TaxTMI 
TaxTMI 
2020 (9) TMI 1178
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....ivil Appeal has been filed by the Government of India to challenge the Judgment and Order dated 19 February 2020 passed by the Delhi High Court, wherein the application Under Section 48 of the Arbitration and Conciliation Act, 1996 being I.A. No. 3558 of 2015 filed by the Government of India has been dismissed; the Application filed Under Section 47 read with 49 being O.M.P. (EFA) (Comm) 15 of 2016 for the enforcement of the foreign award by the Respondents, and the I.A. No. 20149 of 2014 for condonation of delay in filing the execution petition by the Respondents were allowed. I. Background Facts In 1993, the Government of India was desirous of exploring and developing the petroleum resources in the Ravva Gas and Oil Fields (lying 10 to 15 kms offshore in the Bay of Bengal), for which a global competitive tender was floated to invite bids. Pursuant thereto, Videocon International Ltd. and Command Petroleum Holdings NV, the predecessors of the Respondents submitted their bid to develop the Ravva Field along with other bidders. The contract for this petroleum development was to be given on a production sharing basis through a Production Sharing Contract. On 28.10.1994, the ....
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....t does not include expenditures related to exploration and appraisal or field abandonment. The difference between the US $218 million total and the estimated US $ 236 million total project capital cost quoted in Section 1 of the accompanying letter is the US $ 18 million abandonment cost. (emphasis supplied) (iii) Article 15.5 of the PSC provides for the procedure of recovery of Development Costs incurred by the Respondents in the exploration, discovery and production of oil and gas from the Ravva Oil and Gas Field. Article 15.5 is extracted hereinbelow: Article 15 RECOVERY OF COSTS FOR OIL AND GAS 15.1 15.2 15.3 15.4 15.5 Recovery of Development Costs and 5% Cost Cap (a) Development Costs incurred by the Contractor in the Contract Area shall be aggregated, and the Contractor shall be entitled to recover out of Cost Petroleum the aggregate of such Development Costs at the rate of one hundred percent (100%) per annum. (b) Notwithstanding the provisions of Article 15.5 (a) and subject to the remaining provisions of this Article 15.5, the Contractor shall not, for....
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....Having regard, inter alia, to the matters referred to in Article 15.5(d), the Parties agree as follows: (i) Costs relating to Site Restoration and exploration and appraisal drilling shall not be subject to the limit on Contractor's Development Costs as provided in Article 15.5(b); (ii) the costs of developing the reserves and/or potential reserves and/or Satellite Fields referred to in Article 15.5(d) (i) shall not be subject to the limit on Contractor's Development Costs as provided in Article 15.5(b) notwithstanding that the development of such reserves and/or potential reserves and/or Satellite Fields may include shared flow lines, injection lines, gas-lift lines and other facilities with those constructed as part of the Ravva Development Plan; (iii) In the event that the Contractor's Base Development Costs are exceeded by more than five per cent (5%) as a result of: (aa) delays in carrying out the Development Operations referred to in Article 15.5(d) (iii) due to delay in obtaining necessary approval; (bb) material changes to the Ravva Development Plan necessitated by Contractor's review ....
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....d and interpreted in accordance with the laws of India. 33.2 Law of India Not to be Contravened Subject to Article 17.1 nothing in this Contract shall entitle the Contractor to exercise the rights, privileges and powers conferred upon it by this Contract in a manner which will contravene the laws of India. (emphasis supplied) (v) Article 34.12 of the PSC reads as under: Article 34: Sole expert, conciliation and arbitration 34.1... 34.2 References to Sole expert Matters which, by the terms of this contract, the Parties have agreed to refer to a sole expert and any other matter, which the Parties may agree to so refer, shall be referred to an independent and impartial person of international standing with relevant qualifications and experience, appointed by agreement between the Parties. Any sole expert appointed shall be acting as an expert, and not as an arbitrator, and the decision of the sole expert on matters referred to him shall be final and binding on the Parties, and not subject to arbitration. If the Parties are unable to agree on a sole expert, the matter may be referred to arbitration. ....
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....ad platforms capable of supporting upto a total of 24 Development Wells; process facilities; storage facilities with a nominal capacity of 500,000 Barrels; the drilling of 19 Development Wells and 2 Gas Production Wells, etc. Article 15.5(b) and (c) recorded the Agreement between the parties that the Contractor's Base Development Costs shall be the "sum of US $ 188.98 million plus five percent". It was envisaged that the production profile of 35,000 BOPD would be reached after about two years, and the said production figure would be maintained as a plateau production for 6 years thereafter. A total field production life of 14 years was estimated. (iii) The Contractor's Base Development Costs were agreed on certain assumptions and/or factors set out in Article 15.5(d), including the range of physical reservoir characteristics not being materially different from the ranges on which the Ravva Development Plan was based. (iv) There are specific exclusions contained in Article 15.5(e)(i) and (ii), and Sub-article (e)(iii) which set out the circumstances in which the agreed amount of the Contractor's Base Development Costs may be increas....
