Indian Supreme Court aligns with international arbitration law in enforcing foreign award

Out-Law News | 22 Oct 2020 | 10:23 am | 3 min. read

The Indian Supreme Court has backed the enforcement of an arbitration award made before a tribunal in Malaysia, ruling this does not contravene Indian public policy.

In a landmark judgment, the court also decided that the period of limitation for enforcing a foreign arbitration award should be three years from when the “right to apply accrues”.

Jian Ang Wee

Wee Jian Ang

Senior Associate

This decision is no doubt another step in India’s march towards being a pro-arbitration jurisdiction

The appeal was filed by the Indian government, which was trying to resist the enforcement of a $278 million (£214 million) award made against it by a tribunal seated in Kuala Lumpur.

The dispute concerned the recovery of development costs incurred by resources company Vedanta, formerly Cairn India, Singapore company Ravva Oil, and Indian’s Videocon Industries in the development of the Ravva oil and gas fields. The disputed contract was governed by Indian law, but English law applied to the arbitration agreement.

After the tribunal had decided in favour of the companies, the Indian government unsuccessfully sought to set aside the award before the Malaysian High Court and then the Court of Appeal, being the seat courts.

The Malaysian courts said there was no reason to intervene in the award and rejected the appeals.

The companies then filed a petition for enforcement before the Delhi High Court, to which the government responded with an application to reject enforcement. It mounted, in particular, two arguments. First that the companies’ petition was filed beyond the period of limitation, and second, that the enforcement of the award was contrary to public policy.

The government’s application was rejected by the High Court, prompting the appeal to the Supreme Court.

The issue of limitation revolved around India's Limitation Act, which does not contain any specific provision for enforcement of a foreign award. In some previous cases, arbitral awards have been treated as decrees of Indian civil courts with a 12-year limitation period for enforcement under Article 136 of the Limitation Act. However, the Supreme Court clarified that Article 136, dealing with decrees, did not apply, since foreign awards are not decrees. Instead, Article 137 which prescribes a period of three years from when the "right to apply" accrues.

Having decided on that point, the Supreme Court noted that the companies had filed their enforcement petition on 14 October 2014, just shy of four years after the date of the award on 18 January 2011. However, this was nonetheless within the three-year limitation period, as the right to apply accrued from the time the government demanded from the companies further payments, on 10 July 2014.

On the second argument, the government argued that the foreign award conflicted with Indian public policy, and that the Malaysian courts had erroneously applied the Arbitration Act of Malaysia in upholding the award.

The Supreme Court disagreed. It said as the seat of the arbitration was Malaysia, the courts there had been right to examine the public policy issue in accordance with Malaysian law. Importantly, it made clear that it could, as the enforcement court, independently determine the issue of enforceability without being constrained by the findings of the Malaysian courts.

The court also found that the government had not established that the award was in violation of Indian public policy. In particular, it endorsed a wide range of international arbitration case law and reaffirmed its reasoning in its 1993 decision of Renusagar Power Co. v General Electric Co, that enforcement under this ground can only be refused if it violates the enforcement state's most basic notions of morality and justice – i.e. if the award was obtained through "corruption or fraud, or undue means". It noted that the true gravamen of the government's complaint was that the tribunal erred in its interpretation of the contractual terms, which was not a ground for refusing enforcement. This was because "[i]t is not open for the appellants to impeach the award on merits before the enforcement court. The enforcement court cannot re-assess or re-appreciate the evidence led in the arbitration".

Arbitration expert Wee Jian Ang of Pinsent Masons, the law firm behind Out-Law, said the judgment was welcome, although it would be helpful to have further clarity on the issues surrounding limitation.

“Whilst more clarity may eventually be needed on when the right to apply for enforcement on a foreign award generally accrues, the court’s approach and reasoning on the key issues – in particular regarding the roles of the enforcement and the seat courts and public policy considerations – is clear, laudable, and consistent with international arbitration jurisprudence. This decision is no doubt another step in India’s march towards being a pro-arbitration jurisdiction,” Ang said.