Vedanta Judgment Breaks the Glass

21/Oct/2020, 11:07 AM, Authored by Hiroo Advani & Tariq Khan

A Step in the Right Direction for Enforcement of Foreign Awards

The enforcement of foreign arbitral awards in India is witnessing a promising shift to be in consonance with the framework laid down by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, famously coined as the New York Convention. In spite of commendable endeavours to make India a leading arbitration hub by the legislature, the regressive approach adopted by the Indian courts in the enforcement of foreign awards, in judgments like NAFED v Alimenta S.A. and Venture Global Eng. LLC v. Tech Mahindra is indubitably acting as a huge stumbling block.

The regressive view taken in NAFED’s case has been overshadowed by the Supreme Court of India in its recent judgment Government of India v. Vedanta Ltdby allowing enforcement of foreign arbitral award passed by the Malaysian Tribunal in support of Vedanta Limited. The award was passed for $499 million dollars from the Government against a claim sought by Vedanta, which in turn has set a precedent for foreign award stakeholders.

This article will outline the positive impact of the Supreme Court’s judgment in Vedanta’s Case, and how it shall be a step forward in making India the global arbitration hub.

Summary of the Vedanta Judgment

The legal issue emanates from the product-sharing agreement entered between the government and Cairn India Ltd. (later obtained by Vedanta) to separate oil and gas from a seaward field. The said agreement specified that Vedanta should complete the predetermined works including boring 21 wells at the greatest expense of $188.98 million or more 5%, called the base advancement (cost expected to be acquired by the temporary worker). Notwithstanding, the government asserted that Vedanta singularly recouped $499 million, hence establishing an unjust misfortune to the public exchequer.

From that point, the dispute went into international arbitration, which came to an end with the Malaysian Tribunal, deciding for Vedanta favourably in 2011. After a progression of appeals, the issue arrived at the phase of enforcement, in 2018, under the watchful eye of the High Court of Delhi and lastly, the SC. After much consideration, the SC upheld the foreign award on the ground that the Government of India failed to establish as to how the arbitral award attracts the bar of public policy of India. To this end, the SC held that “enforcement might be rejected just on the off chance that it disregards the State’s most essential thoughts of profound quality and equity, which has been deciphered to imply that, there ought to be incredible faltering in the declining requirement, except if it is gotten through dishonour or fraud, or unjustifiable methods”. By way of this judgment, the Apex Court has vehemently reiterated that the courts ought to be reluctant in declining the enforcement of foreign awards and minimize judicial intervention.

Incidentally, the SC contemplated upon an undesirable lacuna relating to the statutory time frame for enforcement of foreign awards, in the present system. The SC felt the need to settle this legal quandary unequivocally because the High Courts have been pronouncing disparate opinions in the past, including, Imax Corporation vs. E-City Entertainment and Thyssen Stahlunion GMBH vs. Steel Authority of India. The SC held that Article 136 of the Limitation Act would not be pertinent for the enforcement of foreign arbitral awards since it’s a declaration of a common court, rather it would be secured by Article 137 of the Limitation Act. By the virtue of Article 137, the time frame for authorization of foreign awards will be of three years from when the option to apply gathers.

Basically, Vedanta judgment has taken a move for smooth enforcement of the foreign awards by plugging the gaps in the existing framework and adopting a “pro-enforcement bias” approach.

Pro-Enforcement Bias

The New York Convention in Article V promotes a pro-enforcement bias by advocating a supportive approach towards acknowledgement and implementation of foreign arbitral awards. It expressly elucidates that each contracting state will perceive foreign awards as authoritative and accordingly, foreign awards are entitled to enforcement at first instance in the contracting states. As India is also a signatory of the New York Convention, the arbitration structure in India ought to be in accordance with the principles of pro-enforcement bias. The Indian legislature furthering the same tweaked Section 48 of the Arbitration and Conciliation Act 1996 in 2016. By this change, the caution of courts to meddle in the requirement of foreign arbitral awards was considerably shortened in two different ways, viz. (i) giving a narrow sweep to ‘public policy, and (ii) dropping the ‘interests of India’ statement as a ground of refusal of authorization.

On a bare perusal, one may recognize that the amendment aimed to calibrate the enforcement process of foreign awards in the country and a cogent attempt to be in tune with the pro-enforcement bias.

Decoding the Judicial Sentiments in Enforcing Foreign Awards

Notably, the dream of establishing a pro-enforcement system in India was well-established by the SC in the landmark judgment of BALCO vs. Kesar Aluminium Technical. Thereafter, decisions like Vijay Karia and Ors. vs. Prysmian Cavi E Sistemi, Renusagar Power Ltd. vs. General Electric also cemented the goal of limiting the extent of impedance in foreign arbitral awards.

But unfortunately, decisions like NAFED Judgment had put brakes on all the pro-enforcement steps taken, at once, by setting aside a foreign award on the ground that it abuses the public approach. The NAFED Judgment, not only diverged with the principles laid down in the case Vijay Karia v. Prysmian Cavi E Sistemi, but also gave flawed interpretation on two fronts – initially, the court dug upon the merits of the case, regardless of the inclusion of Explanation 2 to the Section 48(2) of the Act which categorically restricts the court to take cognizance of the merits of the case at enforcement stage; and furthermore, it widens the meaning of public policy ground. This interpretation will not only open floodgates of the unscrupulous litigation on similar issues but also without a doubt, gradually discourage the prospective investors from making investments in India.

