Context
In India, execution of decrees is governed by the Code of Civil Procedure, 1908 (‘CPC’), and execution of arbitration awards is governed by the Arbitration and Conciliation Act, 1996 (‘1996 Act’), and the CPC. For the purposes of enforcement, both domestic and foreign awards (recognition and enforcement thereof) are treated as decree of Court. This legal fiction also applies to consent awards, which are obtained after settlement is entered between parties. Domestic awards, which are basically India-seated arbitral awards, are governed by Part I of the 1996 Act, while foreign awards, which are foreign seated arbitral awards, are governed by Part II of the 1996 Act.
For domestic awards, an award holder has to wait for three months after the receipt of an award before applying for its execution. During the intervening period, the award can be challenged as per Section 34 of the 1996 Act. If no challenge is made to the arbitral award within this period, then it becomes final and binding. This award can then be executed as if it were a decree of Court.
Recently, Allahabad High Court in Sanjay Agarwal v. Rahul Agarwal[1] rejected the application made under Section 47 of the CPC during the execution stage of the award, which had become final and binding between parties. A critical analysis of the same follows next.
Dissecting the Allahabad High Court Judgement
Kishorilal Agarwal and his grandson, Sanjay Agarwal (‘Revisionist’), had entered into an agreement to develop a property leased out to them by the National Council for Young Men’s Christian Association of India. After the death of Motilal Agarwal (Father of the Revisionist), family members began disputing over distribution of assets, including the leased property.[2] At that time, Motilal Agarwal’s friend Anirudh Mithal intervened and with the consent of the relevant parties and the documents exchanged between them, an arbitral award was passed, settling the disputes and differences between Motilal Agarwal’s wife and her three children, including the Revisionist.[3]
Subsequently, Rahul Agarwal, one of Motilal Agarwal’s three children, filed an application for execution of the award before District Court, Lucknow.[4] The District Court rejected the objections of the Revisionist filed under Section 47 of the CPC, inter alia, on the ground that an award passed in the arbitration proceedings is not a decree within the meaning of Section 2(2) of the CPC and Section 47 of CPC would not be applicable to obstruct the execution of the award. It is against this order of the District Court that the Revisionist filed the present revision petition before the Allahabad High Court.[5]
While assailing the impugned order of the District Court, the Revisionist had, inter alia, contended the following:
- There was neither any arbitration agreement between the parties nor was there any claim filed by any of the parties. The award/ family settlement was also a nullity as it did not give any reasons.[6]
- Even otherwise, as per Section 36 of the 1996 Act, an award is liable to be enforced in the same manner as if it were a decree of the Court and while executing any decree, questions under Section 47 of CPC, pertaining to objections to execution, discharge, and satisfaction of a decree must be considered by the executing Court, which it failed to do.[7] Reliance was placed on the judgment of the Supreme Court in Dharma Prathisthanam v. Madhok Construction.[8]
- The award was not legally enforceable as the award itself stated that it should be given legal shape by expert civil lawyers/ Income Tax Consultant.[9]
- Therefore, the District Court erred in rejecting the application made under Section 47 of CPC.[10]
On the other hand, the Opposite Parties, inter alia, argued the following:
- The parties had agreed to the arbitration proceedings held by Anirudh Mithal and Revisionist had duly participated in the said proceedings.[11]
- Questions pertaining to the jurisdiction of the arbitral tribunal can be raised before the Tribunal itself as per Section 16 of the 1996 Act, and the question of jurisdiction could be raised under Section 34 as per Section 16(6) of the 1996 Act. But the Revisionist failed to do so.[12]
- Revisionist did not challenge the validity of the award under Section 34 of the 1996 Act and it had become final and binding. Revisionist’s objections are relatable to Section 16(6) of the 1996 Act for which remedy is under Section 34 of the 1996 Act and not under Section 47 of the CPC.[13] Reliance was placed on the Allahabad High Court judgment in Larsen and Toubro Limited v. Maharaji Educational Trust.[14]
- Therefore, the District Court had not erred in any way while rejecting the application under Section 47 of the CPC.[15]
In view of the aforesaid rival contentions made by the parties, the main issue before the Allahabad High Court was whether the validity of the award can be judged while deciding a revision petition.[16] While answering the question in the negative, the Allahabad High Court, relying on the vast jurisprudence already laid down by the Supreme Court and various other High Courts, reiterated that Section 115 of the CPC applies only when the subordinate Court:
- has exercised jurisdiction not vested in it by law, or
- has failed to exercise the vested jurisdiction or
- has acted in the exercise of its jurisdiction illegally or with material irregularity.
