GOVERNMENT OF INDIA versus 1.VEDANTA LIMITED (FORMERLY CAIRN INDIA LTD.) 2. RAVVA OIL (SINGAPORE) PTE. LTD. 3. VIDEOCON INDUSTRIES LIMITED on 16 September 2020

1. VEDANTA LIMITED (FORMERLY CAIRN INDIA LTD.)2. RAVVA OIL (SINGAPORE) PTE. LTD.

3. VIDEOCON INDUSTRIES LIMITED

(Civil Appeal No. 3185 of 2020)

SEPTEMBER 16, 2020

[S. ABDUL NAZEER, INDU MALHOTRA ANDANIRUDDHA BOSE, JJ.]

Arbitration and Conciliation Act, 1996 – ss.47 and 49 –Foreign award – Limitation for filing enforcement/execution petitionfor enforcement of a foreign award – Held: Period of limitation forfiling a petition for enforcement of a foreign award u/ss.47 and 49,would be governed by Art.137 of the Limitation Act, which prescribesa period of three years from when the right to apply accrues –Limitation Act, 1963 – Art. 137.

Arbitration and Conciliation Act, 1996 – ss. 44, 46, 47 and48 – Scheme of the Act for enforcement of New York Conventionawards – Held: Part II Chapter 1 of the Act, pertains to enforcementof New York Convention awards – The enforcement Court cannotset aside a foreign award, even if the conditions u/s.48 are madeout – Power to set aside a foreign award vests only with the court atthe seat of arbitration, since supervisory or primary jurisdiction isexercised by the curial courts at the seat of arbitration –Theenforcement court is not to correct the errors in the award u/s.48,or undertake a review on the merits of the award, but is conferredwith the limited power to “refuse” enforcement, if the grounds aremade out – If the Court is satisfied that the application u/s.48 iswithout merit, and the foreign award is found to be enforceable,then u/s.49, the award shall be deemed to be a decree of “that Court”– Limited purpose of the legal fiction is enforcement of the foreignaward – New York Convention on the Recognition and Enforcementof Foreign Awards, 1958 – Arts. IV & V.

Arbitration – Foreign award – Limitation for enforcement /execution of a foreign award – Lex fori – Held: The issue oflimitation for enforcement of foreign awards being procedural innature, is subject to the lex fori i.e. the law of the forum (State)where the foreign award is sought to be enforced.

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AArbitration – Arbitral award – Foreign award – Limitationperiod for filing the enforcement / execution petition for enforcementof a foreign award in India – Held: Would be governed by Indianlaw – The Indian Arbitration Act, 1996 does not specify any periodof limitation for filing an application for enforcement / execution ofa foreign award – s.43 however provides that the Limitation Act,B1963 shall apply to arbitrations, as it applies to proceedings incourt – Arbitration and Conciliation Act, 1996 – s.43 – LimitationAct, 1963.

Arbitration and Conciliation Act, 1996 – s.36 – Award inarbitral proceeding – Domestic award – Statutory fiction createdCu/s.36 for limited purpose of enforcement of a ‘domestic award’ asa decree of the court – Held: By deeming fiction, a domestic awardis deemed to be a decree of the court, even though it is as such nota decree passed by a civil court – The deeming fiction is restrictedto treat the award as a decree of the court for the purposes ofDexecution, even though it is, as a matter of fact, only an award inan arbitral proceeding.

Arbitration – Foreign award – Held: Foreign awards are notdecrees of an Indian civil court – By a legal fiction, s.49 providesthat a foreign award, after it is granted recognition and enforcementEu/s.48, would be deemed to be a decree of “that Court” for thelimited purpose of enforcement – The phrase “that Court” refers tothe Court which has adjudicated upon the petition filed u/ss.47and 49 for enforcement of the foreign award – Art.136 of theLimitation Act would not be applicable for the enforcement /execution of a foreign award, since it is not a decree of a civil courtFin India – Limitation Act, 1963 – Art. 136 – Arbitration andConciliation Act, 1996 – ss.47, 48 and 49 – Legal Fiction.

Arbitration and Conciliation Act, 1996 – Foreign award –Applicable law at the enforcement stage – Held: Enforcement courtdoes not sit in appeal over the findings of the seat court –GEnforcement of the award is a subsequent and distinct proceedingfrom the setting aside proceedings at the seat – The enforcementcourt would independently determine the issue of recognition andenforceability of the foreign award in India, in accordance with theprovisions of Chapter 1 Part II of the Indian Arbitration Act, 1996H– On facts, the Malaysian Courts being the seat courts were justified in applying the Malaysian Act to the public policy challenge raisedby the Government of India – However, merely because theMalaysian Courts upheld the award in question, it would not be animpediment for the Indian courts to examine whether the awardwas opposed to the public policy of India u/s.48 of the IndianArbitration Act, 1996 – The enforcement court would examine thechallenge to the award in accordance with the grounds availableu/s.48 of the Act, without being constrained by the findings of theMalaysian Courts – If the award is found to be violative of thepublic policy of India, it would not be enforced by the Indian courts– The enforcement court would however not second-guess or reviewthe correctness of the judgment of the Seat Courts, while decidingthe challenge to the award.

Arbitration and Conciliation Act, 1996 – s.48 – Enforcementof foreign awards – Public policy defence for refusing enforcementu/s.48 of the Act – s.48 was amended by Act 3 of 2016 – Effect of,whether retrospective or prospective – Held: By this amendment,the public policy ground was given a narrow and specificconstruction by statute, by the insertion of two Explanations – Theamendments made to s.48 by the 2016 Amendment Act are substantiveamendments which were incorporated to make the definition of“public policy” narrow by statute – The two Explanations in s.48begin with the words “For the avoidance of any doubt.” – However,since the amendments introduced specific criteria for the first time,it must be considered to be prospective, irrespective of the usage ofthe phrase “for the removal of doubts.”

Arbitration – Foreign Award – Enforcement of – Limits ofjudicial intervention on grounds of public policy of the enforcementState – Plea that the award in question may not be enforced, since itis contrary to the basic notions of justice – Held: On facts, nottenable, for two reasons – Firstly, the Appellants did not make out acase of violation of procedural due process in the conduct of thearbitral proceedings – Requirement of procedural fairnessconstitutes a fundamental basis for the integrity of the arbitralprocess – Fair and equal treatment of the parties is a non-derogableand mandatory provision, on which the entire edifice of the alternatedispute resolution mechanism is based – In the present case, nosuch violation was alleged – Secondly, the Appellants did not make AB

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Aout as to how the award was in conflict with the basic notions ofjustice, or in violation of the substantive public policy of India.

Legal fiction – Object of – Held: Legal fictions are createdonly for some definite purpose – A legal fiction is to be limited tothe purpose for which it was created, and it would not be legitimateBto travel beyond the scope of that purpose, and read into theprovision, any other purpose how so attractive it may be.

Dismissing the appeal, the Court

HELD: Limitation for filing an enforcement/executionpetition of a foreign award under Section 47 of the Arbitrationand Conciliation Act, 1996C

Conclusion

1.1. The issue of limitation for enforcement of foreignawards being procedural in nature, is subject to the lex fori i.e.the law of the forum (State) where the foreign award is sought tobe enforced. Article III of the New York Convention on theRecognition and Enforcement of Foreign Awards, 1958 statesDthat recognition and enforcement of arbitral awards should bedone in accordance with the rules of procedure of the State wherethe award was to be enforced. The time limit may be specificallyprovided in the national legislation for recognition or enforcementof Convention awards, or it may be a general rule applicable toEcourt proceedings. The limitation period for filing the enforcement/ execution petition for enforcement of a foreign award in India,would be governed by Indian law. The Indian Arbitration Act,1996 does not specify any period of limitation for filing anapplication for enforcement / execution of a foreign award. Section43 however provides that the Limitation Act, 1963 shall apply toFarbitrations, as it applies to proceedings in court. The LimitationAct, 1963 does not contain any specific provision for enforcementof a foreign award. Articles 136 and 137 fall in the Third Divisionof the Schedule to the Limitation Act. Article 136 provides thatthe period of limitation for the execution of any decree or orderGof a “civil court” is twelve years from the date when the decreeor order becomes enforceable. Article 137 is the residuaryprovision in the Limitation Act which provides that the period oflimitation for any application where no period of limitation isprovided in the Act, would be three years from “when the rightto apply accrues”. [Part A, Para VII (ii), (iii), (iv), (v) and (vi)]H[51-B-C; 52-A-G]

1.2. Section 36 of the Arbitration and Conciliation Act, 1996creates a statutory fiction for the limited purpose of enforcementof a ‘domestic award’ as a decree of the court, even though it isotherwise an award in an arbitral proceeding. By this deemingfiction, 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’, andthe arbitral proceedings are not civil proceedings. The deemingfiction is restricted to treat the award as a decree of the court forthe purposes of execution, even though it is, as a matter of fact,only an award in an arbitral proceeding. [Part A, Para VII (vii)][53-D-F]

1.3. The Limitation Act was framed keeping in view thesuits, appeals and applications to be filed in Indian courts.Wherever the need was felt to deal with an application/petitionfiled outside India, the Limitation Act specifically provided a timeperiod for that situation. The legislature has omitted referenceto “foreign decrees” under Article 136 of the Limitation Act.The intention of the legislature was to confine Article 136 to thedecrees of a civil court in India. The application for execution ofa foreign decree would be an application not covered under anyother Article of the Limitation Act, and would be covered byArticle 137 of the Limitation Act. Foreign awards are not decreesof an Indian civil court. By a legal fiction, Section 49 providesthat a foreign award, after it is granted recognition andenforcement under Section 48, would be deemed to be a decreeof “that Court” for the limited purpose of enforcement. Thephrase “that Court” refers to the Court which has adjudicatedupon the petition filed under Sections 47 and 49 for enforcementof the foreign award. Article 136 of the Limitation Act would notbe applicable for the enforcement / execution of a foreign award,since it is not a decree of a civil court in India. The enforcementof a foreign award as a deemed decree of the concerned HighCourt [as per the amended Explanation to Section 47 by Act 3 of2016 confers exclusive jurisdiction on the High Court forexecution of foreign awards] would be covered by the residuaryprovision i.e. Article 137 of the Limitation Act. [Part A, Para VII(ix), (x) and (xi)][55-E-H; 56-A-C; 60-C-E]

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6SUPREME COURT REPORTS

A1.4. The period of limitation for filing a petition forenforcement of a foreign award under Sections 47 and 49, wouldbe governed by Article 137 of the Limitation Act, 1963 whichprescribes a period of three years from when the right to applyaccrues. The application under Sections 47 and 49 for enforcementof the foreign award, is a substantive petition filed under theBArbitration Act, 1996. It is a well-settled position that theArbitration Act is a self-contained code. The application underSection 47 is not an application filed under any of the provisionsof Order XXI of the CPC, 1908. The application is filed beforethe appropriate High Court for enforcement, which would takeCrecourse to the provisions of Order XXI of the CPC only for thepurposes of execution of the foreign award as a deemed decree.The bar contained in Section 5, which excludes an applicationfiled under any of the provisions of Order XXI of the CPC, wouldnot be applicable to a substantive petition filed under theArbitration Act, 1996. Consequently, a party may file an applicationDunder Section 5 for condonation of delay, if required in the factsand circumstances of the case. [Part A, Para VII (xiv) and (xv)][57-F-H; 58-A-C]

Scheme of the 1996 Act for enforcement of New YorkConvention awardsE

2.1. Part II Chapter 1 of the Arbitration and ConciliationAct, 1996 pertains to the enforcement of New York Conventionawards. Under the 1996 Act, there is no requirement for theforeign award to be filed before the seat court, and obtain a decreethereon, after which it becomes enforceable as a foreign decree.FThis was referred to as the “double exequatur” which was arequirement under the Geneva Convention, 1927 and was doneaway with by the New York Convention, which superseded it.There is a paradigm shift under the 1996 Act. Under the 1996Act, a party may apply for recognition and enforcement of a foreignGaward, after it is passed by the arbitral tribunal. The applicant isnot required to obtain leave from the court of the seat in which,or under the laws of which, the award was made. [Part B, Para(ii)(a)][60-F-H; 61-A-C]

2.2. Section 48 replicates Article V of the New YorkHConvention, and sets out the limited conditions on which the

enforcement of a foreign award may be refused. Sub-sections (1)and (2) of Sections 48 contain seven grounds for refusal to enforcea foreign award. Sub-section (1) contains five grounds which maybe raised by the losing party for refusal of enforcement of theforeign award, while sub-section (2) contains two grounds whichthe court may ex officio invoke to refuse enforcement of the award,i.e. non-arbitrability of the subject-matter of the dispute underthe laws of India; and second, the award is in conflict with thepublic policy of India. [Part B, Para (ii)(h)][66-A-C]

2.3. The enforcement Court cannot set aside a foreign award,even if the conditions under Section 48 are made out. The powerto set aside a foreign award vests only with the court at the seatof arbitration, since the supervisory or primary jurisdiction isexercised by the curial courts at the seat of arbitration. Theenforcement court may “refuse” enforcement of a foreign award,if the conditions contained in Section 48 are made out. This wouldbe evident from the language of the Section itself, which providesthat enforcement of a foreign award may be “refused” only if theapplicant furnishes proof of any of the conditions contained inSection 48 of the Act. [Part B, Para (ii)(i)][66-D-F]

2.4. The opening words of Section 48 use permissive, ratherthan mandatory language, that enforcement “may be” refused.Theuse of the words “may be” indicate that even if the party againstwhom the award is passed, proves the existence of one or moregrounds for refusal of enforcement, the court would retain aresidual discretion to overrule the objections, if it finds that overalljustice has been done between the parties, and may direct theenforcement of the award. This is generally done where the groundfor refusal concerns a minor violation of the procedural rulesapplicable to the arbitration, or if the ground for refusal was notraised in the arbitration. A court may also take the view that theviolation is not such as to prevent enforcement of the award ininternational relations. [Part B, Para (ii)(j)][66-G; 67-A-C]

2.5. The grounds for refusing enforcement of foreign awardscontained in Section 48 are exhaustive, which is evident from AB

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Athe language of the Section, which provides that enforcementmay be refused “only if”the applicant furnishes proof of any ofthe conditions contained in that provision. The enforcement courtis not to correct the errors in the award under Section 48, orundertake a review on the merits of the award, but is conferredwith the limited power to “refuse” enforcement, if the groundsBare made out.If the Court is satisfied that the application underSection 48 is without merit, and the foreign award is found to beenforceable, then under Section 49, the award shall be deemedto be a decree of “that Court”. The limited purpose of the legalfiction is for the purpose of the enforcement of the foreign award.CThe concerned High Court would then enforce the award by takingrecourse to the provisions of Order XXI of the CPC. [Part B,Para (ii)(k), (l) and (m)][67-D; 68-A-D]

Whether the Malaysian Courts were justified in applyingthe Malaysian law of public policy while deciding the challenge toDthe foreign award?

3.1. The enforcement court does not sit in appeal over thefindings of the seat court. The enforcement of the award is asubsequent and distinct proceeding from the setting asideproceedings at the seat. The enforcement court wouldEindependently determine the issue of recognition andenforceability of the foreign award in India, in accordance withthe provisions of Chapter 1 Part II of the Indian Arbitration Act,1996. [Part C, Discussion and Findings, Para (i)][77-D-E]

3.2. The courts having jurisdiction to annul or suspend aFNew York Convention award are the courts of the State wherethe award was made, or is determined to have been made i.e. atthe seat of arbitration. The seat of the arbitration is a legal concepti.e. the juridical home of the arbitration. The legal “seat” mustnot be confused with a geographically convenient venue chosenGto conduct some of the hearings in the arbitration. The courts atthe seat of arbitration are referred to as the courts which exercise“supervisory” or “primary” jurisdiction over the award. The “lawsunder which the award was made” used in Article V (1)(e) of theNew York Convention, is mirrored in Section 48(1)(e) of the IndianArbitration Act, which refers to the country of the seat of theH

arbitration, and not the State whose laws govern the substantivecontract. [Part C, Discussion and Findings, Para (ii)][77-E-G]

3.3. The courts before which the foreign award is broughtfor recognition and enforcement would exercise “secondary” or“enforcement” jurisdiction over the award, to determine therecognition and enforceability of the award in that jurisdiction.[Part C, Discussion and Findings, Para (iii)][79-B]

3.4. The governing law determines the substantive rightsand obligations of the parties in the underlying commercialcontract. The parties normally make a choice of the governinglaw of the substantive contract; in the absence of a choice of thegoverning law, it would be determined by the tribunal inaccordance with the conflict of law rules, which are considered tobe applicable. The law governing the arbitration agreement mustbe determined separately from the law applicable to thesubstantive contract. The arbitration agreement constitutes aseparate and autonomous agreement, which would determine thevalidity and extent of the arbitration agreement; limits of partyautonomy, the jurisdiction of the tribunal, etc. The curial law ofthe arbitration is determined by the seat of arbitration. In aninternational commercial arbitration, it is necessary that theconduct of the arbitral proceedings are connected with the law ofthe seat of arbitration, which would regulate the various aspectsof the arbitral proceedings. The parties have the autonomy todetermine the choice of law, which would govern the arbitralprocedure, which is referred to as the lex arbitri, and is expressedin the choice of the seat of arbitration. The curial law governs theprocedure of the arbitration, the commencement of the arbitration,appointment of arbitrator/s in exercise of the default power bythe court, grant of provisional measures, collection of evidence,hearings, and challenge to the award. The courts at the seat ofarbitration exercise supervisory or “primary” jurisdiction overthe arbitral proceedings, except if the parties have made anexpress and effective choice of a different lex arbitri, in whichevent, the role of the courts at the seat will be limited to thosematters which are specified to be internationally mandatory and ABC

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Aof a non-derogable nature. The lex fori governs the proceedingsfor recognition and enforcement of the award in other jurisdictions.Article III of the New York Convention provides that the nationalcourts apply their respective lex fori regarding limitation periodsapplicable for recognition and enforcement proceedings; the datefrom which the limitation period would commence, whether thereBis power to extend the period of limitation. The lex fori determinesthe court which is competent and has the jurisdiction to decidethe issue of recognition and enforcement of the foreign award,and the legal remedies available to the parties for enforcementof the foreign award. [Part C, Discussion and Findings, ParaC(iv)][79-D-G; 80-A-F]

3.5. The Malaysian Courts being the seat courts werejustified in applying the Malaysian Act to the public policychallenge raised by the Government of India. The enforcementcourt would, however, examine the challenge to the award inDaccordance with the grounds available under Section 48 of theAct, without being constrained by the findings of the MalaysianCourts. Merely because the Malaysian Courts have upheld theaward, it would not be an impediment for the Indian courts toexamine whether the award was opposed to the public policy ofIndia under Section 48 of the Indian Arbitration Act, 1996. If theEaward is found to be violative of the public policy of India, it wouldnot be enforced by the Indian courts. The enforcement court wouldhowever not second-guess or review the correctness of thejudgment of the Seat Courts, while deciding the challenge to theaward. [Part C, Discussion and Findings, Para (v)][80-F-G; 81-A-FB]

Whether amendments made to Section 48 of the Arbitrationand Conciliation Act, 1996, by Act 3 of 2016 have retrospectiveapplication?

4. This issue is required to be determined in accordanceGwith the conditions laid down in Section 48 of the Arbitration andConciliation Act, 1996. Section 48 was amended by Act 3 of 2016.By this amendment, the public policy ground was given a narrowand specific construction by statute, by the insertion of twoExplanations. The amendments made to Section 48 by the 2016HAmendment Act are substantive amendments, which have been incorporated to make the definition of “public policy” narrow bystatute. The two Explanations in Section 48 begin with the words“For the avoidance of any doubt.” It cannot, however, be presumedto be clarificatory and retrospective, since the substitutedExplanation 1 has introduced new sub-clauses, which havebrought about a material and substantive change in the section.A new Explanation 2 has been inserted which states that the testas to whether there is a contravention with the fundamental policyof Indian law, shall not entail a review on the merits of the dispute.Since the amendments have introduced specific criteria for thefirst time, it must be considered to be prospective, irrespectiveof the usage of the phrase “for the removal of doubts.” [Part D,Para (i), (vii), (ix)][81-F; 88-D; 89-C-G]

Whether the foreign award is in conflict with the PublicPolicy of India?

