Enforceability of Arbitral Awards in India: “Absence of” Territorial Jurisdiction Creates New Obstacles

[Dhruva Gandhi is an Advocate at the Bombay High Court]

Once a claimant has an arbitral award in its favour, a question arises as to which court can enforce the award and help recover its dues. Ordinarily, a court that has jurisdiction over the award-debtor or its assets would be the appropriate forum. In India, though, there are now conflicting judicial decisions on this proposition, only adding to the confusion of award-holders. Not to mention, this deters India from becoming a hub for commercial arbitrations. One set of High Courts has held that an application cannot be maintained before the principal civil court with respect to the seat of arbitral proceedings when it lacks the territorial jurisdiction to execute the award. A second set has held otherwise. In this post, I will analyse the statutory framework, the aforementioned dichotomy among the High Courts and an associated decision of the Supreme Court of India and argue that the former position is correct. 

The Confusion within the Statutory Scheme

Section 36 of the Indian Arbitration and Conciliation Act, 1996 (the “Act”) states that an arbitral award shall be enforced as if it were a decree of the court. Section 2(1)(e) of the Act defines ‘court’ in domestic arbitrations as the principal civil court of original jurisdiction that would have had the jurisdiction to decide questions forming the subject matter of the arbitration as if it were a suit (for convenience, the “2(1)(e) Court”). In international commercial arbitration, it is the concerned High Court. The execution of a decree in India however, takes place in terms of the provisions of the Code of Civil Procedure, 1908 (the “Code”). Logically therefore, the execution of an award too would be governed by the Code. Sections 38 of the Code states that “a decree may be executed either by the Court which passed it, or by the Court to which it is sent for execution”, and section 39 that a court cannot execute a decree against “any person or property outside the local limits of its jurisdiction”.

Reading sections 36 and 2(1)(e) of the Act together may suggest that an award is to be executed as if it were a decree of the 2(1)(e) Court. Reading the Act with sections 38 and 39 of the Code, though, suggests that: (i) only a court which passed the decree or to which it was sent may ordinarily execute it; and (ii) a court must have territorial jurisdiction over the award-debtor or its assets. In case of an arbitration, there exists no court which actually passed the decree. Therefore, it is impossible to comply with this mandate of the Code. In a way, it is fair to assume that the Act tries to cover this lacuna by asking an award-holder to approach the 2(1)(e) Court. However, it is possible that a 2(1)(e) Court itself may have no territorial jurisdiction. In these cases, two questions arise:

  1. Is it necessary (in light of section 36 of the Act) to first file an execution application before the 2(1)(e) Court and, then, have it transferred to a court which may execute it?

  2. Is an execution application even maintainable before the 2(1)(e) Court when it lacks territorial jurisdiction?
Sundaram Finance and the Supreme Court’s Implied Resolution

In Sundaram Finance v Abdul Samad,the Supreme Court explicitly only answered question (a) above. It ruled that the execution of an award can be initiated anywhere in the country where the decree can be executed, and there is no need to obtain a transfer from the 2(1)(e) Court. The Court did not explicitly answer question (b). However, an answer to question (b) is an implied prequel to that on question (a). An award-holder may feel the need to seek a transfer from a 2(1)(e) Court only when that court does not have the jurisdiction to enforce the award. As far as territorial limits are concerned, if the 2(1)(e) Court had jurisdiction, there would be no need to seek a transfer.

Similarly, if a 2(1)(e) Court could execute a decree even beyond its territorial jurisdiction in spite of section 39 of the Code, then too, there would be no controversy. The fact that this is not the case is made clear from the observation of the Supreme Court itself that —

an award is to be enforced in accordance with the provisions of the said code in the same manner as if it were a decree.” [emphasis supplied]
Therefore, the territorial limitations of the Code were reinforced by the Supreme Court. Consequently, an application filed before a 2(1)(e) Court lacking territorial jurisdiction ought not be maintainable.

The Supreme Court also dealt with section 42 of the Act. Section 42 states that once any application with respect to an arbitration agreement has been filed 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.” [emphasis supplied] For our purposes, the court referred to in section 42 is the 2(1)(e) Court. Taking note of section 32 of the Act, the Supreme Court said that once an award has been made of which execution is sought, arbitral proceedings stand terminated. Section 42 would have no bearing on the enforcement of an award. This conclusion buttresses the inference that execution of awards would primarily be governed by the Code.