Reliance was placed on the Supreme Court judgment in Major S.S. Khanna v. Brig. F.J. Dillon[17]and Manick Chandra Nandy v. Debdas Nandy[18]to state that an impugned decision cannot be corrected by the High Court under Section 115 of the CPC if there is no question of ‘jurisdiction’.[19]
The Court disagreed with the Revisionist’s contention that the award was a nullity and at best a family settlement as he failed to produce any documents or evidence to show that there was no agreement to arbitrate, especially when the opposite parties relied upon letters and correspondences exchanged between them, showcasing their intention to resolve the disputes and differences through arbitration.[20]
The Court further observed that the Revisionist had failed to raise objections during the arbitration proceedings and subsequently cannot raise any belated objection to arbitration. He was required to raise the dispute with respect to jurisdiction of arbitrator before the Tribunal itself or challenge the award under Section 34 of the 1996 Act. Since he had failed to do the needful, the award had now become final and binding.[21]
The Revisionist’s reliance on the decision of Dharma Prathisthanam (supra)was rejected by the Court since that decision had interpreted a provision of the Arbitration and Conciliation Act, 1940, which has now undergone sea change with the introduction of 1996 Act.[22]
With respect to the maintainability of the objections under Section 47 of CPC filed against the application for execution of award, the Court relied on the judgments of this very Court in Larsen and Toubro (supra) and Sanjay Gupta v. Suresh Kumar Mishra,[23] to state that any party aggrieved by the award must challenge it as per the 1996 Act only. This principle has also been upheld by the Supreme Court in Punjab State Civil Supplies Corpn. Ltd. v. Atwal Rice & General Mills.[24]
The Allahabad High Court thus observed that an aggrieved party is barred by law from challenging the validity of an award at the execution stage, when the award is put to execution under Section 36 of the 1996 Act. Therefore, the application filed under Section 47 of the CPC was rejected and the decision of the District Court was upheld.[25]
Conclusion
This decision supports the legislative intent behind the 2015 Amendment to Section 36. The 2015 Amendment was made to facilitate and encourage arbitration to settle disputes in a more user-friendly and cost effective manner and to expeditiously dispose cases.[26]
In the present case, revision petition was dismissed by holding that at the stage of execution of an award under Section 36 of the 1996 Act, objections under Section 47 of the CPC cannot be raised as the award had attained finality. This is also to ensure that the execution of an award should not be delayed any further.
Nonetheless, as per various judgements rendered by the Supreme Court and various High Courts, there are certain grounds which can be raised to challenge the validity of an arbitral award during the execution proceedings. These are:
- Lack of jurisdiction of the arbitrator is patent and ex facie clear,[27]
- Award is made by the arbitrator based on invalid reference to arbitrate,[28]
- Award is per se illegal,[29]
- Award is ex facie against public policy,[30]
- Arbitration proceedings were conducted without giving an opportunity to the party to present their case, and copy of the award was also not furnished to that party to challenge the same,[31] and
- Legal representatives of a person, who was dead on the date of the decree, were not brought on record.
Accordingly, if it can be demonstrated unequivocally that the award is a nullity or void, then it cannot be enforced in execution proceedings. The principle of waiver, acquiescence and estoppel cannot be applied to bar the award debtor from applying under Section 47 of CPC.[32] Simultaneously, the executing Court cannot hold any kind of factual inquiry which could nullify the decree. The Court can only undertake limited inquiry regarding jurisdictional issues which goes to the root of the decree and has the effect of rendering the decree nullity.[33]
But in the present case, the Revisionist failed to convince both the District Court and the High Court that the award was a nullity and hence the Courts went on to dismiss the revision petition. Therefore, the exercise of entertaining objections at the stage of execution of arbitral award should be done with great caution to ensure that the arbitral award is given finality and the fruits of the same are enjoyed by the award holder without any delay.
For further information, please contact:
Vikash Kumar Jha, Partner, Cyril Amarchand Mangaldas
vikashkumar.jha@cyrilshroff.com
[1] Sanjay Agarwal v. Rahul Agarwal, 2024 SCC Online All 149 (Sanjay Agarwal).
[2] Id at para 14.
[3] Id at para 15.
[4] Id at para 7.
[5] Id at para 2.
[6] Sanjay Agarwal at para 10.
[7] Id at para 10.
[8] Dharma Prathisthanam vs Madhok Construction (P) Ltd, (2005) 9 SCC 686 (Dharma Prathisthanam).
[9] Id at para 11.
[10] Ibid.
[11] Id at para 12.
[12] Id at para 13.
[13] Id at para 12.
[14] Larsen and Toubro Limited v. Maharaji Educational Trust, 2010 SCC Online All 1866 (Larsen and Turbo).
[15] Id at para 13.
[16] Id at para 16.
[17] Major S.S. Khanna v. Brig. F.J. Dillon, (1964) 4 SCR 409.
[18] Manick Chandra Nandy v. Debdas Nandy, (1986) 1 SCC 512.
[19] Sanjay Agarwal at para 19.
[20] Id at para 26.
[21] Id at para 27.
[22] Ibid.
[23] Sanjay Gupta v. Suresh Kumar Mishra, 2023 (7) ADJ 747 (LB).
[24] Punjab State Civil Supplies Corpn. Ltd. v. Atwal Rice & General Mills, (2017) 8 SCC 116 (Punjab State Civil Supplies).
[25] Sanjay Agarwal, para 31.
[26] Para 3, Statement of Object and Reasons, Arbitration and Conciliation (Amendment) Act, 2015.
[27] R.K. Textiles v. Sulabh Textiles Pvt. Ltd.,2002 SCC OnLine Bom 279, para 14.
[28] Prabartak Commercial Corpn. Ltd. v. Chief Administrator, Dandakaranya Project, (1991) 1 SCC 498, paras 4, 5.
[29] Public Works Department v. Prakash Constructions, 2019 SCC OnLine Mad 410, para 48(c).
[30] Bijendra Kumar v. Pradeep Kumar, 2014 SCC OnLine Del 2042, para 7.
[31] J.K. Govindarajulu v. Sriram City Finance Ltd., 2020 SCC OnLine Mad 4697, para 6.
[32] Saraswat Trading Agency v. Union of India, 2004 SCC OnLine Cal 141, para 9.
[33] Punjab State Civil Supplies, para 20.
