[Parimal Kashyap is a third year B.A., LL.B (Hons.) student at Dr. Ram Manohar Lohiya National Law University, Lucknow]
Is an arbitral award synonymous to the decree of a court? A reading of section 36 of the Arbitration and Conciliation Act 1996 may suggest a positive answer. The provision dealing with enforcement of domestic awards reads:
36. Enforcement.—(1) Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it was a decree of the court.
The provision certainly makes a couple of aspects clear: firstly, that a domestic award should be enforced in accordance with the provision of the Code of Civil Procedure and, secondly, that the award should be enforced as a ‘decree of the Court’. Execution (or enforcement) of the decrees is governed by section 39 of the Code. Section 39(4) in particular states:
Nothing in this section shall be deemed to authorise the Court which passed a decree to execute such decree against any person or property outside the local limits of its jurisdiction.
Here, a couple of questions arise: if an arbitral award is to be enforced as a decree of the court (and in the manner set out in the Code), does section 39(4) of the Code apply to arbitral proceedings as well? If it does, would section 39(4) limit the court of the designated seat of the arbitration from enforcing the award outside its territorial jurisdiction?
Fortunately for us, the question had been impliedly answered by the Supreme Court a year ago in Sundaram Finance Ltd. v. Abdul Samad. However, Justice G.S. Patel certainly reconciled any doubts that remained post-Sundaram Finance with his judgment in Global Asia Venture Co. v. Parimal Deb. In that case, the Bombay High Court was called upon to answer whether the court with supervisory jurisdiction over the arbitration proceeding (i.e., the seat of arbitration) enjoys jurisdiction to enforce arbitral award beyond its ‘territorial jurisdiction’.
The foregoing question was raised in three separate disputes. Thus, for the sake of convenience, the Court clubbed all the disputes together. In all the disputes, the arbitration agreement designated Mumbai as the seat of arbitration thereby giving courts of Mumbai ‘supervisory control’ over the arbitration proceedings. Similarly, in all the three cases, the assets of the award debtors were situated outside Mumbai.
The award debtors essentially argued that the supervisory jurisdiction of the court of the seat of the arbitration (hereinafter ‘2(1)(e) court’ or ‘arbitration-seat court’) ceases to exist when the award is to be enforced outside the jurisdiction of the supervisory courts. They based their argument on the connection between section 36 of the Act and section 39(4) of the Code.
Before analysing the present judgment, one must shift attention to the underlying jurisprudence behind the seat of the arbitration. In Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc., the Supreme Court held that the 2(1)(e) court exercises supervisory control over the arbitration proceedings. It further held that the court of the seat of arbitration could pass orders (for example, an order under section 17 of the Act) in relation to the arbitration proceedings, irrespective of the fact that obligation set out in such orders are to be performed outside its territorial jurisdiction (para 96).
The award holder argued that, since the 2(1)(e) court is empowered to hold supervisory control over the arbitration proceedings (ranging from hearing challenges to the award to providing post-award interim measures), there is no reason why such court would be divested for its jurisdiction during enforcement proceedings.
Court’s Interpretation of Sundaram Finance
Although Sundaram Finance had clarified that an award holder can initiate execution proceedings before any court in India where assets are located (para 20), the judgment did not explicitly rule on the jurisdiction of 2(1)(e) court and, hence, causing an unwarranted mix-up. The Court, in the present judgment, interpreted the ratio of Sundaram Finance and ruled that while one of the cornerstones of arbitration law is that it transcends all territorial barriers, section 39(4) of the Code, on the other hand, is a limitation of territoriality. Thus, section 39(4) of the Code cannot limit the jurisdiction provided by the Act. The Court also held that Sundaram Finance, while ruling that “the claimant need not obtain a transfer of the decree from the 2(1)(e) court”, had impliedly ruled that 2(1)(e) court, indeed, enjoys the jurisdiction in enforcement proceedings.
In conclusion, the Court held that Sundaram Finance provided that award holder with a choice in respect of enforcement proceeding. However, this opinion finds its origins in the Bharat Aluminium judgment where the Supreme Court ruled that, where obligations in the award are to be performed outside the jurisdiction of the arbitration-seat court, both the arbitration-seat court as well as the local court where obligations are to be performed (or where assets of the award debtor are located) enjoy jurisdiction during enforcement. In fact, a full bench of Bombay High Court in Gemini Bay Transcription Pvt Ltd., Nagpur v Integrated Sales Service Ltd concluded that “the provisions of the Arbitration Act ‘permit a decree to be executed either by the Court which passed it’, i.e., the Section 2(1)(e) court, or the court to which it was sent for execution.” The judiciary, thus, seems to have drawn an unbroken line with respect to the continuing jurisdiction of 2(1)(e) court starting from Bharat Aluminium to Gemini Bay via Sundaram Finance.
On the Difference between Civil Decree in Execution and Arbitral Award in Enforcement
One of the most remarkable features of Justice GS Patel’s judgment was his deconstruction of the legal fiction (which equates an arbitral award to the decree of a court) created under section 36 of the Act. The Court differentiated arbitration procedure from that of a subordinate court. It emphasised that the basis of arbitration is an agreement and the procedure of arbitration is “intended to provide for the speedy resolution of disputes and enforcement with a minimal level of judicial intervention”. The Court held that while decree is a product of a lawsuit governed by section 20 of the Code, arbitration proceedings are totally independent of jurisdictional restrictions brought in by section 20 of the Code. Using the precedent laid in Sundaram Finance, the Court ruled that “while there may be certain restrictions on the enforcement of a decree of a Civil Court those restrictions cannot be made to apply to the enforcement of arbitral awards without resulting in a completely incongruous situation”. Thus, the legal fiction created under section 36(1) of the Act must be interpreted as an enabling provision which allows smooth enforcement of the arbitral award. On the other hand, divesting the 2(1)(e) court of its jurisdiction during enforcement would run contrary to the legislative intent of the arbitration law (by defeating the effective enforcement of arbitral awards). Therefore, section 36(1) of the Act should not be read in isolation but in the framework of the Act. Consequently, unlike decree-holders, award holders do enjoy a jurisdictional choice.
The arbitration regime in India has suffered a lot due to the inconsistent and counter-arbitration interpretation of the Act. While the judgment may not be a groundbreaking one, it does contribute by reconciling the previous approaches on the issue. More importantly, it brings about a clear distinction between the enforcement of an award and the execution of a decree of the court. While, for the purpose of enforcement, the Act does stipulate that an arbitral award should be enforcement ‘as if’ it was a decree of the court, it does not envisage that the enforcement of the award should carry with it the various limitations associated with execution of a court decree (territoriality, for instance). This approach also makes sense in practice, as the whole idea behind designating a seat is to ensure that all the judicial proceedings in relation to the arbitration take places in the jurisdiction of arbitration-seat courts (which, for obvious reasons, is often a neutral venue.). Divesting such court from its jurisdiction during enforcement makes may make enforcement, an onerous task for the parties. Such an approach certainly runs contrary to the fundamentals of arbitration.
– Parimal Kashyap