5.1. The International Council for Commercial Arbitration(ICCA) Guide to the Interpretation of the 1958 New YorkConvention : A Handbook for Judges (2011), states that whileconsidering the grounds for refusal of a foreign award, the Courtmust be guided by the following principles (i) no review on merits;(ii) narrow interpretation of the grounds for refusal; and (iii) limiteddiscretionary power. The merits of the arbitral award are not opento review by the enforcement court, which lies within the domainof the seat courts. Accordingly, errors of judgment, are not asufficient ground for refusing enforcement of a foreign award.[Part D, Para (xviii)][95-H; 96-A-B]

5.2. The Appellants have contended that the award maynot be enforced, since it is contrary to the basic notions of justice.This submission cannot be accepted for the following reasons.Firstly, the Appellants have not made out a case of violation ofprocedural due process in the conduct of the arbitral proceedings.The requirement of procedural fairness constitutes a fundamentalbasis for the integrity of the arbitral process. Fair and equaltreatment of the parties is a non-derogable and mandatoryprovision, on which the entire edifice of the alternate disputeresolution mechanism is based. In the present case, there is nosuch violation alleged. Secondly, the Appellants have not madeout as to how the award is in conflict with the basic notions of AB

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Ajustice, or in violation of the substantive public policy of India.[Part D, Para (xix) ][96-D-F]

Bengal Immunity v. State of Bihar & Ors., [1955] 2 SCR603 – followed.

Umesh Goyal v. Himachal Pradesh Co-op GroupHousing Society Ltd. (2016) 11 SCC 313 : [2016]6 SCR 703; Sundaram Finance Ltd. v. Abdul Samanand Anr. (2018) 3 SCC 622 : [2018] 10 SCR 451; ParamSingh Patheja v. ICDS Ltd. (2006) 13 SCC 322 : [2006]8 Suppl. SCR 178; State of Karnataka v. State of TamilNadu, (2017) 3 SCC 274 : [2018] 5 SCR 829; Bank ofBaroda v. Kotak Mahindra Bank, (2020) SCC OnLine324; Fuerst Day Lawson Limited v. Jindal ExportsLimited (2001) 6 SCC 356 : [2001] 3 SCR 479;Sumitomo Corporation v. CDC Financial Services(Mauritius) Limited (2008) 4 SCC 91 : [2008]3 SCR 309; Sedco Forex International Drill v.Commissioner of Income Tax, Dehradun (2005) 12 SCC717 : [2005] 5 Suppl. SCR 302 and SsangyongEngineering & Construction Co. Ltd. v. NHAI, (2019)15 SCC 131 : [2019] 7 SCR 522 – relied on.

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BCCI v. Kochi Cricket (P) Ltd. (2018) 6 SCC287: [2018] 2 SCR 829; Bank of Baroda v. KotakMahindra Bank (2020) SCC Online SC 324; RenusagarPower Co. Ltd. v. General Electric Co. (1994) 1 Suppl.SCC 644 : [1993] 3 Suppl. SCR 22; Reliance Industriesv. Union of India, (2014) 7 SCC 603 : [2014] 6SCR 456; LMJ International Limited v. SleepwellIndustries Co. Ltd. (2019) 5 SCC 302 : [2019]4 SCR 617; Shakti Bhog Food Industries Ltd. v. theCentral Bank of India, (2020) SCC OnLine SC 482;Shri Lal Mahal Ltd v. Progretto Grano Spa, (2014) 2 SCC 433 : [2013] 13 SCR 599; Bharat Aluminium Co.v. Kaiser Aluminium Technical Services Inc. (2012) 9SCC 648; Cairn India Limited v. Union of India (2020)SCC Online SC 324; The Kerala State E l e c t r i c i t yBoard, Trivandrum v. T.P. Kunhaliumma (1976) 4 SCC634 : [1977] 1 SCR 996; Kandla Export Corporation F

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and Anr. v. OCI Corporation and Anr., (2018) 14 SCC715 : [2018] 1 SCR 915; ONGC v. Saw Pipes (2003) 5SCC 705 : [2003] 3 SCR 691; BALCO v. KaiserAluminium (2012) 9 SCC 552 : [2012] 12 SCR 327;Shri Lal Mahal Ltd. v. Progetto Grano SPA (2014) 2SCC 433 : [2013] 13 SCR 599; Renusagar Power Co.v. General Electric Co. (1994) 1 Suppl. SCC 644: [1993] 3 Suppl. SCR 22; ONGC v. Western Geco(2014) 9 SCC 263; Renusagar Power Co. Ltd. v.General Electric Company & Anr., 1994 AIR 860 :[1993] 3 Suppl. SCR 22; Escorts Limited v. UniversalTractor Holding LLC (2013) 10 SCC 717 : [2013] 2SCR 389; PEC Limited v. Austbulk Shipping (2019) 11SCC 620 : [2018] 13 SCR 830; LMJ International Ltd.v. Sleepwell Industries (2019) 5 SCC 302 : [2019] 4SCR 617 and Vijay Karia & Ors. v. Prysmian Cavi ESistemi SRL & Ors., (2020) SCC OnLine 177 – referredto.

Noy Vallesina Engineering Spa v. Jindal Drugs Limited2006 (3) Arb LR 510; Louis Dreyfous CommoditiesSuisse v. Sakuma Exports Limited (2015) 6 Bom CR258; Imax Corporation v. E-City Entertainment (I) Pvt.Limited (2020) 1 AIR Bom 82; M/s. Compania Naviera‘SODNOC’ v. Bharat Refineries Limited (2008) 1 ArbLR 344; In re Consolidated Rail Corp 867 F Supp 25,30 (DDC 1994) M Flatow v. Islamic Republic of Iranand FMC Corp 1999 US Dist LEXIS 18957; (2000)XXV Ybk Comm Arbn 641; Maritime Enterprises Ltdv. Agromar Lineas Ltd. (1989) XIV Ybk Comm Arbn693; Minister of Public Works of the Government of theState of Kuwait v. Sir Fredrick Snow & Partners [1983]1 WLR 818 CA; Northern Sales Company Ltd. v. CompMaritima Villa Nova SA, Federal Court of Appeal,Winnipeg, Manitoba, 20 November 1991, (1993)XVIII Ybk Comm Arbn 363; Good Challenger NaveGante v. Metalexportimport [2003] EWHC 10 (Comm);Shivnath Rai Harnarain India Co. v. G. G. Rotterdam164 (2009) DLT 197; Usha Drager Pvt. Ltd. v.Dragerwerk AG, (170) DLT 628; Conros Steels Pvt.

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Ltd. v. Lu Qin (Hong Kong) Company Ltd. and Ors.,2015 (1) Arb LR 463 (Bombay) : (2015) 2 Bom CR 1;Cruz City I Mauritius Holdings v. Unitech Ltd. (2017)239 DLT 649; PT Asuransi Jasa Indonesia (Persero)v. Dexia Bank SA [2006] SGCA 41; Government ofIndia v. Cairn Energy Pty. Ltd. & Anr. [2011] 6 MLJ441 and Hindustan Construction Co. Ltd v. Union ofIndia & Ors. 2019 (6) Arb LR 171 (SC)– referred to.

Parsons & Whittemore Overseas Co. Inc. v. SocieteGenerale De L’industrie du Papier (RAKTA) 508 F. 2d969 (2[nd] Cir 1974); BCB Holdings Limited and TheBelize Bank Limited v. The Attorney General of Belize,Caribbean Court of Justice, Appellate Jurisdiction, 26July 2013, [2013] CCJ 5 (AJ); Traxys Europe S.A. v.Balaji Coke Industry Pvt Ltd., Federal Court, Australia,23 March 2012, [2012] FCA 276; Uganda TelecomLtd. v. Hi-Tech Telecom Pty Ltd., Federal Court,Australia, 22 February 2011, [2011] FCA 131;Petrotesting Colombia S.A. & Southeast InvestmentCorporation v. Ross Energy S.A., Supreme Court ofJustice, Colombia, 27 July 2011; Hebei Import &Export Corp. v. Polytek Engineering Co. Ltd., Court ofFinal Appeal, Hong Kong, 9 February 1999, [1999] 2HKC 205; Brostrom Tankers AB v. Factorias VulcanoS.A., High Court, Dublin, Ireland, 19 May 2004, XXXY.B. Com. Arb. 591 (2005); International NavigationLtd. v. Waterside Ocean Navigation Co. Inc. 737 F.2d150 (Second Circuit, 1984); Telenor MobileCommunications v. Storm LLC 524 F.Supp. 2d 332(SDNY 2007); PT Asuransi Jasa Indonesia (Persero)v. Dexia Bank SA [2006] SGCA 41 and Dongwoo Mann+ Hummel Co. Ltd. v Mann + Hummel GmbH. [2008]SGHC 67 – referred to.

Development Corporation v. Balli Trading) YearbookCommercial Arbitration XXIV (1999) pp.732-738(U.K. No.52); Paklito Investment Ltd. v. Klockner EastAsia) Yearbook Commercial Arbitration XIX (1994)pp.664-674 (Hong Kong No.6); British Virgin Islands, GOVERNMENT OF INDIA v. VEDANTA LIMITED (FORMERLYCAIRN INDIA LTD.) ETC.

Court of Appeal, 18 June 2008 (IPOC InternationalGrowth Fund Limited v L.V. Finance Group Limited)Yearbook Commercial Arbitration XXXIII (2008)pp.408-432 (British Virgin Islands No.1) Albert Janvan den Berg, The New York Arbitration Conventionof 1958: Towards a Uniform Judicial Interpretation,1981, Kluwer Law and Taxation Publishers at page265; United Kingdom: High Court, Queen’s BenchDivision (Commercial Court), 20 January 1997 (ChinaAgribusiness); Supreme Court of Hong Kong, HighCourt, 16 December 1994 (Nanjing Cereals, Oils &Foodstuffs Import & Export Corporation v. LuckmateCommodities Trading Ltd.) YearbookCommercialArbitration XXI (1996) pp. 542-545 (Hong KongNo.9); The Conflict of Laws, Dicey, Morris andCollins, (15[th] ed.) Volume 1, Chapter 16, paragraph16-035, p. 843. Russel on Arbitration, Sweet &Maxwell (24th Edition, 2015); The New YorkConvention of 1958, Kluwer, 1981, pp. 267-268, citedin Redfern and Hunter, Law and Practice ofInternational Commercial Arbitration, fifth edn., 2009,p. 639, para 11.60; Malhotra’s Commentary on the Lawof Arbitration, 4[th] Edition, Vol. 2, Pg. 1163-1164,Wolters Kluwer – referred to.

Case Law Reference

[2018] 2 SCR 829referred to[1993] 3 Suppl. SCR 22referred to[2014] 6 SCR 456referred to[2001] 3 SCR 479relied on[2019] 4 SCR 617referred to[2013] 13 SCR 599referred to(2012) 9 SCC 648referred to[2016] 6 SCR 703relied on[2018] 10 SCR 451relied on[2006] 8 Suppl. SCR 178 relied on Part A, Para V(a)(iii)Part A, Para V(b)Part A, Para V(b)(vii)Part A, Para VI(a)(vi)Part A, Para VI(a)(vi)Part A, Para VI(a)(vii)Part A, Para VI(a)(ix)Part A, Para VII(vii)Part A, Para VII(vii)Part A, Para VII(vii)

A

B

C

D

E

F

G

H

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3185of 2020.F

From the Judgment and Order dated 19.02.2020 of the High Courtof Delhi at New Delhi in O.M.P. (EFA) (COMM.) No. 15 of 2020.

K. K. Venugopal, AG, Tushar Mehta, SG, Gourab Banerji, HarishSalve, C.A. Sundaram, Akhil Sibal, Sr. Advs., K. R. Sasiprabhu,GMs. Neelu Mohan, Tushar Bhardwaj, Vinayak Maini, Madhur Baya,Ms. Chetna Nayantara Rai, Sameer Parekh, M/s. Parekh & Co., AnirudhDas, Aashish Gupta, Arjun Pal, Anirudh Lekhi, Ms. Rohini Musa,Abhishek Gupta and S.S. Shroff, Advs. for the appearing parties.

H

1. Leave granted.

F

2. The present Civil Appeal has been filed by the Government ofIndia to challenge the Judgment and Order dated 19 February 2020 passedby the Delhi High Court, wherein the application under Section 48 of theArbitration and Conciliation Act, 1996 being I.A. No. 3558 of 2015 filedby the Government of India has been dismissed; the Application filedunder Section 47 read with 49 being O.M.P. (EFA) (Comm) 15 of 2016for the enforcement of the foreign award by the Respondents, and theI.A. No. 20149 of 2014 for condonation of delay in filing the executionpetition by the Respondents were allowed.

G

*The Index is as per the Original Judgment.

H

AI. Background Facts

In 1993, the Government of India was desirous of exploring anddeveloping the petroleum resources in the Ravva Gas and Oil Fields(lying 10 to 15 kms offshore in the Bay of Bengal), for which a globalcompetitive tender was floated to invite bids. Pursuant thereto, VideoconBInternational Ltd. and Command Petroleum Holdings NV, thepredecessors of the Respondents submitted their bid to develop the RavvaField along with other bidders. The contract for this petroleumdevelopment was to be given on a production sharing basis through aProduction Sharing Contract.

COn 28.10.1994, the Production Sharing Contract (the “PSC”) wasexecuted between the Government of India and the following parties tocommercially explore and develop the Ravva Oil and Gas Field:

(a) Command Petroleum (India) Pvt. Ltd, an AustralianCompany established under the laws of the State of NewDSouth Wales, which has since been renamed as CairnEnergy India Pty. Ltd; (b)Ravva Oil (Singapore) Pty. Ltd, a company established underthe laws of Singapore;

(c) Videocon Industries Limited, a company established underEthe laws of India; and (d)Oil and Natural Gas Corporation Ltd (ONGC).

The PSC was for a period of 25 years, and the development andexploration of the Ravva Field was to be conducted in terms of the‘Ravva Development Plan’. As per Articles 11.1 and 11.2 of the PSC,FAddendums 1 and 2 to the Rvva Development Plan were annexed tothe PSC as Appendix F. The Respondents were required to carry outPetroleum Operations in the Ravva Field as per the said Plan. The RavvaDevelopment Plan inter alia contemplated the drilling of 19 oil and 2gas wells in the Ravva Field.G

II. Relevant Terms of the Production Sharing Contract The dispute between the Parties emanates from Article 15 of thePSC which inter alia provides for the recoverability of BaseDevelopment Costs (“BDC”) incurred by the Respondents-Claimantsfor the development of the Ravva Field. The relevant clauses of theHPSC are extracted hereinbelow :

(i) Article 11.2 of the PSC reads as :

“11.2Ravva Development Plan

Appendix F to this contract shall constitute the approveddevelopment plan for the Existing Discoveries (hereinafterto as “the Ravva Development Plan”). The RavvaDevelopment Plan shall be deemed to have been approvedby the Managing Committee.”

(ii) The Proposed Development Plan for the Ravva Field (includingAddendums 1 and 2), which was accepted by the Parties asthe approved Ravva Development Plan, states as follows :

Ravva Field Development DrillingEstimated Average Well Cost (in US dollars)

TOTAL COST OF AVERAGE WELL $ 2,430,000

Attachment 10Ravva Field Development Capital CostsITEMCOST

US $ million

Development of R10 and R17 BlocksOil and Associated Gas Reserves Drill and Complete 19 Wells SPM and Tanker Loading LineFour Platforms 201.1Production/Injection Pipelines to/from ShoreInfield FlowlinesOnshore Oil Process FacilitiesOnshore Oil StorageGas Treatment and CompressionWater InjectionGas Lift Pipeline and CompressionProject Management etc.

Development of R1,7,9Non-Associated Gas Reserves A

B

C

D

EF

G

H

[2020] 12 S.C.R.

A

B

TOTAL

218.0

Note: This would be the project, as further defined in theDevelopment Plan, which would be the subject of the costvariation condition. The cost stated includes Import Duty butdoes not include expenditures related to exploration andCappraisal or field abandonment. The difference between theUS $218 million total and the estimated US $ 236 million totalproject capital cost quoted in Section 1 of the accompanyingletter is the US $ 18 million abandonment cost.”

D

(iii) Article 15.5 of the PSC provides for the procedure of recovery ofDevelopment Costs incurred by the Respondents in the exploration,discovery and production of oil and gas from the Ravva Oil andGas Field. Article 15.5 is extracted hereinbelow:

“Article 15

E

RECOVERY OF COSTS FOR OIL AND GAS

15.115.2

15.3

F15.4

15.5 Recovery of Development Costs and 5% Cost Cap (a) Development Costs incurred by the Contractor in theContract Area shall be aggregated, and the Contractor shallGbe entitled to recover out of Cost Petroleum the aggregate ofsuch Development Costs at the rate of one hundred percent(100%) per annum.

(b) Notwithstanding the provisions of Article 15.5 (a) andsubject to the remaining provisions of this Article 15.5, theContractor shall not, for the purposes only of determining H

the volume of Petroleum to which Contractor shall be entitledunder Article 15.1 as Cost Petroleum, claim as Contract CostsContractor’s Development Costs incurred after the EffectiveDate in connection with Development operations under theRavva Development Plan which exceed Contractor’s BaseDevelopment Costs (as hereinafter defined) by more than fivepercent (5%).

A

B

(c) For the purpose of this Article 15.5 “Contractor’s BaseDevelopment Costs” means costs incurred after the EffectiveDate relating to the construction and/or establishment of suchfacilities as are necessary to produce, process, store andtransport Petroleum from within the Existing Discoveries, inorder to enable Crude Oil production of 35,000 BOPD inaccordance with the Ravva Development Planplus such costsas are allowed pursuant to Section 3.3 of the AccountingProcedure. Such costs shall include, but not be limited to costsincurred in relation to the following facilities and matters inconnection therewith, such as:

C

D

(i) Offshore tanker loading facilities for tankers up to120,000 DWT;

(ii) Wellhead platforms capable of supporting up to totalof 24 development wells; EF

(iii) Follow lines necessary to transport well fluids ashorefor processing;

(iv) Process facilities onshore for processing up to 40,000Barrels of fluid per day;

(v) Storage facilities with a nominal capacity of 500,000Barrels;

(vi) Facilities to allow injection of water into the reservoirsfor the purposes of reservoir pressure maintenance; G(vii)Construction of an onshore supply base to supportproduction operations;

(viii) Environmental studies;

(ix) Geophysical, geological and petroleum engineeringstudies; H

A(x)The drilling of nineteen (19) Development Wells andtwo (2) Gas Production Wells;

(xi) Facilities for developing, transporting and processingNANG;

(xii) Project insurance; and

B

(xiii) Project Management.

The Parties agree that for the purposes of this Article 15.5the Contractor’s Base Development Costs shall be the sum ofUS $188.98 million (as indicated in the August 1993CAddendum to the Ravva Development Plan.)

….

(i) Having regard, inter alia, to the matters referred to inArticle 15.5(d), the Parties agree as follows:

(i) Costs relating to Site Restoration and exploration andDappraisal drilling shall not be subject to the limit onContractor’s Development Costs as provided in Article15.5(b);

(ii) the costs of developing the reserves and/or potentialreserves and/or Satellite Fields referred to in ArticleE15.5(d) (i) shall not be subject to the limit on Contractor’sDevelopment Costs as provided in Article 15.5(b)notwithstanding that the development of such reservesand/or potential reserves and/or Satellite Fields mayinclude shared flow lines, injection lines, gas-lift linesFand other facilities with those constructed as part of theRavva Development Plan; E

(iii) In the event that the Contractor’s BaseDevelopment Costs are exceeded by more than five percent (5%) as a result of:

G

(aa) delays in carrying out the Development Operationsreferred to in Article 15.5(d) (iii) due to delay in obtainingnecessary approval; (bb) material changes to the Ravva Development Plannecessitated by Contractor’s review of data provided toHthe Companies by the Government and/or ONGC after

the Effective Date pursuant to Article 8.1) (iv), where theCompanies are able to establish that had such data beenavailable prior to the Effective Date in the Companies,acting reasonably, would have included such changes inthe Ravva Development Plan;

(cc) a material change to the international marketconditions referred to in Article 15.5(d)(v); (dd) the range of physical reservoir characteristics beingmaterially different from the ranges for suchcharacteristics on which the Ravva Development Plan hasbeen based; (ee) a variation to the Ravva Development Plan approvedby the Management Committee; or (ff) an event of force majeure as provided in Article 32; Then the Management Committee shall, at the request ofthe operator, in a meeting convened under Article 6,7,promptly consider what, if any, increase should be madeto the Contractor’s base Development Costs to fairlyreflect the circumstances in the questionPROVIDEDTHAT in the case of delays referred to in Article 15.5 (e)(ii) (aa) the Management Committee shall not be obligedto consider any increase where such delay has beencaused by the Contractor’s failure to act in a diligentmanner.