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....were not entitled to claim more than the Cost Petroleum agreed at US $ 198.43 million plus US $ 65.95 million (towards exceptions). (ix) The Government raised counter claims equivalent to the amounts which the Claimants had claimed as Cost Petroleum, in excess of the agreed amount of US $ 198.43 million plus US $ 65.95 million. (x) On 18.08.2008, the disputes were referred to arbitration Under Article 34 of the PSC. The Claimants nominated Mr. Andrew Berkeley as its nominee-arbitrator; the Government of 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 Anthony Evans as the presiding arbitrator. (xi) The tribunal passed the Award on 18.01.2011 inter alia holding that: a) The Claimants constructed facilities which were necessary to produce, process, store and transport Petroleum within the Existing Discoveries to enable Crude Oil production of 35,000 BOPD. The Base Development Costs Under Article 15.5(c) was to be interpreted with reference to the object of achieving a production profile of 35,000 BOPD, and the ....
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....anding the limit imposed by Article 15.5(b) and (c). The tribunal held that the Respondents were entitled to recover US $ 278,871,668 from the Cost Petroleum towards Development Costs incurred by the Respondents for the period 2000-01 to 2008-09. f) The Award declared as under: We therefore declare an award, as follows: A. On the true construction of Article 15.5 of the Production Sharing Contract 20th October 1994 (the PSC), all Development Costs incurred by the Claimants after the date of the PSC in connection with development operations under the Ravva Development Plan are subject (as regards cost recovery from Cost Petroleum) to the cap imposed by Article 15.5 (b) of the PSC, namely, the amount defined as Base Development Cost by Article 15.5(c) plus 5%; B. The figure stated in Article 15.5(c) of the PSC, namely, US $ 188.98 million, was agreed as the limit for Base Development Cost to be cost-recovered by the Claimants in connection with the Ravva Development Plan as it was agreed in August/October 1993; C. The Claimants incurred Development Costs totalling $ 220,737,381 in connection therewith up to and including the contr....
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....lling within the terms of the submission to arbitration; b) the Award contains decisions on matters beyond the scope of the submission to arbitration; and c) the Award is in conflict with public policy. (ii) The High Court vide Order dated 30.08.2012 rejected the challenge to the Award holding that the requirements of Sections 37(1)(a)(iv) and (v) and Section 37(1)(b)(ii) of the Malaysian Act have not been met, to sustain the challenge to the award. The Award did not involve any "new difference," which would have been relevant for determination by the arbitral tribunal. The High Court found no reason which would merit intervention with the Award. (iii) Aggrieved by the Order dated 30.08.2012, the Government of India preferred an Appeal before the Malaysian Court of Appeal, which was dismissed vide Order dated 27.06.2014. The Malaysian Court of Appeal held that the tribunal had given effect to the agreement between the parties under the terms of the PSC. There was no determination by the tribunal which was outside the submissions of the parties. (iv) On 10.07.2014, a show cause notice was issued by the Government to the ....
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.... Venugopal, Learned Attorney General for India instructed by Mr. K.R. Sasiprabhu, Advocate represented the Government of India. It was submitted that the enforcement of the Award was liable to be refused on the following principal grounds: (a) Maintainability of the Petition (i) The Appellants raised an objection to the maintainability of the application on the ground that the petition for enforcement/execution of the foreign award Under Section 47 was barred by limitation. Since there is no specific provision in the Limitation Act for enforcement of foreign awards, it would necessarily fall under the residuary provision - Article 137. (ii) Article 137 applies to the enforcement of foreign awards, which provides a period of 3 years from "when the right to apply accrues". It was submitted that the right to apply would accrue from the date of making the award. In the present case, the Award was passed on 18.01.2011, and the petition for enforcement/execution was filed by the Respondents on 14.10.2014. The petition was barred by 268 days beyond the period of limitation. (iii) The execution petition for the p....
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....le under this Chapter". It was submitted that this is further supported by the language of Section 46 of the Act which pre-supposes an inquiry before the award is said to achieve the status of the decree of a court. The purposive interpretation adopted by the Ld. single judge, could not be used to negate the express terms of the statute. (viii) For the purpose of making a foreign award enforceable, the procedure available under Part II of the Act is required to be followed. A petition for enforcement and execution of such foreign award by way of a composite petition is required to be filed Under Section 47. A foreign award does not become a decree until and unless it passes the muster of Sections 47 to 49, only after which it acquires the status of a decree. It was only after the Court adjudicates on the enforceability of the foreign award Under Sections 47 to 48, would the foreign award be deemed to be a decree of that Court. Post such adjudication, the foreign award is declared as a deemed decree Under Section 49 of the Act. The foreign award has no legal sanctity, till an affirmative decision is obtained Under Section 48 of the 1996 Act. The foreign award....
