Limitation period for enforcing foreign decrees: Supreme Court muddies the waters

In Bank of Baroda v. Kotak Mahindra Bank Ltd.,[1] the Supreme Court found a rare opportunity to examine the question of the limitation period for enforcing foreign decrees from reciprocating territories under section 44A of the Code of Civil Procedure, 1908 (the “CPC”). However, instead of providing a clear answer, the Supreme Court muddied the waters by applying principles of private international law relating to choice of law, and ultimately attempted to reconcile the concurrent application of foreign law and Indian law. The convoluted approach taken by the Supreme Court is likely to create doubt and uncertainty in the future regarding the enforcement of foreign decrees from reciprocating territories and possibly even the enforcement of foreign arbitral awards.

The facts of this case do not require much explanation. Bank of Baroda had acted as the confirming bank for a letter of credit issued by Vysya Bank (the predecessor of Kotak Mahindra Bank) in 1992. In October 1992, Bank of Baroda made a payment against such letter of credit pursuant to instructions from Vysya Bank.However, after Vysya Bank failed to pay its dues to Bank of Baroda, a suit for recovery of dues was filed by Bank of Baroda against Vysya Bank before the High Court of Justice in London in April 1993. This suit was decreed in favour of Bank of Baroda in February 1995 and no appeal was filed. However, Bank of Baroda did not enforce this decree against Vysya Bank at such time since the parties were pursuing talks relating to the satisfaction of the decree and Vysya Bank had placed an inter-bank deposit with Bank of Baroda on a rollover basis in lieu of the decree not being enforced.

Eventually, in 2003, Vysya Bank initiated legal proceedings to recover the funds deposited with Bank of Baroda. Thereafter, in 2009, Bank of Baroda filed an execution petition after almost fourteen years to enforce the decree against Vysya Bank pursuant to section 44A of the CPC. The execution petition was dismissed by the District Court and the Karnataka High Court for being barred by limitation which led Bank of Baroda to approach the Supreme Court. The Supreme Court dismissed the appeal and upheld the decisions of the District Court and the Karnataka High Court, albeit for different reasons.

The Supreme Court had to decide the limitation period for enforcing foreign decrees pursuant to section 44A of the CPC. It addressed this question by analysing three issues:[2] (i) does section 44A of the CPC prescribe a limitation period; (ii) if not, then what is the limitation period for enforcing foreign decrees pursuant to section 44A of the CPC; and (iii) from which date does such limitation period begin.

The Supreme Court resolved the first issue without difficulty and held that section 44A of the CPC does not prescribe a limitation period and only “enables the District Court to execute [a foreign] decree as if [it] had been passed by an Indian court”[3] and “lays down the procedure to be followed by the District Court”.[4]

In respect of the second issue, the Supreme Court began its analysis correctly by identifying Articles 136 and 137 of the Limitation Act, 1963 (the “Limitation Act”) as potential reference points for deciding such limitation period.[5] However, the Supreme Court then unexpectedly decided that “[t]here [was an] issue of conflict of laws between the cause country and the forum country”[6] which required the application of principles of private international law relating to choice of law. This decision seemed to be based on the concern that a foreign decree should not be enforced in India on account of a longer limitation period if the enforcement of such foreign decree in the jurisdiction of origin (referred to as the cause country by the Supreme Court) was barred by limitation.[7]

While such concern may be valid, it could not create an “issue of conflict of laws” since the law of a foreign jurisdiction serves no function at all in relation to the enforcement of a decree from such jurisdiction. The enforcement of a foreign decree is governed by domestic law since it entails the use of the coercive machinery of domestic courts to enforce obligations. The question of whether a foreign decree deserves recognition and enforcement is also governed by domestic law.[8] As a result, since the enforcement of a foreign decree is exclusively governed by domestic law, there could not be an “issue of conflict of laws” and so there was no justification for the application of principles of private international law relating to choice of law.