(e) In the event that:

(i) There is any dispute between the parties, whetheror to what extent, a circumstance referred to inArticle 15.5(e) (iii) has arisen, or resulted in theContractor’s Base Development Costs beingexceeded by more than five percent (5%); or

(ii) The Management Committee is unable to agreewhether an increase should be made to theContractor’s Base Development Costs, or is unableto agree on the amount of any such increase; thenat any time after thirty (30) days from the date ofthe Management Committee meeting referred to in A

B

C

D

E

F

G

H

24SUPREME COURT REPORTS

Article 15.5(e)(iii), any Party shall be at liberty torefer the matter to a sole expert for decision inaccordance with the provisions of Article 34.2.”

A

(iv) Article 33 of the PSC provides the law applicable to the PSC,Band reads as under:

“Article 33: APPLICABLE LAW AND LANGUAGE OFTHE CONTRACT

“33.1 Indian Law to Govern

C

Subject to the provisions of Article 34.12 this Contractshall be governed and interpreted in accordance withthe laws of India.

33.2 Law of India Not to be Contravened

Subject to Article 17.1 nothing in this Contract shall entitlethe Contractor to exercise the rights, privileges andpowers conferred upon it by this Contract in a manner”which will contravene the laws of India.

D

(v) Article 34.12 of the PSC reads as under :

E

“Article 34: Sole expert, conciliation and arbitration “34.1…

34.2 References to Sole expert

Matters which, by the terms of this contract, the Partieshave agreed to refer to a sole expert and any other matter,which the Parties may agree to so refer, shall be referredto an independent and impartial person of internationalstanding with relevant qualifications and experience,appointed by agreement between the Parties. Any soleexpert appointed shall be acting as an expert, and notas an arbitrator, and the decision of the sole expert onmatters referred to him shall be final and binding on theParties, and not subject to arbitration. If the Parties areunable to agree on a sole expert, the matter may bereferred to arbitration.

F

G

H

34.3 Unresolved Disputes

F

G

H

34.3 Unresolved Disputes

Subject to the provisions of this Contract, the Partieshereby agree that any matter, unresolved dispute,difference or claim, which cannot be agreed or settledamicably within twenty one (21) days may be submittedto a sole expert (where Article 34.2 applies), or otherwiseto an arbitral tribunal for final decision as hereinafterprovided.

…

34.12 Venue and Law of Arbitration Agreement The venue ofsole expert, conciliation or arbitrationproceedingspursuant to this Article, unless the Partiesotherwise agree, shall be Kuala Lumpur, Malaysiaanduse the English Language. In so far as practicable, theParties shall continue to implement the terms of thisContract notwithstanding the initiation of arbitralproceedings and any pending claim or dispute.Notwithstanding the provisions of Article 33.1 thearbitration agreement contained in Article 34 shall begoverned by the laws of England.”

III. Genesis of the Dispute

(i) The PSC contained a Development Plan for the“Existing Discoveries” known as the Ravva DevelopmentPlan. The scheme of the PSC was that the Claimants wouldincur the costs of the petroleum operations, and were entitledto recover their costs from the petroleum produced. TheGovernment and the Claimants would receive theirrespective share in the ratio fixed under the PSC.

(ii) Article 15 of the PSC provided for recovery of costsfor oil and gas; Article 15.1 is a general provision withrespect to contract costs; Article 15.2 to 15.4 pertain toexploration costs. The disputes have arisen on theinterpretation of Article 15.5 which pertains to DevelopmentCosts. Article 15.5(c) defines the Contractor’s BaseDevelopment Costs, and enumerates a list of facilities andother matters required to be constructed by the Claimants.

A

B

CD

EF

GH

SUPREME COURT REPORTS

The Contractor’s Base Development Costs were the costsincurred after the effective date, relating to the constructionand / or establishment of such facilities as are necessary toproduce, process and transport petroleum within the“Existing Discoveries” in order to enable crude oilproduction of 35,000 Barrels of Oil Per Day (“BOPD”) inaccordance with the Ravva Development Plan. Thefacilities included the construction of offshore tanker loadingfacilities for tankers upto 120,000 DWT; wellhead platformscapable of supporting upto a total of 24 Development Wells;process facilities; storage facilities with a nominal capacityof 500,000 Barrels; the drilling of 19 Development Wellsand 2 Gas Production Wells, etc. Article 15.5(b) and (c)recorded the Agreement between the parties that theContractor’s Base Development Costs shall be the “sumof US $ 188.98 million plus five percent”.

A

B

C

It was envisaged that the production profile of 35,000BOPD would be reached after about two years, and thesaid production figure would be maintained as a plateauproduction for 6 years thereafter. A total field productionlife of 14 years was estimated.

D

(iii) The Contractor’s Base Development Costs were agreedon certain assumptions and / or factors set out in Article15.5(d), including the range of physical reservoircharacteristics not being materially different from the rangeson which the Ravva Development Plan was based.

E

F(iv)There are specific exclusions contained in Article15.5(e)(i) and (ii), and sub-Article (e)(iii) which set out thecircumstances in which the agreed amount of theContractor’s Base Development Costs may be increasedby the Management Committee; or in default by an expert,as provided in the dispute resolution clause.

G

(v) During the working of the PSC, the production rate of35,000 BOPD was achieved in 1997-1998. By 1998-1999,when the complete extent of the reserves in the RavvaField was known, the Claimants requested the Governmentof India to permit an increased production of 50,000 BOPD.

H

This increase was approved by the Management Committeeon 25.03.1998, and by the Government on 01.04.1999. By1999-2000, the increased rate of production at 50,000 BOPDwas achieved. This rate of production was maintained till2008-2009, after which it decreased to 40,000 BOPD. Theoil fields were found to be enormously profitable for bothparties.

(vi) The Claimants submitted that by 1999-2000, they hadincurred Development Costs to the tune of about US $ 220million to achieve the production rate of 35,000 BOPD. TheClaimants sought that the ‘cap’ in Article 15.5 should beincreased accordingly. After 1999-2000 and until 2007-2008,the Claimants incurred Development Costs totalling a furtherUS $ 278 million, which they contended that they wereentitled to recover as Cost Petroleum, since the ‘cap’ wouldno longer apply post 1999-2000.

The Claimants claimed that they were entitled to morethan US $ 264.35 million with respect to Development Costsincurred in 1994-1995 until 2008-2009.

(vii) On the other hand, the Government contended that allthe Development Costs claimed by the Claimants wereincurred in connection with the Ravva Plan, and weresubject to the ‘cap’ on such costs as provided by Articles15.5(b) and (c), notwithstanding the increased quantity ofproduction. The exceptions, were however not subject tothe ‘cap’, and were properly recovered from Cost Petroleumunder Article 15.5(a) which totalled to US $ 65.95 million.

(viii) The Government contended that the work contemplatedby the Ravva Plan, as per Article 15.5(c) was not completedtill 1999-2000, when only 14 wells had been drilled; theremaining 7 wells stipulated in Article 15.5(c)(xi) were drilledby 2007-2008. Consequently, the ‘cap’ on the Contractor’sBase Development Costs would apply to the whole of thecosts incurred till 2007-2008, and not the costs incurred till1999-2000. The Claimants were not entitled to claim morethan the Cost Petroleum agreed at US $ 198.43 million plusUS $ 65.95 million (towards exceptions).

A

B

F

G

H

A

B

C

D

E

F

G

H

(ix) The Government raised counter claims equivalent to theamounts which the Claimants had claimed as CostPetroleum, in excess of the agreed amount of US $ 198.43million plus US $ 65.95 million.

(x) On 18.08.2008, the disputes were referred to arbitrationunder Article 34 of the PSC. The Claimants nominated Mr.Andrew Berkeley as its nominee-arbitrator; the Governmentof India appointed Hon’ble Dr. Justice Adarsh Sein Anand(former Chief Justice of India) as its nominee-arbitrator.The nominee arbitrators appointed Rt. Hon’ble Sir AnthonyEvans as the presiding arbitrator.

(xi) The tribunal passed the Award on 18.01.2011 inter aliaholding that :

a)The Claimants constructed facilities which werenecessary to produce, process, store and transportPetroleum within the Existing Discoveries to enableCrude Oil production of 35,000 BOPD. The BaseDevelopment Costs under Article 15.5(c) was to beinterpreted with reference to the object of achieving aproduction profile of 35,000 BOPD, and the facilitiescontemplated to achieve that profile. The Claimantsachieved the target of 35,000 BOPD by 1999-2000 bydrilling of 14 wells, and incurred Development Costs ofUS $ 220,737,381.

Article 15.5(b) and (c) imposed a cap on theDevelopment Costs to the agreed figure of US $ 188.98million plus 5%. The Claimants were not entitled torecover Development Costs in excess of US $ 198.43million in view of the cap provided under Article 15.5(c)of the PSC for the period 1994-95 to 1999-2000.

b)The Claimants had wrongly recovered US $22,307,381 in excess of the capped figure of US $ 198.43million as Base Development Costs during the period1994-95 to 1999-2000. The Government of India wasentitled to be credited with the said amount in the finalsettlement of cost recovery accounts.

c)The PSC contained certain exceptions where theClaimants might incur Development Costs in excess ofthose anticipated under the PSC and RavvaDevelopment Plan. These exceptions were coveredunder Article 15.5(d) and (e) for increase of the BDCcap by the Management Committee.

d)During exploration in 1998-1999, when the completeextent of the reserves in the Ravva Field came to beknown, the Management Committee approved anincrease in the production profile from 35,000 to 50,000BOPD. The Respondents proceeded to develop theRavva Field to achieve the production rate of 50,000BOPD, and drilled 7 additional wells.

e)The tribunal accepted the evidence of the ExpertWitness produced by the Claimants, which found thatthe enlarged reservoir known as Block A/D in the RavvaField, showed a range of physical characteristics whichwere “materially different” from those on which theRavva Development Plan was based. The range ofrelevant characteristics which were different from whatwas anticipated included the fault line on the north-westboundary, which was found not to be sealed, but to beporous; the permeability of the rocks was found to begreater leading to increased production pressures; theoil / water contact levels were found to be different.Article 15.5(e)(iii)(dd) provided that a request for anincrease in the BDC cap could be made, since materiallydifferent characteristics were encountered in the drillingof the additional wells. In such circumstances, Claimantswould be entitled to recover the increased amounts,notwithstanding the limit imposed by Article 15.5(b) and(c).

The tribunal held that the Respondents were entitledto recover US $ 278,871,668 from the Cost Petroleumtowards Development Costs incurred by theRespondents for the period 2000-01 to 2008-09.

f) The Award declared as under :

A

B

C

D

EF

G

30SUPREME COURT REPORTS

A“We therefore declare an award, as follows :

A.On the true construction of Article 15.5 of theProduction Sharing Contract 20[th] October 1994 (thePSC), all Development Costs incurred by theClaimants after the date of the PSC in connectionBwith development operations under the RavvaDevelopment Plan are subject (as regards costrecovery from Cost Petroleum) to the cap imposedby Article 15.5 (b) of the PSC, namely, the amountdefined as Base Development Cost by Article15.5(c) plus 5%; C

B.The figure stated in Article 15.5(c) of the PSC,namely, US $ 188.98 million, was agreed as the limitfor Base Development Cost to be cost-recovered bythe Claimants in connection with the RavvaDevelopment Plan as it was agreed in August /DOctober 1993;

C.The Claimants incurred Development Costs totalling$ 220,737,381 in connection therewith up to andincluding the contract year (31 March annually)1999/2000; E

D. The Claimants were not entitled to cost-recover suchcosts in excess of the agreed amount plus fivepercent (5 %) namely, $ 198.43 million; E.That the Claimants incurred Development Costs inFconnection therewith from contract years 2000/2001 until 2008/2009 in the sum of $ 278,871,668; F.That in response to the Claimant’s request, theamount of Base Development Cost in respect of suchperiod shall be increased by $ 278,871,668pursuant to Article 15.5(e)(iii)(dd) of the PSC; G

G.That the Claimants were entitled to recover all ofsuch costs from Cost Petroleum, namely,$ 278,871,668made up as follows accepted by the Respondent $ 65, 952, 604

H

A

increase under (f) above$ 212, 919, 064Total$ 278, 871, 668

H. That the Claimants are and shall be entitled to cost-recover further Base Development Cost incurredby them in connection with the Ravva DevelopmentPlan after the contract years 2008/2009, if and tothe extent that B

a. Such costs are incurred in further developmentof the reserves defined by this Award as beingmaterially different from the physicalcharacteristics of the reservoir on which theCoriginal (1993) Ravva Development Plan wasbased; and / or

b. The amount of the cap under Article 15.5(b) ofthe PSC may be increased hereafter pursuantto Article 15.5(e)(iii) of the PSC; and / or D

c.As the parties may agree;

But not otherwise;

I.That the Respondent is entitled to be creditedwith the sum of $ 22,307,381 in the finalsettlement of cost recovery accounts in relationto Development Cost incurred during contractyears 1994/5 to 1999/2000 in excess of $ 198.43million.”

E

(xii) The Respondents-Claimants submit that vide their letterdated 29.04.2011 addressed to the Government of India,the revised costs recovery account statements as per theAward were enclosed, and credit of the excessDevelopment Costs of US $22,307,381 was given to theGovernment of India.

F

IV. Challenge to the Award before the Seat Courts at KualaLumpur G

(i) On 15.04.2011, the Government of India challenged theAward under Section 37 of the Malaysian Arbitration Act,2005 before the Malaysian High Court, on three principalgrounds:

H

Aa) the Award deals with a dispute not contemplated by ornot falling within the terms of the submission toarbitration;

b) the Award contains decisions on matters beyond thescope of the submission to arbitration; and B

c) the Award is in conflict with public policy.

(ii) The High Court vide Order dated 30.08.2012 rejectedthe challenge to the Award holding that the requirements ofSections 37(1)(a)(iv) and (v) and Section 37(1)(b)(ii) of theMalaysian Act have not been met, to sustain the challengeto the award. The Award did not involve any “newdifference,” which would have been relevant fordetermination by the arbitral tribunal. The High Court foundno reason which would merit intervention with the Award.

C

(iii) Aggrieved by the Order dated 30.08.2012, theDGovernment of India preferred an Appeal before theMalaysian Court of Appeal, which was dismissed vide Orderdated 27.06.2014. The Malaysian Court of Appeal held thatthe tribunal had given effect to the agreement between theparties under the terms of the PSC. There was noEdetermination by the tribunal which was outside thesubmissions of the parties.

(iv) On 10.07.2014, a show cause notice was issued by theGovernment to the Respondents-Claimants, raising ademand of US $ 77 million towards the Government’s shareFof Profit Petroleum under the PSC. The Respondents weredirected to show cause as to why the said amount oughtnot to be directly recovered from the amounts payable bythe Oil Marketing Companies.

(v) On 21.07.2014, the Government filed an Application forLeave to Appeal before the Malaysian Federal Court, whichGwas rejected vide Order dated 17.05.2016.

(vi) During the pendency of the Application for Leave toAppeal before the Malaysian Federal Court, on 14.10.2014,the Respondents-Claimants filed a Petition for enforcementunder Sections 47 read with 49 of the 1996 Act before the H

Delhi High Court, along with an application for condonationof delay.

(vii) The Government filed an Application under Section 48resisting the enforcement of the Award before the DelhiHigh Court inter alia on the ground that the enforcementpetition was filed beyond the period of limitation; theenforcement of the Award was contrary to the public policyof India, and contained decisions on matters beyond thescope of the submission to arbitration.

(viii) The Delhi High Court rejected the Petition under Section48 vide the impugned judgment dated 19.02.2020, allowedthe application for condonation of delay filed by theRespondents / Claimants, and directed the enforcement ofthe Award.

(ix) Aggrieved by the judgment of the High Court, theGovernment has filed the present Civil Appeal before thisCourt. This Court issued notice vide Order dated17.06.2020, and directed the parties to maintain status quotill further orders.

(x) Subsequently, the Respondents filed I.A. No. 61469 of2020 for Modification of the Order of status quo dated17.06.2020, and for interim directions. The I.A. was takenup for hearing on 22.07.2020, when the Order of statusquo was partially modified, and a direction was issued thatthe sales revenues be paid directly by the Oil MarketingCompanies to the Respondents as per the Orders dated28.05.2020 and 04.06.2020 passed by the Delhi High Court.The Order of status quo would, however, continue tooperate with respect to the bank guarantees / deposits ofUS $ 93 million, during the pendency of the presentproceedings.

V. Submissions on behalf of the Appellants Shri. K.K. Venugopal, Learned Attorney General forIndia instructed by Mr. K.R. Sasiprabhu, Advocaterepresented the Government of India. It was submitted thatthe enforcement of the Award was liable to be refused onthe following principal grounds:

AB

C

D

E

F

G

H

A(a)Maintainability of the Petition

(i) The Appellants raised an objection to themaintainability of the application on the ground that thepetition for enforcement / execution of the foreign awardunder Section 47 was barred by limitation.

B

Since there is no specific provision in the LimitationAct for enforcement of foreign awards, it would necessarilyfall under the residuary provision – Article 137.

(ii) Article 137 applies to the enforcement of foreignawards, which provides a period of 3 years from “whenthe right to apply accrues”. It was submitted that the rightto apply would accrue from the date of making the award.

C

In the present case, the Award was passed on18.01.2011, and the petition for enforcement / executionwas filed by the Respondents on 14.10.2014. The petitionDwas barred by 268 days beyond the period of limitation.

(iii) The execution petition for the purposes of theLimitation Act, has to be treated as an application underthe provisions of Order XXI of the CPC. The execution ofa foreign award under Section 49 of the 1996 Act, is carriedout under Order XXI CPC, as held in BCCI v KochiCricket (P) Ltd.[1]

E

(iv) Section 5 of the Limitation Act, 1963 excludes anapplication filed under Order XXI, CPC.

Section 5 reads as under:-F

“5. Extension of prescribed period in certaincases. – Any appeal or any application, otherthan an application under any of the provisionsof Order XXI of the Code of Civil Procedure, 1908(5 of 1908),may be admitted after the prescribedperiod, if the appellant or the applicant satisfiesthe court that he had sufficient cause for notpreferring the appeal or making the applicationwithin such period.”

G

Consequently, the delay in filing the application forenforcement / execution could not be condoned.

(v) Even if it is presumed that the Respondents couldinvoke the provisions of Section 5 of the Limitation Act, theRespondents failed to show sufficient cause for condonationof delay in filing the enforcement petition. The ground ofpendency of the challenge to the award before the courtsin Malaysia, could not be a sufficient ground for condonationof delay.

(vi) It was submitted that the High Court erroneously heldthat an application for enforcement of an arbitral awardwould be governed by the limitation period of 12 years underArticle 136 of the Schedule to the Limitation Act, 1963.

Article 136 deals with an application for executionof any decree or order of a civil court. This finding is contraryto the express holding in Bank of Baroda v KotakMahindra Bank,[2]wherein it has been held that the periodof limitation of 12 years prescribed by Article 136 of theSchedule to the Limitation Act, applies only to a decree ororder passed by an Indian court. A foreign award could notbe treated to be a decree of a civil court.

(vii) It was submitted that the reasoning of the Delhi HighCourt is contrary to the provisions of the 1996 Act, since ithas ignored the express words of Section 49, which providesthat the court would require to be “satisfied that the foreignaward is enforceable under this Chapter”. It wassubmitted that this is further supported by the language ofSection 46 of the Act which pre-supposes an inquiry beforethe award is said to achieve the status of the decree of acourt. The purposive interpretation adopted by the Ld. singlejudge, could not be used to negate the express terms of thestatute.

(viii) For the purpose of making a foreign awardenforceable, the procedure available under Part II of theAct is required to be followed. A petition for enforcementand execution of such foreign award by way of a composite 2 2020 SCC OnLine SC 324.

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A

petition is required to be filed under Section 47. A foreignaward does not become a decree until and unless it passesthe muster of Sections 47 to 49, only after which it acquiresthe status of a decree. It was only after the Court adjudicateson the enforceability of the foreign award under Sections47 to 48, would the foreign award be deemed to be a decreeof that Court. Post such adjudication, the foreign award isdeclared as a deemed decree under Section 49 of the Act.

B

The foreign award has no legal sanctity, till anaffirmative decision is obtained under Section 48 of the 1996Act. The foreign award gets the imprimatur of the Court,before it can be enforced as a deemed decree under Section49 of the 1996 Act.

C

(ix)

Section 49 provides that where the Court is satisfiedthat the foreign award is enforceable, it shall be deemed tobe a decree of the Court. The limited purpose of the deemingfiction was to apply the machinery provided under OrderXXI of the CPC to enable Indian Courts to execute foreignawards. The foreign award does not transform into a decreeof a civil court in India. The foreign award does not lose itscharacter as an arbitral award. It is only presumed to be adecree of the Court, for the purposes of execution.

