Government Vs Vedanta: Supreme Court Lays Down Time Period For Foreign Arbitration Awards  

Upholding the legality of the 2011 arbitral award won by Vedanta Ltd. against the Indian government, the Supreme Court has clarified the time period within which foreign awards must be enforced.

Consequently, foreign award holders who haven't commenced enforcement proceedings within three years may now have to move fast in filing applications for enforcement, according to experts BloombergQuint spoke with.

The case emanates from a production sharing contract between the government of India and Vedanta Ltd., for exploration and development of the Ravva oil and gas fields in Andhra Pradesh. The agreement specified that unresolved disputes arising from the contract would be subjected to arbitration proceedings in Malaysia.

Disputes arose between the parties relating to certain costs which led to arbitration proceedings. The arbitration tribunal granted an award favoring Vedanta in January 2011. Vedanta then moved an application for enforcing the award at the Delhi High Court, which allowed the application and directed the government to make the payments.

The government challenged the high court's verdict on grounds that enforcement of the award was barred by limitation.

Foreign Awards: SC Settles Law

Enforcement of an arbitral award is subject to the Limitation Act, which provides a maximum time within which suits or proceedings can be instituted in Indian courts.

The Limitation Act prescribes a period of 12 years for execution of any decree or order of a civil court. The period for this commences from the time such order or decree becomes enforceable. Similarly, the law also contains a residual limit of three years for any other kind of applications which are not covered elsewhere. Vedanta had argued that it had 12 years to enforce the award, while the government said the company had only three years.

The differing interpretation has been taken by high courts as well.

While some high courts have equated foreign awards with decrees, thus prescribing a limitation of 12 years, others had limited the period to three years citing that foreign awards are not court decrees.

To settle this ambiguity, the apex court analysed the law and concluded that:

• A foreign award is not a decree or order of a civil court in India. As such, the limitation period of 12 years won't apply. But since this question of law wasn't settled, the court allowed Vedanta to enforce the 2011 award.
• Applications for enforcement of foreign awards will be “deemed decrees” and hence, the residuary limitation period of three years will apply for filing a petition to enforce them.

It's a welcome ruling as it clarifies that an enforcement application is not an execution application to enforce a court decree under Order XXI of the Code of Civil Procedure, Anand Desai, managing partner at DSK Legal, said.

The judgment is a welcome step towards promotion of arbitration by the Indian judiciary and making India an increasingly arbitration-friendly jurisdiction, Sanjeev Kumar Sharma, partner at L&L Partners, said.

The apex court set aside the government's challenge on public policy grounds as well. It held that court's cannot refuse enforcement in this case as the government failed to establish that the foreign award is contrary to the basic notions of justice or against India's public policy. The government also failed to establish violation of due process by the arbitrator, the Supreme Court said.