Reading Between The Lines: Ascertaining The Period of Limitation For Enforcing Foreign Arbitral Awards In India

Author: Anirudh Lekhi*

The Indian law of limitation for enforcing foreign arbitral awards was, until recently, shrouded in confusion. The lack of any provision in the Limitation Act, 1963, which stipulates the period within which a foreign award may be enforced, remained the chief source of controversy.  However, late last year, the Supreme Court of India in Government of India v. Vedanta Ltd. & Ors.[1] interpreted the provisions of the Limitation Act and held that the limitation period for enforcing foreign awards would be three years from the date the right to apply for enforcement accrued. This clarification was particularly important since there was a conflict of views among the High Courts as to the limitation period for enforcing New York Convention awards.

For award creditors who were awaiting the conclusion of setting-aside proceedings in another jurisdiction before commencing enforcement actions, the lack of clarity on this question presented a peculiar conundrum. While the Vedanta Court settled this issue conclusively, I submit that it misapplied an earlier judicial precedent on the question and consequently subjected foreign arbitral awards to a more onerous standard of limitation.

The controversy

The debate around the proper period of limitation for enforcing foreign awards was centered around two Articles in the Limitation Act. For ease of reference, the same have been reproduced below:

Evidently, while Article 136 relates to “decrees,” Article 137 is the residuary provision concerning “any other applications” whose period of limitation is not prescribed anywhere in the Limitation Act. Thus, should foreign awards be considered closer to “decrees” under Article 136, the Limitation Act would afford a longer period of limitation. However, relying on precedent in Bank of Baroda v. Kotak Mahindra,[2] the Vedanta Court held that Article 136 was only applicable to domestic decrees. This being so, since foreign awards do not find any mention under the Limitation Act, they would be governed by the residuary provision under Article 137.

At the outset, it is relevant to note that Kotak addressed the question whether a decree passed by a court in England (where the cause of action arose) could be executed in India, notwithstanding the fact that the period of limitation for executing such a decree had lapsed under the English law of limitation. In this regard, upon evaluating Article 136 and Article 137 of the Limitation Act, the Supreme Court held as follows:

“We answer question no. 2 by holding that the limitation period for executing a decree passed by a foreign court (from a reciprocating country) in India will be the limitation prescribed in the reciprocating foreign country (England).

Coming to the third question, as far as Article 136 of the Act (Limitation Act) is concerned, we are of the view that the same deals with decrees passed by Indian courts.”[3]

The remarks made by the Supreme Court in Kotak were rendered in the context of proscribing parties from re-asserting their right to execute a decree in another country, though such a right stood extinguished in the country where the cause of action arose. Manifestly, Kotak only prevented parties from relying upon Article 136 of the Limitation Act to resurrect their right to execute a decree, after the limitation period had lapsed in the country where it was made. However, Kotak never provided any authoritative adjudication on the principal issue determined in Vedanta, i.e., ascertaining the period of limitation for enforcing foreign awards in India. Thus, the primary issue for adjudication in Kotak being distinct from the one in Vedanta, the findings in the former are inapplicable to the latter.

Comment

Part II of the Indian Arbitration & Conciliation Act, 1996 mirrors the New York Convention and governs the regime for enforcing foreign arbitral awards. In this regard, not only has India made the twin reservations pertaining to “reciprocity” and the “commercial” nature of arbitral awards, but the conditions for refusing enforcement under Article V of the New York Convention have also been read into Section 48 of the Arbitration Act. However, the most significant incorporation from the New York Convention was the elimination of “double exequatur,” which required award creditors to obtain a proof of finality from courts situated at the seat and those in the enforcement jurisdiction, before any action for enforcement could be brought.[4] The elimination of “double exequatur” under the Arbitration Act is also important to appreciate the law on limitation for enforcing foreign arbitral awards. Thus, a glance at Section 49 of the Arbitration Act is instructive, and has been reproduced hereunder:

“49. Enforcement of foreign awards— Where the Court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that Court.”

The emphasis on the phrase “that Court” appearing above is extremely significant since Section 49 presupposes that where the court considers a foreign award to be enforceable, then the award shall be deemed to be a “decree” of “that” court itself. In other words, foreign awards upon enforcement in India would be deemed to be decrees of Indian courts only and in keeping with the elimination of “double exequatur,” necessitate only one unified proceeding. It is therefore evident that even if Article 136 were to apply to Indian decrees alone (as suggested in Kotak), foreign awards would yet qualify as decrees passed by Indian courts inasmuch as deeming fiction created under Section 49 above would allow it. In fact, this position has also been fortified by the Supreme Court in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd[5] where the Supreme Court made the following important observations:

“... In one proceeding, as already stated above, the court enforcing a foreign award can deal with the entire matter…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.”[6]

It may be noted that prior to Vedanta, the Bombay High Court in Noy Vallesina Engineering Spa v. Jindal Drugs Ltd.,[7] had adopted a view that the enforcement of a foreign award must take place in two stages. According to this view, when the enforceability of the foreign award was to be decided, the proceedings would be governed by the residuary provision of the Limitation Act. But once the enforceability was decided, the award would be a deemed decree and thus regulated by Article 136. In other words, Noy Vallesina contemplated two separate proceedings for pursuing any enforcement action, which is exactly what the Arbitration Act abjured by adopting double exequatur.

Though this view no longer holds ground since Vedanta was rendered, the Vedanta Court’s appreciation of the words ‘that court’ in Section 49 could have deemed awards as Indian “decrees” under Article 136 of the Limitation Act and thus subject to a longer, 12-year period of enforcement. In fact, because domestic arbitral awards are treated as deemed Indian decrees and thus subject to a longer enforcement period under Article 136,[8] imposing differing standards on foreign arbitral awards could possibly open India to breach of National Treatment provisions under its Bilateral Investment Treaties. Seen as such, the Vedanta Court has inflicted differing standards on domestic and foreign arbitral awards without any reason. Therefore, while Vedanta will always be remembered for settling the law on the period of limitation for enforcing foreign arbitral awards, it is equally significant for what it did not do— apply similar standards to domestic and foreign arbitral awards. Doing so would have been in consonance with the statutory regime under the Arbitration Act and also consistent with the law laid down in Fuerst. In sum, did Vedanta resolve a vexed question of law? Yes. Could it have been more cognizant of its ramifications? Positively.

[1] Civil Appeal No. 3185 of 2020 (SC).

[2] Civil Appeal No. 2175 of 2020 (SC).

[3] Id. at 26.

[4] See New York Convention Guide, https://newyorkconvention1958.org/index.php?lvl=notice_display&id=2320&opac_view=6 (last visited May 27, 2021).

[5] Civil Appeal No. 3594 of 2001 (SC).

[6] Id. at 18.

[7] (2006) 3 Arb LR (Bom. HC).

[8] M/s Umesh Goel v. Himachal Pradesh Cooperative Grouping Housing Society, (2016) 11 SCC 313 (SC).

*Anirudh Lekhi is an LLM candidate at Columbia Law School (’21) and a Student Editor of the American Review of International Arbitration.