The Supreme Court failed to note this error and proceeded to apply principles of private international law relating to choice of law. It rejected the existing position under Indian private international law (based on the old position under English private international law) that the issue of limitation was a procedural issue and had to be decided by reference to lex fori.[9] It then noted and adopted the position accepted in most jurisdictions that the issue of limitation was a substantive issue and had to be decided by reference to lex causae.[10] As a result, the Supreme Court decided that the limitation period for enforcing foreign decrees pursuant to section 44A of the CPC had to be decided by reference to the law of the jurisdiction of origin.[11] However, after reaching such decision, the Supreme Court possibly noticed the prospect of Indian law being excluded altogether and contradicted itself by declaring that “if the law of a forum country is silent with regard to the limitation prescribed for execution of a foreign decree then the limitation of the cause country would apply”.[12]

In response to the third issue, the Supreme Court tried to reconcile the concurrent application of foreign law and Indian law. It first identified Article 137 of the Limitation Act (specifying a limitation period of three years) as the correct reference point for deciding the limitation period as per Indian law for enforcing foreign decrees pursuant to section 44A of the CPC.[13] It then held that if no steps were taken to enforce a foreign decree in the jurisdiction of origin within the limitation period prescribed in such jurisdiction, then such decree could not be enforced in India and the limitation period as per Article 137 of the Limitation Act did not apply.[14] It further held that if steps were taken to enforce a foreign decree in the jurisdiction of origin within the limitation period prescribed in such jurisdiction, then such decree could be enforced in India only after the proceedings in the jurisdiction of origin ended and the limitation period for enforcing such decree in India would be three years from the end date of such proceedings pursuant to Article 137 of the Limitation Act.[15]

The above explanation is patently convoluted and deeply problematic for multiple reasons. First, this explanation fails to address any scenario where a foreign decree is enforced in a jurisdiction other than the jurisdiction of origin. It is unclear whether such decree could later be enforced in India. Second, this explanation also fails to address any scenario where a foreign decree is first enforced in India within the limitation period prescribed in the jurisdiction of origin. It is unclear whether Article 137 of the Limitation Act could apply in such scenario, and if so, when the limitation period would start to run. Third, and most problematic, this explanation effectively prevents a person holding a foreign decree from pursuing concurrent enforcement proceedings in the jurisdiction of origin and in India. It appears that if enforcement proceedings are initiated in the jurisdiction of origin, then enforcement proceedings in India can only commence after such proceedings come to an end. This restriction is likely to cause substantial prejudice to persons holding foreign decrees and is contrary to the accepted position in most jurisdictions.

It is evident that the problems identified above and the treacherous task of reconciling the concurrent application of foreign law and Indian law could have been easily avoided if the Supreme Court had not decided to apply principles of private international law relating to choice of law in the first place. If the Supreme Court had confined its analysis to Indian law, then it might have decided that only Article 137 of the Limitation Act applied and the limitation period would start to run from the effective date of a foreign decree. This conclusion would be based on a clear and objective analysis.[16] The concern that appeared to motivate the Supreme Court, i.e. the prospect of a foreign decree being enforced in India on account of a longer limitation period despite the enforcement of such foreign decree being barred by limitation in the jurisdiction of origin, could have been addressed by deciding that the enforcement of a foreign decree in such circumstances would be contrary to public policy. However, the Supreme Court did not adopt this approach and instead muddied the waters by applying principles of private international law relating to choice of law. It is hoped that the Supreme Court sees it fit to correct this in a subsequent decision.

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[1] 2020 SCC OnLine SC 324.

[2] See paragraph 11.

[3] See paragraph 20.

[4] See paragraph 21.

[5] See paragraph 23.

[6] See paragraph 25.

[7] See paragraphs 24 and 27.

[8] In this context, please refer to section 47(3) of the CPC which provides that “the District Court shall refuse execution of any [foreign] decree, if it is shown to the satisfaction of the Court that the decree falls within any of the exceptions specified in clauses (a) to (f) of section 13 [of the CPC]”.

[9] See paragraph 37.

[10] Id.

[11] See paragraph 39. This decision unfortunately created an arbitrary distinction between section 44A of the CPC and section 13 of the CPC. The limitation period for enforcement of foreign decrees pursuant to section 44A of the CPC became dependent on the law of the jurisdiction of origin, while the limitation period for enforcement of foreign decrees pursuant to section 13 of the CPC remained as determined by the Limitation Act.

[12] See paragraph 38.

[13] See paragraph 43.

[14] See paragraph 44.

[15] See paragraph 45.

[16] This conclusion would also be consistent with the position under section 13 of the CPC and Article 101 of the Limitation Act.