D

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(b) Challenge on grounds of Public Policy of India The Government inter alia contended that the foreignAward is in conflict with the Public Policy of India asexpounded in the Renusagar[3]judgment. This Court inRenusagar held that public policy of India, in the contextof foreign awards would be: (a) fundamental policy of Indianlaw; or (b) the interests of India; or (c) justice or morality.

F

(i) The PSC related to the exploration and developmentof petroleum in its natural state in the Territorial Watersand Continental Shelf of India, which is vested in the Unionof India. The Government was desirous that the petroleumresources be exploited in the overall interests of India inaccordance with good international petroleum industrypractices.

G

H3 1994 Supp (1) SCC 644.

The PSC in recital (1) expressly states that petroleumbeing a natural resource is vested in the Government ofIndia under Article 297 of the Constitution of India. Sincethe PSC related to the exploration of a natural resource,there was an inherent character of national and publicinterest in the implementation of the PSC, and the naturalgas was held in the sovereign trust of the people of India.The sovereignty over the petroleum produced would continueto remain with the nation, since the natural gas is a resourcewhich falls squarely within the purview of Article 297 ofthe Constitution of India.

(ii) The learned A.G. submitted on behalf of theGovernment of India that the Award was in conflict withthe public policy of India. The tribunal had ignored variousclauses of Article 15.5(c) read with the Ravva DevelopmentPlan, and particularly Attachment 10 thereto, whichcontained the basis of computation of the “sum” of US $188.98 million payable to the Respondents as BaseDevelopment Costs.

Article 15.5(c) of the PSC read with the RavvaDevelopment Plan formed the basis of the dispute betweenthe Parties. Article 15.5(c) provided that the BaseDevelopment Cost shall mean the costs incurred after theEffective Date relating to the construction and / orestablishment of such facilities as were necessary to producePetroleum from within the Existing Discoveries in order toenable crude oil production of 35,000 BOPD in accordancewith the Ravva Development Plan. Such costs “shall include,but not be limited to” costs incurred in relation to the list offacilities mentioned therein.

Sub-clause (xi) under Article 15.5(c) of the PSCspecifically referred to the “drilling of nineteen (19) Oil Wellsand two (2) Gas Production Wells”. Under Article 15.5(c),the parties had expressly agreed that the Contractor’s BaseDevelopment Costs shall be the “sum” of US $ 188.98million, as indicated in the Ravva Development Plan, whichwas an integral part of the PSC. The sum of US $ 188.98million took into consideration the drilling of 21 wells as AB

CD

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(iii)

(iv) also the construction of facilities mentioned in Article 15.5(c)of the PSC.

The tribunal proceeded on the false assumption thatevery aspect of Article 15.5 (c), must be subjugated to theachievement of 35,000 BOPD.

The failure of the tribunal to look into all the relevantdocuments, particularly Attachment 10 to the RavvaDevelopment Plan, which formed an integral part of thePSC, and contained the computation of the amount payableas Base Development Costs, would shock the conscienceof the Court, and the award would be in conflict with thebasic notions of justice.

The Ld. A.G. contended that the said Plan containedthe computation of the sum of US $ 188.98 million to bepaid towards Base Development Cost under Article 15.5(c)of the PSC. The Ravva Plan provided the approximate costof drilling one well in the Ravva Field as being US $ 2.43million.

Attachment 10 to Addendum 2 of the RavvaDevelopment Plan sets out the Development of R10 andR17 blocks – Oil and Associated Gas Reserves. It providesfor the drilling and completion of 19 wells, SPM and TankerLoading Lines, Four platforms, production/ injectionpipelines to/from shore in-field flow lines, Onshore oilprocess facilities, Onshore oil storage, Gas treatment andcompression, Water injection, Gas lift pipeline andCompression, Project Management, etc., for which anamount of US $ 201.1 million was earmarked.

The total amount payable for the Ravva DevelopmentCost (i.e. 210.1 + 16.9) was US $ 218 million. Afterdeducting US $ 18 million towards abandonment costs andUS $ 11.32 million towards import duty, the amount payablewould work out to US $ 188.98 million, which is the amountmentioned in Article 15.5(c) of the PSC.

The tribunal on the basis of one isolated criteriamentioned in Article 15.5 (c) of achieving 35,000 BOPDpassed the Award in favour of the Claimants. In fact, the

Claimants failed to fulfil the other requirements stated inArticle 15.5(c) inter alia with respect to developmentfacilities, which included the drilling of 19 oil wells and 2gas reserves. This was specifically mentioned in the RavvaDevelopment Plan, which was an integral part of the PSCas stated in Article 11.2 of the PSC. By deciding the claimon the basis of one isolated criteria, it had given a go-by toall the other conditions, which would amount to re-writingthe mandatory terms of the contract between the parties,and foisting the Government with obligations, which werenever agreed to. The net result of the arbitral award wasthat the Government of India suffered a huge loss to thetune of approximately Rs.1,600 crores, which would becontrary to the interests of India.

The tribunal’s interpretation of Article 15.5(c) hadthe effect of substituting the plain language of sub-clause(xi) of the said Article, with a new stipulation that the costof construction of the wells in the Ravva Field would beborne by the Government, once the production capacity of35,000 BOPD was achieved. This interpretation renderedthe stipulation of drilling 19 oil wells and 2 gas wells containedin Article 15.5(c)(xi) as nugatory. The tribunal omitted anyreference to Attachment 10 of the Ravva Development Plan,which was crucial to the determination of the dispute, andformed an integral part of the PSC, since it contained thebasis of the computation of the amount payable towardsBase Development Cost. Such an Award would shock theconscience of the Court, and would be in conflict with thepublic policy of India, and contrary to the interests of India.

The daily rate of production specified in Article15.5(c) i.e. 35,000 BOPD, was the ‘plateau’ rate ofproduction which had to be achieved and maintained for aperiod of 6 years of the contract period. It was not a one-time target to be achieved by the Respondents. The plateaurate of production of 35,000 BOPD could not have beenrelated to the cap of US $ 188.98 million, which relatedonly to the costs incurred for setting up specified facilitiesunder Article 15.5(c), including the 21 wells.

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40SUPREME COURT REPORTS

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(vi)

(vii) The tribunal failed to note that the cap of US $ 188.98million was relatable to the facilities mentioned in Article15.5(c) of the PSC, which expressly included the drillingand completion of 19 oil wells and two gas wells. The tribunalerred in holding that the cap of US $188.98 million relatedonly to the achievement of a production target of 35,000BOPD, and adjusted the capped figure of US $ 188 millionupon the drilling of 14 wells, when the production capacityof 35,000 BOPD was achieved. The tribunal held that thecosts with respect to the 7 wells drilled thereafter, amountingto US $ 278 million, would have to be borne by theGovernment to the Respondents.

It was further submitted that the Counter Claim raisedby the Government was summarily disposed of in paragraph100 of the Award, and the tribunal gave a finding whichwas contrary to the express provisions of the contract.

It was submitted that Clauses 33.1 and 33.2 of thePSC provided that the PSC was governed and interpretedin accordance with Indian law. The Malaysian Courts atthe seat of arbitration had erroneously applied the MalaysianArbitration Act (Act 646), 2005 while deciding the challengeto the Award. The Award was to be tested on the basis ofIndian law, as mandated by Article 33 of the PSC. ThePSC was to be interpreted as per Indian law.

Reliance was placed on paragraph 76.4 of thejudgment in Reliance Industries v. Union of India,[4]wherein this Court in the penultimate paragraph of thatjudgment had observed that since the substantive lawgoverning the contract is Indian law, even the Courts inEngland (seat of arbitration), would be required to decidethe issue of arbitrability by applying the Indian law of publicpolicy.

In this case, the Malaysian Courts had erroneouslyapplied the Arbitration Act of Malaysia to uphold the validityof the award.

VI. Submissions on behalf of the Respondents The Respondents were represented by Mr. C.A. Sundaram and Mr. Akhil Sibal, Senior Advocates.

(a) On Limitation

(i) It was contended that under Section 49 of the 1996Act, the foreign award becomes a decree of an Indian courtafter the objections to the award are adjudicated by theenforcement court.

(ii) Article 136 of the Limitation Act prescribes a periodof 12 years from the date of the decree of the civil court,which would be the appropriate provision for execution ofa foreign award. In the present case, the foreign awardwas passed on 18.01.2011, and the Respondents had a periodof 12 years to seek enforcement of the award i.e. till17.01.2023. The execution petition was, therefore, filedwithin the period of limitation.

(iii) In the alternative, it was contended that if Article137 of the Limitation Act is held to be applicable for theenforcement of foreign awards, the limitation period wouldcommence from “when the right to apply accrues”, whichdoes not necessarily mean the date of the award. Had thisbeen the intention of the legislature, it would have beenexpressly provided so. The right to apply may accrue evenon a later date, as it has in the present case.

(iv)

The Award was passed on 18.01.2011 granting adeclaration in favour of the Respondents-Claimants. Thecounter claim of the Government of India was partlyallowed, directing the Respondents to revise the costrecovery statements. Consequently, an amount of US $ 22million became payable by the Respondents-Claimants tothe Government of India.

On 10.07.2014, the Government of India issued anotice to the Claimants to show cause as to why US $ 77million ought not to be directly recovered from the amountspayable by the Oil Marketing Companies.

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(vi)

(vii) It was thus contended that the right to apply forenforcement of the award accrued on 10.07.2014.

It was further contended that the period of limitationwould commence from the date when the award attainedfinality at the seat of arbitration. In the present case, theaward attained finality at the seat court on 10.05.2016, whenthe Federal Court of Malaysia rejected the application ofthe Government of India seeking leave to appeal.

It was submitted that irrespective of whetherlimitation under Article 136 or 137 is applicable forenforcement of foreign awards, Section 5 would beapplicable in both cases. Section 5 of the Limitation Act isapplicable to any appeal, or any application.

The application for enforcement / execution was filedby the Respondent-Claimants under Sections 47 and 49 ofthe 1996 Act, which was a composite application, as perthe judgments in Fuerst Day Lawson Limited v. JindalExports Limited[5] and LMJ International Limited v.Sleepwell Industries Co. Ltd.[6]

It was further contended that limitation is a mixedquestion of fact and law. Reliance was placed on Article113 of the Limitation Act, which provides that any suit forwhich no period of limitation is provided elsewhere inSchedule, the period of limitation is 3 years from the datewhen the right to sue accrues. The Counsel placed relianceon the judgment of this Court in Shakti Bhog FoodIndustries Ltd. v the Central Bank of India[7]. Article 137is similar to the residuary provision in Article 113 for filingapplications, for which no period of limitation has beenprovided elsewhere in this division, and provides a periodof 3 years from the date when the right to apply accrues.

If the substantive application was filed under Sections47 and 49 of the 1996 Act, it would not fall under OrderXXI of the CPC, and hence an application under Section 5

5 2001 (6) SCC 356.

6 2019 (5) SCC 302.

H7 2020 SCC OnLine SC 482.

of the Limitation Act, 1963 would be maintainable.Furthermore, since there was uncertainty in the law, as theMadras High Court had held limitation for enforcement ofa foreign award to be 12 years, while the Bombay HighCourt treated this as 3 years, there was sufficient groundto condone the delay.

It was submitted that there is a difference betweenthe execution of a foreign decree under Order XXI of theCPC, and the enforcement of a foreign award under Section49 of the 1996 Act. Further, even though Section 36 refersto the enforcement of a domestic award in accordance withthe provisions of the CPC, Section 49 does not refer to theCPC.

The application for enforcement of the foreign awardwas thus a substantive application under Section 47 of the1996 Act, and not one under Order XXI of the CPC. Theprovisions of Section 5 would consequently apply to theapplication for enforcement, and the High Court wasempowered to condone the delay in filing the application.

(b) On Public Policy of India

(i) It was submitted that the dispute between the partiespertains to the interpretation of Article 15.5(c) of the PSC,which provides for recoverability of Base DevelopmentCosts incurred by the Respondent-Claimants in the RavvaField.

Article 15.5(c) stipulated that the Respondents wereentitled to recover US $ 198 million ($ 188 million + 5%) asBDC for the facilities which they developed to achieve aproduction capacity of 35,000 BOPD. At the time whenthe PSC was entered into, it was envisaged that forachieving the production capacity of 35,000 BOPD, 21 wellswould be required. However, the production capacity wasachieved by the Respondents with the construction of 14wells.

(ii) The Respondents claimed recoverability of BDC as follows:

(a) US $ 220 million for achieving a production profile of35,000 BOPD, spent by 1999/2000; and ABC

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(iii)

(iv)

(v)

(vi)

(vii)

(b) US $ 278 million for raising the production profile from35,000 BOPD to 50,000 BOPD, spent from 2000/2001to 2008/2009.

The Respondents contended that the cap of US $198.43 million was applicable only to such facilities as wererequired to achieve the production capacity of 35,000 BOPD,which in this case was achieved by the drilling of 14 wells.The Respondents were not required to develop the 21 wellsenlisted in Article 15.5(c) of the PSC within the cap of US$ 198.43 million.

The tribunal had correctly interpreted Article 15.5(c)of the PSC, holding that the cap of US $ 198 million on theBDC applied to costs incurred for achieving the productionprofile of 35,000 BOPD. Since the Respondents hadachieved the production capacity of 35,000 BOPD by 1999-2000 by drilling of 14 wells, the Respondents were entitledto recover US $ 198.43 million.

With respect to the balance 7 wells, it was found thatthe Ravva Field featured materially different physicalreservoir characteristics than those originally perceivedwhen the PSC was executed. Accordingly, the trigger underArticle 15.5(e)(iii)(dd) came into operation during the periodcommencing from 1999-2000 to 2007-2008. For the drillingof the remaining 7 wells, the Respondents were entitled toan additional sum of US $ 278 million.

It was contended that under the Award, the tribunalhad made declarations in favour of the parties. The tribunalhad upheld the manner in which the Respondents-Claimantshad computed and recovered the costs due to them underthe PSC. The tribunal had declared a sum of US $ 22 millionas payable by the Respondents to the Government of India,which was paid after the Award was passed.

It was contended that the issue of interpretation ofthe PSC, and a review of the merits of the Award, couldnot be raised under Section 48 of the 1996 Act. The scopeof inquiry under Section 48 is limited, and the Appellants cannot invite the Court to take a “second look” at the Awardby seeking a review on merits.

Reliance was placed on the judgment of this Court inShri Lal Mahal Ltd v Progretto Grano Spa,[8] wherein itwas held that:

“45. Moreover, Section 48 of the 1996 Act does not give anopportunity to have a ‘second look’ at the foreign award inthe award - enforcement stage. The scope of inquiry underSection 48 does not permit review of the foreign award onmerits. Procedural defects (like taking into considerationinadmissible evidence or ignoring/rejecting the evidencewhich may be of binding nature) in the course of foreignarbitration do not lead necessarily to excuse an award fromenforcement on the ground of public policy.

x x x

47. While considering the enforceability of foreign awards,the court does not exercise appellate jurisdiction over theforeign award nor does it enquire as to whether, whilerendering foreign award, some error has been committed.Under Section 48(2)(b) the enforcement of a foreign awardcan be refused only if such enforcement is found to be contraryto (1) fundamental policy of Indian law; or (2) the interestsof India; or (3) justice or morality. The objections raised bythe appellant do not fall in any of these categories and,therefore, the foreign awards cannot be held to be contraryto public policy of India as contemplated under Section48(2)(b).”

This view is further fortified by Explanation 2 of Section 48(2) ofthe Act which clarifies that “the test as to whether there is acontravention with the fundamental policy of Indian law, shall notentail a review on the merits of the dispute”.

(viii) Reliance was placed on the judgment of this Court inVijay Karia v Prysmian Cavi E Sistemi Srl[9], wherein itwas held that the enforcement of a foreign award cannot 8 (2014) 2 SCC 433.

9 2020 SCC OnLine SC 177.

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46SUPREME COURT REPORTS

Abe refused by taking a different interpretation of thecontract. The Supreme Court held that :

“45. The U.S cases show that given the “pro-enforcement bias” of the New York Convention,which has been adopted in Section 48 of theArbitration Act, 1996 - the burden of proof on partiesseeking enforcement has now been placed on partiesobjecting to enforcement and not the other wayaround; in the guise of public policy of the countryinvolved, foreign awards cannot be set aside bysecond guessing the arbitrator’s interpretation of theagreement of the parties; the challenge procedurein the primary jurisdiction gives more leeway toCourts to interfere with an award than the narrowrestrictive grounds contained in the New YorkConvention when a foreign award’s enforcement isresisted.

B

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x x x

96 … As has been held, referring to some of thejudgments quoted hereinabove, in particular Shri LalMahal (supra), the interpretation of an agreementby an arbitrator being perverse is not a ground thatcan be made out under any of the grounds containedin Section 48(1)(b). Without therefore getting intowhether the tribunal’s interpretation is balanced,correct or even plausible, this ground is rejected.”

E

F

(ix) The Respondents contended that the parties hadvoluntarily chosen Kuala Lumpur, Malaysia as the seat ofarbitration. Having made such a choice, the Governmentcould not invite Indian courts to revisit the merits of its caseGunder the guise of Indian public policy. In this regard, reliancewas placed on the judgment of this Court in BharatAluminium Co. v Kaiser Aluminium Technical ServicesInc[10] wherein it was held that :

(x)

“116. The legal position that emerges from a conspectusof all the decisions, seems to be, that the choice ofanother country as the seat of arbitration inevitablyimports an acceptance that the law of that countryrelating to the conduct and supervision of arbitrationswill apply to the proceedings.

x x x

163. In our opinion, the aforesaid judgment does notlead to the conclusion that the parties were left withoutany remedy. Rather the remedy was pursued in Englandto its logical conclusion. Merely, because the remedy insuch circumstances may be more onerous from the viewpoint of one party is not the same as a party being leftwithout a remedy. Similar would be the position in caseswhere parties seek interim relief with regard to theprotection of the assets. Once the parties have chosenvoluntarily that the seat of the arbitration shall beoutside India, they are impliedly also understood to havechosen the necessary incidents and consequences ofsuch choice. We, therefore, do not find any substancein the submissions made by the learned counsel for theappellants, that if applicability of Part I is limited toarbitrations which take place in India, it would leavemany parties remediless.”

The Counsel submitted that the view taken by theTribunal was a plausible view, since Article 15.5(e)(iii)(dd)is an exception i.e. when there is a change in the range ofthe physical reservoir, the cap on the Base DevelopmentCosts may be increased. The present case fell in thisexception. It was argued that Clause 15.5(c) defined the“Base Development Costs” to mean costs incurred afterthe effective date relating to the construction and/orestablishment of such facilities “as are necessary” toproduce petroleum in order to enable crude oil productionof 35,000 BOPD in accordance with the RavvaDevelopment Plan. It was argued that the target to beachieved by the Claimants was to produce 35,000 BOPD.

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The tribunal correctly relied on Article 15.5(e)(iii)(dd)to hold that the Respondents were entitled to request for anincrease in the Base Development Costs, when the rangeof physical reservoir characteristics of the ExistingDiscoveries were found to be materially different from thoseon which the Ravva Development Plan was based. TheRespondents had achieved the target of 35,000 BOPD by1999-2000 with the drilling of 14 wells. The further wellswhich were drilled subsequently would take into accountthe changed physical characteristics of the existing reserves.The tribunal had correctly interpreted Article 15.5(c)(xi) tohold that it was not an undertaking given by the Respondentsto drill 21 wells, even though only 14 were required.

The Award therefore was not in conflict with thepublic policy of India, and did not attract the grounds forrefusal of enforcement envisaged under Section 48 of the1996 Act.

VII. Discussion and Analysis

Part ALimitation for filing an enforcement / executionpetition of a foreign award under Section 47 of the1996 Act

(i) On this issue, divergent views have been takenby some High Courts with respect to the period oflimitation for filing a petition for enforcement of a foreignaward under the 1996 Act. It has therefore becomenecessary to settle the law on this issue.

Noy Vallesina Engineering Spa v Jindal DrugsLimited[11]

A single judge of the Bombay High Court heldthat there is no period of limitation provided by any ofthe Articles in the Schedule to the Limitation Act, formaking an application for execution of a foreign award.It was held that the enforcement of a foreign awardmust take place in two stages. In the first stage, the

enforceability of the foreign award would be decided,which would be governed by the residuary provision i.e.Article 137 which provides for 3 years from when theright to apply accrues. After the issue of enforceabilityof award is determined, the award is deemed to be adecree, and the execution of the award as a deemeddecree would be governed by Article 136 which providesa period of 12 years.

Louis Dreyfous Commodities Suisse v SakumaExports Limited[12]

Another view was taken by another single judgeof the Bombay High Court in this case, wherein it washeld that the period of limitation for enforcement of aforeign award would be 3 years from the date when theright to apply accrues i.e. Article 137 of the LimitationAct.

