Govt of India v. Vedanta Ltd & Ors
Civil Appeal No. 3185 OF 2020 (Arising out of SLP (Civil) No.7172 of 2020
- On October 28, 1994, a Production Sharing Contract (PSC) was executed between the parties and Oil and Natural Gas Corp Ltd (ONGC) for development of Ravva Oil and Gas Field (Ravva Field). Subsequently, disputes arose between parties with respect to recovery of development costs, which were referred to arbitration seated in Malaysia. On January 18, 2011, Arbitral Tribunal in Malaysia passed an Award (Award) whereby the Govt of India (GoI) was directed to pay an amount of USD 278.87 million to Vedanta. Pursuant to the same, in April 2011, Vedanta made certain adjustments with respect to recovery of the development costs, which were accepted by GoI.
- The Award was subsequently challenged by the GoI before the
Seat Courts, Kuala Lumpur on the grounds that:
- The Award deals with a dispute not contemplated/does not fall within the terms of the submission to arbitration
- The Award contains decisions on matters beyond the scope of the submission to arbitration
- The Award is in conflict with public policy
- The challenge was rejected by both Malaysian High Court as well as the Malaysian Court of Appeal. An application for Leave to Appeal before Malaysian Federal Court was also rejected by order dated May 17, 2016.
- On July 10, 2014, GoI issued a notice to Vedanta, raising a demand of USD 77 million towards its share of Profit Petroleum under the PSC and to show cause as to why the oil marketing companies should not directly pay the GoI towards recovery of its share of Profit Petroleum with interest, which was alleged to be underpaid.
- In October 2014, Vedanta filed an enforcement petition under Sections 472 and 493 of the Arbitration and Conciliation Act, 1996 (Act) before the Delhi High Court, along with an Application for Condonation of Delay. The GoI raised objections to the enforcement of the Award under Section 484 of the Act on the ground that the enforcement petition was filed beyond limitation and that enforcement of the Award was contrary to the public policy of India, and it also contained decisions on matters beyond the scope of the submission to arbitration.
- The Delhi High Court rejected the objections to the Enforcement Petition, vide Judgment dated February 19, 2020 thereby allowing the application for Condonation of Delay filed by Vedanta and directing enforcement of the Award. The Court also held that the limitation for filing an enforcement petition arising out of a foreign award is 12 years as foreign arbitral award attains the status of a Decree after it clears the tests of 'access' and 'recognition' contemplated under the Act (Impugned Judgment).
- Aggrieved by the Impugned Judgment, the GoI filed the appeal before the Supreme Court (SC).
Issues at hand?
- Whether the petition for enforcement/execution of the Award was barred by limitation?
- Whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the Award?
- Whether the Award is against the public policy of India?
Decision of the Court
- Issue No 1:
- Part II of the Act, which deals with foreign awards, does not contain any provision prescribing a period of limitation for filing an application for the enforcement of such Awards under Section 47. On the issue of limitation period applicable to foreign awards, there have been divergent views of various High Courts. In the matter of Noy Vallesina Engineering SPA v. Jindal Drugs Ltd1 , the Bombay High Court held that since no specific period of limitation has been specified in the Act for enforcement of a foreign award, the limitation period of 3 years provided in Article 137 of the Limitation Act would apply. On the other side of the spectrum, in M/s. Compania Naviera 'SODNOC' v Bharat Refineries Ltd2 , and Cairn India Ltd v. Union of India3 , the Madras and Delhi High Courts took a contrary view by holding that the limitation period of 12 years provided under Article 136 of the Limitation Act would be applicable for enforcement and the execution of the foreign award.
- In view of the foregoing, the Court held that the right to apply for enforcement accrued only on the date when the show cause notice was issued by GoI. Therefore, the enforcement petition filed on October 14, 2014, was well within the period of limitation. However, the SC caveated its decision stating that, in any event, sufficient grounds existed to condone the delay owing to lack of clarity on the applicable period of limitation for enforcement of a foreign Award.
- Issue No 2:
- SC stated that enforcement of an award is a subsequent and distinct proceeding from the setting aside proceedings at the seat and, therefore, an enforcement court cannot sit in appeal over the findings of the seat court. The courts before whom 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.
- SC analyzed the four types of laws applicable to international arbitration (i.e. (i) Substantive Law determining the rights and obligations of the parties; (ii) Law governing the Arbitration Agreement; (iii) Curial Law (determined by the Seat of Arbitration); and (iv) lex fori, which governs the proceedings for recognition and enforcement of the award in other jurisdictions) and concluded that the Malaysian courts were justified in applying the Malaysian Act to the public policy challenge raised by the Government of India.
- Courts can examine the challenge to the foreign award without being constrained by the findings of the Seat Court, even if the findings were based on Indian law.
- Issue No 3:
- SC took into consideration Section 48 of the Act which deals with conditions for enforcement of foreign awards. The Court relied on the decision in the matter of Renusagar Power Co. v.
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