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Supreme Court prevents Foreign Decree Holders from Shopping for Limitation

The article analyses a recent judgement which lays down the principles governing the computation of period of limitation for filing execution applications in India in connection with decrees obtained abroad.

Khushil Shah

Palak Agrawal

The recent judgment of the Apex Court in the matter of Bank of Baroda (Appellant Bank) versus Kotak Mahindra Bank [1] (Respondent Bank) marks a significant development in law relating to the execution of foreign decrees in India.

The court examined the issue relating to the period of limitation for filing an execution petition of a decree passed in a foreign country which was a reciprocating territory.

Background

The Appellant Bank filed a suit against the Respondent Bank for recovery of its dues in United Kingdom i.e. cause country (the country in which the decree was passed). The suit was decreed by the Superior Court of United Kingdom in favour of the Appellant Bank. The Appellant Bank filed a petition for the execution of the foreign decree under Section 44A of the Civil Procedure Code, 1908 before a District Court in India i.e. forum country (the country in which the decree is sought to be executed), after 14 years from the date of the decree.

The lower courts dismissed the petition of the Appellant Bank, holding that Article 136 of the Limitation Act, 1963 is applicable and the Appellant Bank should have filed the execution petition within twelve years of the decree being passed by the Cause Country. The matter was thereafter brought before the Hon’ble Supreme Court.

Issues For Consideration

(i) Does Section 44A of the Code of Civil Procedure,1908 merely provide for manner of execution of foreign decrees or does it also indicate the period of limitation for filing execution proceedings for the same?

(ii) What is the period of limitation for executing a decree passed by a foreign court (from a reciprocating country) in India?

(iii) From which date the period of limitation will run in relation to a foreign decree (passed in a reciprocating country) sought to be executed in India?

Analysis of the law

Section 44A of the Code of Civil Procedure,1908 provides for execution of decrees passed by the courts in the reciprocating country. It states that a decree of any of the Superior Courts of any reciprocating territory can be executed in India by filing a certified copy of a decree and a certificate from the Superior Court which passed the decree stating the extent, if any, to which the decree has been satisfied or adjusted. It will treat the decree as if it has been passed by itself.

'Reciprocating territory' means any country or territory outside India which the Central Government may by notification declare to be a reciprocating territory for the purposes of Section 44-A. A 'Superior Court' with reference to any such territory would mean such courts as are specified in the said notification. This arrangement is confined only to decrees for payment of money of the Superior Court, not being sums payable as taxes, fines or penalties, etc and specifically excludes arbitration awards.[2]

Observations of the Court

After a detailed hearing, the Supreme Court while passing its reasoned order observed that “It would be a travesty of justice if the person having lost his rights to execute the decree in the cause country is permitted to execute the decree in a forum country”.

The Apex Court held that Section 44A of the Civil Procedure Code merely enables the District Court to execute the decree and further provides that the District Court shall follow the same procedure as it follows while executing an Indian decree. It does not indicate the period of limitation for filing such an execution petition.

The previous position was that since the law of limitation was procedural in nature therefore for filing the application for execution of a decree, the law of forum country would apply. The Supreme Court has observed that the law of limitation has undergone a change from being ‘procedural’ to ‘substantive’ especially when it leads to the extinguishment of rights or remedies. It also noted that nations following civil jurisdiction always treated the law of limitation as substantive law. The Court also relied upon various authorities and legislations of common law countries like United Kingdom and United States of America while making its observations. The Court caveated that if the law of a forum country is silent then the limitation prescribed for execution of a foreign decree of the cause country would apply. The Court therefore ruled that the limitation period for executing a decree passed by a foreign court from the reciprocating country in India will be the limitation prescribed in the reciprocating foreign country subject to exceptions under the Code.

In view of the above, the Court envisaged two situations to ascertain from when the limitation starts:

(i) when the decree-holder does not take any steps for execution of the decree during the period of limitation prescribed in the cause country. In this scenario, the Court held that the period of limitation would start running from the date the decree was passed in the cause country and the period of limitation prescribed in the cause country will apply;

(ii) when the decree-holder has taken steps-in-aid to the execution of the decree in the cause country and where the decree may be executed, satisfied partly but not fully. In such a case, the Supreme Court held that the application for execution can be filed within 3 years of the finalisation of the execution proceedings in the cause country as prescribed by the residuary article of the Limitation Act.

Rationality can probably be best achieved by a critical re-examination of domestic laws by the Indian Courts. The Supreme Court while dismissing the petition of the Appellant Bank observed that “as India becomes a global player in the international business arena, it cannot be one of the few countries where the law of limitation is considered entirely procedural”.

Conclusion

The general rule of the limitation is based on the maxim ‘interest reipublicae ut sit finis litium’ which means it is to the interest of the state that litigation must come to an end. The statute of limitation specifies a time period for commencing a proceeding that starts to run when the cause of action accrues for a party. It is well settled that the law assists the vigilant and not the indolent. A litigant cannot sleep over his right for an indefinite period and seek such remedy at a later stage. The intention of imposing limitation is to compel the litigants to be diligent in seeking remedies in courts of law by prohibiting old claims. Thus, the above decision, is a wakeup call for a litigant who should be cognizant of his rights and for him to bring an action within the prescribed limitation period.

It may be relevant that due to the recent outbreak of the COVID-19 epidemic, the Apex Court exercised its extraordinary powers under Article 142 of the Constitution of India and took a suo motu cognizance of the difficulties in the filing of proceedings by the lawyers/litigants in respective Courts/Tribunals across the country including the Apex Court. The Court has ordered that period of limitation in all proceedings be extended with effect from 15th March 2020 till further orders[3]. This is a welcome development as it would protect those litigants who could not take recourse to legal proceedings within the prescribed period of limitation for reasons beyond their control.

The above decision of the Supreme Court is in line with the recent trend of judgments of the Supreme Court where the Court has adopted the business efficacy principle where commercial principles and considerations guide the Courts in coming to a conclusion. It is also a step in the right direction in making India a commercial hub where measures of contract enforcement are being given a boost by an active judiciary. The Judgment also brings a shift in the judicial approach of treating the law of limitation as a substantive law rather than a procedural one. All in all, it is a welcome development that clarifies and puts to rest the prevailing ambiguity in the subject.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Khushil Shah, Palak Agrawal
Khushil Shah, Palak Agrawal

The authors are Khushil Shah & Palak Agrawal, advocates at Zerick Dastur, Advocates and Solicitors.

[1]2020 SCC OnLine SC 324 dated 17th March 2020

[2]Explanation 1 and 2, Section 44A of Code of Civil Procedure, 1908

[3] 2020 SCC OnLine SC 343 dated 23rd March 2020

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