Imax Corporation v E-City Entertainment (I) Pvt.Limited[13]

In Imax, a third view was taken by another singlejudge of the Bombay High Court, which followed thejudgment in Fuerst Day Lawson,[14] and held that sincethe foreign award is already stamped as a decree, theaward holder may apply for enforcement after stepsare taken for the execution of the award under Sections47 and 49 of the 1996 Act. In one proceeding there maybe different stages, the first stage being that the courtwould be required to decide on the enforceability of theaward, having regard to the requirement of the saidprovisions; and thereafter, proceed to take further stepsfor execution of the award. It was concluded that Article136 of the Limitation Act would be applicable for theenforcement of a foreign award.

12 (2015) 6 Bom CR 258.

13 (2020) 1 AIR Bom 82.

14 (2001) 6 SCC 356.

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M/s. Compania Naviera ‘SODNOC’ v BharatRefineries Limited[15]

A single judge of the Madras High Court held thatunder the 1996 Act since the foreign award is alreadystamped as a decree, the award holder can straight awayapply for enforcement of the foreign award as a decreeholder, and would have a period of 12 years forenforcement.

Cairn India Limited v Union of India[16]

The Delhi High Court in the impugned Judgmentin this case held that Article 136 of the Limitation Actwould be applicable for the enforcement of a foreignaward. The execution of the award takes place in threestages: access, recognition and enforcement. Section 47deals with the first and second stages i.e. access andrecognition. A foreign award which passes the gatewayof Section 47 is at that stage enforceable on its ownstrength as a ‘foreign decree’, and is not necessarilydependent on whether or not it goes through the processof Section 48. Such a foreign award is treated as beingequivalent to a foreign decree, whose enforcement maybe refused only under Section 48. Section 48 pre-supposes that a foreign award is a decree whoseexecution can be resisted by a party against whom it issought to be executed, if it is able to discharge the burdenthat the objections can be sustained under one or moreof the clauses of sub-section (1) and/or sub-section (2)of Section 48 of the 1996 Act.

The Delhi High Court held that Article 136 of theLimitation Act would be applicable for filing a petitionfor enforcement of a foreign award. Even if it is assumedthat Article 137 of the Limitation Act is applicable,sufficient grounds for condonation of delay had beenurged since the Applicants were under the bona fidebelief that the period of limitation for enforcement of a 15 (2008) 1 Arb LR 344.

H16 2020 SCC Online SC 324.

foreign award was 12 years from the date of the Award,as held in Compania Naviera (supra) by the MadrasHigh Court.

(ii) Given the conflicting stands taken by various HighCourts, we will now discuss this issue.

The issue of limitation for enforcement of foreignawards being procedural in nature, is subject to the lexfori i.e. the law of the forum (State) where the foreignaward is sought to be enforced.[17] Article III of the NewYork Convention on the Recognition and Enforcementof Foreign Awards, 1958 provides that :

“Each Contracting State shall recognize arbitralawards as binding and enforce them inaccordance with the rules of procedure of theterritory where the award is relied upon, underthe conditions laid down in the following Articles.There shall not be imposed substantially moreonerous conditions or higher fees or charges onthe recognition or enforcement of arbitral awardsto which this Convention applies than are imposedin the recognition or enforcement of domesticarbitral awards.”

(iii) It would be instructive to refer to the Report ofthe General Assembly of the United Nations Commissionon International Trade Law in its 41[st] Session dated16[th] June – 3[rd] July, 2008 with respect to the legislativeimplementation of the Convention on the Recognitionand Enforcement of Foreign Arbitral Awards (New York1958) (UN Doc A/CN.9/656/Add.1), wherein it was 17 In re Consolidated Rail Corp 867 F Supp 25, 30 (DDC 1994) M Flatow v IslamicRepublic of Iran and FMC Corp 1999 US Dist LEXIS 18957; (2000) XXV Ybk CommArbn 641; Maritime Enterprises Ltd v Agromar Lineas Ltd (1989) XIV Ybk CommArbn 693 ; Minister of Public Works of the Government of the State of Kuwait v SirFredrick Snow & Partners [1983] 1 WLR 818 CA; Northern Sales Company Ltd vComp Maritima Villa Nova SA, Federal Court of Appeal, Winnipeg, Manitoba, 20November 1991, (1993) XVIII Ybk Comm Arbn 363; Good Challenger Nave Gante vMetalexportimport [2003] EWHC 10 (Comm).

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(v)

(vi) noted that the Convention does not prescribe a time limitfor making an application for recognition andenforcement of foreign awards. Article III of theConvention states that recognition and enforcement ofarbitral awards should be done in accordance with therules of procedure of the State where the award was tobe enforced. The time limit may be specifically providedin the national legislation for recognition or enforcementof Convention awards, or it may be a general ruleapplicable to court proceedings.[18]

The limitation period for filing the enforcement /execution petition for enforcement of a foreign awardin India, would be governed by Indian law. The IndianArbitration Act, 1996 does not specify any period oflimitation for filing an application for enforcement /execution of a foreign award. Section 43 howeverprovides that the Limitation Act, 1963 shall apply toarbitrations, as it applies to proceedings in court.

The Limitation Act, 1963 does not contain anyspecific provision for enforcement of a foreign award.Articles 136 and 137 fall in the Third Division of theSchedule to the Limitation Act. Article 136 provides thatthe period of limitation for the execution of any decreeor order of a “civil court” is twelve years from the datewhen the decree or order becomes enforceable.

Article 137 is the residuary provision in theLimitation Act which provides that the period of limitationfor any application where no period of limitation isprovided in the Act, would be three years from “whenthe right to apply accrues”.

G

18 Report of the General Assembly of the UN Commission on International Trade Lawin its 41st Session dated 16th June – 3rd July, with respect to the legislativeimplementation of the Convention on the Recognition and Enforcement of ForeignArbitral Awards (New York 1958) (UN Doc A/CN.9/656/Add.1) (UN Doc A/CN.9/H656/Add.1).

Articles 136 and 137 read as :

A

Description of the Application Period of Time from which period Limitationbegins to run136. For the execution of any decree Twelve YearsWhen the decree or order (other than a decree granting a becomes enforceableor where mandatory injunction) or order of the decree or any subsequent any civil court.order directs any payment of money or the delivery of any property to be made at a certain date or at recurring periods, when default in making the payment or deliver in respect of which execution is sought, takes place:Provided that an application for the enforcement or execution of a decree granting a perpetual injunction shall not be subject to any period of limitation.137. Any other application for Three years When the right to apply accrues. which no period of limitation is provided elsewhere in this division.

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(vii) Section 36 of the Arbitration Act, 1996 creates astatutory fiction for the limited purpose of enforcementof a ‘domestic award’ as a decree of the court, eventhough it is otherwise an award in an arbitralproceeding[19]. By this deeming fiction, a domestic awardis deemed to be a decree of the court[20], even though itEis as such not a decree passed by a civil court. Thearbitral tribunal cannot be considered to be a ‘court’ andthe arbitral proceedings are not civil proceedings. Thedeeming fiction is restricted to treat the award as adecree of the court for the purposes of execution, evenFthough it is, as a matter of fact, only an award in anarbitral proceeding.

In Param Singh Patheja v ICDS Ltd.[21], this Court in the contextof a domestic award, held that the fiction is not intended to make anaward a decree for all purposes, or under all statutes, whether state orcentral. It is a legal fiction which must be limited to the purpose for G

19 Umesh Goyal v Himachal Pradesh Co-op Group Housing Society Ltd. (2016) 11SCC 313.

20 Sundaram Finance Ltd. v Abdul Saman and Anr. (2018) 3 SCC 622.

21 (2006) 13 SCC 322.

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Awhich it was created. Paragraphs 39 and 42 of the judgment in ParamSingh Patheja read as :

“39. Section 15 of the Arbitration Act, 1899 provides for“enforcing” the award as if it were a decree. Thus a finalaward, without actually being followed by a decree(as wasBlater provided by Section 17 of the Arbitration Act of 1940),could be enforced i.e. executed in the same manner as a decree.For this limited purpose of enforcement, the provisions of CPCwere made available for realizing the money awarded.However, the award remained an award and did not becomea decree either as defined in CPC and much less so far theCpurposes of an entirely different statute such as the InsolvencyAct are concerned.

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42. The words “as if” demonstrate that award and decree orDorder are two different things. The legal fiction created is forthe limited purpose of enforcement as a decree. The fiction isnot intended to make it a decree for all purposes under allstatutes, whether State or Central.”

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(viii) A Constitution Bench of this Court in BengalImmunity v State of Bihar & Ors.,[22] held that legalfictions are created only for some definite purpose. Alegal fiction is to be limited to the purpose for which itwas created, and it would not be legitimate to travelbeyond the scope of that purpose, and read into theprovision, any other purpose how so attractive it maybe.

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In State of Karnataka v State of Tamil Nadu,[23]thisCourt held that :

“74. The Report of the Commission as thelanguage would suggest, was to make the finaldecision of the Tribunal binding on both the Statesand once it is treated as a decree of this Court,then it has the binding effect. It was suggested to G

22 (1955) 2 SCR 603.H23 2017 (3) SCC 274.

make the award effectively enforceable. Thelanguage employed in Section 6(2) suggests thatthe decision of the Tribunal shall have the sameforce as the order or decree of this Court. Thereis a distinction between having the same force asan order or decree of this Court and passing of adecree by this Court after due adjudication.Parliament has intentionally used the words fromwhich it can be construed that a legal fiction ismeant to serve the purpose for which the fictionhas been created and not intended to travel beyondit. The purpose is to have the binding effect ofthe Tribunal’s award and the effectiveness ofenforceability. Thus, it has to be narrowlyconstrued regard being had to the purpose it ismeant to serve.”

(ix) In Bank of Baroda v Kotak Mahindra Bank,[24]this Court took the view that Article 136 of the LimitationAct deals only with decrees passed by Indian courts.The Limitation Act was framed keeping in view the suits,appeals and applications to be filed in Indian courts.Wherever the need was felt to deal with an application/ petition filed outside India, the Limitation Act specificallyprovided a time period for that situation. The legislaturehas omitted reference to “foreign decrees” under Article136 of the Limitation Act. The intention of the legislaturewas to confine Article 136 to the decrees of a civil courtin India. The application for execution of a foreign decreewould be an application not covered under any otherArticle of the Limitation Act, and would be covered byArticle 137 of the Limitation Act.

(x) Foreign awards are not decrees of an Indian civilcourt. By a legal fiction, Section 49 provides that aforeign award, after it is granted recognition andenforcement under Section 48, would be deemed to bea decree of “that Court” for the limited purpose of A

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enforcement. The phrase “that Court” refers to the Courtwhich has adjudicated upon the petition filed underSections 47 and 49 for enforcement of the foreign award.

In our view, Article 136 of the Limitation Actwould not be applicable for the enforcement / executionof a foreign award, since it is not a decree of a civilcourt in India.

The enforcement of a foreign award as a deemeddecree of the concerned High Court [as per the amendedExplanation to Section 47 by Act 3 of 2016 confersexclusive jurisdiction on the High Court for execution offoreign awards] would be covered by the residuaryprovision i.e. Article 137 of the Limitation Act.

A three judge bench of this Court in The KeralaState Electricity Board, Trivandrum v T.P.Kunhaliumma[25]held that the phrase “any otherapplication” in Article 137 cannot be interpreted on theprinciple of ejusedem generis to be applications underthe Civil Procedure Code. The phrase “any otherapplication” used in Article 137 would include petitionswithin the word “applications,” filed under any specialenactment. This would be evident from the definition of“application” under Section 2(b) of the Limitation Act,which includes a petition. Article 137 stands in isolationfrom all other Articles in Part I of the Third Division ofthe Limitation Act, 1963.

The exclusion of an application filed under any ofthe provisions of Order XXI of the CPC from the purviewof Section 5 of the Limitation Act, was brought in by thepresent Limitation Act, 1963. Under the previousLimitation Act, 1908 there were varying periods oflimitation prescribed by Articles 182 and 183 of the saidAct, as well as Section 48 of the CPC, 1908. Article 182provided that the period of limitation for execution of adecree or order of any civil court was 3 years, and incase where a certified copy of the decree or order was

registered, the period of limitation was 6 years. Article183 provided that the period of limitation to enforce adecree or order of a High Court was 6 years. Section48 of the CPC (which has since been repealed by Section28 of the Limitation Act of 1963) provided that the periodof limitation for execution of a decree was 12 years.

The Law Commission in its 3[rd] Report dated 21[st]July 1956 noted that different time limits were prescribedfor filing an application for execution of decrees or ordersof civil courts. It was recommended that the time limitshould be absolute, and there should be no scope forany further extension of time by acknowledgments.There was no justification for making a distinctionbetween decrees or orders passed by the High Court inexercise of original civil jurisdiction, and other decrees.The maximum period of limitation for the execution of adecree or order of any civil court was fixed at twelveyears in the new Limitation Act, 1963 from the datewhen the decree or order became enforceable.

(xiii) In this background, the present Limitation Act,1963 excludes any application filed under Order XXIfrom the purview of Section 5 of the Act, with the objectthat execution of decrees should be proceeded with asexpeditiously as possible. The period of limitation forexecution of the decree of a civil court is now uniformlyfixed at the maximum period of 12 years for decrees ofcivil courts.

(xiv) In view of the aforesaid discussion, we hold thatthe period of limitation for filing a petition for enforcementof a foreign award under Sections 47 and 49, would begoverned by Article 137 of the Limitation Act, 1963 whichprescribes a period of three years from when the rightto apply accrues.

(xv) The application under Sections 47 and 49 forenforcement of the foreign award, is a substantive petitionfiled under the Arbitration Act, 1996. It is a well-settled A

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position that the Arbitration Act is a self-contained code.[26]The application under Section 47 is not an applicationfiled under any of the provisions of Order XXI of theCPC, 1908. The application is filed before the appropriateHigh Court for enforcement, which would take recourseto the provisions of Order XXI of the CPC only for thepurposes of execution of the foreign award as a deemeddecree. The bar contained in Section 5, which excludesan application filed under any of the provisions of OrderXXI of the CPC, would not be applicable to a substantivepetition filed under the Arbitration Act, 1996.Consequently, a party may file an application underSection 5 for condonation of delay, if required in thefacts and circumstances of the case.

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(xvi) In the facts of the present case, the Respondentssubmitted that after the Award dated 18.01.2011 waspassed, the cost account statements were revised, andan amount of US $ 22 million was paid to theGovernment of India.

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On 10.07.2014, a show cause notice was issuedto the respondents, raising a demand of US $ 77 million,being the Government’s share of Profit Petroleum underthe PSC. It was contended that the cause of action forfiling the enforcement petition under Sections 47 and 49arose on 10.07.2014. The enforcement petition was filedon 14.10.2014 i.e. within 3 months from the date whenthe right to apply accrued.

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We hold that the petition for enforcement of theforeign award was filed within the period of limitationprescribed by Article 137 of the Limitation Act, 1963.

In any event, there are sufficient grounds tocondone the delay, if any, in filing the enforcement /

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26 Fuerst Day Lawson Ltd. v Jindal Exports Ltd. (2011) 8 SCC 333. Kandla ExportCorporation and Anr. v. OCI Corporation and Anr., (2018) 14 SCC 715; Shivnath RaiHarnarain India Co. v. G.G. Rotterdam 164 (2009) DLT 197; Usha Drager Pvt. Ltd. v.Dragerwerk AG, (170) DLT 628; Sumitomo Corporation v. CDC Financial Services(Mauritius) Limited (2008) 4 SCC 91; Conros Steels Pvt. Ltd. v. Lu Qin (Hong Kong)HCompany Ltd. and Ors., 2015 (1) Arb LR 463 (Bombay): (2015) 2 Bom CR 1.

execution petition under Sections 47 and 49, on accountof lack of clarity with respect to the period of limitationfor enforcement of a foreign award.

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Part BScheme of the 1996 Act for enforcement of NewYork Convention awards B

On account of certain anomalies in the impugnedjudgment with respect to the enforcement of foreignawards, it has become necessary to discuss the schemecontemplated under Chapter I Part II of the 1996 Act.

(i) In paragraph 20.5 of the judgment, the High Courthas taken the view that a foreign award which passesthe gateway of Section 47, is“at that stage”,treated asbeing “equivalent to a foreign decree” whoseenforcement can be refused at the request of the partyagainst whom it is invoked, if it falls within the provisionsof Section 48 of the 1996 Act.

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In paragraphs 20.7 and 20.8 of the impugned judgment,it has been held that:

“20.7A plain reading of Section 49 would showthat does not contain anything whichwould relate it to Section 48 of the 1996EAct. Pertinently, Section 48 of the 1996Act opens with the express “Enforcementof a foreign award may be refused, at therequest of the party against whom it isinvoked, only if that party furnishes toFthe court proof that …

20.8The provision, to my mind, pre-supposesthat a foreign award is a decree whoseexecution can only be impeded by a partyagainst whom it is sought to be executedGif it is able to discharge its burden that itsobjections can be sustained under oneor more clauses of sub-section (1) and /or sub-section (2) of Section 48 of the1996 Act.”

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(ii) In paragraph 21, it has been held that a foreignaward is enforceable on its own strength, and is notnecessarily dependent on whether or not it goes throughthe process of Section 48 proceedings.

The aforesaid findings are contrary to thescheme of the Act, since a foreign award does notbecome a “foreign decree” at any stage of theproceedings. The foreign award is enforced as a deemeddecree of the Indian Court which has adjudicated uponthe petition filed under Section 47, and the objectionsraised under Section 48 by the party which is resistingenforcement of the award.

A foreign award is not a decree by itself, which isexecutable as such under Section 49 of the Act. Theenforcement of the foreign award takes place only afterthe court is satisfied that the foreign award is enforceableunder Chapter 1 in Part II of the 1996 Act. After thestages of Sections 47 and 48 are completed, the awardbecomes enforceable as a deemed decree, as providedby Section 49. The phrase “that court” refers to theIndian court which has adjudicated on the petition filedunder Section 47, and the application under Section 48.

In contrast, the procedure for enforcement of aforeign decree is not covered by the 1996 Act, but isgoverned by the provisions of Section 44A read withSection 13 of the CPC.

The scheme of the 1996 Act for enforcementof New York Convention awards is as follows :

(a) Part II Chapter 1 of the Arbitration andConciliation Act, 1996 pertains to the enforcementof New York Convention awards.

Under the 1996 Act, there is no requirementfor the foreign award to be filed before the seatcourt, and obtain a decree thereon, after which itbecomes enforceable as a foreign decree. This wasreferred to as the “double exequatur,” which wasa requirement under the Geneva Convention, 1927

and was done away with by the New YorkConvention, which superseded it.[27].

There is a paradigm shift under the 1996 Act.Under the 1996 Act, a party may apply forrecognition and enforcement of a foreign award,after it is passed by the arbitral tribunal. Theapplicant is not required to obtain leave from thecourt of the seat in which, or under the laws ofwhich, the award was made.

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(b) Section 44 of the 1996 Act provides that a NewYork Convention award would be enforceable, ifthe award is with respect to a commercial dispute,covered by a written agreement in a State withwhich the Government of India has a reciprocalrelationship, as notified in the Official Gazette.

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(c) Section 46 provides that a foreign award whichis enforceable under Chapter 1 of Part II of the1996 Act, shall be treated as final and binding onthe parties, and can be relied upon by way ofdefence, set off, or otherwise, in any legalproceeding in India.

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(d) Section 47 sets out the procedure for filing thepetition for enforcement / execution of a foreignaward. This section replicates Article IV (1) of theNew York Convention which requires the applicantto file the authenticated copy of the original award,or a certified copy thereof, alongwith the originalFagreement referred to in Article II, or a certifiedcopy thereof, at the time of filing the petition.

(e) Section 47 provides that the application shall befiled alongwith the following evidence i.e. :

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1. the original award, or an authenticated copy, inaccordance with the laws of the seat ofarbitration; 27 Refer to Renusagar Power Co. Ltd. v General Electric Co. (1994) Suppl. (1) SCC644, para 41. See also Escorts Limited v Universal Tractor Holding LLC (2013) 10SCC 717.

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28 (2019) 11 SCC 620.H29 (2001) 6 SCC 356.

2. the original arbitration agreement, or certifiedcopy thereof;

3. such evidence, as may be necessary to provethat the award is a foreign award.

