In a distinct departure from the erstwhile Arbitration Act, 1940, section 36 of the Arbitration and Conciliation Act, 1996, enables execution of an arbitral award “in the same manner as if it were a decree of the court”. Straightforward one would think, but a great deal of confusion has emanated from divergent views taken by high courts across the country.
The high courts of Madhya Pradesh and Himachal Pradesh took the view that for execution, an award had first to be filed in the court having jurisdiction over the arbitral proceedings and then transferred to the court having jurisdiction over the assets against which execution may be levied. In contrast, the high courts of Kerala, Rajasthan, Madras, Allahabad, Karnataka and Punjab and Haryana had held that an execution application may be made straightaway in the court which has jurisdiction over the assets.
This controversy was recently resolved by the Supreme Court in Sundaram Finance Ltd v Abdul Samad, where an award made in Tamil Nadu was sought to be executed in Madhya Pradesh directly, where the respondent was. The Madhya Pradesh court returned the execution application requiring that it be first filed in the competent court in Tamil Nadu and a transfer obtained for the Madhya Pradesh court. Sundaram Finance appealed to the Supreme Court.
The rationale behind the view of the Madhya Pradesh and Himachal Pradesh high courts was section 42 of the 1996 act, which provides that where with respect to an arbitration agreement an application has been made to a court, that court alone would have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings.
The Supreme Court rejected this view and while doing so analysed the issues from the perspective of the Code of Civil Procedure, 1908, and the 1996 act.
The Supreme Court noted that sections 37, 38 and 39 of the code are the relevant provisions with respect to execution. Section 37 defines the court which passed the decree while section 38 provides that a decree may be executed either by the court which passed the decree or by a court to which it was sent for execution. Section 39 stipulates the grounds for transfer of a decree from the court which passed the decree to another for the purposes of execution.
While noting these provisions, the Supreme Court observed that none of the high courts had considered section 46 of the code, which provides for “precepts”, i.e. a direction, on a decree holder’s application, by the court which passed the decree to another conmpetent court for attachment of property of a judgment debtor. This section enables the court passing the decree to retain the case while another court attaches property as stipulated under the decree.
The Supreme Court also noted the rules under order 21 of the code, which set out the procedures for execution of decrees, rule 11 in particular, which specifies the manner of presentation for an application for execution and the details that must be provided in the application including the suit number, etc.
The court noted that while an award may be enforced in the same manner as a decree under the 1996 act, there was no decree in the Sundaram Finance case; arbitration proceedings had culminated only in an award. The details prescribed by the code in respect of an application for execution of a decree were not relevant when execution of an award was sought.
The court also noted that section 36 of the act only deals with enforcement of awards and although the enforcement mechanism was akin to the enforcement of a decree, the award was not a decree. The court ruled that section 42 of the act was irrelevant when an application is made for execution of an award. The Madhya Pradesh and Himachal Pradesh high courts had overlooked section 32 of the act in terms of which arbitral proceedings stood terminated when an award was made. On the other hand, section 42 applies only to arbitration proceedings and has no application once an award has been issued.
Concluding, the Supreme Court has held that enforcement of an award through execution can be filed anywhere in the country where the award can be executed and that a transfer of decree from the court which had jurisdiction over the arbitral proceedings is not required.
This judgment is consistent with and furthers the longstanding and much desired objective of avoidance of multiplicity of litigations and proceedings.
Karthik Somasundram is a partner and Shreya Gupta is a senior associate at Bharucha & Partners.
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