Enforcement of arbitral award against India opposed to public policy: US District Court

COLUMBIA, JUN 13: The United States District Court for the District of Columbia recently denied a petition filed against the Government of India, seeking enforcement of an arbitral award.
The Court, presided by Judge Rudolph Contreras, held that confirming the award passed against the Indian government by a Tribunal in 2013 would amount to a violation of the United States’ public policy.
The dispute dates back to 1997, when Hardy Exploration and Production (India), Inc. (HEPI) entered into a contract with the Government of India that would allow the former to extract hydrocarbons from India’s southeastern coast. The contract provided that if HEPI found crude oil, it would have two years to ascertain whether the oil was commercially viable, but that if it found natural gas, the assessment period would last for five years.
In 2006, HEPI found a reserve of hydrocarbons, and claimed that it was natural gas. However, the Indian government took the view that it was crude oil, and therefore HEPI would have to submit a declaration of commercial viability by 2009. In letters dated February 20 and March 23, 2009, the government informed HEPI that its rights to the Block were relinquished due to its failure to submit its declaration of commercial viability on time. This prompted HEPI to initiate arbitration proceedings against India.
The Tribunal, which comprised three former Chief Justices of India, ultimately held in favour of HEPI after the arbitration proceedings were conducted in Kuala Lumpur, Malaysia, as was agreed upon in the contract. Vide an award passed in February 2013, the Tribunal ordered India to allow HEPI back onto the Block for another three years, and also directed India to pay interest on HEPI’s Rs. 500 crore investment in the Block, at a rate of 9% per year up to the date of the award, and 18% per year thereafter until the fulfillment of the award.
India then appealed against this award in the Delhi High Court, while HEPI filed a separate suit in the High Court to enforce the award. In the former petition, the Single Judge of the High Court held that Indian courts would have no jurisdiction to hear the application, and therefore dismissed the plea. On an appeal against this order, the Division Bench concurred with the Court’s earlier decision, prompting the government to approach the Supreme Court.
The Supreme Court Bench of Justices RK Agrawal and AM Sapre, in an order passed on May 1 this year, referred the matter to a larger bench.
Given the fact that it could not get relief from Indian courts, HEPI finally approached the United States District Court for confirmation of its arbitral award. Under the New York Convention and the Federal Arbitration Act, a recipient of a foreign arbitral award may seek confirmation and enforcement of the award in US federal courts.
Appearing for the Indian government before the US District Court, KR Sasiprabhu and Robin Vrindavanam of RS Prabhu & Co. and US Law Firm, Mitchell Silberberg & Knupp LLP contended that the enforcement of the award’s specific performance order would violate U.S. public policy, as would confirmation of the interest portion of the award, which India claimed is punitive and coercive, rather than compensatory. The government also moved for a stay on the arbitral award, referring to Article VI of the New York Convention.
The question before the Court was whether a petition in India to set aside the arbitral award counts as an application with “a competent authority of the country in which, or under the law of which, that award was made”, as per Article VI. For this purpose, the Court referred to Europcar Italia, S.p.A. v. Maiellano Tours, Inc, which laid down six factors that courts ought to consider when determining whether to stay arbitral enforcement proceedings. On finding that these factors were not met with in the present case, the Court declined to grant a stay.
Coming to enforcement of the award itself, India contended that confirmation of the two portions of the arbitral award-specific performance and interest-would violate US public policy of respecting the sovereignty of foreign nations, including their right to control their own lands and national resources. It was also argued that if the Court finds that the award does not violate US public policy, it should stay the enforcement of the award pending the disposal of the appeal in the Supreme Court of India.
As regards the specific performance, the Court found itself having to decide between two important US public policy values: respect for the sovereignty of other nations and respect for foreign arbitral agreements. Ultimately, it held that the New York Convention allows US courts to decline enforcing a foreign arbitral award if the award would be contrary to the public policy of the US.
“The Court therefore finds that India has met its burden of demonstrating that confirmation of the specific performance portion of the award would be contrary to U.S. public policy, and therefore the Court declines to confirm this portion of the award.”
On the interest aspect of the award, the Court held that it could not direct India to pay the same.
“The Court finds that even if the interest awarded by the Tribunal was meant to be compensatory rather than punitive, because this Court cannot enforce the primary component of the award (return of the Block to HEPI), and because the two components of the award are inextricably intertwined, the Court also cannot award interest predicated on compliance with that component of the award. To order otherwise would be to impermissibly coerce India into complying with an order that this Court has determined it cannot issue.”
While denying the petition, the Court made a rather scathing indictment of the government’s attempt to delay the litigation in Indian courts.
“While the Court acknowledges the right of the Indian government to challenge an arbitral award that it believes was unlawful, India’s contributions to the protractedness of the litigation in the Indian courts cannot be denied.”
Concluding his ruling, Judge Contreras held,
“India may ultimately need to pay HEPI the millions of dollars in interest it now owes-but if it does, it will be because a court with the authority to enforce the entire arbitration award, including the specific performance portion, has ordered it to do so. Because this Court does not have such authority, it cannot order this payment.”