Public Policy: The Double Edged Sword In Enforcement Proceedings

The District Court of Columbia in recent proceedings between Hardy Exploration & Production (India) Inc. ("HEPI") v. Government of India (Ministry of Petroleum and Natural Gas),1 have witnessed fervent debates on enforcement of arbitral award and its far-reaching impact across jurisdictions.

Factual Background

Contractual relationship between the parties, HEPI and Union of India ("UOI") was governed through a production sharing contract ("PSC") entered in November, 1996 for the extraction, development and production of hydrocarbons in a geographic block in India ("Block").

Disputes arose between the parties, which were subsequently referred to arbitration pursuant to the clauses in PSC. The arbitration clause in the PSC recorded the venue of arbitration as Kuala Lumpur, unless otherwise agreed.2 The arbitral tribunal rendered its final award in favour of HEPI, signed and delivered in Kuala Lumpur in February 2013 ("Award"), upholding that:

Hydrocarbons discovered by HEPI was natural gas and not crude oil. HEPI was denied the contractual period prescribed under the PSC to determine the commerciality of the discovery; UOI's relinquishment of HEPI's rights to the Block was null and void. The parties were to be put in the position they stood prior to the termination of rights, granting HEPI three more years to ascertain the commerciality of the natural gas; UOI to pay interest on HEPI's investment of INR. 500 crore at the rate of 9% per year until the date of the award and 18% per year until the final payment after the award as damages. Court Proceedings in India

1. Proceedings before the High Court of Delhi

   UOI filed an application for setting aside of the Award and HEPI filed application for enforcement before the Delhi High Court ("Delhi HC") in 2013. HEPI opposed the setting aside proceedings on two grounds:

   Award was a 'foreign award', therefore an application for setting aside under Section 34 of Part-I of the Arbitration and Conciliation Act, 1996 ("Act") would not be maintainable; and Assuming the application was maintainable, it would not lie within the territorial jurisdiction of the Delhi HC. The Delhi HC held:

   The PSC did not specifically mention the place or seat of arbitration; therefore, it was necessary to ascertain the place of arbitration to decide on the maintainability of the application. Relying on Article 31.3 of the Model Law,4 as the award was pronounced and signed at Kuala Lumpur, the 'place' of making the award, was Kuala Lumpur. The arbitration agreement was entered prior to September 6, 2012. Relying on Reliance Industries,5 since seat of arbitration is outside India, Part I of the A&C Act will not apply and Section 34 application is not maintainable. B. Proceedings before the Supreme Court of India6

   UOI appealed before the Supreme Court of India ("Supreme Court"). The Supreme Court referred the appeal to a larger bench before the Chief Justice of India to decide the law applicable to post arbitral award proceedings when the 'seat' is not expressly specified. The appeal is pending. Proceedings before the United States District Court of Columbia

   During the pendency of proceedings in India, HEPI approached the District of Columbia ("US Court") in January 2016 seeking confirmation of the arbitral award under the Federal Arbitration Act.

   Based on objections raised by UOI, the issues before US Court were:

   Whether confirmation of Award seeking specific performance and interest would violate US public policy; In the alternative, if the Award is confirmed, whether the US Court should stay the enforcement of the Award in the US considering that the challenge and enforcement proceedings are pending in India. Decision

1. Stay on Enforcement Proceedings in the US:

   UOI sought a stay on the proceedings in the US, pending the challenge to the Award before Indian courts. UOI...