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All’S (not) well that ends well: The challenge in enforcing domestic awards before indian courts
May 12, 2023In any legal system, procedural justice is as important a goal as substantive justice. One example is the enforcement of arbitral awards. An award once rendered remains a paper tiger until enforced by a court. The question that arises is, which court(s) have the jurisdiction to enforce an award. In the case of court decrees, one knows which court to go to. The Code of Civil Procedure, 1908 (Code) provides that execution may be pursued before either the court that passed the decree, or the court to which it is sent for execution (executing court), in the event that the judgment-debtor or assets of the judgment-debtor are located in the territorial jurisdiction of another court.[1] In the case of arbitral awards, the answer is not so simple. This is despite Section 36 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), which provides that an award shall be enforced in accordance with the Code in the same manner as if it were a decree of the court.
The Arbitration Act is peculiar for several reasons, one of which is Section 42 of the Arbitration Act, which begins with a non obstante clause. It provides that “with respect to an arbitration agreement”, if an application is made to a “Court”, that court shall have exclusive jurisdiction over the arbitral proceedings and “all subsequent applications arising out of that agreement and the arbitral proceedings”. Section 42 serves as a jurisdictional bar and is aimed at avoiding conflicting jurisdiction by different courts. It gives the “Court” before which an application is first made, exclusive supervisory jurisdiction throughout the arbitral proceedings. ”Court” has been defined in Section 2(1)(e) of the Arbitration Act as the one that has original jurisdiction to decide questions that form the subject-matter of the arbitration. The first application is often an application for interim relief under Section 9 of the Arbitration Act. While this is typically made before the court at the seat of arbitration (seat court), it may be made before a court where a part of the cause of action arises, for example, where parties have not agreed on a seat. In either case, that court becomes the “Court” within the meaning of Section 42 of the Arbitration Act. While a reading of Section 2(1)(e) provides some clarity about which court assumes exclusive supervisory jurisdiction, what is less clear is the stage up to which the court’s jurisdiction extends. This turns on the meaning of the phrase “all subsequent applications” in Section 42 of the Arbitration Act.
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Prior to 2014, it was clear that Section 42 extended to petitions seeking setting aside an award under Section 34 of the Arbitration Act. However, High Courts took conflicting views on whether Section 42 applies to applications for enforcement under Section 36 of the Arbitration Act.[2] Then came the decision of the Supreme Court of India (Supreme Court) in 2014 in State of W.B. v. Associated Contractors (Associated Contractors),[3] which held that Section 42 takes within its sweep all applications under Part I of the Arbitration Act, including applications after an award is pronounced. Although this decision was not in the context of enforcement, it appears to have caused some confusion with some courts interpreting it to mean that Section 42 extended to the enforcement stage. Consequently, award creditors who approached the executing court were turned down on the basis that it was the court where an application was first made that had jurisdiction. They were asked to approach that court for a certificate of transfer to the executing court.[4]
In 2018, in Sundaram Finance Ltd. v. Abdul Samad (Sundaram Finance)[5] the Supreme Court took the view that an enforcement petition can be filed directly before the executing court without a transfer certificate from the court. Relying on this decision, some seat courts further muddied the landscape by taking the view that an execution petition must be filed only before the executing court.[6] Award creditors were caught in the middle, without the certainty of knowing which court to approach first.
Recently, the Delhi High Court in Gujarat JHM Hotels Ltd. v. Rajasthali Resorts and Studios Ltd. (Gujarat JHM)[7] took the opportunity to consider the apparent conflict between two decisions of the Supreme Court. In this case too, the executing court had relied on Associated Contractors[8] and directed the award creditor to the court, which in this case was the seat court. Before the seat court, the award debtor argued that the seat court cannot assume jurisdiction over enforcement proceedings but conceded that the position remains unsettled due to conflicting decisions. The Delhi High Court held that the award creditor has the choice to approach either the executing court directly or the seat court to seek a transfer to the executing court. In doing so, Gujarat JHM[9] appears to have struck a balance between the positions adopted by executing courts and seat courts.
In this piece, we argue that the decisions of Associated Contractors[10], Sundaram Finance[11] and Gujarat JHM[12] bring to fore the gap in the law regarding the forum for enforcement of domestic awards.