At this stage, it is also relevant to understand that the decisions like NAFED judgment have dangerous repercussions on the prospective investments in India because every foreign investor before investing will unravel the dispute resolution mechanism at the host/investee nation to ascertain whether it is strong, friendly, business-accommodating etc. Thus, there was an urgent need for India to send a right and bold message, that India is adopting a “non-judicial intervention” approach to deal with enforcement of a foreign award, in a true and real sense.

Fortunately, the Vedanta Judgment has successfully sent this message to all the foreign stakeholders and set the ball moving by reaffirming that enforcement shall be the rule and refusal would be an exception.

A much-needed impetus to the foreign investment landscape?

The favourable judicial response will have a positive impact on the reputation of India being a pro-enforcement jurisdiction, which correspondingly, will gain the trust of the foreign investors to put capital resources into India. Without the consistency in enforcing foreign awards, parties will be hesitant to enter into cross-border business transactions or make global investments in India, rather they would tend to lean towards matured jurisdictions with restricted obstruction in the enforcement of foreign arbitral awards. Additionally, foreign investors refrain from investing in India since they feel that their investments may get stuck for a long time due to the time taken by the courts in the enforcement of awards. However, the positive message conveyed in the Vedanta judgment will go far to make India an attractive destination for foreign investment.

Role of Amicus- Curiae in the Indian Arbitration framework

Interestingly, the SC in order to understand and adjudicate on critical legal issues, inter-alia, whether the Malaysian Courts were justified in applying the Malaysian law of public policy while deciding the challenge to the foreign award, and law applicable at the enforcement stage; appointed amicus-curiae to assist the Hon’ble Court. In this regard, the learned amicus-curiae averred that on perusal of the product-sharing contract, it appears that the substantive law is Indian law and the arbitration agreement will be governed by the laws of England. And, since the seat of arbitration was in Malaysia, the curial law would be Malaysian law. After elaborate contemplation on the observations rendered by the Malaysian Tribunal, the amicus-curiae finally submitted that (i) the Malaysian Courts rightly examined the public policy challenge in accordance with the Malaysian Act, being the curial law of the arbitration; (ii) with respect to the challenge on the ground of excess of jurisdiction, ought to have been tested on the basis of the proper law of the arbitration agreement i.e. the English law and (iii) on the applicable law at the enforcement stage, the Courts would determine the same as per the public policy of India.

The SC, concurring with the submissions of the amicus-curie, upheld that, “the Malaysian Courts being the “seat” courts were justified in applying the Malaysian Act to the public policy challenges raised by the Government of India. Merely because the Malaysian Courts have upheld the award, it would not be an impediment for the Indian courts to examine whether the award was opposed to the public policy of India under Section 48 of the Indian Arbitration Act, 1996. If the award is found to be violative of the public policy of India, it would not be enforced by the Indian courts.”

Interestingly, the Indian courts have been frequently appointing amicus-curiae in various cases and it can be argued that the court in a way is delegating some of its functions. Indubitably, amicus-curiae can influence the decision of the court. Judge Richard Posner, has rightly penned the standard of appointing an amicus as follows: “An amicus brief should normally be allowed when a party is not represented competently or is not represented at all when the amicus has an interest in some other case that may be affected by the decision in the present case (though not enough affected to entitle the amicus to intervene and become a party in the present case), or when the amicus has unique information or perspective that can help the court beyond the help that the lawyers for the parties are able to provide. Otherwise, leave to file an amicus curiae brief should be denied.

The Way Forward

The pro-enforcement stance taken by the SC in the Vedanta judgment will have far-reaching consequences in making India a preferred arbitration hub and concomitantly encourage foreign venture climate. Having a pro-enforcement system in place will go a long way in developing and converting India as an international arbitration hub and in order to do so, the country has to take significant steps. The government must adopt an approach that instils confidence in foreign companies to invest in India. Also, in order to actually achieve the dream of India of becoming a global arbitration hub, the courts would have to embrace the pro-arbitration system wherein they follow limited intervention when it comes to enforcement of a foreign arbitral award, as pictured by the judiciary in the Vedanta Judgment.

Insofar as the appointment of amicus curiae is concerned, what we can safely conclude is that the influence an amicus curiae can have on the court cannot be understated. Therefore, the status of an amicus should only be given when the amicus has some unique information or perspective that can assist the court beyond the assistance provided by the lawyers appearing for the parties. Also, the standard for admissibility of an amicus viewpoint is relevant. Imagine if the amicus has not assisted the court with the correct position, then will the court deny the amicus status and take a different view? In fact, there have been cases where the court rejected the view given by the amicus since the parties were represented by competent counsels and had ample opportunity to argue their respective cases. Thus, involvement of amicus-curiae is becoming a major issue and the practice must be discouraged especially in a jurisdiction like India that follows the adversary system of legal procedure.