India: Demystifying The Limitation Period For Enforcing A Foreign Award In India

Introduction

Divergent views were expressed by different High Courts on the issue of limitation period for enforcing foreign awards.  

Until recently, the law on limitation period for filing a petition seeking enforcement of a foreign award under the Arbitration and Conciliation Act, 1996 (Arbitration Act) remained largely unsettled. This in turn allowed foreign award holders to take their time in examining the viability of bringing enforcement action in India against award debtors and at the same time permitted award debtors to oppose enforcement of foreign awards at the very threshold, on account of limitation.

On 16 September 2020, the Supreme Court of India in Government of India v. Vedanta Limited & Ors. (Civil Appeal No. 3185 of 2020) has laid to rest the debate on limitation period to enforce a foreign award by conflating the provisions of the Indian Limitation Act, 1963 (Limitation Act) and the Arbitration Act.

The present article is limited in its elucidation on the issue of limitation as settled by the Supreme Court of India. We briefly examine the earlier position on limitation period for enforcing foreign awards under the Arbitration Act and the clarity provided on the issue by the Supreme Court of India.

What is past is prologue

The Supreme Court[1] back in 2001, observed in the context of proceedings under Part II of the Act, which deals with enforcement of certain foreign awards that a foreign award is already stamped as a decree. It was thus perceived that the award holder may apply for enforcement after steps are taken for the execution of the award.

On the strength of the above, it was argued and at different times accepted that, Article 136 which falls in the Third Division of the Schedule to the Limitation Act, was the applicable provision for filing a petition for enforcement of a foreign award. It will be worthwhile to highlight that Article 136 of the Limitation Act provides that execution of any decree or order of a civil court, is twelve years from the date when the decree or order becomes enforceable.

Illustratively, the Bombay High Court², Madras High Court³ and Delhi High Court⁴, subscribed to the view that the limitation period for enforcement of a foreign award is twelve years. The reasoning for holding so, can be narrowed down to the premise that a foreign award is already stamped as a decree of the Court. This view naturally augured well for foreign award holders.

On the other hand, one finds contrary views expressed by the Bombay High Court⁵⁶ itself, on at least two occasions. In conspectus, on these two occasions, the Bombay High Court was inclined towards the view that the period of limitation for filing a petition for enforcement of a foreign award would be three years from the date when the right to apply accrues. The rationale appears to be that limitation period for enforcement of a foreign award is governed by Article 137 of the Limitation Act, a residuary provision, which provides for three years from when the right to apply accrues.

The precedent

In the proceedings before the Supreme Court, the award debtor's plea that the award holder's enforcement petition was barred by limitation necessitated the exercise for the Supreme Court to settle the law on this issue, given the divergence of legal opinion of different High Courts.

While adjudicating the issue of limitation, Supreme Court succinctly discussed Article III of the New York Convention on the Recognition and Enforcement of Foreign Awards, 1958⁷ (New York Convention), which provides 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. As a corollary, the limitation period for filing an enforcement petition for enforcement of a foreign award in India, would be governed by Indian law.

While expositing the position of law, the Court observed that Article 136 of the Limitation Act deals only with decrees passed by Indian courts. The legislature has omitted reference to ‘foreign decrees' under Article 136 of the Limitation Act and the intention thus was, to confine Article 136 to the decrees of a civil court in India.

A foreign award, once recognized and determined to be enforceable, is deemed to be a decree of that Court for the limited purpose of enforcement. This is the legal fiction provided by Section 49 of the Arbitration Act. Therefore, as a foreign award is not a decree of an Indian civil court and consequently, Article 136 of the Limitation Act is inapplicable.

Thus, the Supreme Court authoritatively ruled, that the period of limitation for filing a petition for enforcement of a foreign award would be governed by the residuary provision, Article 137 of the Limitation Act, which prescribes a period of three years from when the right to apply accrues.

Residuary Safeguard

Given the ambiguity on the issue of limitation till date and considering that enforcement of a foreign award entails filing a substantive petition under the Arbitration Act, the Supreme Court has granted liberty to foreign award holders to seek condonation of delay in filing enforcement petitions, if required in the facts and circumstances of the case.

Conclusion

The Supreme Court's decision finally crystallizes the long-standing issue of limitation period for enforcing a foreign award. One would think that the considerably reduced number of years now available to a foreign award holder could prejudice those who did not act within the three-year time-period. There is however, still hope, especially with the Court opining that lack of clarity on the issue of limitation period is sufficient ground to condone delays.

Footnotes

1M/S. Fuerst Day Lawson Ltd vs Jindal Exports Ltd (2001) 6 SCC 356

2 Imax Corporation v E-City Entertainment (I) Pvt. Limited (2020) 1 AIR Bom 82

3 M/s. Compania Naviera ‘SODNOC' v Bharat Refineries Limited (2008) 1 Arb LR 344

4 Cairn India Limited v Union of India 2020 SCC Online SC 324

5 Noy Vallesina Engineering Spa v Jindal Drugs Limited 2006 (3) Arb LR 510

6 Louis Dreyfous Commodities Suisse v Sakuma Exports Limited (2015) 6 Bom CR 258

7 “Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following Articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed in the recognition or enforcement of domestic arbitral awards.”

Originally published by Clyde & Co, October 2020

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