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....ch contained the basis of computation of the "sum" of US $ 188.98 million payable to the Respondents as Base Development Costs. Article 15.5(c) of the PSC read with the Ravva Development Plan formed the basis of the dispute between the Parties. Article 15.5(c) provided that the Base Development Cost shall mean the costs incurred after the Effective Date relating to the construction and/or establishment of such facilities as were necessary to produce Petroleum from within the Existing Discoveries in order to enable crude oil production of 35,000 BOPD in accordance with the Ravva Development Plan. Such costs "shall include, but not be limited to" costs incurred in relation to the list of facilities mentioned therein. Sub-clause (xi) Under Article 15.5(c) of the PSC specifically referred to the "drilling of nineteen (19) Oil Wells and two (2) Gas Production Wells". Under Article 15.5(c), the parties had expressly agreed that the Contractor's Base Development Costs shall be the "sum" of US $ 188.98 million, as indicated in the Ravva Development Plan, which was an integral part of the PSC. The sum of US $ 188.98 million took into consideration the drilling of 21 we....
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...., which would amount to re-writing the mandatory terms of the contract between the parties, and foisting the Government with obligations, which were never agreed to. The net result of the arbitral award was that the Government of India suffered a huge loss to the tune of approximately Rs. 1,600 crores, which would be contrary to the interests of India. The tribunal's interpretation of Article 15.5(c) had the effect of substituting the plain language of Sub-clause (xi) of the said Article, with a new stipulation that the cost of construction of the wells in the Ravva Field would be borne by the Government, once the production capacity of 35,000 BOPD was achieved. This interpretation rendered the stipulation of drilling 19 oil wells and 2 gas wells contained in Article 15.5(c)(xi) as nugatory. The tribunal omitted any reference to Attachment 10 of the Ravva Development Plan, which was crucial to the determination of the dispute, and formed an integral part of the PSC, since it contained the basis of the computation of the amount payable towards Base Development Cost. Such an Award would shock the conscience of the Court, and would be in conflict with the public policy of....
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....e, the Malaysian Courts had erroneously applied the Arbitration Act of Malaysia to uphold the validity of 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 1996 Act, the foreign award becomes a decree of an Indian court after the objections to the award are adjudicated by the enforcement court. (ii) Article 136 of the Limitation Act prescribes a period of 12 years from the date of the decree of the civil court, which would be the appropriate provision for execution of a foreign award. In the present case, the foreign award was passed on 18.01.2011, and the Respondents had a period of 12 years to seek enforcement of the award i.e. till 17.01.2023. The execution petition was, therefore, filed within the period of limitation. (iii) In the alternative, it was contended that if Article 137 of the Limitation Act is held to be applicable for the enforcement of foreign awards, the limitation period would commence from "when the right to apply accrues", wh....
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....ticle 113 for filing applications, for which no period of limitation has been provided elsewhere in this division, and provides a period of 3 years from the date when the right to apply accrues. If the substantive application was filed Under Sections 47 and 49 of the 1996 Act, it would not fall Under Order XXI of the Code of Civil Procedure, and hence an application Under Section 5 of the Limitation Act, 1963 would be maintainable. Furthermore, since there was uncertainty in the law, as the Madras High Court had held limitation for enforcement of a foreign award to be 12 years, while the Bombay High Court treated this as 3 years, there was sufficient ground to condone the delay. It was submitted that there is a difference between the execution of a foreign decree Under Order XXI of the Code of Civil Procedure, and the enforcement of a foreign award Under Section 49 of the 1996 Act. Further, even though Section 36 refers to the enforcement of a domestic award in accordance with the provisions of the Code of Civil Procedure, Section 49 does not refer to the Code of Civil Procedure. The application for enforcement of the foreign award was thus a substantive ....
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....(e)(iii)(dd) came into operation during the period commencing from 1999-2000 to 2007-2008. For the drilling of the remaining 7 wells, the Respondents were entitled to an additional sum of US $ 278 million. (vi) It was contended that under the Award, the tribunal had made declarations in favour of the parties. The tribunal had upheld the manner in which the Respondents-Claimants had computed and recovered the costs due to them under the PSC. The tribunal had declared a sum of US $ 22 million as payable by the Respondents to the Government of India, which was paid after the Award was passed. (vii) It was contended that the issue of interpretation of the PSC, and a review of the merits of the Award, could not be raised Under Section 48 of the 1996 Act. The scope of inquiry Under Section 48 is limited, and the Appellants cannot invite the Court to take a "second look" at the Award by seeking a review on merits. Reliance was placed on the judgment of this Court in Shri Lal Mahal Ltd. v. Progretto Grano Spa, (2014) 2 SCC 433 wherein it was held that: 45. Moreover, Section 48 of the 1996 Act does not give an opportunity to have a 'second....
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....been held, referring to some of the judgments quoted hereinabove, in particular Shri Lal Mahal (supra), the interpretation of an agreement by an arbitrator being perverse is not a ground that can be made out under any of the grounds contained in Section 48(1)(b). Without therefore getting into whether the tribunal's interpretation is balanced, correct or even plausible, this ground is rejected. (emphasis supplied) (ix) The Respondents contended that the parties had voluntarily chosen Kuala Lumpur, Malaysia as the seat of arbitration. Having made such a choice, the Government could not invite Indian courts to revisit the merits of its case under the guise of Indian public policy. In this regard, reliance was placed on the judgment of this Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc (2012) 9 SCC 648 wherein it was held that: 116. The legal position that emerges from a conspectus of all the decisions, seems to be, that the choice of another country as the seat of arbitration inevitably imports an acceptance that the law of that country relating to the conduct and supervision of arbitrations will apply to the proce....
