Supreme Court settles the procedure for execution of arbitral awards: Sundaram Finance vs. Abdul Samad (15 February 2018)

Date of the Judgment: 15 February 2018
Citation: (2018) INSC 124
Judges: J. Chelameswar, Sanjay Kishan Kaul
Can an arbitral award be executed directly in a court where the assets are located, or does it need to be first filed in the court with jurisdiction over the arbitration proceedings? The Supreme Court of India addressed this critical question in the case of Sundaram Finance Limited vs. Abdul Samad, clarifying the procedure for executing arbitral awards across the country. The Court held that an award can be executed directly in any court where the decree can be executed, without needing a transfer from the court with jurisdiction over the arbitration. The judgment was authored by Justice Sanjay Kishan Kaul, with Justice J. Chelameswar concurring.

Case Background

Sundaram Finance Limited (the appellant) provided a loan to Abdul Samad (respondent No. 1) for the purchase of a Tata Lorry in 2005. Respondent No. 2 acted as a guarantor. The loan agreement, dated 18 August 2005, stipulated repayment in installments from 3 September 2005 to 3 January 2009. According to the appellant, respondent No. 1 defaulted on payments from the 20th installment onwards. The vehicle could not be repossessed. Consequently, the appellant initiated arbitration proceedings as per the loan agreement’s arbitration clause.

An arbitrator was appointed on 3 May 2011. Despite attempts to serve notices, the respondents did not appear. On 22 October 2011, an ex-parte arbitration award was issued in favor of the appellant for Rs. 12,69,420, along with interest at 18% per annum from 4 April 2011, and costs.

The appellant then filed execution proceedings in Morena, Madhya Pradesh, under Section 47 read with Section 151 and Order 21 Rule 27 of the Code of Civil Procedure, 1908, since the respondents’ assets were located there. The respondents contested the proceedings, claiming the vehicle had been stolen. The trial court, on 20 March 2014, returned the execution application, stating it lacked jurisdiction. The court held that the appellant needed to first file the execution proceedings in Tamil Nadu (where the arbitration took place), obtain a transfer of the decree, and then file in Morena. The appellant directly appealed to the Supreme Court.

Timeline

Course of Proceedings

The trial court in Morena, Madhya Pradesh, returned the execution application filed by Sundaram Finance, citing a lack of jurisdiction. This decision was based on the view that the execution proceedings must first be initiated in the court with jurisdiction over the arbitration (in this case, Tamil Nadu), and then the decree must be transferred to the court where the assets are located (Morena). The trial court relied on judgments from the Madhya Pradesh High Court and the Karnataka High Court. The appellant, instead of appealing to the Madhya Pradesh High Court, directly approached the Supreme Court due to conflicting views among various High Courts.

Legal Framework

The Supreme Court examined the following key legal provisions:

• Section 36(1) of the Arbitration & Conciliation Act, 1996: This section states that an arbitral award is enforced as if it were a decree of the court. The provision reads as follows:
  
  “36. Enforcement. – (1) Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 to 1908), in the same manner as if it were a decree of the court.”
• Section 2(e) of the Arbitration & Conciliation Act, 1996: This section defines “Court” for the purposes of arbitration proceedings. The provision reads as follows:
  
  “2. Definitions. ………
  xxxx xxxxxxxxxxxxxxxx
  [(e) “Court” means –
  (i) in the case of an arbitration other than international
  commercial arbitration, the principal Civil Court of original
  jurisdiction in a district, and includes the High Court in exercise
  of its ordinary original civil jurisdiction, having jurisdiction to
  decide the questions forming the subject-matter of the arbitration
  if the same had been the subject-matter of a suit, but does not
  include any Civil Court of a grade inferior to such principal Civil
  Court, or any Court of Small Causes;
  (ii) in the case of international commercial arbitration, the High
  Court in exercise of its ordinary original civil jurisdiction, having
  jurisdiction to decide the questions forming the subject-matter of
  a suit, and in other cases, a High Court having jurisdiction to hear
  appeals from decrees of courts subordinate to that High Court;]”
• Section 42 of the Arbitration & Conciliation Act, 1996: This section deals with the jurisdiction of courts over arbitration proceedings. The provision reads as follows:
  
  “42. Jurisdiction. – Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.”
• Section 32 of the Arbitration & Conciliation Act, 1996: This section deals with the termination of arbitral proceedings. The provision reads as follows:
  
