INTRODUCTION
India’s arbitration law is thorough and organic because of its ever-evolving nature, through several amendments and decisions of the courts from time to time. However, the strict wordings of certain provisions contained in the Arbitration and Conciliation Act, 1996 (“Arbitration Act”),have caused a stir, for which courts have had to step in and use the tools of interpretation to resolve such practical dilemmas.
One such provision in the Arbitration Act is Section 42, which clearly stipulates that in relation to an arbitration agreement, where an application is made under Part I of the Arbitration Act to a court, that court alone will have jurisdiction over the arbitral proceeding and over all subsequent applications made in that arbitral proceeding. But this leads to a very important question – what happens to an arbitral award which is sought to be enforced under Section 36 of the Arbitration Act, is the award holder required to file an enforcement/ execution application before the court where earlier applications were filed as provided under Section 42 or the award holder can directly apply for enforcement of the award before the court where the assets of the judgement debtor are located?
This issue arises considering the conflicting decisions of the Hon’ble Supreme Court in State of W.B. v. Associated Contractors[1] (“Associated Contractors”) and Sundaram Finance Ltd. v. Abdul Samad[2] (“Sundaram Finance”). Through this article, we discuss the relevant provisions of the Arbitration Act, in juxtaposition to the observations of the court to explore the true effect/ impact and the practical application of Section 42.
USAGE OF THE TERM “COURT” UNDER THE ARBITRATION ACT
Section 2(1)(e) of the Arbitration Act lays down the definition of “Court” for the purposes of the Arbitration Act. It states that a Principal Civil Court of original jurisdiction in a district and the High Court exercising ordinary original civil jurisdiction shall have jurisdiction to settle questions relating to the subject matter of arbitration. It is interesting to note that the definition makes use of the terms “means” and “includes”, implying an exclusive and an exhaustive definition. Section 42 uses the term “Court”, which as a natural corollary would take its meaning from Section 2(1)(e), which provides for an exhaustive definition. Further, Section 36, which relates to enforcement of arbitral awards, also uses the term “Court”; however, the usage therein is used to describe the manner of enforcement of the award as a decree of the Court and not in the nature of clarifying as to which Court is equipped with territorial jurisdiction to enforce an arbitral award.
APPARENT CONFLICT IN VIEWS OF THE HON’BLE SUPREME COURT:
The Hon’ble Supreme Court in the matter of Associated Contractors was dealing with a case where a Section 34 petition under the Arbitration Act came to be instituted in the District Court, Jalpaiguri, despite the fact that earlier a Section 9 application was entertained by the Calcutta High Court, which led to the High Court passing an interim order, and therefore the Hon’ble Supreme Court had to decide which would be the competent court to entertain and decide the petition filed under Section 34. The Hon’ble Supreme Court while referring to Sections 2(1)(e), 9, 34 and particularly Section 42 of the Arbitration Act inter alia observed that even after the arbitral proceedings come to an end, Section 42 is applicable, provided that such arbitral proceedings fall under Part I of the Arbitration Act. The Hon’ble Supreme Court observed that a Section 9 application is essentially made to a Court and in view of Section 42, the term “all subsequent applications arising out of that agreement” would include a Section 34 petition and therefore considering the facts of the case, the petition must be preferred before the Hon’ble Calcutta High Court and not before the District Court, Jalpaiguri.
In Sundaram Finance, the Hon’ble Supreme Court was dealing with the issue of where an execution petition would lie for the purposes of the Arbitration Act. The Hon’ble Supreme Court had the occasion to determine whether an execution petition must necessarily be filed before the Court, which has seisin over arbitration proceedings and then if required, be transferred to another Court for execution of the arbitral award or whether an execution petition could directly be filed in the Court within whose jurisdiction the assets of the judgement debtor are placed for ease of convenience. Further, the Hon’ble Supreme Court looked at Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd.[3], wherein it was held by the Hon’ble Delhi High Court that Section 42 is not applicable to Section 36 as the proceedings under the latter section do not fall within the term “arbitral proceedings” as used in Section 42. The Hon’ble Supreme Court observed that Section 32 of the Arbitration Act stipulates that arbitral proceedings terminate after an arbitral award has been passed and when an arbitral award is sought to be executed, Section 42 would not be applicable since at that stage the arbitral proceedings have already been terminated, thus, according to the Hon’ble Supreme Court, enforcement of arbitral award can be sought anywhere in the country.