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....ondents to drill 21 wells, even though only 14 were required. The Award therefore was not in conflict with the public policy of India, and did not attract the grounds for refusal of enforcement envisaged Under Section 48 of the 1996 Act. VII. Discussion and Analysis Part A Limitation for filing an enforcement/execution petition of a foreign award Under Section 47 of the 1996 Act (i) On this issue, divergent views have been taken by some High Courts with respect to the period of limitation for filing a petition for enforcement of a foreign award under the 1996 Act. It has therefore become necessary to settle the law on this issue. Noy Vallesina Engineering Spa v. Jindal Drugs Limited 2006 (3) Arb LR 510 A single judge of the Bombay High Court held that there is no period of limitation provided by any of the Articles in the Schedule to the Limitation Act, for making an application for execution of a foreign award. It was held that the enforcement of a foreign award must 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. Art....
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....eign decree', and is not necessarily dependent on whether or not it goes through the process of Section 48. Such a foreign award is treated as being equivalent to a foreign decree, whose enforcement may be refused only Under Section 48. Section 48 pre-supposes that a foreign award is a decree whose execution can be resisted by a party against whom it is sought to be executed, if it is able to discharge the burden that the objections can be sustained under one or more of 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 the Limitation Act would be applicable for filing a petition for enforcement of a foreign award. Even if it is assumed that Article 137 of the Limitation Act is applicable, sufficient grounds for condonation of delay had been urged since the Applicants were under the bona fide belief that the period of limitation for enforcement of a foreign award was 12 years from the date of the Award, as held in Compania Naviera (supra) by the Madras High Court. (ii) Given the conflicting stands taken by various High Courts, we will now discuss this issue. The issu....
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.... provides that the period of limitation for the execution of any decree or order of a "civil court" is twelve years from the date when the decree or order becomes enforceable. (vi) Article 137 is the residuary provision in the Limitation Act which provides that the period of limitation for any application where no period of limitation is provided in the Act, would be three years from "when the right to apply accrues". Articles 136 and 137 read as: Description of the Application Period of Limitation Time from which period begins to run 136. For the execution of any decree (other than a decree granting a mandatory injunction) or order of any civil court. Twelve Years When the decree or order becomes enforceable or where the decree or any subsequent 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 applic....
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.... fictions are created only for some definite purpose. A legal fiction is to be limited to the purpose for which it was created, and it would not be legitimate to travel beyond the scope of that purpose, and read into the provision, any other purpose how so attractive it may be. In State of Karnataka v. State of Tamil Nadu, 2017 (3) SCC 274 this Court held that: 74. The Report of the Commission as the language would suggest, was to make the final decision of the Tribunal binding on both the States and once it is treated as a decree of this Court, then it has the binding effect. It was suggested to make the award effectively enforceable. The language employed in Section 6(2) suggests that the decision of the Tribunal shall have the same force as the order or decree of this Court. There is a distinction between having the same force as an order or decree of this Court and passing of a decree by this Court after due adjudication. Parliament has intentionally used the words from which it can be construed that a legal fiction is meant to serve the purpose for which the fiction has been created and not intended to travel beyond it. The purpose is to have the binding effe....
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....ions," filed under any special enactment. 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 isolation from all other Articles in Part I of the Third Division of the Limitation Act, 1963. (xii) The exclusion of an application filed under any of the provisions of Order XXI of the Code of Civil Procedure from the purview of Section 5 of the Limitation Act, was brought in by the present Limitation Act, 1963. Under the previous Limitation Act, 1908 there were varying periods of limitation prescribed by Articles 182 and 183 of the said Act, as well as Section 48 of the Code of Civil Procedure, 1908. Article 182 provided that the period of limitation for execution of a decree or order of any civil court was 3 years, and in case where a certified copy of the decree or order was registered, the period of limitation was 6 years. Article 183 provided that the period of limitation to enforce a decree or order of a High Court was 6 years. Section 48 of the Code of Civil Procedure (which has since been repealed by Section 28 of the Limitation Act of 1963) provided that the period of....
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....Under Section 5 for condonation of delay, if required in the facts and circumstances of the case. (xvi) In the facts of the present case, the Respondents submitted that after the Award dated 18.01.2011 was passed, the cost account statements were revised, and an amount of US $ 22 million was paid to the Government of India. On 10.07.2014, a show cause notice was issued to the Respondents, raising a demand of US $ 77 million, being the Government's share of Profit Petroleum under the PSC. It was contended that the cause of action for filing the enforcement petition Under Sections 47 and 49 arose on 10.07.2014. The enforcement petition was filed on 14.10.2014 i.e. within 3 months from the date when the right to apply accrued. We hold that the petition for enforcement of the foreign award was filed within the period of limitation prescribed by Article 137 of the Limitation Act, 1963. In any event, there are sufficient grounds to condone the delay, if any, in filing the enforcement/execution petition Under Sections 47 and 49, on account of lack of clarity with respect to the period of limitation for enforcement of a foreign award. Part B....
