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Supreme Court puts to rest jurisdictional issues in execution of Arbitral Awards

By: Meenakshi Iyer

Introduction

In a recent judgement, the Supreme Court has finally settled the much debated and divergent views by various Indian High Courts and has ruled that an arbitral award can be directly filed and executed in the Court where the assets of the Judgement Debtor are located and that there was no need to obtain a transfer of the decree from the Court which would have the jurisdiction over the arbitral proceedings. (Judgment dated 15th February, 2018).

Facts in brief

The Appellant, Sundaram Finance Limited in this matter had filed arbitration proceedings against the Respondents Abdul Samad & Another, for recovery of the loan advanced to them under a vehicle loan agreement. The arbitration was held in Tamil Nadu, a state in India. An ex-parte award was passed by the Learned Arbitrator. The award having attained finality, the Appellant filed execution proceedings in the District Court at Morena, Madhya Pradesh, another state in India. The trial court (Morena) returned the proceedings directing the Appellant to present it before the court of competent jurisdiction.

In other words, the Appellant was asked to initiate execution proceedings before the competent court in Tamil Nadu, (where the arbitral proceedings were held) obtain a transfer of the decree to Morena District Court and thereafter present the execution application in Morena. Aggrieved by the said order, the Appellant, without approaching the Madhya Pradesh High Court (which had taken an adverse view on the issue), filed a Special Leave Petition in the Supreme Court of India.

The core issue before the Apex Court was whether an arbitration award (i) is required to be filed in the court having jurisdiction over the arbitration proceedings and then a transfer decree be obtained; or (ii) can be executed in the court within whose jurisdiction the assets of the judgment debtor are located.

Judgment

High Courts of Madhya Pradesh and Himachal Pradesh had earlier taken the view that a transfer decree was to be obtained from the court having jurisdiction over arbitral proceedings, to initiate execution proceedings before court within whose jurisdiction the assets are located. High Courts of Delhi, Madras, Punjab & Haryana, Rajasthan, Kerala and Karnataka have held to the contrary that an award can be directly executed before the court within whose jurisdiction the assets are situated.

Analyzing Part II of the Code of Civil Procedure, 1908 (the Code) which deals with execution proceedings, particularly Sections 37, 38, 39 and 46, the Court opined that a decree can be executed either by the Court which passed the decree (Decreeing Court) or by the court to which the decree has been sent for execution (by obtaining a transfer from the Decreeing Court, which would issue a precept to another court which is competent to execute the decree).

In so far as arbitration proceedings are concerned, the arbitral tribunal passes an award, and not a ‘decree’. In such circumstances, Section 36 of the Arbitration and Conciliation Act, 1996 (the Act) comes into play, which provides for an award to be executed in the same manner as if it were a decree under the Code. What needs to be understood is that in so far as arbitral awards are concerned, it is only the enforcement mechanism under the Act which is akin to that of a decree under the Code and that does not by itself, make an arbitration award a decree. The Court held that 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. 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.

On further analysis of the provisions of the Act dealing with jurisdiction of arbitration proceedings, the Court observed that Section 42 (which states that when an application with respect to an arbitration agreement is filed in a court under Part I of the Act, all subsequent applications arising out of that agreement or arbitral proceedings are to be made in that court alone) has no force once the arbitration proceedings stand terminated on making of the final award, as provided under Section 32. In other words, once an award has been made, Section 42 has no relevance in execution of an award.

Analysis and Conclusion

While parties resorted to arbitration as an alternate, expeditious and efficacious means of dispute resolution, the issue of jurisdiction and the detailed procedure for execution of the award always proved to be a hindrance, thereby delaying the entire process. By this decision, much needed clarity has been provided on the jurisdictional issues relating to enforcement of arbitral awards, making execution proceedings under the Act flexible and less time consuming.

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