India: Supreme Court Holds That Enforcement Of An Award Through Its Execution Can Be Filed Anywhere In The Country Where Such Decree Can Be Executed

Brief Facts

In disputes between Sundaram Finance Limited ("Appellant") and Abdul Samad in relation to default in repayment of a loan, an ex-parte arbitration award was made on 22 October 2011 in favour of the Appellant ("Award"). The Award being enforceable as a decree under Section 36 of the Arbitration and Conciliation Act ("Act"), the Appellant filed execution proceedings before the Court at Morena, Madhya Pradesh under Section 47 read with Section 151 and Order 21 Rule 27 of the Code of Civil Procedure, 1908 ("CPC"). The Court vide order dated 20 March 2014 ("Order") returned the execution application on account of lack of jurisdiction to be presented to the Court of competent jurisdiction. While passing the Order, the Court relied upon a decision of the Madhya Pradesh High Court on this issue. The effect of the Order was 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 then only could the proceedings be filed in the Court at Morena.

The Appellant did not approach the High Court against the Order but straightway approached the Supreme Court by filing a Special Leave Petition on the ground that no useful purpose would be served by approaching the High Court since the view already expressed by that High Court was in conflict with the views taken by other High Courts on this issue.

Issue

Whether an award under the Act is required to be first filed in the Court having jurisdiction over the arbitration proceedings for execution and then to obtain transfer of the decree or whether the award can be straightway filed and executed in the Court where the assets are located.

Judgment

The Supreme Court considered the view taken by the: (i) Madhya Pradesh High Court in Computer Sciences Corporation India Pvt. Ltd. v. Harishchandra Lodwal & Anr.2; and (ii) Himachal Pradesh High Court in Jasvinder Kaur & Anr. v. Tata Motor Finance Limited3. In both these cases, the view of the High Courts was that the transfer of decree should first be obtained before filing the execution petition before the Court where the assets are located.

The Supreme Court further considered the view taken by the: (i) Delhi High Court in Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd.4; (ii) Kerala High Court in Maharashtra Apex Corporation Limited v. V. Balaji G. & Anr.5; (iii) Madras High Court in Kotak Mahindra Bank Ltd. v. Sivakama Sundari & Ors.6; (iv) Rajasthan High Court in Kotak Mahindra Bank Ltd. v. Ram Sharan Gurjar & Anr.7; (v) Allahabad High Court in GE Money Financial Services Ltd. v. Mohd. Azaz & Anr.8; (vi) Punjab & Haryana High Court in Indusind Bank Ltd. v. Bhullar Transport Company9; and (vii) Karnataka High Court in Sri Chandrashekhar v. Tata Motor Finance Ltd. & Ors.10 The view taken by the said High Courts in all these cases was to the effect that an award can be filed for execution before the Court where the assets of the judgment debtor are located.

The Supreme Court noted that Section 36 of the Act (Enforcement) provides that an award is to be enforced in accordance with the provisions of the CPC in the same manner as if it were a decree. It is thus the enforcement mechanism, which is akin to the enforcement of a decree, but the award itself is not a decree of the Civil Court as no decree whatsoever is passed by the Civil Court. The award itself is executed as a decree by fiction. It is the arbitral tribunal which renders an award and the tribunal does not have the power of execution of a decree. For the purposes of execution of a decree, the award is to be enforced in the same manner as if it were a decree under the CPC.

Further, the Supreme Court observed that the line of reasoning supporting the award to be filed in a so called Court of competent jurisdiction and then to obtain a transfer of the decree is primarily based on the jurisdiction clause found in Section 42 of the Act. The Court observed that Section 42 of the Act (Jurisdiction) applies with respect to an application being filed in Court under Part I of the Act.11 On the making of an application under Part I of the Act before a Court, such Court assumes jurisdiction over the arbitral proceedings. Resultantly, the subsequent applications arising from an agreement and the arbitral proceedings are to be made in that Court alone. However, Section 32 of the Act (Termination of proceedings) provides for arbitral proceedings to be terminated by the final arbitral award. Thus, when an award is already made of which execution is sought, the arbitral proceedings already stand terminated on the making of the final award. Hence, Section 42 of the Act which deals with the jurisdiction issue in respect of 'arbitral proceedings', would not have any relevance.

It is in light of the above, that the Supreme Court upholds the view adopted by the Delhi High Court in Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd.12 recording that Section 42 of the Act would not apply to an execution application. This judgment of the High Court further recorded that Section 38 (Court by which decree may be executed) of the CPC would apply to a decree passed by the Court, which can be distinguished from an arbitral award where no Court passes the decree.

The Supreme Court then proceeds to uphold the view of the Madras High Court in Kotak Mahindra Bank Ltd. v. Sivakama Sundari & Ors.13, wherein the view adopted was that decree of a Civil Court is liable to be executed primarily by the Court which passes the decree where an execution application has to be filed at the first instance. An award under Section 36 of the Act is equated to a decree of the Court for the purposes of execution and for that purpose alone. The Supreme Court held that it was rightly observed in the said case that an award passed by the arbitral tribunal is deemed to be a decree under Section 36 of the Act. However, there was nothing to indicate that the Court within whose jurisdiction the arbitral award was passed, should be taken to be the Court which passed the decree.

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

There were conflicting judgments by various High Courts surrounding the issue of appropriate Court for enforcement of arbitral award. In this case, the Supreme Court upheld the views taken by the High Courts of Delhi, Kerala, Madras, Rajasthan, Allahabad, Punjab & Haryana and Karnataka. The decisions rendered by the High Courts of Madhya Pradesh and Himachal Pradesh which had taken contrary views to the abovementioned High Courts, have been held to be not good in law by the Supreme Court.

This simplifies the process of execution of arbitral awards. Since the Act transcends all territorial barriers, a decree holder is not required to obtain any transfer of the decree from the Court which would have jurisdiction over arbitral proceedings. The judgment has effectively removed ambiguity on the issue and eased the process of enforcement of an award and will be viewed as a welcome development in Indian arbitration jurisprudence.

Footnotes

1 Authored by Tejas Karia, Partner & Head - Arbitration, Surjendu Sankar Das, Counsel and Avlokita Rajvi, Associate; Sundaram Finance Limited v. Abdul Samad & Anr., Civil Appeal No. 1650 of 2018, judgment dated 15 February 2018, Supreme Court..

2 AIR 2006 MP 34.

3 2013 SCC OnLine HP 3904.

4  (2009) 159 DLT 579.

5 2011 (4) KLJ 408.

6  (2011) 4 LW 745.

7  (2012) 1 RLW 960.

8 2013 SCC OnLine All 13365.

9 2012 SCC OnLine P&H 21674.

10 2014 SCC OnLine Kar 12146.

11 Section 42 of the Act states that "Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court."

12 Supra.

13 Supra.

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