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....e award becomes enforceable as a deemed decree, as provided by Section 49. The phrase "that court" refers to the Indian court which has adjudicated on the petition filed Under Section 47, and the application Under Section 48. In contrast, the procedure for enforcement of a foreign decree is not covered by the 1996 Act, but is governed by the provisions of Section 44A read with Section 13 of the Code of Civil Procedure. The scheme of the 1996 Act for enforcement of New York Convention awards is as follows: (a) Part II Chapter 1 of the Arbitration and Conciliation Act, 1996 pertains to the enforcement of New York Convention awards. Under the 1996 Act, there is no requirement for the foreign award to be filed before the seat court, and obtain a decree thereon, after which it becomes enforceable as a foreign decree. This was referred to as the "double exequatur," which was a requirement under the Geneva Convention, 1927 and was done away with by the New York Convention, which superseded it.6. There is a paradigm shift under the 1996 Act. Under the 1996 Act, a party may apply for recognition and enforcement of a foreign award, after it ....
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.... common petition. In Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356 this Court held that a proceeding seeking recognition and enforcement of a foreign award has different stages: in the first stage, the Court would decide about the enforceability of the award having regard to the requirements of Sections 47 and 48 of the 1996 Act. Once the enforceability of the foreign award is decided, it would proceed to take further effective steps for the execution of the award. The relevant extract from the judgment reads as: 31. Prior to the enforcement of the Act, the Law of Arbitration in this country was substantially contained in three enactments namely (1) The Arbitration Act, 1940, (2) The Arbitration (Protocol and Convention) Act, 1937 and (3) The Foreign Awards (Recognition and Enforcement) Act, 1961. A party holding a foreign award was required to take recourse to these enactments. Preamble of the Act makes it abundantly clear that it aims at to consolidate and amend Indian laws relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards. The object of the Act is to minimize supervisory role of court and ....
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....Scheme of the Act that every final arbitral award is to be enforced as if it were a decree of the court. The submission that the execution petition could not be permitted to convert as an application Under Section 47 is technical and is of no consequence in the view we have taken. In our opinion, for enforcement of foreign award there is no need to take separate proceedings, one for deciding the enforceability of the award to make Rule of the court or decree and the other to take up execution thereafter. In one proceeding, as already stated above, the court enforcing a foreign award can deal with the entire matter. Even otherwise, this procedure does not prejudice a party in the light of what is stated in para 40 of the Thyssen judgment. (emphasis supplied) In a recent judgment rendered in LMJ International Ltd. v. Sleepwell Industries (2019) 5 SCC 302, this Court held that given the legislative intent of expeditious disposal of arbitration proceedings, and limited interference of the courts, the maintainability of the enforcement petition, and the adjudication of the objections filed, are required to be decided in a common proceeding. (g) The....
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....ence of one or more grounds for refusal of enforcement, the court would retain a residual discretion to overrule the objections, if it finds that overall justice has been done between the parties, and may direct the enforcement of the award.9 This is generally done where the ground for refusal concerns a minor violation of the procedural Rules applicable to the arbitration, or if the ground for refusal was not raised in the arbitration.10 A court may also take the view that the violation is not such as to prevent enforcement of the award in international relations.11 (k) The grounds for refusing enforcement of foreign awards contained in Section 48 are exhaustive, which is evident from the language of the Section, which provides that enforcement may be refused "only if" the Applicant furnishes proof of any of the conditions contained in that provision.12 (l) The enforcement court is not to correct the errors in the award Under Section 48, or undertake a review on the merits of the award, but is conferred with the limited power to "refuse" enforcement, if the grounds are made out. (m) If the Court is satisfied that the application Under S....
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.... agreement is governed by "the laws of England" as provided by Article 34.12 of the PSC. Since the seat of arbitration was in Kuala Lumpur, Malaysia, the curial law would be the Malaysian law. (iii) Malaysia has adopted the UNCITRAL Model Law. Section 37 of the (Malaysian) Arbitration Act 2005 ("Malaysian Act") is modelled on Article 34 of the UNCITRAL Model Law, and incorporates all its grounds. Section 37 of the Malaysian Arbitration Act reads as follows: Application for setting aside 37. (1) An award may be set aside by the High Court only if-- (a) the party making the application provides proof that-- (i) a party to the arbitration agreement was under any incapacity; (ii) the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the laws of Malaysia; (iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present that party's case; (iv) the award deals with a dispute not contemplated by or....
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.... High Court rejected the challenge made by the Government of India to the award, and also the reliance placed on the decision of the Indian Supreme Court in ONGC v. Saw Pipes (2003) 5 SCC 705. While doing so, the High Court commented that the Court of Appeal in Singapore in PT Asuransi Jasa Indonesia (Persero) v. Dexia Bank SA [2006] SGCA 41 had not followed the decision of the Supreme Court of India in the Saw Pipes case. The learned Amicus submitted that these observations of the Malaysian High Court were wholly unnecessary to the issues in question. (vii) It was submitted that the High Court of Malaysia gave contradictory findings with respect to the applicable law while deciding the issue of excess of jurisdiction. Initially, in paragraphs 159 and 161, the Malaysian High Court was of the view that the seat being in Kuala Lumpur, the applicable law to such a challenge would be Under Section 37(1)(a)(iv) and (v) of the Malaysian law, being the curial law. Paragraphs 158 to 161 read as: Applicable law 158. I pause here to deal with this matter of the applicable law. The Plaintiff has contended that read with Section 30, the Court should set aside t....