In PEC Limited v Austbulk Shipping,[28] thisCourt held that even though Section 47 providesthat the award holder “shall” produce suchevidence alongwith the application for enforcementof a foreign award, this being a proceduralrequirement, a pragmatic, flexible and non-formalistapproach must be taken. The non-production ofdocuments at the initial stage, should not entail adismissal of the application for enforcement. Theparty may be permitted to produce the evidenceduring the course of the proceedings, to enable theCourt to decide the enforcement petition. It wasobserved that excessive formalism in the matter ofenforcement of foreign awards must bedeprecated.

The award holder is entitled to apply forrecognition and enforcement of the foreign awardby way of a common petition. In Fuerst DayLawson Ltd. v Jindal Exports Ltd.,[29]this Courtheld that a proceeding seeking recognition andenforcement of a foreign award has different stages: in the first stage, the Court would decide aboutthe enforceability of the award having regard tothe requirements of Sections 47 and 48 of the 1996Act. Once the enforceability of the foreign awardis decided, it would proceed to take further effectivesteps for the execution of the award. The relevantextract from the judgment reads as:

“31. Prior to the enforcement of the Act, theLaw of Arbitration in this country wassubstantially contained in three enactments

namely (1) The Arbitration Act, 1940, (2) TheArbitration (Protocol and Convention) Act,1937 and (3) The Foreign Awards (Recognitionand Enforcement) Act, 1961. A party holdinga foreign award was required to take recourseto these enactments. Preamble of the Act makesit abundantly clear that it aims at toconsolidate and amend Indian laws relatingto domestic arbitration, internationalcommercial arbitration and enforcement offoreign arbitral awards. The object of the Actis to minimize supervisory role of court and togive speedy justice. In this view, the stage ofapproaching court for making award a ruleof court as required in Arbitration Act, 1940is dispensed with in the present Act. If theargument of the respondent is accepted, oneof the objects of the Act will be frustrated anddefeated. Under the old Act, after makingaward and prior to execution, there was aprocedure for filing and making an award arule of court i.e. a decree. Since the object ofthe act is to provide speedy and alternativesolution of the dispute, the same procedurecannot be insisted under the new Act when itis advisedly eliminated. If separateproceedings are to be taken, one for decidingthe enforceability of a foreign award and theother thereafter for execution, it would onlycontribute to protracting the litigation andadding to the sufferings of a litigant in termsof money, time and energy. Avoiding suchdifficulties is one of the objects of the Act ascan be gathered from the scheme of the Actand particularly looking to the provisionscontained in Sections 46 to 49 in relation toenforcement of foreign award. In para 40 ofthe Thyssen judgment already extracted above,it is stated that as a matter of fact, there is not ABC

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much difference between the provisions of the1961 Act and the Act in the matter ofenforcement of foreign award. The onlydifference as found is that while under theForeign Award Act a decree follows, under thenew Act the foreign award is already stampedas the decree. Thus, in our view, a partyholding foreign award can apply forenforcement of it but the court before takingfurther effective steps for the execution of theaward has to proceed in accordancewith Sections 47 to 49. In one proceeding theremay be different stages. In the first stage theCourt may have to decide about theenforceability of the award having regard tothe requirement of the said provisions. Oncethe court decides that foreign award isenforceable, it can proceed to take furthereffective steps for execution of the same. Therearises no question of making foreign awardas a rule of court/decree again. If the objectand purpose can be served in the sameproceedings, in our view, there is no need totake two separate proceedings resulting inmultiplicity of litigation. It is also clear fromobjectives contained in para 4 of the Statementof Objects and Reasons, Sections47 to 49 and Scheme of the Act that every finalarbitral award is to be enforced as if it were adecree of the court. The submission that theexecution petition could not be permitted toconvert as an application under Section 47 istechnical and is of no consequence in the viewwe have taken. In our opinion, forenforcement of foreign award there is no needto take separate proceedings, one for decidingthe enforceability of the award to make ruleof the court or decree and the other to take upexecution thereafter. In one proceeding, as

already stated above, the court enforcing aforeign award can deal with the entire matter.Even otherwise, this procedure does notprejudice a party in the light of what is statedin para 40 of the Thyssen judgment.

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(emphasis supplied)

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In a recent judgment rendered in LMJInternational Ltd. v. Sleepwell Industries[30], thisCourt held that given the legislative intent ofexpeditious disposal of arbitration proceedings, andlimited interference of the courts, the maintainabilityof the enforcement petition, and the adjudication ofthe objections filed, are required to be decided in acommon proceeding.

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(g) The enforcement / execution petition is requiredto be filed before the concerned High Court, asper the amendment to Section 47 by Act 3 of 2016(which came into force on 23.10.2015). TheExplanation to Section 47 has been amended, whichnow reads as:

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“47. Evidence – (1)…

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(2) …

[Explanation.- In this section and in thesections following in this Chapter, “Court”means the High Court having originaljurisdiction to decide the questions formingFthe subject matter of the arbitral awardifthe same had been the subject-matter of asuit on its original civil jurisdiction and inother cases, in the High Court havingjurisdiction to hear appeals from decrees”Gof courts subordinate to such High Court.

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(h) Section 48 replicates Article V of the New YorkConvention, and sets out the limited conditions onwhich the enforcement of a foreign award may berefused.

Sub-sections (1) and (2) of Sections 48 containseven grounds for refusal to enforce a foreignaward. Sub-section (1) contains five grounds whichmay be raised by the losing party for refusal ofenforcement of the foreign award, while sub-section(2) contains two grounds which the court may exofficio invoke to refuse enforcement of theaward,[31] i.e. non-arbitrability of the subject-matterof the dispute under the laws of India; and second,the award is in conflict with the public policy ofIndia.

(i)

(i) The enforcement Court cannot set aside aforeign award, even if the conditions under Section48 are made out. The power to set aside a foreignaward vests only with the court at the seat ofarbitration, since the supervisory or primaryjurisdiction is exercised by the curial courts at theseat of arbitration.

The enforcement court may “refuse”enforcement of a foreign award, if the conditionscontained in Section 48 are made out. This wouldbe evident from the language of the Section itself,which provides that enforcement of a foreign awardmay be “refused” only if the applicant furnishesproof of any of the conditions contained in Section48 of the Act.

(j) The opening words of Section 48 use permissive,rather than mandatory language, that enforcement“may be” refused.[ 32] The use of the words “may 31 Malhotra’s Commentary on the Law of Arbitration, 4th Edition, Vol. 2, Pg. 1163-1164, Wolters Kluwer.

32 Refer to Vijay Karia & Ors. v Prysmian Cavi E Sistemi SRL & Ors., 2020 SCCOnLine 177.H

be” indicate that even if the party against whomAthe award is passed, proves the existence of oneor more grounds for refusal of enforcement, thecourt would retain a residual discretion to overrulethe objections, if it finds that overall justice has beendone between the parties, and may direct theBenforcement of the award.[33] This is generally donewhere the ground for refusal concerns a minorviolation of the procedural rules applicable to thearbitration, or if the ground for refusal was notraised in the arbitration.[34 ]A court may also takethe view that the violation is not such as to preventCenforcement of the award in internationalrelations.[35]

(k) The grounds for refusing enforcement of foreignawards contained in Section 48 are exhaustive,which is evident from the language of the Section,which provides that enforcement may be refused DEF

33 This has been eloquently stated by the Supreme Court of Hong Kong in a 1994decision which confirmed that: ‘…the grounds of opposition are not to be inflexiblyapplied. The residual discretion enables the enforcing Court to achieve a just result inall the circumstances’. See Hong Kong, Supreme Court, 13 July, 1994, China NanhaiOil Joint Service Corp v Gee Tai Holdings Co. Ltd., Yearbook Commercial Arbitration,XX-1995, 671, 677. See also Westacre Investments Inc. v Jugoimport-SDRP HoldingCo. Ltd. [1999] APP. L.R. 05/12; Cruz City 1 Mauritius Holdings v Unitech Limited,2017 (3) ArbLR 20 (Delhi) : 239 (2017) DLT 649 [the petition for special leave toappeal against this decision has been dismissed by the Supreme Court vide Order dated19 January 2018 in SLP (Civil) No. 32244/2017]. British Virgin Islands, Court ofAppeal, 18 June 2008 (IPOC International Growth Fund Limited v L.V. Finance GroupLimited) Yearbook Commercial Arbitration XXXIII (2008) pp.408-432 (British VirginIslands No.1); United Kingdom : High Court, Queen’s Bench Division (CommercialCourt), 20 January 1997 (China Agribusiness Development Corporation v Balli Trading)Yearbook Commercial Arbitration XXIV (1999) pp.732-738 (U.K. No.52).

34 Hong Kong : Supreme Court of Hong Kong, High Court, 15 January 1993 (PaklitoInvestment Ltd. v Klockner East Asia) Yearbook Commercial Arbitration XIX (1994)pp.664-674 (Hong Kong No.6); Supreme Court of Hong Kong, High Court, 16 December1994 (Nanjing Cereals, Oils & Foodstuffs Import & Export Corporation v LuckmateCommodities Trading Ltd.) Yearbook Commercial Arbitration XXI (1996) pp. 542-545(Hong Kong No.9); G

35 Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards aUniform Judicial Interpretation, 1981, Kluwer Law and Taxation Publishers at page265.

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68SUPREME COURT REPORTS

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“only if” the applicant furnishes proof of any ofthe conditions contained in that provision.[36]

(l) The enforcement court is not to correct theerrors in the award under Section 48, or undertakea review on the merits of the award, but is conferredwith the limited power to “refuse” enforcement, ifthe grounds are made out.

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(m) If the Court is satisfied that the application underSection 48 is without merit, and the foreign awardis found to be enforceable, then under Section 49,the award shall be deemed to be a decree of “thatCourt”. The limited purpose of the legal fiction isfor the purpose of the enforcement of the foreignaward. The concerned High Court would thenenforce the award by taking recourse to theprovisions of Order XXI of the CPC.

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Part CWhether the Malaysian Courts were justified inapplying the Malaysian law of public policy whiledeciding the challenge to the foreign award?

The Ld. A.G. raised the ground that the MalaysianEcourts, while deciding the challenge to the Award, oughtto have applied the substantive law of the contract, whichwas Indian law, and particularly the issue regardingconflict with the public policy ought to have been decidedin accordance with the law expounded by the SupremeCourt in paragraph 76.4 of the judgment in Reliance[37]F(supra).

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This Court vide Order dated 24.08.2020 appointedMr. Gourab Banerji, Senior Advocate, as Amicus Curiaeto assist on this limited issue.

Submissions of the Amicus Curiae :G

Mr. Gourab Banerji, learned Amicus appearedbefore this Court on 26.08.2020, and made oral 36 Cruz City I Mauritius Holdings v. Unitech Ltd. (2017) 239 DLT 649.

H37 Reliance Industries v. Union of India (2014) 7 SCC 603.

(i)

(ii)

(iii) submissions with respect to the law which would beapplicable at the stage of challenge before the seat court,and the law applicable at the enforcement stage.

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The learned Amicus inter alia submitted that:

The applicable law will have to be judged withBreference to the specific ground of challenge raised forsetting aside the Award.

The Government of India challenged the arbitralaward before the Malaysian High Court on threegrounds:

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a. The Award dealt with a dispute not contemplatedby, or not falling within the terms of the submissionto arbitration;

b. The Award contains decisions on matters beyondthe scope of the submission to arbitration; and Dc. The Award is in conflict with public policy.The first two grounds relate to excess ofjurisdiction, which are covered by Sections 37(1)(a)(iv)and (v) of the Malaysian Act, while the third groundconcerns public policy, which is covered by ArticleE37(2)(b)(ii) of the said Act.

A perusal of Articles 33.1 and 33.2 of the PSCwould show that the substantive law of the contract isIndian law. The arbitration agreement is governed by“the laws of England” as provided by Article 34.12 ofthe PSC. Since the seat of arbitration was in KualaLumpur, Malaysia, the curial law would be the Malaysianlaw.

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Malaysia has adopted the UNCITRAL ModelLaw. Section 37 of the (Malaysian) Arbitration Act 2005G(“Malaysian Act”) is modelled on Article 34 of theUNCITRAL Model Law, and incorporates all its grounds.Section 37 of the Malaysian Arbitration Act reads asfollows :

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“Application for setting aside

37. (1) An award maybe set aside by the HighCourt only if—

(a) the party making the application providesproof that—

(i) a party to the arbitration agreement was underany incapacity;

(ii) the arbitration agreement is not valid underthe law to which the parties have subjected it, or,failing any indication thereon, under the laws ofMalaysia;

(iii) the party making the application was notgiven proper notice of the appointment of anarbitrator or of the arbitral proceedings or wasotherwise unable to present that party’s case;

(iv) the award deals with a dispute notcontemplated by or not falling within the terms ofthe submission to arbitration;

(v) subject to subsection (3), the award containsdecisions on matters beyond the scope of thesubmission to arbitration; or

(vi) the composition of the arbitral tribunal orthe arbitral procedure was not in accordance withthe agreement of the parties, unless suchagreement was in conflict with a provision of thisAct from which the parties cannot derogate, or,failing such agreement, was not in accordancewith this Act; or (b) the High Court finds that—

(i) the subject matter of the dispute is not capableof settlement by arbitration under the laws ofMalaysia; or

(ii) the award is in conflict with the public policyof Malaysia

(2) Without limiting the generality ofsubparagraph (1)(b)(ii), an award is in conflictwith the public policy of Malaysia where—

(a) the making of the award was induced oraffected by fraud or corruption; or (b) a breach of the rules of natural justiceoccurred—

(i) during the arbitral proceedings; or

(ii) in connection with the making of the award.

(3) Where the decision on matters submitted toarbitration can be separated from those not sosubmitted, only that part of the award whichcontains decisions on matters not submitted toarbitration may be set aside.”

(iv) The Malaysian Act provides that the public policydefence is to be decided in accordance with Malaysianlaw, which is consistent with the Convention on theRecognition & Enforcement of Foreign Arbitral Awards,1958. The seat court while deciding the public policychallenge, would decide the same in accordance withits own domestic public policy.

(v) With respect to the challenge on the ground of“excess of jurisdiction,” it was submitted that the correctposition in law is that the issue of excess of jurisdictionwould be governed by English law, since Article 34.12of the PSC provides that the arbitration agreementcontained in Article 34 shall be governed by the laws ofEngland.

Even though the substantive law of the contractwas Indian law, it would not be applicable for decidingthe challenge to the issue of excess of jurisdiction.

(vi) The Malaysian High Court rejected the challengemade by the Government of India to the award, andalso the reliance placed on the decision of the Indian A

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(vii) Supreme Court in ONGC v Saw Pipes[38]. While doingso, the High Court commented that the Court of Appealin Singapore in PT Asuransi Jasa Indonesia (Persero)v Dexia Bank SA[39] had not followed the decision of theSupreme Court of India in the Saw Pipes case. Thelearned Amicus submitted that these observations of theMalaysian High Court were wholly unnecessary to theissues in question.

It was submitted that the High Court of Malaysiagave contradictory findings with respect to the applicablelaw while deciding the issue of excess of jurisdiction.Initially, in paragraphs 159 and 161, the Malaysian HighCourt was of the view that the seat being in KualaLumpur, the applicable law to such a challenge wouldbe under Section 37(1)(a)(iv) and (v) of the Malaysianlaw, being the curial law. Paragraphs 158 to 161 readas:

“Applicable law

158. I pause here to deal with this matter of theapplicable law. The Plaintiff has contended thatread with section 30, the Court should set asidethe Award under subparagraphs 37(1)(a)(iv) and(v); and (b)(ii). By virtue of section 30, thesubstantive law of the contract is Indian law ofcontracts. On the arguments that it had canvassedand which I had set out earlier, the Plaintiffcontended that the Court should set aside theAward relying on the Indian Supreme Courtdecision in Saw Pipes.

159. With respect, I must disagree. When dealingwith challenges under sub paragraph 37(1)(a)(iv)and (v); and (b)(ii), the challenge is not determinedby reference to he substantive law of the contract.As the seat of the arbitration is Kuala Lumpur,the curial law is that of the seat, that is, Malaysian 38 (2003) 5 SCC 705.H39 [2006] SGCA 41.

law; and it remains so even after the Award hasbeen granted or handed down.

160. The Federal Court in The Government ofIndia v Cairn Energy India Pty. Ltd. & Anor.[2011] 6 MLJ 441, 455 was not inclined to followthe decision of the Indian Supreme Court inSumitomo Heavy Industries Ltd. v ONGC Ltd. AIR1998 SC 825, although endorsed subsequentlyin M/s. Dosco India Ltd. v M/s. Doosan InfracoreCo. Ltd. (Arbitration Petition No 5 of 2008) 2010(9) UJ 4521 (SC) that took an otherwise positio :

“…Thus, in this case as Kuala Lumpur wasselected as the juridical seat of arbitration, thecurial law is the laws of Malaysia, and we so hold.And we would add that it is vital for parties tofollow the mandatory rules of the seat ofarbitration since the application of suchmandatory procedural rules (curial law) of theseat will remain subject to the jurisdiction andcontrol of the courts of the seat of the arbitrationincluding when considering applications to setaside awards. We are therefore not persuaded thatthe decision of the Indian Supreme Court shouldbe applied.”

161. Although Indian law is the substantive lawor proper law of the contract or PSC, and Englishlaw is the law of the arbitration agreement;thatin no way means that Indian lex arbitri applieson the determination of an application undersection 37.”

In paragraph 165, the High Court, however,observed that English law was the substantive lawof the arbitration agreement and answers anyquestions on the jurisdiction of the arbitral tribunal.

“165. I appreciate that the Court of Appeal in PTAsuransi was expressing its views in the context AB

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of a challenge on the ground of a conflict withpublic policy. This position however, maintainseven when dealing with the other grounds reliedon here as the Indian law on “excess ofjurisdiction” is not the applicable law. I agreewith the Defendants that English law which is thesubstantive law of the arbitration agreementanswers any questions on the jurisdiction of theArbitral Tribunal.This was recognised inSumitomo Heavy Industries v Oil and Natural GasCommission 1995 1 Lloyds’ Rep 45. ..”

The High Court of Malaysia placed reliance onthe judgment of Potter, J. in Sumitomo HeavyIndustries Ltd. v Oil and Natural GasCommission,[40] the relevant portion of which readsas follows:

“...(2) The proper law of the arbitrationagreement, i.e. the law governing rights andobligations of the parties arising from theiragreement to arbitrate and, in particular, theirobligation to submit their disputes to arbitrationand to honour an award. This includes inter aliaquestions as to the validity of the arbitrationagreement, the validity of the notice of arbitration,the constitution of the tribunal and the questionwhether an award lies within the jurisdiction ofthe arbitrator…”

(viii) The Government of India filed an appeal beforethe Malaysian Court of Appeal. The Court of Appealin paragraph 31 of the judgment, wherein it is opinedthat :

“31. It is the contention of the Appellant that theapplicable law to be applied in the High Court H40 [1994] 1 Lloyd’s Law Reports 45.

GOVERNMENT OF INDIA v. VEDANTA LIMITED (FORMERLYCAIRN INDIA LTD.) ETC. [INDU MALHOTRA, J.]

A

proceeding is Indian curial law. This was rejectedby the learned Judge and we agree with the sameas we are of the view that the law is settled by theFederal Court in the case of The Government ofIndia v Cairn Energy India Pty Ltd & Anor [2011]6 MLJ 441 …”

B

(ix) In the decision of the Federal Court in the Governmentof India v Cairn Energy Pty. Ltd. & Anor,[41] theGovernment of India referred five questions to the FederalCourt, of which questions 1 and 2 are relevant, and areCset out below :

“1.Where an award from an internationalcommercial arbitration is submitted for reviewbefore the Malaysian courts under S.24(2) ofthe Arbitration Act 1952 and the contractprovides for the application of one foreign lawto govern the contract (namely the laws ofIndia) and another foreign law to govern thearbitration agreement (namely the laws ofEngland), is it proper for the Malaysian Courtto apply Malaysian law exclusively to decidethe scope of intervention in arbitration awardsor the dispute at hand where the seat ofarbitration is in Malaysia?

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2. If English law is to apply as the choice of theparties, whether the appropriate law is that asstated in the English Arbitration Act 1979(amending the English Arbitration Act 1950)which provides for an appeal to the High Courton any question of law arising out of anaward”

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The first question related to the seat of arbitration. The Governmentof India contended that the English Law was applicable, and that theMalaysian Court of Appeal ought to have applied the appellate powerunder the English Arbitration Act, 1979.

41 [2011] 6 MLJ 441.