We begin by analysing the contours of the apparent conflict in decisions. In Associated Contractors[13], a Full Bench of the Supreme Court was deciding whether a petition to set aside an award under Section 34 of the Arbitration Act had to be made to the court before which an application for interim relief under Section 9 of the Arbitration Act had been made, prior to the constitution of the Arbitral Tribunal (Section 9 court). The appellant argued that only the “principal Civil Court of original jurisdiction” as defined in Section 2(1)(e) of the Arbitration Act had jurisdiction. On the other hand, the respondent argued that by virtue of the jurisdictional bar under Section 42, Section 9 court had jurisdiction.
The Supreme Court read Section 42 of the Arbitration Act broadly and held that “the expression ‘with respect to an arbitration agreement’ makes it clear that Section 42 will apply to all applications made whether before or during arbitral proceedings or after an award is pronounced under Part I of the 1996 Act”. It further held that for Section 42 to apply, the application should be made “to a court as defined” in Section 2(1)(e) of the Arbitration Act. This excludes applications made to judicial authorities before the dispute is referred to arbitration under Section 8 of the Arbitration Act and applications for appointment of an arbitrator, which are to be made by the Supreme Court or High Court, in terms of Section 11 of the Arbitration Act.[14] In both these cases, the court before which an application is made is not a court that would naturally have jurisdiction over the subject-matter of the arbitration or in other words, would not qualify as “Court”. However, the Supreme Court did not deal with whether Section 42 extended to applications for post-award enforcement.
While one view is that this omission was intentional as Section 42 does not cover applications for enforcement, an alternative argument is that Section 42 applies to applications for enforcement, the court in Associated Contractors was not required to consider this in light of the facts of the case.
In Sundaram Finance[15], a two-Judge Bench of the Supreme Court was dealing specifically with a petition for enforcement. The court took the view that “it is not appreciated how Section 42 of the said Act, which deals with the jurisdiction issue in respect of arbitral proceedings, would have any relevance” to applications for enforcement. According to the court, Section 42 deals with jurisdictional issues “in respect of arbitration proceedings”. The argument that follows is that enforcement, which takes place once an award is rendered and arbitration proceedings are terminated, cannot be controlled by Section 42 of the Arbitration Act. Therefore, “enforcement of an award through its execution can be filed anywhere in the country where such decree can be executed and there is no requirement for obtaining a transfer of the decree from the court, which would have jurisdiction over the arbitral proceedings”.
However, Sundaram Finance[16] did not clarify whether the finding in Associated Contractors[17] regarding the wide ambit of Section 42 extended to enforcement. In fact, it did not even take Associated Contractors[18] into account. Being of smaller Bench strength than Associated Contractors[19], its precedential value is not clear. It is in this context that it is relevant to see what conflict exists, if any. In our view, since Associated Contractors[20] was in the context of setting aside proceedings, no conflict between the decisions exist as regards applications for enforcement. This is also why the court in Sundaram Finance[21] did not have to consider Associated Contractors[22]. Thus, Sundaram Finance[23] should be the law that holds the field, allowing parties the option of directly approaching the executing court. To this extent, the reliance by courts on Associated Contractors[24] to refuse award creditors could be dubious.
Is there a conflict with respect to the applicability of Section 42 to setting aside proceedings? The language adopted in Sundaram Finance[25] that Section 42 would not have “any relevance” post termination can cause some confusion since proceedings post termination include setting aside proceedings. However, Associated Contractors[26] specifically included Section 34 within the ambit of Section 42 of the Arbitration Act and as discussed above, was decided by a larger Bench. Therefore, there exists no conflict, even with respect to setting aside proceedings.
If Section 42 does not act as a jurisdictional bar to a petition for enforcement, the only question that remains is — can parties still approach the seat court first to enforce an award? This was the central question before the Delhi High Court in Gujarat JHM[27]. The Delhi High Court answered this question in the affirmative. It observed, rightly, that the view taken in Sundaram Finance[28] that parties need not approach the court to obtain a transfer petition does not mean that parties cannot approach the seat court. On this basis, the Delhi High Court concluded that there could exist no conflict between Associated Contractors[29] and Sundaram Finance[30]. However, the court steered clear of taking a view on whether the finding in Associated Contractors[31] regarding the ambit of Section 42 applied to enforcement in the first place. Instead, it limited Associated Contractors[32] to its context of applying to a setting aside proceeding. Similarly, it observed that the view taken in Sundaram Finance[33] regarding the applicability of Section 42 should be seen in its context, of applying to an application for enforcement. According to the court, it can be legitimately argued that an enforcement petition transcends the arbitration agreement, which is a prerequisite for Section 42 to apply and that the rights and liabilities of parties would be governed by the award.