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....conflict with public policy. This position however, maintains even when dealing with the other grounds relied on here as the Indian law on "excess of jurisdiction" is not the applicable law. I agree with the Defendants that English law which is the substantive law of the arbitration agreement answers any questions on the jurisdiction of the Arbitral Tribunal. This was recognised in Sumitomo Heavy Industries v. Oil and Natural Gas Commission 1995 1 Lloyds' Rep 45. .. (emphasis supplied) The High Court of Malaysia placed reliance on the judgment of Potter, J. in Sumitomo Heavy Industries Ltd. v. Oil and Natural Gas Commission, [1994] 1 Lloyd's Law Reports 45 the relevant portion of which reads as follows: ... (2) The proper law of the arbitration agreement, i.e. the law governing rights and obligations of the parties arising from their agreement to arbitrate and, in particular, their obligation to submit their disputes to arbitration and to honour an award. This includes inter alia questions as to the validity of the arbitration agreement, the validity of the notice of arbitration, the constitution of the tribunal and the question whether an award lies within t....
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....ilar position. Thus, in this case as Kuala Lumpur was selected as the juridical seat of arbitration, the curial law is the laws of Malaysia and we so hold. And we would add that it is vital for parties to follow the mandatory Rules of the seat of arbitration since the application of such mandatory procedural Rules (curial law) of the seat will remain subject to the jurisdiction and control of the courts of the seat of the arbitration including when considering applications to set aside awards. We are therefore not persuaded that the decisions of the Indian Supreme Court should be applied. (emphasis supplied) (x) It was submitted that the court at the seat of arbitration, would have exclusive jurisdiction to annul or set aside a foreign award. The learned Amicus placed reliance on the judgment of the Constitution Bench in BALCO v. Kaiser Aluminium, (2012) 9 SCC 552 and made specific reference to: 153....The expression under the law is the reference only to the procedural law/curial law of the country in which the award was made and under the law of which the award was made. It has no reference to the substantive law of the contract between the parties. In such v....
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....s to the country of the seat of the arbitration, and not the State whose laws govern the substantive contract. The constitution bench in BALCO v. Kaiser Aluminium (2012) 9 SCC 552 held that: 76. It must be pointed out that the law of the seat or place where the arbitration is held, is normally the law to govern that arbitration. The territorial link between the place of arbitration and the law governing that arbitration is well established in the international instruments, namely, the New York Convention of 1958 and the Uncitral Model Law of 1985. ... .... .... ... 123. Thus, it is clear that the Regulation of conduct of arbitration and challenge to an award would have to be done by the courts of the country in which the arbitration is being conducted. Such a court is then the supervisory court possessed of the power to annul the award. This is in keeping with the scheme of the international instruments, such as the Geneva Convention and the New York Convention as well as the Uncitral Model Law. It also recognises the territorial principle which gives effect to the sovereign right of a country to regulate, through its national courts, an adjudicatory duty being pe....
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....re, which is referred to as the lex arbitri, and is expressed in the choice of the seat of arbitration.15 The curial law governs the procedure of the arbitration, the commencement of the arbitration, appointment of arbitrator/s in exercise of the default power by the court, grant of provisional measures, collection of evidence, hearings, and challenge to the award. The courts at the seat of arbitration exercise supervisory or "primary" jurisdiction over the arbitral proceedings, except if the parties have made an express and effective choice of a different lex arbitri, in which event, the role of the courts at the seat will be limited to those matters which are specified to be internationally mandatory and of a non-derogable nature.16 d) The lex fori governs the proceedings for recognition and enforcement of the award in other jurisdictions. Article III of the New York Convention provides that the national courts apply their respective lex fori regarding limitation periods applicable for recognition and enforcement proceedings; the date from which the limitation period would commence, whether there is power to extend the period of limitation. The lex fori determines the co....
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....o 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, or the said agreement is not valid under the law to which the parties 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 given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or (c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or (d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country wher....
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....f India' is used both in Section 34(b)(ii) and Section 48(2)(b) and the concept of 'public policy in India' is same in nature in both the Sections but, in our view, its application differs in degree insofar as these two Sections are concerned. The application of 'public policy of India' doctrine for the purposes of Section 48(2)(b) is more limited than the application of the same expression in respect of the domestic arbitral award. x x x 29. We accordingly hold that enforcement of foreign award would be refused Under Section 48(2)(b) only if such enforcement would be contrary to (1) fundamental policy of Indian law; or (2) the interests of India; or (3) justice or morality. The wider meaning given to the expression "public policy of India" occurring in Section 34(2)(b)(ii) in Saw Pipes [ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705] is not applicable where objection is raised to the enforcement of the foreign award Under Section 48(2)(b). x x x 45. Moreover, Section 48 of the 1996 Act does not give an opportunity to have a 'second look' at the foreign award in the award-enforcement stage. The scope of inquiry Under Section 48 does not permit....