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The Federal Court however, held that this was an issue of curiallaw, and the curial law ought to be the law of the seat of arbitration. TheFederal Court of Malaysia in paragraph 25 held that :

“[25] It is therefore clear that the English Court of Appealclearly sets out that the curial law ought to be that of the seatBof arbitration. As stated above, our courts have adopted asimilar position. Thus, in this case as Kuala Lumpur wasselected as the juridical seat of arbitration, the curial law isthe laws of Malaysia and we so hold. And we would add thatit is vital for parties to follow the mandatory rules of the seatof arbitration since the application of such mandatoryCprocedural rules (curial law) of the seat will remain subjectto the jurisdiction and control of the courts of the seat of thearbitration including when considering applications to setaside awards. We are therefore not persuaded that the”decisions of the Indian Supreme Court should be applied.

D

(x) It was submitted that the court at the seat of arbitration, wouldhave exclusive jurisdiction to annul or set aside a foreign award. Thelearned Amicus placed reliance on the judgment of the Constitution Benchin BALCO v Kaiser Aluminium,[42]and made specific reference to :

E

“153.…The expression under the law is the reference only tothe procedural law/curial law of the country in which theaward was made and under the law of which the award wasmade. It has no reference to the substantive law of the contractbetween the parties. In such view of the matter, we have noFhesitation in rejecting the submission of the learned counselfor the appellants.”

The Malaysian Courts rightly examined the public policy challengein accordance with the Malaysian Act, being the curial law of theGarbitration.

With respect to the challenge on the ground of excess of jurisdiction,it was submitted that it ought to have been tested on the basis of theproper law of the arbitration agreement i.e. the English law.

H42 (2012) 9 SCC 552.

GOVERNMENT OF INDIA v. VEDANTA LIMITED (FORMERLYCAIRN INDIA LTD.) ETC. [INDU MALHOTRA, J.]

On the applicable law at the enforcement stage, the Courts woulddetermine the same as per the public policy of India.

Discussion and Findings

(i) In the present case, the law governing the agreement toarbitrate was the English law as per Article 34.12 of the PSC,which provides that the arbitration agreement shall begoverned by the laws of England. Even though there seemsto have been some confusion in the application of the lawgoverning the agreement to arbitrate by the seat courts, aspointed out by the learned Amicus, we will not dwell on thisissue, since the enforcement court does not sit in appeal overthe findings of the seat court. Furthermore, in view of theprinciples of comity of nations, this Court would not commenton the judgments passed by Courts in other jurisdictions.

The enforcement of the award is a subsequent anddistinct proceeding from the setting aside proceedings at theseat. The enforcement court would independently determinethe issue of recognition and enforceability of the foreign awardin India, in accordance with the provisions of Chapter 1 PartII of the Indian Arbitration Act, 1996.

(ii)

The courts having jurisdiction to annul or suspend a NewYork Convention award are the courts of the State wherethe award was made, or is determined to have been madei.e. at the seat of arbitration. The seat of the arbitration is alegal concept i.e. the juridical home of the arbitration. Thelegal “seat” must not be confused with a geographicallyconvenient venue chosen to conduct some of the hearings inthe arbitration. The courts at the seat of arbitration are referredto as the courts which exercise “supervisory” or “primary”jurisdiction over the award. The “laws under which the awardwas made” used in Article V (1)(e) of the New YorkConvention, is mirrored in Section 48(1)(e) of the IndianArbitration Act, which refers to the country of the seat of thearbitration, and not the State whose laws govern thesubstantive contract.

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The constitution bench in BALCO v Kaiser Aluminium[43]held that :

“76. It must be pointed out that the law of the seat orplace where the arbitration is held, is normally the lawto govern that arbitration. The territorial link betweenthe place of arbitration and the law governing thatarbitration is well established in the internationalinstruments, namely, the New York Convention of 1958and the Uncitral Model Law of 1985. …

….

….

…

123. Thus, it is clear that the regulation of conduct ofarbitration and challenge to an award would have tobe done by the courts of the country in which thearbitration is being conducted. Such a court is then thesupervisory court possessed of the power to annul theaward. This is in keeping with the scheme of theinternational instruments, such as the GenevaConvention and the New York Convention as well asthe Uncitral Model Law. It also recognises the territorialprinciple which gives effect to the sovereign right of acountry to regulate, through its national courts, anadjudicatory duty being performed in its own country.By way of a comparative example, we may reiterate theobservations made by the Court of Appeal, England inC v. D [2008 Bus LR 843 : 2007 EWCA Civ 1282 (CA)]wherein it is observed that:

“It follows from this that a choice of seat for thearbitration must be a choice of forum for remediesseeking to attack the award.”

In the aforesaid case, the Court of Appeal had approvedthe observations made in A v. B [(2007) 1 All ER (Comm)591 : (2007) 1 Lloyd’s Rep 237] wherein it is observedthat:

“… an agreement as to the seat of an arbitration isanalogous to an exclusive jurisdiction clause. Any claimfor a remedy … as to the validity of an existing interimor final award is agreed to be made only in the courtsof the place designated as the seat of arbitration.”

(iii) The courts before which the foreign award is broughtfor recognition and enforcement would exercise “secondary”or “enforcement” jurisdiction over the award, to determinethe recognition and enforceability of the award in thatjurisdiction.

(iv) We will now briefly touch upon the four types of lawswhich are applicable in an international commercial arbitration,and court proceedings arising therefrom. These are :

a) The governing law determines the substantive rights andobligations of the parties in the underlying commercialcontract. The parties normally make a choice of thegoverning law of the substantive contract; in the absenceof a choice of the governing law, it would be determinedby the tribunal in accordance with the conflict of law rules,which are considered to be applicable.

b) The law governing the arbitration agreement must bedetermined separately from the law applicable to thesubstantive contract.[44] The arbitration agreementconstitutes a separate and autonomous agreement, whichwould determine the validity and extent of the arbitrationagreement; limits of party autonomy, the jurisdiction ofthe tribunal, etc.

c) The curial law of the arbitration is determined by the seatof arbitration. In an international commercial arbitration,it is necessary that the conduct of the arbitral proceedingsare connected with the law of the seat of arbitration, whichwould regulate the various aspects of the arbitralproceedings. The parties have the autonomy to determinethe choice of law, which would govern the arbitral 44 Collins, in Lew (ed.), Contemporary Problems in International Arbitration (1986)p.126 at 127-131.

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procedure, which is referred to as the lex arbitri, and isexpressed in the choice of the seat of arbitration.[45]

The curial law governs the procedure of the arbitration,the commencement of the arbitration, appointment ofarbitrator/s in exercise of the default power by the court,Bgrant of provisional measures, collection of evidence,hearings, and challenge to the award.

The courts at the seat of arbitration exercise supervisoryor “primary” jurisdiction over the arbitral proceedings,except if the parties have made an express and effectivechoice of a different lex arbitri, in which event, the roleof the courts at the seat will be limited to those matterswhich are specified to be internationally mandatory andof a non-derogable nature.[46]

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d) The lex fori governs the proceedings for recognition andDenforcement of the award in other jurisdictions. ArticleIII of the New York Convention provides that the nationalcourts apply their respective lex fori regarding limitationperiods applicable for recognition and enforcementproceedings; the date from which the limitation periodwould commence, whether there is power to extend theEperiod of limitation. The lex fori determines the court whichis competent and has the jurisdiction to decide the issue ofrecognition and enforcement of the foreign award, andthe legal remedies available to the parties for enforcementof the foreign award.

D

F(v)In view of the above-mentioned position, the MalaysianCourts being the seat courts were justified in applying theMalaysian Act to the public policy challenge raised by theGovernment of India.

The enforcement court would, however, examine thechallenge to the award in accordance with the groundsavailable under Section 48 of the Act, without being constrainedby the findings of the Malaysian Courts. Merely because the G

45 The Conflict of Laws, Dicey, Morris and Collins, (15thed.) Volume 1, Chapter 16,paragraph 16-035, p. 843.46 Russel on Arbitration, Sweet & Maxwell (24th Edition, 2015).H

Malaysian Courts have upheld the award, it would not be animpediment for the Indian courts to examine whether theaward was opposed to the public policy of India under Section48 of the Indian Arbitration Act, 1996. If the award is foundto be violative of the public policy of India, it would not beenforced by the Indian courts. The enforcement court wouldhowever not second-guess or review the correctness of thejudgment of the Seat Courts, while deciding the challenge tothe award.

(vi) In our view, the observation made in paragraph 76.4 ofthe Reliance[47 ]judgment does not have any precedential value,since it is an observation made in the facts of that case, whicharose out of a challenge to a final partial award on the issueof arbitrability of certain disputes. The last sentence inparagraph 76.4 is not the ratio of that judgment, which iscontained in paragraphs 76.1 to 76.3.

(vii) In the present case, the Appellants have challenged theAward inter alia on the ground of excess of jurisdiction, andas being contrary to the public policy of India. The observationsmade in paragraph 76.4 in the Reliance judgment, would notbe applicable to the present case, since the issue of arbitrabilityhas not been raised, and cannot be relied upon by theAppellants in the present case.

Part DWhether the foreign award is in conflict with thePublic Policy of India?

(i) This issue is required to be determined inaccordance with the conditions laid down in Section 48of the 1996 Act, which reads as :

“48. Conditions for enforcement of foreign awards. – (1)Enforcement of a foreign award may be refused, at the requestof the party against whom it is invoked, only if that partyfurnishes to the Court proof that—

(a) the parties to the agreement referred to in Section 44 were,under the law applicable to them, under some incapacity, orthe said agreement is not valid under the law to which the AB

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Aparties have subjected it or, failing any indication thereon,under the law of the country where the award was made; or(b) the party against whom the award is invoked was not givenproper notice of the appointment of the arbitrator or of thearbitral proceedings or was otherwise unable to present hisBcase; or

(c) the award deals with a difference not contemplated by ornot falling within the terms of the submission to arbitration,or it contains decisions on matters beyond the scope of thesubmission to arbitration:

CProvided that, if the decisions on matters submitted toarbitration can be separated from those not so submitted, thatpart of the award which contains decisions on matterssubmitted to arbitration may be enforced; or (d) the composition of the arbitral authority or the arbitralprocedure was not in accordance with the agreement of theDparties, or, failing such agreement, was not in accordancewith the law of the country where the arbitration took place;or (e) the award has not yet become binding on the parties, orhas been set aside or suspended by a competent authority ofEthe country in which, or under the law of which, that awardwas made.

(2) Enforcement of an arbitral award may also be refused ifthe Court finds that—

(a) the subject-matter of the difference is not capable ofFsettlement by arbitration under the law of India; or(b) the enforcement of the award would be contrary to thepublic policy of India.

“—Explanation.Without prejudice to the generality of clause(b) of this section, it is hereby declared, for the avoidance ofGany doubt, that an award is in conflict with the public policyof India if the making of the award was induced or affectedby fraud or corruption.”

(3) …

’’

H

GOVERNMENT OF INDIA v. VEDANTA LIMITED (FORMERLYCAIRN INDIA LTD.) ETC. [INDU MALHOTRA, J.]

(ii) The public policy defence for refusing enforcement underSection 48 of the 1996 Act was interpreted by a three-judge bench of this Court in Shri Lal Mahal Ltd. v ProgettoGrano SPA[48]. This Court held that the law as expounded inthe Renusagar judgment, would be applicable to the ambitand scope of Section 48(2)(b) even under the 1996 Act.The relevant extract from the judgment reads as:

“27.In our view, what has been stated by this Court inRenusagar with reference to Section 7(1)(b)(ii) of theForeign Awards Act must equally apply to the ambit andscope of Section 48(2)(b) of the 1996 Act.In Renusagarit has been expressly exposited that the expression“public policy” in Section 7(1)(b)(ii) of the ForeignAwards Act refers to the public policy of India. Theexpression “public policy” used in Section 7(1)(b)(ii)was held to mean “public policy of India”. A distinctionin the rule of public policy between a matter governedby the domestic law and a matter involving conflict oflaws has been noticed in Renusagar. For all this thereis no reason why Renusagar[3] should not apply asregards the scope of inquiry under Section 48(2)(b).Following Renusagar, we think that for the purposes ofSection 48(2)(b), the expression “public policy ofIndia” must be given narrow meaning and theenforcement of foreign award would be refused on theground that it is contrary to public policy of India if itis covered by one of the three categories enumerated inRenusagar. Although the same expression ‘public policyof India’ is used both in Section 34(2(b)(ii) and Section48(2)(b) and the concept of ‘public policy in India’ issame in nature in both the Sections but, in our view, itsapplication differs in degree insofar as these twoSections are concerned. The application of ‘publicpolicy of India’ doctrine for the purposes of Section48(2)(b) is more limited than the application of the sameexpression in respect of the domestic arbitral award.

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29. We accordingly hold that enforcement of foreignaward would be refused under Section 48(2)(b) onlyif such enforcement would be contrary to (1)fundamental policy of Indian law; or (2) the interestsof India; or (3) justice or morality. The widermeaning given to the expression “public policy ofIndia” occurring in Section 34(2)(b)(ii) in SawPipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC705] is not applicable where objection is raised tothe enforcement of the foreign award under Section48(2)(b).

x x x

45. Moreover, Section 48 of the 1996 Act does notgive an opportunity to have a ‘second look’ at the-foreign award in the awardenforcement stage. Thescope of inquiry Under Section 48 does not permitreview of the foreign award on merits. Proceduraldefects (like taking into consideration inadmissibleevidence or ignoring/rejecting the evidence whichmay be of binding nature) in the course of foreignarbitration do not lead necessarily to excuse an awardfrom enforcement on the ground of public policy.

x x x

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47. While considering the enforceability of foreignawards, the court does not exercise appellatejurisdiction over the foreign award nor does itenquire as to whether, while rendering foreign award,some error has been committed. Under Section48(2)(b) the enforcement of a foreign award can berefused only if such enforcement is found to becontrary to: (1) fundamental policy of Indian law;or (2) the interests of India; or (3) justice or morality.The objections raised by the appellant do not fall inany of these categories and, therefore, the foreignawards cannot be held to be contrary to public policyof India as contemplated under Section 48(2)(b).”

(iii) In Renusagar Power Co. v General Electric Co.[49](“Renusagar”), this Court held that “public policy”comprised of (1) the fundamental policy of Indian law; (2)interests of India; and (3) justice or morality. It was heldthat :

“37. In our opinion, therefore, in proceedings forenforcement of a foreign award under the ForeignAwards Act, 1961, the scope of enquiry before thecourt in which award is sought to be enforced islimited to grounds mentioned in Section 7 of the Actand does not enable a party to the said proceedingsto impeach the award on merit.

x x x

66. Article V(2)(b) of the New York Convention of1958 and Section 7(1)(b)(ii) of the Foreign AwardsAct do not postulate refusal of recognition andenforcement of a foreign award on the ground thatit is contrary to the law of the country of enforcementand the ground of challenge is confined to therecognition and enforcement being contrary to thepublic policy of the country in which the award isset to be enforced.There is nothing to indicate thatthe expression “public policy” in Article V(2)(b) ofthe New York Convention and Section 7(1)(b)(ii) ofthe Foreign Awards Act is not used in the same sensein which it was used in Article 1(c) of the GenevaConvention of 1927 and Section 7(1) of the Protocoland Convention Act of 1937. This would mean that“public policy” in Section 7(1)(b)(ii) has been usedin a narrower sense and in order to attract to bar ofpublic policy the enforcement of the award mustinvoke something more than the violation of the lawof India.Since the Foreign Awards Act is concernedwith recognition and enforcement of foreign awardswhich are governed by the principles of privateinternational law, the expression “public policy” in A

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Section 7(1)(b)(ii) of the Foreign Awards Act mustnecessarily be construed in the sense the doctrineof public policy is applied in the field of privateinternational law. Applying the said criteria it mustbe held that the enforcement of a foreign awardwould be refused on the ground that it is contrary topublic policy if such enforcement would be contraryto (i) fundamental policy of Indian law; or (ii) the”interests of India; or (iii) justice or morality.

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The enforceability of the foreign award will bedecided in accordance with the parameters laid down inRenusagar i.e. whether the award is contrary to the (i)fundamental policy of Indian law, or (ii) interests of India,or (iii) justice or morality.

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D(iv)

The Counsel for the Respondents submitted that it wasthe amended Section 48, which would be applicable to thepresent case; or alternately, that the amendments effectedby the 2016 Amendment Act would have retrospectiveeffect.

(v) We will now briefly touch upon the amendments madeto Section 48, and consider the issue whether theamendments have retrospective application, and areapplicable to the present case.

E

Section 48 was amended by Act 3 of 2016, which cameinto force w.e.f. 23.10.2015. These amendments wereincorporated on the basis of the 246[th] Report of the LawCommission. The relevant extracts from the 246[th] Reportwith respect to the amendments in Section 48 are set outhereunder :

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“SETTING ASIDE OF DOMESTIC AWARDS ANDRECOGNITION / ENFORCEMENT OF FOREIGNAWARDS

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34. Once an arbitral award is made, an aggrieved partymay apply for the setting aside of such award. Section34 of the Act deals with setting aside a domestic award H

and a domestic award resulting from an internationalcommercial arbitration whereas section 48 deals withconditions for enforcement of foreign awards. As theAct is currently drafted, the grounds for setting aside(under section 34) and conditions for refusal ofenforcement (section 48) are in pari materia. The Act,as it is presently drafted, therefore, treats all three typesof awards – purely domestic award (i.e. domestic awardnot resulting from an international commercialarbitration), domestic award in an internationalcommercial arbitration and a foreign award – as thesame. The Commission believes that this has caused someproblems. The legitimacy of judicial intervention in thecase of a purely domestic award is far more than incases where a court is examining the correctness of aforeign award or a domestic award in an internationalcommercial arbitration.

37. In this context, the Commission has furtherrecommended the restriction of the scope of “publicpolicy” in both sections 34 and 48.This is to bring thedefinition in line with the definition propounded by theSupreme Court in Renusagar Power Plant Co Ltd vGeneral Electric Co, AIR 1994 SC 860 where theSupreme Court while construing the term “publicpolicy” in section 7(1)(b)(ii) of Foreign Awards(Recognition and Enforcement) Act, 1961 held that anaward would be contrary to public policy if suchenforcement would be contrary to “(i) fundamentalpolicy of Indian law; or (ii) the interests of India; or(iii) justice or morality”. The formulation proposed bythe Commission is even tighter and does not include thereference to “interests of India”, which is vague and iscapable of interpretational misuse, especially in thecontext of challenge to awards arising out ofinternational commercial arbitrations (under S 34) orforeign awards (under S 48). Under the formulation ofthe Commission, an award can be set aside on public ABC

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[2020] 12 S.C.R.

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policy grounds only if it is opposed to the “fundamentalpolicy of Indian law” or it is in conflict with “most basicnotions of morality or justice.”

(vi) After the judgment of the Supreme Court in ONGC vBWestern Geco[50], which had expanded the power of judicialreview, the Law Commission submitted a SupplementaryReport on “Public Policy.” It was recommended that aclarification needs to be incorporated to ensure that thephrase “fundamental policy of Indian law” is narrowlyCconstrued. It was recommended that a new Explanationbeing Explanation 2 be inserted into Section 34(2)(b)(ii) i.e.:

“For the avoidance of doubt, the test as to whether thereis a contravention with the fundamental policy of Indianlaw shall not entail a review on the merits of the dispute.”

D(vii)Section 48 was amended by Act 3 of 2016. By thisamendment, the public policy ground was given a narrowand specific construction by statute, by the insertion of twoExplanations. The amended Section 48 reads as :

“48. Conditions for enforcement of foreign awards. –

E(1) …

(2) Enforcement of an arbitral award may also be refusedif the Court finds that—

(a) the subject-matter of the difference is not capableof settlement by arbitration under the law of India; or F

(b) the enforcement of the award would be contrary tothe public policy of India.

—Explanation 1.For the avoidance of any doubt, it isclarified that an award is in conflict with the publicG—policy of India, only if,

(i) the making of the award was induced or affected byfraud or corruption or was in violation of Section 75or Section 81; or

(ii) it is in contravention with the fundamental policy ofIndian law; or

(iii) it is in conflict with the most basic notions ofmorality or justice.

—Explanation 2.For the avoidance of doubt, the testas to whether there is a contravention with thefundamental policy of Indian law shall not entail areview on the merits of the dispute.

’’

(3)...

(viii) The highlighted portions show the amendments made toSection 48 by the 2016 Amendment Act. We find that theseare substantive amendments, which have been incorporatedto make the definition of “public policy” narrow by statute.It is relevant to note that the 2016 Amendment has droppedthe clause “interests of India,” which was expounded bythe Renusagar judgment.

The newly inserted Explanation 2 provides that theexamination of whether the enforcement of the award is inconflict with the fundamental policy of Indian law, shall notentail a review on the merits of the dispute.

