SC: Limitation period for enforcement of foreign arbitral award is 3 years

The Hon’ble Supreme Court, on 16th September 2020, in the matter of Government of India v. Vedanta Limited & Ors. pronounced that the period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49 of the Arbitration & Conciliation Act, 1996 , would be governed by Article 137 of the Limitation Act, 1963 which prescribes a period of three years from when the right to apply accrues.

The Hon’ble Supreme Court observed that:

The issue of limitation for enforcement of foreign awards being procedural in nature, is subject to the lex fori i.e. the law of the forum (State) where the foreign award is sought to be enforced. (Para VII Part A (ii))

The limitation period for filing the enforcement / execution petition for enforcement of a foreign award in India, would be governed by Indian law. The Arbitration & Conciliation Act, 1996 does not specify any period of limitation for filing an application for enforcement / execution of a foreign award. Section 43 however provides that the Limitation Act, 1963 shall apply to arbitrations, as it applies to proceedings in court. (Para VII Part A (iv))

The Limitation Act, 1963 does not contain any specific provision for enforcement of a foreign award. Articles 136 and 137 fall in the Third Division of the Schedule to the Limitation Act. Article 136 provides that the period of limitation for the execution of any decree or order of a “civil court” is twelve years from the date when the decree or order becomes enforceable. (Para VII Part A (v))

Article 137 is the residuary provision in the Limitation Act which provides that the period of limitation for any application where no period of limitation is provided in the Act, would be three years from “when the right to apply accrues”. (Para VII Part A (vi))

Section 36 of the Arbitration & Conciliation Act, 1996 creates a statutory fiction for the limited purpose of enforcement of a ‘domestic award’ as a decree of the court, even though it is otherwise an award in an arbitral proceeding. By this deeming fiction, a domestic award is deemed to be a decree of the court , even though it is as such not a decree passed by a civil court. The arbitral tribunal cannot be considered to be a ‘court,’ and the arbitral proceedings are not civil proceedings. The deeming fiction is restricted to treat the award as a decree of the court for the purposes of execution, even though it is, as a matter of fact, only an award in an arbitral proceeding. (Para VII Part A (vii))

Foreign awards are not decrees of an Indian civil court. By a legal fiction, Section 49 provides that a foreign award, after it is granted recognition and enforcement under Section 48, would be deemed to be a decree of “that Court” for the limited purpose of enforcement. The phrase “that Court” refers to the Court which has adjudicated upon the petition filed under Sections 47 and 49 for enforcement of the foreign award. Article 136 of the Limitation Act would not be applicable for the enforcement / execution of a foreign award, since it is not a decree of a civil court in India. (Para VII Part A (x))

The enforcement of a foreign award as a deemed decree of the concerned High Court [as per the amended Explanation to Section 47 by Act 3 of 2016 confers exclusive jurisdiction on the High Court for execution of foreign awards] would be covered by the residuary provision i.e. Article 137 of the Limitation Act. (Para VII Part A (xi))

The present Limitation Act, 1963 excludes any application filed under Order XXI from the purview of Section 5 of the Act, with the object that execution of decrees should be proceeded with as expeditiously as possible. The period of limitation for execution of the decree of a civil court is now uniformly fixed at the maximum period of 12 years for decrees of civil courts. (Para VII Part A (xiii))

The period of limitation for filing a petition for enforcement of a foreign award under Sections 47 and 49, would be governed by Article 137 of the Limitation Act, 1963 which prescribes a period of three years from when the right to apply accrues. (Para VII Part A (xiv))

The application under Sections 47 and 49 for enforcement of the foreign award, is a substantive petition filed under the Arbitration Act, 1996. It is a well-settled position that the Arbitration & Conciliation Act is a self-contained code. The application under Section 47 is not an application filed under any of the provisions of Order XXI of the CPC, 1908. The application is filed before the appropriate High Court for enforcement, which would take recourse to the provisions of Order XXI of the CPC only for the purposes of execution of the foreign award as a deemed decree. The bar contained in Section 5, which excludes an application filed under any of the provisions of Order XXI of the CPC, would not be applicable to a substantive petition filed under the Arbitration & Conciliation Act, 1996. Consequently, a party may file an application under Section 5 for condonation of delay, if required in the facts and circumstances of the case. (Para VII Part A (xv))

A foreign award does not become a “foreign decree” at any stage of the proceedings. The foreign award is enforced as a deemed decree of the Indian Court which has adjudicated upon the petition filed under Section 47, and the objections raised under Section 48 by the party which is resisting enforcement of the award. A foreign award is not a decree by itself, which is executable as such under Section 49 of the Arbitration & Conciliation Act, 1996. The enforcement of the foreign award takes place only after the court is satisfied that the foreign award is enforceable under Chapter 1 in Part II of the Arbitration & Conciliation Act, 1996. After the stages of Sections 47 and 48 are completed, the award becomes enforceable as a deemed decree, as provided by Section 49. The phrase “that court” refers to the Indian court which has adjudicated on the petition filed under Section 47, and the application under Section 48. In contrast, the procedure for enforcement of a foreign decree is not covered by the Arbitration & Conciliation Act, 1996, but is governed by the provisions of Section 44A read with Section 13 of the CPC. (Para VII Part B (ii))

Under the 1996 Act, a party may apply for recognition and enforcement of a foreign award, after it is passed by the arbitral tribunal. The applicant is not required to obtain leave from the court of the seat in which, or under the laws of which, the award was made. (Para VII Part B (ii)(a))

The enforcement Court cannot set aside a foreign award, even if the conditions under Section 48 are made out. The power to set aside a foreign award vests only with the court at the seat of arbitration, since the supervisory or primary jurisdiction is exercised by the curial courts at the seat of arbitration. The enforcement court may “refuse” enforcement of a foreign award, if the conditions contained in Section 48 are made out. This would be evident from the language of the Section itself, which provides that enforcement of a foreign award may be “refused” only if the applicant furnishes proof of any of the conditions contained in Section 48 of the Act. (Para VII Part B (ii)(i))

The enforcement court is not to correct the errors in the award under Section 48, or undertake a review on the merits of the award, but is conferred with the limited power to “refuse” enforcement, if the grounds are made out. (Para VII Part B (ii)(l))

If the Court is satisfied that the application under Section 48 is without merit, and the foreign award is found to be enforceable, then under Section 49, the award shall be deemed to be a decree of “that Court”. The limited purpose of the legal fiction is for the purpose of the enforcement of the foreign award. The concerned High Court would then enforce the award by taking recourse to the provisions of Order XXI of the CPC.(Para VII Part B (ii)(m))

Copy of judgement: Judgement_16-Sep-2020

Adv. Tushar Kaushik

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