THE ENIGMA OF EXECUTION OF ARBITRAL AWARDS IN INDIA
The Editorial Column is authored by Yuvraj Mathur, Associate Editor at RGNUL Financial and Mercantile Law Review.
Globalization has entailed the development of proficient techniques of dispute resolution. The accomplishment of any dispute resolution framework is contingent significantly on the efficacy of the enforcement mechanism that it commends. The ease of enforceability of an arbitral award makes it a successful ADR mechanism. In India, the Arbitration and Conciliation Act, 1996 (“Act”) and the Code of Civil Procedure, 1908 (“Code”) essentially address the mechanism for execution and implementation of arbitral awards. Although an arbitral tribunal passing a domestic award enforce it similarly to a court decree, an arbitral tribunal under no legal presumption is treated as a court.
2. JURISDICTION AS PER CODE
Civil actions are contested in courts within whose local limits the cause of action has arisen, the subject property is situated, or the defendant resides. The court’s jurisdiction in which a case can be instituted is dealt with under Sections 5 to 21 of the Code. Sections 36 to 74 provide for the execution of decrees and orders. Once a decree is passed, it may be executed either by the passing Court or transferred to a competent court with proper jurisdiction over the individual against whom the decree is passed or in the area within which the property is situated. In Sundaram Finance Ltd. v. Abdul Samad and Anr, Hon’ble Supreme Court held that the execution proceedings could be instituted by an award holder before any Indian court where assets are placed.
Provisions governing the transfer of decree are provided under section 39 of the Code. It stipulates that a decree passed by the concerned court in no way be sceptered to effectuate that particular decree against any individual or property beyond the legal scope of its jurisdiction. Moreover, Order 21 Rules 26 and 29 deal with incidents where the execution of the decree may be stayed to empower the judgement debtor to file an appeal.
3. JURISDICTION AS PER THE ARBITRATION AND CONCILIATION ACT, 1996
UNCITRAL Model Law was adopted in 1985, with the need to reconcile domestic laws concerning international commercial arbitration. India later ratified it in the form of the Arbitration and Conciliation Act, 1996.
The definition of ‘Court’ with original jurisdiction to decide on the questions of formation on the subject matter of arbitration in case the subject matter of the suit is the same is mentioned in Section 2(1)(e) of the Act. Jurisdiction to hear awards deriving from that place arbitral agreements are determined in Sections 20, 31(4), and 42.
The place of arbitration and differences between the juridical seat and venue is enshrined under Section 20 of the Act. The Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc recognized the concept of the supervisory court, where the court practices supervisory jurisdiction over the arbitral proceedings. Later, in Indus Mobile Distribution (P) Ltd v. Datawind Innovations (P) Ltd. the court held that the jurisdiction of the court under the arbitration law is seat-centric because once the place of arbitration is determined, it is the judicial seat, irrespective of where the course of action took place.
The grounds for setting aside the arbitral award are mentioned under section 34 of the act. As per Section 34(6), the period for disposal of the application is within one year from the date of service of notice. As per section 35 of the act, an arbitral award is decisive and conclusive on the parties claiming under them. According to section 36 of the act, the arbitral award shall be enforced under the CPC just as if it were a decree of the court, unlike the 1940 Arbitration Act where the award was not at all binding and for the decree to be enforceable, it needed the judgement pronounced by the court.
In the Board of Control for Cricket in India v. Kochi Cricket (P) Ltd Supreme Court finally settled the position that section 36 would be applicable regarding the legal actions instituted before the 2015 amendment became effective.
4. THE SECTION 42 PREDICAMENT
Section 42’s bare perusal manifests that it has a superseding impact on the other mentioned provisions of the Act. According to S.42 of the Act, the court where the primary application exuding from the arbitral proceedings or agreement of arbitration is made will have exclusive jurisdiction over all forthcoming court cases as well as power and jurisdiction over the arbitral processes. This runs counter to the 1996 Act which etched deeply the concept of the seat and supervisory jurisdiction. Therefore, Supreme Court in order to avoid conflict in BGS SGS Soma JV v. NHPC Ltd. held that once the parties choose the seat, Exclusive jurisdiction over any proceedings arising from the arbitration agreement has been accorded to the Court of the seat.
