principles of the law of the country in which it is sought to be relied upon. Enlarging the field of enquiry to include public policy of the courts whose law governs the contract or of the country of place of arbitration, would run counter to the expressed intent of the legislation."

Though Renusagar decision was passed under the Foreign Awards Act, not the 1996 Act, neither the staturtory language nor the legislative intention appears to have undergone a transformation after that decision in such a manner as to permit the stance taken by the Court in the present case.

The present decision will have the effect of subjecting every single arbitral award, irrespective of its country of origin, to Indian law. While this was already achieved by the Venture-Satyam decision which permitted challenge of a foreign award under Section 34, the position has been worsened by the present judgment as a challenge based on Indian substantive law will operate even in cases where the award debtor does not take the active step of challenging the award under Section 34.

Non-enforcement of arbitral awards: ICSID takes a U-turn

Enforcement of arbitral awards under bilateral investment treaties has been a complex matter. Unlike the Iran - US claims tribunal awards against Iran which are satisfied from an initial deposit made by Iran at the time of the formation of the tribunal, BIT awards enjoy no such certainty of enforcement. While common sense dictates that a BIT that provides investors a right to arbitration of disputes should also, impliedly, provide a right to have an award enforced, enforcement mechanisms are mostly left to the procedural laws of the respondent State.

Recently, Mr. Prabhash Ranjan and I co-authored an article (pending publication in the Asian Journal of Comparative Law) arguing that the enforcement framework of the New York Convention is inept for the enforcement of BIT awards. We argued this from the Indian experience. The evolution of the the definition 'public policy' in India, from the narrower to the broader view, is well known and has been covered elsewhere in this blog. We argued that even under the narrower view, an award which is against the 'interests of India' will be considered to be against public policy and hence non-enforceable. A BIT award rejecting a position advocated by the Republic of India - say, in a matter of regulatory expropriation - will be considered to be against the 'interests of India' and hence non-enforceable on public policy considerations.

A safeguard against such non-enforcement of adverse awards by States was introduced into the framework of BIT arbitration by the ICSID award in Sapiem v. Bangladesh. In that case, the refusal by the High Court Division of the Supreme Court of Bangladesh to enforce an ICC award in favour of Sapiem and against a government company amounted to expropriation. This sent a warning to States against over-use of the power to refuse enforcement.

However, on March 31, 2011, the ICSID award in GEA v. Ukraine took a U-turn in this matter. The award held that an ICC award was not a protected 'investment' under the Germany-Ukraine BIT or the ICSID Convention and hence its non-enforcement did not amount to expropriation.

While both Sapiem and GEA concerned non-enforcement of awards arising out of commercial contracts, not BIT arbitrations, Sapiem gave out the signal that non-enforcement of an arbitral award could be dealt with by another arbitral proceeding which would characterise the first non-enforcement as a violation of the BIT. GEA undoes this hope.

The silver lining is that it is possible to argue that the non-enforcement of an adverse BIT award, as opposed to an award in a commercial arbitration, amounts to a situation where a breach is adjudicated and yet, no reparation is made, which is a continuing breach of the BIT obligations and a breach of the customary norms of reparation codified in the Articles on State Responsibility [See Art. 28-39].

Still, the point remains that it is too risky to leave enforcement of BIT awards either to the discretion of the respondent States, or the New York Convention framework. An alternative framework for enforcement of BIT awards needs to emerge multilaterally or bilaterally.

Special tribunal to compensate Coca Cola victims

The legislature of the South Indian state of Kerala, has passed the Plachimada Coca Cola Victims Relief and Compensation Claims Special Tribunal Bill, 2011 to establish a special tribunal to deal with claims arising out of ground water depletion and other environmental degradation caused by the Coca Cola bottling plant in Plachimada, Perumatty Panchayat, Palakkad District, Kerala. This is probably the first of its kind, special claims tribunal for environmental problems in India. 

The background:

Plachimada is a village in Perumatty Panchayat, Palakkad District of Kerala. It was an agrarian village that seldom attracted the attention of the media or the outside world. M/s Hindustan Coca-Cola beverages Private Ltd. applied for consent of the Board in June 1999 to establish a factory on a 31 acre plot at Plachimada in Palakkad district for manufacturing 5,61,000 litres of soft drinks (Coca Cola, Limca, Fanta, Thums Up, Sprite, Kinley soda and Maaza) per day. The raw materials include 15,00,000 litres of water, soft drink concentrate, carbon dioxide, sugar, mango pulp, preservatives, water treatment chemicals, etc. The factory was discharging more than 8,00,000 litres of water per day and provided the sludge to the villagers to use as fertilizers.

AIJA Arbitration Conference:India

AIJA (Association Internationale des Jenues Avocats/International Association of Young Lawyers) was in India after a long gap of almost 2 decades for a conference. Last time it was there in 1988 & 1992. The conference which spanned for 2 days in Mumbai was on “International Business and Arbitration: Is India Still Different?” was attended by representatives of many national and international law firms and provided an apt platform for people to discuss the two most critical issues for the Indian judiciary and economy. The conference organized by the International Arbitration Commission of AIJA was divided into sessions with excellent speakers and experts as panelists. As the conference theme suggests, there was extensive discussion on Arbitration and Business scenario in India but this report would majorly cover sessions related to Arbitration.

Fiji accedes to New York Convention

Fiji has become the 145th nation to accede to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The accession is without reservations and has become effective from 27 September 2010.

Draft Restatement on International Commercial Arbitration accepted by the ALI annual meeting

I had stated in a previous post that ALI would debate Restatement (Third) of the United States Law of International Commercial Arbitration on Tuesday. The annual meeting has approved Draft 1 which contains Chapter 1 (definitions) and Chapter 5 (recognition and enforcement of arbitral awards). A report can be found on the ALI blog.