The Hon’ble Supreme Court in BGS SGS Soma JV v. NHPC Ltd.[4] (“BGS Soma”),observed that a seat court has exclusive jurisdiction over an arbitral proceeding and over all subsequent proceedings in an arbitral proceeding in view of Section 42. However, it is pertinent to note that the facts in BGS Soma were not related to enforcement of an arbitral award.
VIEW OF HON’BLE DELHI HIGH COURT IN LIGHT OF DECISIONS IN ASSOCIATED CONTRACTORS, SUDARAM FINANCE AND BGS SOMA:
The Hon’ble Delhi High Court in Gujarat Jhm Hotels Ltd. v. Rajasthali Resorts and Studios Limited[5] (“Gujarat Jhm”) took stock of the views taken by the Hon’ble Supreme Court in Associated Contractors, Sundaram Finance and BGS Soma. In Gujarat Jhm,the Hon’ble Delhi High Court was dealing with a case wherein the executing court relied upon the decision of the Hon’ble Supreme Court in Associated Contractors and directed the award holder to approach the seat court for execution of arbitral award. The award holder made submissions before the seat court where it argued that the seat court cannot assume to have jurisdiction over enforcement proceedings of the arbitral award and that the position of law on jurisdiction with regard to enforcement of an arbitral award was still unclear.
The moot question before the Hon’ble Delhi High Court was whether there is a jurisdictional bar in enforcing an arbitral award in light of Section 42 and if not, can an execution petition be made before the seat court first. The Hon’ble Delhi High Court took the view that the decision of the Hon’ble Supreme Court in Sundaram Finance meant that a party is not obligated to apply for transfer of an execution petition, but that does not necessarily mean that such a party cannot apply for enforcement of an arbitral award before the seat court.
The Hon’ble Delhi High Court observed that there is no conflict between the decisions of the Hon’ble Supreme Court in Associated Contractors and Sundaram Finance because the Hon’ble Supreme Court in Sundaram Finance held that a party has a choice to seek enforcement of an arbitral award before the court where the assets of the judgement debtor are placed, in addition to seeking enforcement of an award in the seat court. The Hon’ble Delhi High Court acknowledged the provisions of the Code of Civil Procedure (“CPC”), particularly Sections 36 to 46 of the CPC, which deal with execution of a decree. The Hon’ble Court emphasised that the focus therein is on “Court which passed a decree”, CPC deals with decrees passed by courts under the civil hierarchy of courts, however, an award rendered by an arbitral tribunal under the Arbitration Act cannot be put on the same pedestal as a decree passed by a court. Further, Section 36 of the Arbitration Act merely provides that an arbitral award can be enforced as if it were a decree passed by a court.
The Hon’ble Delhi High Court thus concluded that the decisions in Associated Contractors, Sundaram Finance and BGS Soma show that a party is permitted to initiate enforcement proceedings before a seat court, however, the decision in Sundaram Finance especially gives a choice to a party to apply for enforcement proceedings before the court within whose jurisdiction the assets of judgment debtor are situated.
CONCLUSION:
Even though it is apparent that the decision in Gujarat Jhm has provided a degree of clarity on the aspect of conferment of jurisdiction in relation to enforcement of arbitral awards, there is also a glaring ambiguity and hence in several other similar cases, the executing court may direct the parties to approach the seat court for execution of an arbitral award instead of executing the award by itself. That the Hon’ble Supreme Court and the Hon’ble High Courts, in appropriate cases, may be required to step up in cases wherein the executing court declines to entertain or exercise jurisdiction regarding the execution of an arbitral award would be counterproductive to the very scheme and tenor of the Arbitration Act. There is still a need either for the Apex Court to render a much clearer decision on the matter or the Legislature to introduce a change in law in consonance with the object and purpose of the Arbitration Act.
For further information, please contact:
Vikash Kumar Jha, Partner, Cyril Amarchand Mangaldas
vikashkumar.jha@cyrilshroff.com
[1] (2015) 1 SCC 32
[2] (2018) 3 SCC 622
[3] 2009 SCC OnLine Del 511
[4] (2020) 4 SCC 234
[5] 2023 SCC OnLine Del 161