5. RECIPROCITY BETWEEN SECTION 36 AND 42 OF THE ARBITRATION AND CONCILIATION ACT, 1996
According to section 38 of CPC, the decree can be executed either by the court which passed the order or by the court in which it was sent for execution. Furthermore, section 39 of CPC talks about the conditions for the transfer of any decree for execution by the court that passed the order or another court with competent jurisdiction. The first part of Section 38 of CPC talks about the enforcement of any decree by the court which passed it, however, it does not apply to the case of an arbitral award because, unlike judgments, an arbitral award is given by an Arbitral tribunal that lacks the power of the enforcement of the decree.
In this regard, Section 39 also cannot be applied because there is no such court that can transfer the decree for execution. Moreover, enforcement by the court to which the decree is sent also does not apply due to the lack of any deeming fiction. However, while determining the jurisdiction of the court to execute an award, Section 39 comes into the picture as it lays down specific essential indicators needed for the determination of the appropriate court in case of filing of execution petition.
According to Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd., an arbitral award can be executed with a judgment debtor or his property at any particular place in close nexus, and in order to transfer the award to the court where, among other things, the judgement debtor's assets or possessions are located, the person in whose respect the award is not passed must bring an execution petition with the district court under whose jurisdiction the award was passed.
6. FILING OF EXECUTION APPLICATION
In Sundaram Finance Ltd. v. Abdul Samad, the Supreme Court held that S.42 of the Arbitration and Conciliation Act would not be applicable to execution applications. Execution can be filed throughout the country where the award can be enforced or executed, and the condition of requirement of obtaining a transfer of decree is not essential. However, the court failed to explain the situation where neither the judgment debtor resides, nor its property located under the court's jurisdiction is empowered or not to deal with the execution application for enforcement of the award. In Mohit Bhargava v. Bharat Bhushan Bhargava and ors., the Supreme Court concerning section 39(4) of CPC held that the executing court does not have the authority to entertain proceedings against the property located beyond its jurisdiction unless it falls under Order XXI Rule 3 of the Code.
In this regard, the Bombay High Court in Global Asia Venture Company v. Arup Parimal Deb and ors., with regards to territorial barriers, held that Section 39(4) talks about territoriality limitation. Thus, the court is well within its power to retain its jurisdiction to enforce the arbitral award. The court asserted that if the restrictions contained in CPC are applied to the enforcement of arbitral awards, it would be contrary to the very essence of the Act.
On the preliminary grounds, the judgement of the Bombay High Court was dismissed on maintainability by the Divisional Bench of the Bombay High Court. Furthermore, the Supreme Court stayed the whole execution proceedings concerning the assets present outside Mumbai.
Recently the Supreme Court in Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation Ltd said that “The law with regard to execution is not different for statutory corporations or the government.” Despite terminating the contract for operating the airport metro line before the end of the allotted timeframe, the Delhi Metro Rail Corporation failed to pay termination costs to DAMEPL, which is owned by Anil Ambani's Reliance Infrastructure Limited.
There has been a substantial modification in the corporate and commercial legal regime in the past several years. Some standard practices must be prohibited, and only when it cannot seek relief from the arbitral tribunal, the victim may knock at the doors of the Court. This is aligned with the aims of the Act to minimize the Court's involvement in the arbitration. In Sundaram Finance, the Supreme Court deliberately constructed the authorization provisions pursuant to section 36 of the Act, given the statutory aim to permit the easy implementation of arbitration decisions as decrees. The courts must follow the judgment of Sundaram finance while executing any arbitral awards. With the transnational character of arbitration proceedings, the Supreme Court should also explain the territorial constraints indicated in Section 39(4) of the Code. To ensure dispute resolution is absolutely practicable in this situation, the courts will need to address the issues raised above and ensure that future rulings offer remedies that take into account the actual realities of conflict resolution for India.