India: Supreme Court Clarifies The Appropriate Jurisdiction For Enforcement Of An Arbitral Award

Last Updated: 20 February 2018
Article by Ajay Bhargava, Arvind Ray and Karan Gupta

Most Read Contributor in India, August 2018

By a judgment delivered on 15 February 2018 in Sundaram Finance v Abdul Samad & Anr (Civil Appeal No 1650 of 2018), a two Judge bench of the Hon'ble Supreme Court of India (Supreme Court) has clarified the anomaly with regard to the appropriate jurisdiction for enforcement of an arbitral award. The Supreme Court has held that enforcement of an Arbitral Award under the Arbitration and Conciliation Act, 1996 (Act) may be filed in any jurisdiction in the country, for execution, where such decree is capable of being executed and there is no requirement of obtaining a transfer of the decree from the court which has jurisdiction over the arbitration proceedings.

Background

Sundaram Finance Limited (Appellant) initiated arbitration proceedings against Abdul Samad and another (Respondents) for breach of a loan agreement. An ex-parte award was passed in favour of the Appellant. When the Award was filed for execution before the District Court, Morena, Madhya Pradesh, the District Court rejected the execution proceedings on the ground that it lacked jurisdiction. The District Court took the view that the Appellant was required to file the execution proceedings first before the court of competent jurisdiction in Tamil Nadu, obtain a transfer of the decree and only then could the proceedings be filed in the District Court at Morena. The Appellant vide a Special Leave Petition, preferred an appeal to the Supreme Court due to the divergence in the views of the Madhya Pradesh High Court and Himachal Pradesh High Court from some of the other High Courts, while dealing with the issue of jurisdiction for enforcement of arbitral awards.

Issue

The issue before the Supreme Court was whether an arbitral award can be filed only in the court, within whose jurisdiction the arbitration proceedings were carried out or whether the arbitral award could be directly executed in the jurisdiction where the assets of the judgement debtor are located?

Divergence in Views

  • Enforcement of an arbitral award after obtaining a transfer decree for enforcement of the arbitral award where the assets are located

    The Madhya Pradesh High Court was of the view that as per Section 42 read with Section 2(e) of the Act, the award would be enforceable, as per the provisions of the Code of Civil Procedure, 1908 (CPC), in the same manner as if it were a decree of the Court. Since Section 35 along with Section 39 of the CPC defines 'Court', a transfer of the decree was mandatory for execution of the arbitral award in the `jurisdiction where the assets are located. The High Court of Himachal Pradesh has adopted a similar view while dealing with this issue.
  • Enforcement of the Arbitral Award directly in the jurisdiction where the assets of the Judgement Debtor are located

    The Delhi High Court has stated that Section 42 of the Act was not applicable during proceedings under Section 34 of the Act. The Kerala High Court has adopted a similar view and held that a Court cannot insist on a decree to receive an execution application and thus there was no question of a transfer of decree. The Madras High Court ruled that as per Section 39 and 41 of the CPC, a decree may be passed to the executing court on its own motion.   The Rajasthan High Court, Allahabad High Court, Punjab & Haryana High Court and Karnataka High Court have taken a similar view.

Held

The Supreme Court clarified the confusion regarding the jurisdiction for enforcement of an arbitral award and held that the execution of an arbitral award can be filed anywhere in the country where such decree was capable of being executed and there is no requirement of obtaining a transfer of the decree from the court, which would have jurisdiction over the arbitral proceedings.

The Supreme Court analysed Section 46 of the CPC, which defines 'precepts' and stated that the application of the decree holder is made to the court which passed the decree and which issues the precepts to any other court of competent jurisdiction to enforce it. However, in the case of an arbitral award, there is no decree passed, but the arbitral award is itself executed as a decree, by fiction.

It further looked into Order XXI of the CPC, dealing with execution of decrees and orders and held that details like number of suit, appeal against the decree, etc. have no relevance to the fiction of an arbitral award for it to be treated as a decree, for the purposes of execution.

The Supreme Court also looked into Section 36(1) and Section 2(e) of the Act and stated that in enforcement on an arbitral award, it is the enforcement mechanism which is akin to the enforcement of a decree and arbitral award itself does not become a decree. It further stated that Section 42 of the Act deals solely with jurisdiction for filing an application under Part I of the Act and not enforcement of the award, as made clear by Section 42 of the Act. Section 32 of the Act states that arbitration proceedings are terminated by the final arbitral award and thus the application of Section 42 of the Act during enforcement of an arbitral award, was not possible.

Comment

This decision of the Supreme Court has removed another hindrance experienced while adopting arbitration as a means of dispute resolution. It provides clarity on enforcement of arbitral awards, regardless of the jurisdiction where the arbitration proceedings are conducted. Not only does this ensure the flexibility which arbitration proceedings offer, but also makes sure that such flexibility does not dilute the enforceability of the decision in the arbitration proceedings.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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