[Saarthak Jain is a 2nd year B.A., LL.B. (Hons.) student at National Law School of India University (NLSIU), Bangalore with a deep interest in arbitration and corporate law.]
In Sundaram Finance Ltd. v. Abdul Samad, the Supreme Court this month settled the debate on the question as to whether an arbitral award is required to be filed for execution in the court having jurisdiction over the arbitration proceedings or whether it can be directly filed in the court where execution is sought. The bench of Chelameswar J. and Sanjay Kaul J. clarified that an award can straightaway be filed for execution in the court where the assets are located instead of obtaining a transfer of decree from the Court which would have jurisdiction over the arbitral proceedings.
Background
In this case, Abdul Samad (the respondent) had defaulted on a loan granted by Sundaram Finance Ltd. (the appellant) for the purchase of a vehicle. The lender obtained an ex parte arbitral award in its favour for a sum of Rs. 12,69,240 with interest at 18% p.a. Proceedings were filed by the lender at a trial court in Madhya Pradesh where execution of the award was sought. The trial court held that it lacked jurisdiction to enforce the award. This implied that Sundaram Finance Ltd. was required to file for execution at the court having jurisdiction over arbitral proceedings as identified in section 2(1)(e) of the Arbitration and Conciliation Act, 1996 (the “Act”) (which was located in Tamil Nadu in the present case), and obtain transfer of decree to the trial court in Madhya Pradesh. Sundaram Finance Ltd. approached the Supreme Court by filing a special leave petition, seeking to restore the execution application
The Confusion
Different High Courts had taken diverging opinions on this point of law. The Himachal Pradesh[1] and Madhya Pradesh High Courts[2] had held that execution proceedings need to be first filed at the court that would have jurisdiction over the arbitral proceedings. They reached this conclusion on the basis of section 42 of the Act, dealing with the jurisdiction over arbitral proceedings, read with section 2(1)(e) of the Act which defines a ‘Court.’ Reading these provisions in light of section 36 of the Act which provides for an award to be enforced in the same manner as if it were a decree of the court, they concluded that an arbitral award must be executed by first obtaining a transfer of decree as per the procedure laid down in section 39 of the Code of Civil Procedure, 1908.
In contrast, the Delhi[3], Madras[4], Rajasthan[5], Karnataka[6] and Punjab & Haryana[7] High Courts have held that an award can be straightaway filed for execution before the court where the assets are located. They have held that section 42 of the Act does not extend to the execution of an arbitral award and section 36 of the Act only aims to create a legal fiction without implying that the award is a decree of a court.
The Supreme Court’s Verdict
The Supreme Court favoured the latter view as reflecting the correct position of law. It based its reasoning on the premise that no decree is passed in case of an arbitral award; however, the award itself is executed as a decree by fiction. The Bench noted
An award under Section 36 of the said Act, is equated to a decree of the Court for the purposes of execution and only for that purpose. Thus, it was rightly observed that while an award passed by the arbitral tribunal is deemed to be a decree under Section 36 of the said Act, there was no deeming fiction anywhere to hold that the Court within whose jurisdiction the arbitral award was passed should be taken to be the Court, which passed the decree. The said Act actually transcends all territorial barriers.”
In regard to the jurisdictional barrier contained in section 42 of the Act, the Court held that the provision has no relevance in case of an execution application. The bar of jurisdiction under section 42 only applies to arbitral proceedings and subsequent applications arising out of the arbitration agreement. However, an execution application filed before a court is neither an “arbitral proceeding” nor an application arising out of the agreement within the meaning of section 42. This is clear from section 32 of the Act which states that arbitral proceedings stand terminated by the final arbitral award, whereas execution is sought only after the final award has been rendered.
Comment
This judgment has rightly settled a vexed question of law over which different legal opinions were rendered by various High Courts of the country. Although the wording of section 36 of the Act makes it clear that an arbitral award is to be executed in the same manner as a decree, the award still cannot be considered to be a decree of a particular court. As duly observed by the Supreme Court, an award is rendered by the arbitral tribunal which does not have the power of execution of a decree.
Further, contrary to the view of the Himachal Pradesh and Madhya Pradesh High Courts, section 42 of the Act is clearly inapplicable since the arbitral proceedings already stand terminated by the time execution is sought. Thus, the judgment of the Supreme Court reflects the correct legal position and provides a much-needed relief to those seeking to enforce arbitral awards.
– Saarthak Jain
[1] Jasvinder Kaur v. Tata Motor Finance Ltd., CMPMO No. 56/2013.
[2] Computer Sciences Corporation India Pvt. Ltd. v. Harishchandra Lodwal, AIR 2006 MP 34.
[3] Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd., 2009 159 DLT 579.
[4] Kotak Mahindra Bank Ltd. v. Sivakama Sundari, (2004) 4 LW 745.
[5] Kotak Mahindra Bank Ltd. v. Ram Sharan Gurjar, (2012) 1 RLW 960.
[6] Sri Chandrashekhar v. Tata Motor Finance Ltd., (2015) 1 AIR Kant R 261.
[7] Indusind Bank Ltd. v. Bhullar Transport Co., MANU/PH/2896/2012.