INTRODUCTION
A division bench of the Hon'ble Supreme Court in Electrosteel Steel Limited v Ispat Carrier Private Limited [2025 INSC 525] ("Electrosteel") recently held that objections regarding the executability or nullity of a decree, as available under Section 47 of the Code of Civil Procedure, 1908 ("CPC"), can be raised in an enforcement proceeding in respect of a domestic arbitration award under Section 36 of the Arbitration and Conciliation Act, 1996 ("Act").
While Electrosteel holds that the scope of such objection is limited, it observed that the infirmity in jurisdiction of an arbitral tribunal may be raised as a ground under Section 47 of CPC for resisting enforcement of an award, but such a challenge would lie within a very narrow compass.
The Electrosteel judgment may have the potential to open up an avenue for challenging the jurisdiction of the arbitral tribunal, in addition to the grounds available under Section 34 of the Act for setting aside the award. The present article analyses the Electrosteel judgment and discusses the approach adopted by the Delhi High Court in Anglo-American Metallurgical Coal Pvt. Ltd. v MMTC Ltd. ("Anglo-American")1, a judgment rendered after the Electrosteel judgment, which appears to be in variance with Electrosteel.
BACKGROUND
The Respondent, Ispat Carrier Private Limited, initiated an arbitration proceeding against the Appellant, Electrosteel Steel Limited, before the West Bengal Micro, Small and Medium Facilitation Council ("Facilitation Council") under Micro, Small and Medium Enterprises Development Act, 2006.
During the arbitration proceedings, an insolvency proceeding was initiated against the Appellant, and moratorium was imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016.
The insolvency proceeding concluded with the Appellant being taken over by the successful Resolution Applicant, Vedanta Limited ("Vedanta"). Notably, Vedanta's resolution plan, approved by the National Company Law Tribunal, Kolkata ("NCLT"), did not specifically address the Respondent's claim filed with the resolution professional of the Appellant, but provided that claims of the Appellant's top thirty operational creditors would be settled at "nil". While approving Vedanta's resolution plan, the NCLT declared that claims of all operational creditors were settled at "nil".
The Respondent did not challenge the NCLT's order approving Vedanta's resolution plan. However, the order was assailed by several other operational creditors of the Appellant. These challenges were held to be invalid by the NCLAT and Hon'ble Supreme Court.
Once moratorium was lifted, the arbitration proceeding before the Facilitation Council recommenced, and an award dated 6 July 2018 was passed in favour of the Respondent. The Appellant did not challenge the arbitration award under Section 34 of the Act. The Respondent instituted enforcement proceedings before the Commercial District Court, at which stage, the Appellant resisted the executability of the award on the ground that the arbitral award was a nullity and therefore, inexecutable.
The Appellant's challenge to the enforcement proceedings were dismissed by the Commercial District Court which was subsequently challenged in an appeal before the Jharkhand High Court. The High Court while disposing of the appeal held that:
- The objection of nullity of an award as available under Section 47 CPC can be raised in an enforcement proceeding under Section 36 of the Act;
- However, it was impermissible to raise such an objection for the first time in enforcement proceedings, and the Appellant ought to have challenged the award under Section 34 of the Act; and
- The approval of the Vedanta's resolution plan by the NCLT did not preclude the Facilitation Council from exercising jurisdiction and passing an award, as the arbitral proceeding was initiated prior to the insolvency resolution date, which was suspended during the moratorium period, and recommenced after moratorium was lifted.
Aggrieved by the Hon'ble High Court's judgment, the Appellant filed a Special Leave Petition challenging the judgment.
DECISION OF THE COURT
The Supreme Court while allowing the appeal and setting aside the enforcement proceedings before the Commercial Court held as follows:
- Section 47 CPC and enforcement of arbitration awards: at the stage of enforcement, an objection as to executability of a decree can be raised, however, such an objection is limited to the ground of jurisdictional infirmity or nullity and lies within very narrow compass. As Section 36 of the Act provides that an award shall be enforced in accordance with the provisions of CPC in the same manner as if it were a decree of a civil court, objections may be raised in respect of executability of an award, as available under Section 47 of CPC.
- Claims post approval of resolution plan: all claims, including that of the Respondent were settled at "nil" in the resolution plan. Therefore, the Respondent's claim would not subsist after the approval of the resolution plan. Thus, the Facilitation Council did not have jurisdiction to adjudicate the Respondent's claim.
POSTSCRIPT - JUDGMENT OF THE DELHI HIGH COURT IN ANGLO-AMERICAL METALLURGICAL COAL PVT. LTD. V MMTC LTD.
The Delhi High Court in Anglo-American, a judgment rendered after the Electrosteel judgment, appears to have taken a view which appears to be in variance with Electrosteel. The Electrosteel judgment was not brought to the Delhi High Court's attention in Anglo-American, presumably because the judgment in Anglo-American may have been reserved before the Electrosteel judgment.
The Hon'ble Delhi High Court in Anglo-American discussed the settled principles of arbitration i.e., party autonomy, limited interference by courts and the Act being a self-contained legislation before observing that a challenge under Section 47 of CPC is impermissible qua an award. In support of this reasoning, the Delhi High Court observed as follows:
- if the objections under Section 47 CPC are allowed to be entertained during the enforcement proceedings of an arbitration award, it would open a second round of challenging the arbitration award, which would undermine Section 34 of the Act and defeat the provisions of the Act.
- Arbitral proceedings are distinct from civil suits / proceedings. The use of CPC provisions is confined to enforcement mechanisms under Order XXI CPC and does not allow a re-challenge to the arbitration award on merits, which is exclusively governed by Section 34 of the Act.
- An arbitration award cannot be termed as a decree as the same is not passed by the Court. The legal fiction under Section 36 of the Act allowing an award to be enforced "as if it were a decree", is limited solely to its "enforcement" and does not equate an award with a decree in substance.
COMMENT
The Electrosteel judgment grants a very limited window to a judgment debtor to raise objections regarding an award being nullity or void ab initio, even in instances where the judgment debtor may not have challenged the award under Section 34 of the Act. Though limited, this window to raise jurisdictional infirmities may be perceived as a second bite at the cherry for challenging arbitration awards on grounds set out under Section 47 CPC. While the Delhi High Court judgment in Anglo-American does not appear to align with the Electrosteel judgment, it effectively shuts out any attempt in challenging the arbitration award based on grounds set out under Section 47 CPC. The intention of the legislature in amending Section 36 of the Act was to "facilitate quick enforcement of contracts, easy recovery of monetary claims and award of just compensation for damages suffered and reduce the pendency of cases in courts and hasten the process of dispute resolution through arbitration". The limited opportunity of challenging the execution of arbitration awards, based on grounds available under Section 47 CPC, has the potential to be misused and may not align with the legislative intent to facilitate quick enforcement of awards. Accordingly, the dictum in Electrosteel may require clarification by the Supreme Court in the future in an appropriate case.
Footnote
1. [OMP (ENF.) (COMM.) 19/2018]
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