Cairn India Ltd & Ors v. Government of India.
CITATION – O.M.P.(EFA)(COMM.) 15/2016 & I.A. Nos. 20459/2014 & 3558/2015
JUDGE – Justice Rajiv Shakdher.
- A production sharing contract (“PSC”) was executed between the parties and Oil and Natural Corporation Limited (“ONGC”) on October 28, 1994, for the development of the Ravva Oil and Gas Field (“Field”). Disputes arose between the parties with respect to recovery of development costs, which were referred to arbitration seated in Malaysia.
- The arbitral tribunal delivered its award on January 18, 2011 (“Award”), which required the Respondent to pay an amount of USD 278.87 million to the Petitioners.2
- The Respondent challenged the Award before Malaysian High Court and Malaysian Federal Court, which was eventually rejected. Subsequently, in October 2014, the Petitioners filed an enforcement petition under Sections 47 and 49 of the Arbitration and Conciliation Act (“Arbitration Act”).
- The Respondent raised objections to the enforcement of the award under Section 485 of the Arbitration Act.
- Pursuant to the Award, in April 2011, the Petitioners made certain adjustments with respect to recovery of the development costs, and these adjustments were accepted by the Respondent. Importantly, in July 2014, the Respondent issued a notice to the Petitioners to show cause as to why oil marketing companies (OMCs) to whom the product extracted from the Field was sold, should not directly pay the Respondent towards the recovery of its share of profit petroleum with interest, which was alleged to be underpaid (“SCN”).
- Firstly, whether the enforcement petition would be barred by limitation?
- Secondly, whether the arbitral tribunal acted beyond its jurisdiction in awarding USD 278.87 million to the Petitioners by ignoring the provisions of the PSC?
- Thirdly, whether the objections filed on behalf of the Respondent under Section 48 of the Arbitration Act are merited.
Limitation for filing enforcement of a foreign arbitral award:
- The enforcement petition was filed after over three years from the date of the Award. The Respondent contended that Article 137 of the Limitation Act (residuary provision) would apply to filing an enforcement petition, wherein the period of limitation prescribed is three years. It was also contended that the Petitioners did not show a sufficient cause which could compel the Court to condone the delay in instituting the enforcement petition.
- The Petitioners contended that until the SCN was issued by the Respondent, a cause or a right to file the enforcement petition did not accrue. Relying upon the Madras High Court’s decision in Compania Naviera ‘SODNOC’ v. Bharat Refineries Ltd,( AIR 2007 Mad 25) the Petitioners contended that Article 136 of the Limitation Act would apply to the filing of an enforcement petition, which prescribes the period of limitation as 12 years, and thus, the period of limitation to file the enforcement petition had not lapsed.
- The Delhi High Court first allowed the Petitioners application for the delay and held that the purported delay was not a dilatory tactic employed by the Petitioners.
The Court then proceeded to examine the diametrically opposite views of the Limitation Act –
- The Madras High Court in Compania Navierai, relying upon the Supreme Court’s judgment in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd,( 2001 (6) SCC 35) has held that Article 136 of the Limitation Act would apply as a foreign arbitral award takes the form of a ‘decree’ to be executed;
- However, the Bombay High Court in Noy Vallesina Engineering Spa v. Jindal Drugs Limited,( 2006 SCC OnLine Bom 545)held that the limitation period for applying for the enforcement of an arbitral award is three years, and as such petition would be governed by Article 137 of the Limitation Act (residuary provision).
- However, recently, the Bombay High Court in Imax Corporation v. E-City Entertainment (I) Pvt. Ltd,( 2020 (1) ABR 82) has taken a contrary view, that Article 136 of the Limitation Act would be applicable and the period of limitation would be 12 years.
The Delhi High Court held that:
- The execution of a foreign award could, broadly, be divided into three stages. (i), access; (ii) recognition; and (iii) enforcement.
- To gain ‘access’ to courts in India, as outlined in Section 47 of the Arbitration Act, the application must accompany the following, (i) Original award or a copy thereof duly authenticated in the manner required by the law of the country in which it was made; (ii) Original arbitration agreement or duly certified copy thereof; (iii) Such evidence as may be necessary to prove that the award is foreign.
- A foreign award which passes the gateway of Section 47 must be treated as being equivalent to a foreign decree whose enforcement can be refused at the request of the party against whom it is invoked only if it falls within the provisions of Section 48(1)(a) to (e) or under Section 48(2).
- ‘Enforcement’ under Section 49 of the Arbitration Act is used interchangeably with the word ‘execution’ and ‘satisfaction’ and is relatable to the conditions of gaining access and recognition of courts as provided in Section 47 of the Arbitration Act.
- The Court concluded that Article 136 of the Limitation Act would apply to an enforcement petition as an award which satisfies the tests of ‘access’ and ‘recognition’ takes the form of a decree. Thus, the period of limitation for the execution of a decree, as provided under the Limitation Act is 12 years and the present enforcement petition is not time-barred.
- The Respondents argued that the arbitral tribunal awarded a relief (i.e., whether capped cost towards the development of the Fields should be increased, and the extent to which it may be increased), which was not referred to arbitration.
- However, the Award clarified that the parties were unable to agree on the sole expert who was to rule on capped costs, the arbitral tribunal had to adjudicate the issue under Clause 34.2 of the PSC, and neither party had contested the jurisdiction of the arbitral tribunal in this regard. Basis the above reasoning in the Award, the Court held that the arbitral tribunal did not act beyond its jurisdiction.
Objections on enforcement of the Award:
- the Award did not violate the public policy of India, more particularly, the fundamental policy of Indian law, and additionally, the Award cannot be also said to be against justice or morality and observed that:
- The Court is required to keep away from merits of the dispute as to those fall within the purview of the supervisory courts (i.e., the Courts at the seat of the arbitration). Since the Respondent had exhausted its remedies in the Malaysian courts, they cannot approach the enforcement court into deciding the merits of the matter merely because it disagrees with the interpretation of the arbitral tribunal.
- The interpretation of a contract is exclusively in the domain of the arbitral tribunal, and the Award cannot interfere since it is not the case that the arbitral tribunal has failed to decide the dispute between the parties on merits, or has made a finding based on no evidence.
- Once an arbitral tribunal has been vested with jurisdiction by the parties, it has the right to make both right and wrong decisions as these are errors which fall within their jurisdiction.