Centre v. Vedanta: Enforcement of Malaysian arbitral award not against Indian public policy, Supreme Court holds
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Centre v. Vedanta: Enforcement of Malaysian arbitral award not against Indian public policy, Supreme Court holds

The Centre had moved the Supreme Court challenging the decision of the Delhi High Court which had allowed Vedanta to implement the foreign award passed in 2011.

Shruti Mahajan

The Supreme Court today rejected the Central government's petition challenging the enforcement of a Malaysian arbitral award passed in favour of Vedanta in relation to the Ravva oil and gas fields.

The Supreme Court held that the enforcement of this award will not go against the public policy of India.

The order dismisses a petition filed by the Union Ministry of Petroleum and Natural Gas against Vedanta over enforcement of the 2011 arbitral award.

The Court was considering the applicability of Malaysian laws in Vedanta's foreign award when the contract provided for Indian laws to govern the transaction.

Last month, the Supreme Court Bench of Justices S Abdul Nazeer, Indu Malhotra and Aniruddha Bose had appointed Senior Advocate Gourab Banerji to assist the Court on the issue.

The Centre had moved the Supreme Court challenging the decision of the Delhi High Court which allowed Vedanta - formerly known as Cairn India - to implement the foreign award of 2011, which allowed the company to seek a larger sum of recovery instead of the amount that was capped by the Indian government.

The dispute pertained to a production sharing contract (PSC) between Cairn India and the Indian government with respect to the exploration of the Ravva oil fields in the Krishna-Godavari basin. This contract was for a period between 2000 and 2007.

When the dispute arose in the year 2008, a foreign award was passed by a tribunal in Malaysia, which ruled in favour of the company. This award was challenged by the Indian government before the Malaysian courts, to no avail. When Cairn moved the Delhi High Court for enforcement of the award, the same was allowed, prompting the Ministry to approach the Supreme Court in appeal.

When the matter was taken up by the Apex Court in August this year, Attorney General for India KK Venugopal told the Court that the PSC drawn in 1994 between the two parties stipulated that the contract shall be interpreted and governed as per Indian laws, and that the contractor ought not act in any manner or exercise any power under the contract that would be in contravention of Indian laws.

The Court was informed that despite this negative covenant provided for in the contract, the objections to the contract have been decided by the Malaysian courts in line with Malaysian public policy. Now, at the enforcement stage, the Indian courts are required to examine whether the award goes against Indian public policy.

In its previous order, the Court had noted,

"Whether the Malaysian Courts were justified in applying the Malaysian law to determine the challenge to the foreign award, particularly since the Production Sharing Contract dated 28.10.1994 was governed by Indian Law, and the PSC contained a negative covenant that the Respondent Companies were not entitled to exercise its power under the PSC in a manner which would contravene the laws of India. The Malaysian Courts have decided the objections by applying the Malaysian law, while the Indian courts are required to examine whether the award is in conflict with the public policy of India at the enforcement stage. This would create an anomalous situation."

In its judgment delivered today, the Court has said that the Malaysian Courts being the "Seat Courts" in the instant arbitration dispute were justified in applying Malaysian laws to the challenge mounted by the Government of India as regards public policy.

Howevver, just because the award was upheld by the Malayasian Courts in light of their public policy, this would not preclude Indian Courts from examining the aspect of public policy under Section 48 of the Arbitration Act of 1996. In the event the award was to be found in violation of Indian public policy, the same could be kept from being enforced.

But, "the enforcement court would however not second-guess or review the correctness of the judgment of the Seat Courts, while deciding the challenge to the award," the judgment says.

Would an award be in violation of public policy in India can be determined based on three factors as laid down by the Supreme Court in its judgment in the case of Renusagar, which is to examine whether the award is contrary to the

  • the fundamental policy of Indian law, or

  • interests of India, or

  • justice or morality.

However, in a subsequent amendment to the Act, the clause “interests of India,” was removed from the "public policy" definition. The COurt noted,

"The newly inserted Explanation 2 provides that the examination of whether the enforcement of the award is in conflict with the fundamental policy of Indian law, shall not entail a review on the merits of the dispute"

Although, the emended Section 48 of the Act would not be applicable to the instant case since the amendment was brought after the award passed and proceedings for enforcement initiated.

While rejecting the position of the Government of India that the enforcement of the award is contrary to the basic notion of justice, the Court said that the government failed to make a case to show violation of procedural due process in the conduct of the arbitral proceedings

"The requirement of procedural fairness constitutes a fundamental basis for the integrity of the arbitral process. Fair and equal treatment of the parties is a non-derogable and mandatory provision, on which the entire edifice of the alternate dispute resolution mechanism is based. In the present case, there is no such violation alleged"

Moreover, no case was made out by the government as regards how the award was in violation of basic notion of justice or any substantive public policy of the country.

As such, the Court rejected the government's claim and affirmed the decision of the Delhi High Court. The Court said

"We conclude that the enforcement of the foreign award does not contravene the public policy of India, or that it is contrary to the basic notions of justice. We affirm the judgment of the Delhi High Court dated 19.02.2020"

The government of India was represented by AG KK Venugopal, SG Tushar Mehta while the Respondent company was represented by Senior Advocates Aryama Sundaram and Akhil Sibal.

Senior Advocate Gourab Banerji had assisted the Court as Amicua Curiae.

Shardul Amarchand Mangaldas acted for Vedanta Limited, Ravva Oil (Singapore) PTE Limited and Videocon Industries Limited (through its Resolution Professional), the award holders in these proceedings, against the Government of India.

Read Judgment:

GOI vs Vedanta - Judgment.pdf
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