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....olicy" in Section 7(1)(b)(ii) has been used in a narrower sense and in order to attract to bar of public policy the enforcement of the award must invoke something more than the violation of the law of India. Since the Foreign Awards Act is concerned with recognition and enforcement of foreign awards which are governed by the principles of private international law, the expression "public policy" in Section 7(1)(b)(ii) of the Foreign Awards Act must necessarily be construed in the sense the doctrine of public policy is applied in the field of private international law. Applying the said criteria it must be held that the enforcement of a foreign award would be refused on the ground that it is contrary to public policy if such enforcement would be contrary to (i) fundamental policy of Indian law; or (ii) the interests of India; or (iii) justice or morality. (emphasis supplied) The enforceability of the foreign award will be decided in accordance with the parameters laid down in Renusagar 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. (iv) The Counsel for the Respondents subm....
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....law; or (ii) the interests of India; or (iii) justice or morality". The formulation proposed by the Commission is even tighter and does not include the reference to "interests of India", which is vague and is capable of interpretational misuse, especially in the context of challenge to awards arising out of international commercial arbitrations (Under Section 34) or foreign awards (Under Section 48). Under the formulation of the Commission, an award can be set aside on public policy grounds only if it is opposed to the "fundamental policy of Indian law" or it is in conflict with "most basic notions of morality or justice. (emphasis supplied) (vi) After the judgment of the Supreme Court in ONGC v. Western Geco (2014) 9 SCC 263, which had expanded the power of judicial review, the Law Commission submitted a Supplementary Report on "Public Policy." It was recommended that a clarification needs to be incorporated to ensure that the phrase "fundamental policy of Indian law" is narrowly construed. It was recommended that a new Explanation being Explanation 2 be inserted into Section 34(2)(b)(ii) i.e.: For the avoidance of doubt, the test as to whether there is a cont....
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....is a contravention with the fundamental policy of Indian law, shall not entail a review on the merits of the dispute. Since the amendments have introduced specific criteria for the first time, it must be considered to be prospective, irrespective of the usage of the phrase "for the removal of doubts." Reliance is placed on the judgment of this Court in Sedco Forex International Drill v. Commissioner of Income Tax, Dehradun (2005) 12 SCC 717 wherein it was held that an Explanation if it changes the law, it cannot be presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts". In Ssangyong Engineering & Construction Co. Ltd. v. NHAI, (2019) 15 SCC 131 this Court was considering the amendments made to Section 34, wherein two Explanations to Section 34 had been inserted, which are identically worded with the two Explanations to Section 48. In that case, a similar ground of retrospectivity had been urged. This Court held that since the Explanations had been introduced for the first time, it is the substance of the amendment which has to be looked at, rather than the form. Even in cases where "for avoidance of doubt", s....
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.... the present case, since the court proceedings for enforcement were filed by the Respondents-Claimants on 14.10.2014 i.e. prior to the 2016 Amendment having come into force on 23.10.2015. (xv) We will now consider the issue whether the award in the present case is in conflict with the public policy of India, and contrary to the basic notions of justice, as submitted on behalf of the Appellants. Applying the unamended Section 48 to the present case, this Court in the Renusagar judgment had placed reliance on the enunciation of the law on international public policy in the judgment of the U.S. Court of Appeals for the 2nd Circuit in Parsons & Whittemore Overseas Co. Inc. v. Societe Generale De L'industrie du Papier (RAKTA), 508 F. 2d 969 (2nd Cir 1974) wherein it was held that: 7. Article V(2)(b) of the Convention allows the court in which enforcement of a foreign arbitral award is sought to refuse enforcement, on the Defendant's motion or sua sponte, if 'enforcement of the award would be contrary to the public policy of (the forum) country.' The legislative history of the provision offers no certain guidelines to its construction. Its precursors in the....
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....r the rubric of "public policy. Rather, a circumscribe public policy doctrine was contemplated by the Convention's framers and every indication is that the United States, in acceding to the Convention, meant to subscribe to this supranational emphasis. Cf. Scherk v. Alberto-Culver Co., 417 U.S. 506 : 94 S. Ct. 2449 : 41 L.Ed. 2d 270 : 42 U.S.L.W., 4911, 4915-16 n. 15(1974) (emphasis supplied) The judgment in Parsons has been followed in various other jurisdictions.17 In International Navigation Ltd. v. Waterside Ocean Navigation Co. Inc., 737 F. 2d 150 (Second Circuit, 1984) the Court of Appeals, Second Circuit, U.S.A. held that the public policy defence must be interpreted in light of the overriding object of the New York Convention. The Court applied the judgment in Parsons (supra), and held that the public policy defence should apply only where enforcement of the award would violate the basic notions of morality and justice of the forum state. Any interference by the national court in international arbitration on this ground should be minimal, and public policy under the New York Convention should be interpreted narrowly. This position was followed in the Souther....