Implied Reasoning of Sundaram Finance Recognized

This inference has found support in three subsequent High Court decisions. In MSTC Ltd v Krishna Coke (India) Pvt. Ltd. (3 December 2019), a single judge of the Calcutta High Court concluded that when the award-debtor had no assets within its territorial jurisdiction, the implication of Sundaram Finance would be that the court is denuded of its jurisdiction and the execution proceedings must be dismissed. Krishna Coke also found resonance in a decision of the Bombay High Court in Sara Chemicals & Consultants v Ogene Systems (I) Pvt. Ltd. (decided on 11 February 2020).

A third decision relevant here is that of Adil Pervai v Sajid Pervaiz (decided on 25 January 2019). In Pervaiz, a single judge of the Allahabad High Court interpreted Sundaram Finance to mean:

The crux is that while entertaining execution application, the Court concerned will examine as to whether it has territorial jurisdiction over the party or subject matter i.e. the properties, to execute the award.”

Applying this test, the Court found that none of the properties of the award-debtors were situated within the territorial jurisdiction of the concerned court and thus, held the execution application to be not maintainable.

Therefore, this set of High Court decisions takes Sundaram Finance to its logical conclusion. Recognizing that the execution of awards is governed by the Code, they hold that an execution application would not be maintainable before a 2(1)(e) Court when it lacks territorial jurisdiction.

Arup Parimal: The Bombay High Court’s Conflicted Position

Conflicting with these three decisions is another decision of a single judge of the Bombay High Court in Global Asia Venture Company v Arup Parimal Deb (26 April 2019). Arup Parimal interpreted Sundaram Finance to mean that an execution application filed before a 2(1)(e) Court would be maintainable even if it lacked territorial jurisdiction. It arrived at this conclusion because in its opinion:  (i) the ratio of Sundaram Finance was that the enforcement of an arbitral award transcends all territorial boundaries, (ii) nothing in Sundaram Finance operated to strip the 2(1)(e) Court of its jurisdiction, (iii) Section 36 of the Act is an enabling provision and does not import the territorial limitations of the Code, (iv) there would an internal conflict within the Act of section 36 with section 9, which allows the 2(1)(e) Court to issue protective measures even after the pronouncement of an award, and (v) a full bench (comprising three judges) of the Bombay High Court in Gemini Bay Transcription v Integrated Sales Service had interpreted Sundaram Finance similarly.

Gemini considered whether a foreign award could be executed only by the 2(1)(e) Court or it could be transferred to another court of competent jurisdiction. Gemini decided in favour of the transfer because (among other reasons) sections 38 and 39 of the Code would otherwise be rendered unworkable. Itdid not consider a question of the 2(1)(e) Court lacking territorial jurisdiction. The single judge’s reliance on Gemini in Arup Parimal was thus misplaced.

Second, its interpretation of Sundaram Finance ignores three fundamental words in paragraph 22: “can be executed”. The Supreme Court did not say that an award-holder can take the debtor to a court which cannot execute the award at all. It only permitted them to directly approach the court which possessed the necessary jurisdiction.

Third, characterizing section 36 of the Act as an enabling provision ignores the Supreme Court’s dictum that sections 38 and 39 of the Code govern the execution of an arbitral award. Lastly, all rules of procedure need not be sidelined just to make arbitral proceedings expedient. On the contrary, better clarity is sometimes lent by a clear stipulation that an award-holder must approach a court that can enforce the award within its territorial limits than to learn after several months of wasteful litigation that the hands of the 2(1)(e) Court are tied.

Conclusion

There is no escaping the fact that there is a conflict in Indian law (and particularly within the jurisdiction of the Bombay High Court) as to the maintainability of an application for the enforcement of an arbitral award. Confusion as to the appropriate forum only protracts proceedings, especially for an award-holder who is yet to receive her due. In my opinion, the decision in Arup Parimal misinterprets the law on the enforcement of arbitral awards and must be corrected. An award-holder must directly approach a court that has jurisdiction over the award-debtor or its assets.

Dhruva Gandhi

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