To justify its finding that an award creditor can approach the seat court, it referred to the decision of the Supreme Court in BGS SGS Soma JV v. NHPC Ltd. (BGS SGS Soma).[34] In this case, the Supreme Court held that where a seat is designated, the seat court has exclusive jurisdiction over the arbitral proceedings and all subsequent applications arising out of the arbitration agreement and becomes the court under Section 42 of the Arbitration Act. Although BGS SGS Soma[35] did not involve a petition for enforcement, the Delhi High Court in Gujarat JHM[36] used this decision to extend the jurisdiction of the seat court to the stage of enforcement.
These decisions demonstrate that the law is not fully clear. While Gujarat JHM[37] allow award creditors a sigh of relief, the court would not have been required to step-in if the executing court had not declined jurisdiction in the first place. By declining jurisdiction, executing courts have forced award creditors to needlessly approach the seat court, only for their petition to be transferred to the executing court. This not only makes enforcement inefficient, but also burdens an already overburdened judiciary. While we wait for the legislature to address the gaps in the law, it is not long before another executing court declines jurisdiction, forcing award creditors into a double dance. Therefore, it is imperative for the Supreme Court to provide the clarity that is presently missing in the Arbitration Act, when an opportunity arises.
Footnote
[1] Code of Civil Procedure, 1908, S. 38 read with S. 39.
[2] See Eskay Engineers v. BSNL, (2009) 5 Mah LJ 565in which the High Court of Bombay held that “The expression ‘all subsequent applications arising out of the arbitral proceedings’ must be read in a comprehensive manner to include recourse to execution proceedings.” The High Court of Bombay relied on the decision of the High Court of Karnataka in I.C.D.S. Ltd. v. Mangala Builders (P) Ltd., 2001 SCC OnLine Kar 153 in which it was held that “’court’ as understood in S. 34 has alone the jurisdiction to entertain the enforcement of the arbitral award”. Also see Daelim Industrial Co. Ltd. Numaligarh Refinery Ltd., 2009 SCC OnLine Del 511 in which the High Court of Delhi held that “There is no merit in the contention of the judgment-debtor that owing to S. 42 of the Act, the execution has to be filed in the court in which the application under S. 34 of the Act had been filed.”
[4] See India Infoline Finance Ltd. Siddharth CT Scan, Execution Application No. 2004 of 2021 (which has subsequently been stayed by the Rajasthan High Court); Cholamandalam Investment and Finance Co. Ltd. Hari Ram Meel Execution Application No. 1183 of 2022; India Media Services (P) Ltd.. SBPL Infrastructure Ltd., Civil Revision Petition No. 507 of 2021, decided on 9-6-2022 (Telangana HC).
[6] In Continental Engg. Corpn.. Sugesan Transport (P) Ltd. OMP (ENF.)(COMM) 38 of 2021, order dated 10-1-2022 (Del), the High Court of Delhi held: “There is no justification for filing an execution petition before the court within whose jurisdiction the arbitral award was passed, and then seek a transfer to the (c)ourt which has jurisdiction over the (j)udgment-(d)ebtor or their properties.”
[7] 2023 SCC OnLine Del 161 (High Court of Delh). A team from Shardul Amarchand Mangaldas comprising Mr Tejas Karia, Ms Ila Kapoor, Ms Ananya Aggarwal and Mr Ujval Mohan represented the Petitioner.
[14] The phrase “Chief Justice or his designate” were replaced by the Arbitration and Conciliation (Amendment) Act, 2016.
This article was originally published in SCC on 12 May 2023 Co-written by: Ila Kapoor, Partner; Mrinali Komandur, Associate. Click here for original article
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Contributed by: Ila Kapoor, Partner; Mrinali Komandur, Associate
Disclaimer
This is intended for general information purposes only. The views and opinions expressed in this article are those of the author/authors and does not necessarily reflect the views of the firm.