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.... designed to serve the essential political, social or economic interests of the State, these being known as "lois de police" or "public policy rules" and (iii) the duty of the State to respect its obligations towards other States or international organisations. Clause 3(a) states that the violation of a mere mandatory Rule (i.e. a Rule that is mandatory, but does not form part of the State's international public policy), should not bar its recognition and enforcement, even when said Rule forms part of the law of the forum, the law governing the contract, the law of the place of performance of the contract, or the law of the seat of the arbitration. (xviii) The International Council for Commercial Arbitration (ICCA) Guide to the Interpretation of the 1958 New York Convention: A Handbook for Judges (2011), states that while considering the grounds for refusal of a foreign award, the Court must be guided by the following principles (i) no review on merits; (ii) narrow interpretation of the grounds for refusal; and (iii) limited discretionary power. The merits of the arbitral award are not open to review by the enforcement court, which lies within the domain of the seat....
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.... Deutsche Schachbau v. Shell International Petroleum Co. Ltd. [1987] 2 Lloyds' Rep 246 at 254, per Sir John Donaldson MR), or where it violates the forum's most basic notion of morality and justice: see Parsons & Whittemore Overseas Co. Inc. v. Societe Generale de L'Industrie du Papier (RAKTA) 508 F 2d, 969 (2nd Cir, 1974) at 974. This would be consistent with the concept of public policy that can be ascertained from the preparatory materials to the Model Law. As was highlighted in the Commission Report (A/40/17), at para 297 (referred to in A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary by Howard M Holtzmann and Joseph E Neuhaus (Kluwer, 1989) at 914): In discussing the term 'public policy', it was understood that it was not equivalent to the political stance or international policies of a State but comprised the fundamental notions and principles of justice... It was understood that the term 'public policy', which was used in the 1958 New York Convention and many other treaties, covered fundamental principles of law and justice in substantive as well as procedural respects. Thus, instanc....
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....ile of 35,000 BOPD. It could not be construed to be an undertaking by the Claimants to drill 21 wells, even though the targeted production profile of 35,000 BOPD had been achieved by the drilling of 14 wells. The remaining 7 wells were drilled subsequently, not for the purposes of the Ravva Development Plan, but to take into account the changed physical characteristics of the existing reserves which were encountered. The costs of US $ 278 million was incurred by the Respondents as a result of events which fell within Article 15.5(e)(iii)(dd). In 1998-1999 when the complete extent of the reserves in the Ravva Field was known, the Management Committee, approved an increase in the production profile from 35,000 BOPD to 50,000 BOPD on 25 March 1998. The Respondents proceeded to develop the Ravva Field to enable a production rate of 50,000 BOPD, and drilled 7 wells. The Respondents incurred costs of $ 278,871,668 million towards the drilling of the 7 wells. (d) The Appellants herein filed a counter claim, seeking sums equivalent to the amount which the Respondents had claimed as Cost Petroleum, in excess of the agreed figure of US $ 198 million limit. On the interpreta....
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....order of enforcement passed on the petition Under Sections 47 read with 49 for enforcement of the award, even though for different reasons. The interim Orders of status quo dated 17.06.2020 and 22.07.2020 passed by this Court stand vacated. The Award dated 18.01.2011 passed by the tribunal is held to be enforceable in accordance with the provisions of Sections 47 and 49 of the Arbitration & Conciliation Act, 1996. (xxi) Before we part with this judgment, we record our sincere appreciation of the assistance rendered by the Ld. Amicus Curiae, Shri Gourab Banerji, Senior Advocate at short notice. We also record our appreciation of the valuable assistance provided by the Ld. Attorney General for India, Shri K.K. Venugopal, and Mr. Tushar Mehta, Solicitor General of India, Senior Advocates, who represented the Appellants, and Mr. C.A. Sundaram and Mr. Akhil Sibal, Senior Advocates, who appeared on behalf of the Respondents, and assisted us through oral and written submissions. (xxii) The Civil Appeal is accordingly dismissed, with no order as to costs. All pending applications are accordingly disposed of. Ordered accordingly. 1In Re: Consolidat....
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....port-SDRP Holding Co. 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 to appeal against this decision has been dismissed by the Supreme Court vide Order dated 19 January 2018 in SLP (Civil) No. 32244/2017]. 10Hong Kong: Supreme Court of Hong Kong, High Court, 15 January 1993 (Paklito Investment 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 December 1994 (Nanjing Cereals, Oils & Foodstuffs Import & Export Corporation v. Luckmate Commodities Trading Ltd.) Yearbook Commercial Arbitration XXI (1996) pp. 542-545 (Hong Kong No. 9); British Virgin Islands, Court of Appeal, 18 June 2008 (IPOC International Growth Fund Limited v. L.V. Finance Group Limited) Yearbook Commercial Arbitration XXXIII (2008) pp. 408-432 (British Virgin Islands No. 1); United Kingdom: High Court, Queen's Bench Division (Commercial Court), 20 January 1997 (China Agribusiness Development Corporation v. Balli Trading) Yearbook Commercial Arbitration XXIV (1999) pp. 732-738 (U.K. No. 52). 11Alb....