(ix) The two Explanations in Section 48 begin with the words“For the avoidance of any doubt.” It cannot, however, bepresumed to be clarificatory and retrospective, since thesubstituted Explanation 1 has introduced new sub-clauses,which have brought about a material and substantive changein the section. A new Explanation 2 has been inserted whichstates that the test as to whether there is a contraventionwith the fundamental policy of Indian law, shall not entail areview on the merits of the dispute. Since the amendmentshave introduced specific criteria for the first time, it mustbe considered to be prospective, irrespective of the usageof the phrase “for the removal of doubts.” Reliance is placedon the judgment of this Court in Sedco Forex InternationalDrill v Commissioner of Income Tax, Dehradun[51]

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90SUPREME COURT REPORTS

Awherein it was held that an Explanation if it changes thelaw, it cannot be presumed to be retrospective, irrespectiveof the fact that the phrases used are “it is declared” or “forthe removal of doubts”. In Ssangyong Engineering &Construction Co. Ltd. v NHAI,[52]this Court wasconsidering the amendments made to Section 34, whereinBtwo Explanations to Section 34 had been inserted, whichare identically worded with the two Explanations to Section48. In that case, a similar ground of retrospectivity had beenurged. This Court held that since the Explanations had beenintroduced for the first time, it is the substance of theCamendment which has to be looked at, rather than the form.Even in cases where “for avoidance of doubt”, somethingis clarified by way of an amendment, such clarificationcannot have retrospective effect, if the earlier law has beenchanged substantially.

D(x)Section 26 of the 2016 Amendment Act provided that :

“26. Act not to apply to pending arbitral proceedings. –Nothing contained in this Act shall apply to the arbitralproceedings commenced, in accordance with theprovisions of section 21 of the principal Act, before theEcommencement of this Act unless the parties otherwiseagree but this Act shall apply in relation to arbitralproceedings commenced on or after the date ofcommencement of this Act.”

(xi) Section 26 of the Amendment Act came up for considerationbefore this Court in BCCI v. Kochi Cricket Pvt Ltd.[53]F(“BCCI”). This Court held that the Amendment Act wouldapply prospectively to:

(a) “arbitral proceedings” initiated on or after 23.10.2015i.e. the date on which the 2015 Amendment Act cameGinto force; (b) court proceedings commenced on or after 23.10.2015,irrespective of whether such court proceedings ariseout of, or relate to arbitration proceedings which were 52 (2019) 15 SCC 131.H53 2018 6 SCC 287.

commenced prior to, or after the commencement ofthe Amendment Act.

(xii) The 2019 Amendment Act (to the Arbitration Act of 1996)inserted Section 87 as a clarificatory amendment, to providethat arbitral proceedings and court proceedings “arising outof, or in relation to such proceedings” shall constitute aBsingle set of proceedings, for the applicability of the 2016Amendment Act. Section 87 was inserted with retrospectiveeffect from 23.10.2015 i.e. the date of coming into force ofthe 2016 Amendment Act. Section 15 of the 2019Amendment Act provided that Section 26 of the 2015CAmendment Act stood deleted.

(xiii) In Hindustan Construction Co. Ltd v. Union of India& Ors.,[54]the Supreme Court struck down Section 87 ofthe 2019 Amendment Act, and restored Section 26 of the2016 Amendment Act to the statute book. It was held inDparagraph 54 that :

“54. The result is that the BCCI judgment will, therefore,continue to apply so as to make applicable salutaryamendments made by the 2015 Amendment Act to allcourt proceedings initiated after 23.10.2015.”

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(xiv) In view of the aforesaid discussion, we hold that theamended Section 48 would not be applicable to the presentcase, since the court proceedings for enforcement werefiled by the Respondents-Claimants on 14.10.2014 i.e. priorFto the 2016 Amendment having come into force on23.10.2015.

(xv) We will now consider the issue whether the award in thepresent case is in conflict with the public policy of India,and contrary to the basic notions of justice, as submitted onGbehalf of the Appellants.

Applying the unamended Section 48 to the present case,this Court in the Renusagar judgment had placed reliance A

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on the enunciation of the law on international public policyin the judgment of the U.S. Court of Appeals for the 2[nd]Circuit in Parsons & Whittemore Overseas Co. Inc. v.Societe Generale De L’industrie du Papier (RAKTA),[55]wherein it was held that :

“7. Article V(2)(b) of the Convention allows the courtin which enforcement of a foreign arbitral award issought to refuse enforcement, on the defendant’s motionor sua sponte, if ‘enforcement of the award would becontrary to the public policy of (the forum) country.’The legislative history of the provision offers no certainguidelines to its construction. Its precursors in theGeneva Convention and the 1958 Convention’s ad hoccommittee draft extended the public policy exceptionto, respectively, awards contrary to ‘principles of thelaw’ and awards violative of ‘fundamental principlesof the law.’ In one commentator’s view, the Convention’sfailure to include similar language signifies a narrowingof the defense [Contini, International CommercialArbitration: The United Nations Convention on theRecognition and Enforcement of Foreign ArbitralAwards, Am J Comp L at p. 304]. On the other hand,another noted authority in the field has seized uponthis omission as indicative of an intention to broadenthe defense [Quigley, Accession by the United States tothe United Nations Convention on the Recognition andEnforcement of Foreign Arbitral Awards, 70 Yale L.J.1049, 1070-71 (1961)].

8. Perhaps more probative, however, are the inferencesto be drawn from the history of the Convention as awhole. The general pro-enforcement bias informing theConvention and explaining its supersession of theGeneva Convention points toward a narrow reading ofthe public policy defense. An expansive constructionof this defense would vitiate the Convention’s basiceffort to remove preexisting obstacles to enforcement.[See Straus, Arbitration of Disputes between

Multinational Corporations, in New Strategies forPeaceful Resolution of International Business Disputes114-15 (1971); Digest of Proceedings of InternationalBusiness Disputes Conference, April 14, 1971, at 191(remarks of Professor W. Reese)]. Additionally,considerations of reciprocity – considerations givenexpress recognition in the Convention itself – counselcourts to invoke the public policy defense with cautionlest foreign courts frequently accept it as a defense toenforcement of arbitral awards rendered in the UnitedStates.

9. We conclude, therefore, that the Convention’s publicpolicy defense should be construed narrowly.Enforcement of foreign arbitral awards may be deniedon this basis only where enforcement would violate theforum state’s most basic notions of morality and justice.

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…To read the public policy defence as a parochialdevice protective of national political interests wouldseriously undermine the Convention’s utility. Thisprovision is not meant to enshrine the vagaries ofinternational politics under the rubric of “public policy.Rather, a circumscribe public policy doctrine wascontemplated by the Convention’s framers and everyindication is that the United States, in acceding to theConvention, meant to subscribe to this supranational-emphasis. Cf. Scherk v. AlbertoCulver Co., 417 U.S.506, 94 S.Ct.2449. 41L.Ed. 2d 270, 42 U.S.L.W., 4911,”4915-16 n. 15(1974)

The judgment in Parsons has been followed in various otherjurisdictions.[56] In International Navigation Ltd. v Waterside Ocean

56 See, e.g., BCB Holdings Limited and The Belize Bank Limited v The Attorney Generalof Belize, Caribbean Court of Justice, Appellate Jurisdiction, 26 July 2013, [2013] CCJ5 (AJ); Traxys Europe S.A. v Balaji Coke Industry Pvt Ltd., Federal Court, Australia, 23March 2012, [2012] FCA 276; Uganda Telecom Ltd. v. Hi-Tech Telecom Pty Ltd.,Federal Court, Australia, 22 February 2011, [2011] FCA 131; Petrotesting ColombiaS.A. & Southeast Investment Corporation v. Ross Energy S.A., Supreme Court of Justice, A

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ANavigation Co. Inc.,[57] the Court of Appeals, Second Circuit, U.S.A.held that the public policy defence must be interpreted in light of theoverriding object of the New York Convention. The Court applied thejudgment in Parsons (supra), and held that the public policy defenceshould apply only where enforcement of the award would violate thebasic notions of morality and justice of the forum state. Any interferenceBby the national court in international arbitration on this ground should beminimal, and public policy under the New York Convention should beinterpreted narrowly. This position was followed in the Southern Districtof New York in Telenor Mobile Communications v Storm LLC.[58] Itwas opined that to refuse enforcement on the ground of public policy,Cthe decision would have to directly contradict the foreign law in such amanner, so as to make compliance with one a violation of the other.

(xvi) Albert van den Berg in his commentary on “The NewYork Arbitration Convention, 1958: Towards a UniformJudicial Interpretation”[ 59] opines that the scope of jurisdictionDof the enforcement court is :

“It is a generally accepted interpretation of theConvention that the court before which the enforcementof the foreign award is sought may not review the meritsof the award.The main reason is that the exhaustive listEof grounds for refusal of enforcement enumerated inArticle V does not include a mistake in fact or law bythe arbitrator. Furthermore, under the Convention thetask of the enforcement judge is a limited one. Thecontrol exercised by him is limited to verifying whetheran objection of a respondent on the basis of the groundsFfor refusal of Article V (1) is justified and whether theenforcement of the award would violate the public policyof the law of his country.This limitation must be seen in Colombia, 27 July 2011; Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd.,Court of Final Appeal, Hong Kong, 9 February 1999, [1999] 2 HKC 205; RenusagarGPower Co. Ltd. v. General Electric Company & Anr., Supreme Court, India, 7 October1993, 1994 AIR 860; Brostrom Tankers AB v. Factorias Vulcano S.A., High Court,Dublin, Ireland, 19 May 2004, XXX Y.B. Com. Arb. 591 (2005).57 737 F.2d 150 (Second Circuit, 1984).58 524 F.Supp. 2d 332 (SDNY 2007).

59 The New York Convention of 1958, Kluwer, 1981, pp. 267-268, cited in Redfern andHunter, Law and Practice of International Commercial Arbitration, fifth edn., 2009, p.H639, para 11.60.

the light of the principle of international commercialarbitration that a national court should not interferewith the substance of the arbitration.”

(emphasis supplied)

(xvii) It would be useful to refer to the recommendations ofthe International Law Association in the 70[th] Conference ofthe ILA held in New Delhi on 2-6 April 2002, known as the“ILA Recommendations, 2002” on Public Policy, which havebeen regarded as reflective of best international practices.

Clause 1 (a) of the General recommendations of theILA provides that the finality of awards in internationalcommercial arbitration should be respected, save inexceptional circumstances, and that such exceptionalcircumstances are found if recognition or enforcement ofthe international arbitral award would be contrary tointernational public policy.

Clause 1(d) of the Recommendations state that theexpression “international public policy” is used to designatethe body of principles and rules, which are : (i) fundamentalprinciples, pertaining to justice or morality, that the Statewishes to protect even when it is not directly concerned, (ii)rules designed to serve the essential political, social oreconomic interests of the State, these being known as “loisde police” or “public policy rules” and (iii) the duty of theState to respect its obligations towards other States orinternational organisations.Clause 3(a) states that theviolation of a mere mandatory rule (i.e. a rule that ismandatory, but does not form part of the State’s internationalpublic policy), should not bar its recognition and enforcement,even when said rule forms part of the law of the forum, thelaw governing the contract, the law of the place ofperformance of the contract, or the law of the seat of thearbitration.

(xviii) The International Council for Commercial Arbitration(ICCA) Guide to the Interpretation of the 1958 New YorkConvention : A Handbook for Judges (2011), states that whileconsidering the grounds for refusal of a foreign award, the B

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Court must be guided by the following principles (i) no reviewon merits; (ii) narrow interpretation of the grounds forrefusal; and (iii) limited discretionary power.

The merits of the arbitral award are not open to reviewby the enforcement court, which lies within the domain ofthe seat courts. Accordingly, errors of judgment, are not asufficient ground for refusing enforcement of a foreignaward.

(xix) Given the well-settled position in law with respect to thefinality of awards in international commercial arbitrations,and the limits of judicial intervention on the grounds of publicpolicy of the enforcement State, we will advert to the factsof the present case.

The Appellants have contended that the award may notbe enforced, since it is contrary to the basic notions of justice.We are unable to accept this submission for the followingreasons :

(a) firstly, the Appellants have not made out a case ofviolation of procedural due process in the conduct ofthe arbitral proceedings. The requirement of proceduralfairness constitutes a fundamental basis for the integrityof the arbitral process. Fair and equal treatment of theparties is a non-derogable and mandatory provision, onwhich the entire edifice of the alternate disputeresolution mechanism is based. In the present case,there is no such violation alleged.

(b) secondly, the Appellants have not made out as tohow the award is in conflict with the basic notions ofjustice, or in violation of the substantive public policyof India.

In the seminal judgment of Parsons (supra), whichhas been followed in various jurisdictions, including bythe Indian Supreme Court in the Renusagar case, itwas held that enforcement may be refused only if itviolates the enforcement State’s most basic notions ofmorality and justice, which has been interpreted to mean

that there should be great hesitation in refusingenforcement, unless it is obtained through “corruptionor fraud, or undue means.”

The Singapore Court of Appeal in PT AsuransiJasa Indonesia (Persero) v Dexia Bank SA,[60]whileinterpreting international public policy, opined that :

“59 Although the concept of public policy of the State is notdefined in the Act or the Model Law, the general consensusof judicial and expert opinion is that public policy under theAct encompasses a narrow scope. In our view, it should onlyoperate in instances where the upholding of an arbitral awardwould “shock the conscience”(see Downer Connect ([58]supra) at [136]), or is “clearly injurious to the public goodor … wholly offensive to the ordinary reasonable and fullyinformed member of the public”(see Deutsche Schachbau vShell International Petroleum Co Ltd [1987] 2 Lloyds’ Rep246 at 254, per Sir John Donaldson MR), or where it violatesthe forum’s most basic notion of morality and justice: seeParsons & Whittemore Overseas Co Inc v Societe Generalede L’Industrie du Papier (RAKTA) 508 F 2d, 969 (2nd Cir,1974) at 974. This would be consistent with the concept ofpublic policy that can be ascertained from the preparatorymaterials to the Model Law. As was highlighted in theCommission Report (A/40/17), at para 297 (referred to in AGuide to the UNCITRAL Model Law on InternationalCommercial Arbitration: Legislative History and Commentaryby Howard M Holtzmann and Joseph E Neuhaus (Kluwer,1989) at 914):

In discussing the term ‘public policy’, it was understoodthat it was not equivalent to the political stance or internationalpolicies of a State but comprised the fundamental notions andprinciples of justice…It was understood that the term ‘publicpolicy’, which was used in the 1958 New York Conventionand many other treaties, covered fundamental principles oflaw and justice in substantive as well as procedural respects.Thus, instances such as corruption, bribery or fraud and ABC

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[2020] 12 S.C.R.

Asimilar serious cases would constitute a ground for setting”aside.

This judgment has been recently affirmed by the Singapore HighCourt in Dongwoo Mann + Hummel Co. Ltd. v Mann + HummelBGmbH.[61]

(c) The gravamen of the challenge of the Appellants isthat the tribunal has given an erroneous interpretation ofthe terms of the PSC read with the Ravva DevelopmentPlan, which would amount to re-writing the contract.

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The view taken by the tribunal is based on aninterpretation of Article 15.5 (c) read with the exceptionscontained in Article 15.5 (e)(iii)(dd). The tribunal held thatthe exception came into play on account of the range ofphysical reservoir characteristics being materially different,from what was contemplated in the Ravva DevelopmentPlan.

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The tribunal relied upon the evidence of the ExpertWitness produced by the Claimants who deposed that theenlarged reservoir known as Block A/D showed a range ofphysical characteristics, which were “materially different”from those of the Fault Blocks defined in Article 11.1 of thePSC, on which the Ravva Development Plan was based.Since there was a material change in the physical reservoircharacteristics of the existing reserves, Article 15.5(e)(iii)(dd) would get triggered, which would enable theClaimants to request for an increase in the capped figureof Base Development Costs under Article 15.5(e)(iii)(dd).

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The tribunal noted that the PSC was entered into fora period of 25 years and the parties envisaged the possibilitythat the Respondents may incur Development Costs greaterthan those anticipated when the Ravva Development Planand the PSC were executed. Article 15.5(d) and (e) wereevents where the capped figure under Article 15.5 (c) couldbe increased by the Management Committee.

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The tribunal held that the cap on Base DevelopmentCosts under Article 15.5(c) was to be read with referenceto the object of the Plan to achieve the production profile of35,000 BOPD. The production profile of 35,000 BOPD wasachieved on the drilling of 14 wells by about 31[st] March1999. The reference to 21 wells under Article 15.5(c)(xi)was interpreted as being an estimate of the number of wellscontemplated by the parties in 1993, which would berequired to achieve the object of achieving the productionprofile of 35,000 BOPD. It could not be construed to be anundertaking by the Claimants to drill 21 wells, even thoughthe targeted production profile of 35,000 BOPD had beenachieved by the drilling of 14 wells.

The remaining 7 wells were drilled subsequently, notfor the purposes of the Ravva Development Plan, but totake into account the changed physical characteristics ofthe existing reserves which were encountered. The costsof US $ 278 million was incurred by the Respondents as aresult of events which fell within Article 15.5(e)(iii)(dd).

In 1998-1999 when the complete extent of thereserves in the Ravva Field was known, the ManagementCommittee, approved an increase in the production profilefrom 35,000 BOPD to 50,000 BOPD on 25 March 1998.The Respondents proceeded to develop the Ravva Field toenable a production rate of 50,000 BOPD, and drilled 7wells. The Respondents incurred costs of $ 278,871,668million towards the drilling of the 7 wells.

(d) The Appellants herein filed a counter claim, seekingsums equivalent to the amount which the Respondents hadclaimed as Cost Petroleum, in excess of the agreed figureof US $ 198 million limit.

On the interpretation of Article 15.5(c) of the PSC, and thecircumstances in which the PSC and the RavvaDevelopment Plan, were executed, the tribunal held thatthe Respondents were entitled to costs of US $ 278 million,in excess of the US $ 198 million. The counter claim of theAppellants to the extent of US $ 22 million was allowed bythe tribunal.

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(e)

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(xx) The Appellants are aggrieved by the interpretationtaken by the tribunal with respect to Article 15.5 (c) of thePSC and its other sub-clauses. The interpretation of theterms of the PSC lies within the domain of the tribunal. It isnot open for the Appellants to impeach the award on meritsbefore the enforcement court. The enforcement courtcannot re-assess or re-appreciate the evidence led in thearbitration. Section 48 does not provide a de facto appealon the merits of the award. The enforcement courtexercising jurisdiction under Section 48, cannot refuseenforcement by taking a different interpretation of the termsof the contract.

We feel that the interpretation taken by the tribunalis a plausible view, and the challenge on this ground cannotbe sustained, to refuse enforcement of the Award.

With respect to the submission made on behalf ofthe Appellants that the Production Sharing Contracts are“special contracts” pertaining to the exploration of naturalresources, which concerns the public policy of India, weare of the view that the disputes raised by the Claimantsemanate from the rights and obligations of the parties underthe PSC. The Award is not contrary to the fundamentalpolicy of Indian law, or in conflict with the notions of justice,as discussed hereinabove. The term of the PSC was for aperiod of 25 years from 28.10.1994, which ended on27.10.2019. We have been informed that the term of thePSC has since been extended for a further period of 10years, through the mutual agreement between the parties.This itself would reflect that the performance of theobligations under the PSC were not contrary to the interestsof India.

We conclude that the enforcement of the foreign awarddoes not contravene the public policy of India, or that it iscontrary to the basic notions of justice.

We affirm the judgment of the Delhi High Court dated19.02.2020 passed in I.A. No. 3558 / 2015 rejecting theApplication filed under Section 48 of the 1996 Act, and

confirm the order of enforcement passed on the petitionunder Sections 47 read with 49 for enforcement of theaward, even though for different reasons.

The interim Orders of status quo dated 17.06.2020 and22.07.2020 passed by this Court stand vacated. The Awarddated 18.01.2011 passed by the tribunal is held to beenforceable in accordance with the provisions of Sections47 and 49 of the Arbitration & Conciliation Act, 1996.

(xxi) Before we part with this judgment, we record our sincereappreciation of the assistance rendered by the Ld. AmicusCuriae, Shri Gourab Banerji, Senior Advocate at short notice.

We also record our appreciation of the valuableassistance provided by the Ld. Attorney General for India,Shri K.K. Venugopal, and Mr. Tushar Mehta, SolicitorGeneral of India, Senior Advocates, who represented theAppellants, and Mr. C.A. Sundaram and Mr. Akhil Sibal,Senior Advocates, who appeared on behalf of theRespondents, and assisted us through oral and writtensubmissions.

(xxii) The Civil Appeal is accordingly dismissed, with no orderas to costs.

All pending applications are accordingly disposed of.

Ordered accordingly.

Devika Gujral

Appeal dismissed.

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