  “32. Termination of proceedings.—
  (1) The arbitral proceedings shall be terminated by the final arbitral
  award or by an order of the arbitral tribunal under sub-section (2).
  (2) The arbitral tribunal shall issue an order for the termination of
  the arbitral proceedings where—
  (a) the claimant withdraws his claim, unless the respondent objects
  to the order and the arbitral tribunal recognises a legitimate interest
  on his part in obtaining a final settlement of the dispute,
  (b) the parties agree on the termination of the proceedings, or
  (c) the arbitral tribunal finds that the continuation of the
  proceedings has for any other reason become unnecessary or
  impossible.
  (3) Subject to section 33 and sub-section (4) of section 34, the
  mandate of the arbitral tribunal shall terminate with the termination
  of the arbitral proceedings.”
• Section 37 of the Code of Civil Procedure, 1908: Defines the “Court” which passed the decree.
• Section 38 of the Code of Civil Procedure, 1908: Specifies which court can execute a decree.
• Section 39 of the Code of Civil Procedure, 1908: Outlines the procedure for the transfer of a decree.
• Section 46 of the Code of Civil Procedure, 1908: Defines “Precepts” for attachment of property.
• Order XXI, Rule 6 of the Code of Civil Procedure, 1908: Details the procedure when a court wants its decree executed by another court.
• Order XXI, Rule 11(2) of the Code of Civil Procedure, 1908: Details the manner of presentation of an execution application.

Arguments

Appellant’s Submissions

• The appellant argued that an arbitral award, under Section 36 of the Arbitration & Conciliation Act, 1996, is to be enforced as if it were a decree of the court.
• They contended that the award does not require a transfer of decree from the court with jurisdiction over the arbitration proceedings.
• The appellant submitted that the execution proceedings can be filed directly in the court where the assets of the judgment debtor are located.

Respondents’ Submissions

• The respondents contended that the execution proceedings should first be filed in the court with jurisdiction over the arbitration proceedings.
• They argued that a transfer of the decree is mandatory before the award can be executed in another court.
• The respondents relied on the view of the Madhya Pradesh High Court and the Himachal Pradesh High Court.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether an award under the Arbitration & Conciliation Act, 1996, is required to be first filed in the court having jurisdiction over the arbitration proceedings for execution and then to obtain a transfer of the decree, or whether the award can be straightway filed and executed in the court where the assets are located.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases

Legal Provisions

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Supreme Court specifically overruled the judgments of the Madhya Pradesh High Court in Computer Sciences Corporation India Pvt. Ltd. v. Harishchandra Lodwal & Anr. [AIR 2006 Madhya Pradesh 34] and the Himachal Pradesh High Court in Jasvinder Kaur & Anr. v. Tata Motor Finance Limited [CMPMO No.56/2013 decided on 17.9.2013]. The Court held that these judgments incorrectly interpreted the law by requiring a transfer of the decree before an arbitral award could be executed in another court. The Court followed the views of the Delhi High Court in Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd. [2009 159 DLT 579], the Kerala High Court in Maharashtra Apex Corporation Limited v. V. Balaji G. & Anr. [2011 (4) KLJ 408], the Madras High Court in Kotak Mahindra Bank Ltd. v. Sivakama Sundari & Ors. [(2011) 4 LW 745], the Rajasthan High Court in Kotak Mahindra Bank Ltd. v. Ram Sharan Gurjar & Anr. [(2012) 1 RLW 960], the Allahabad High Court in GE Money Financial Services Ltd. v. Mohd. Azaz & Anr. [2013 SCC OnLine All 13365 = (2013) 100 ALR 766], the Punjab & Haryana High Court in Indusind Bank Ltd. v. Bhullar Transport Company [MANU/PH/2896/2012] and the Karnataka High Court in Sri Chandrashekhar v. Tata Motor finance Ltd. & Ors. [(2015) 1 AIR Kant R 261].

What weighed in the mind of the Court?

The Supreme Court emphasized that Section 36 of the Arbitration & Conciliation Act, 1996, equates an arbitral award to a decree of the court only for the purpose of enforcement. The court noted that the arbitral tribunal does not have the power to execute a decree. The court also observed that Section 42 of the Arbitration & Conciliation Act, 1996, which deals with jurisdiction, applies to arbitral proceedings and not to execution proceedings. The court highlighted that the arbitral proceedings terminate with the final award. The court also stated that the Code of Civil Procedure, 1908, provisions regarding transfer of decree do not apply to arbitral awards since the award is not a decree passed by a civil court. The court concluded that the award can be executed anywhere in the country where such a decree can be executed.

Fact:Law Ratio

Logical Reasoning

The Supreme Court’s reasoning was based on the following:

• The Court clarified that an arbitral award is not a decree of a civil court, but is only treated as such for the purpose of enforcement under Section 36 of the Arbitration & Conciliation Act, 1996.
• The Court emphasized that the arbitral tribunal does not have the power to execute a decree, and the enforcement mechanism is akin to the enforcement of a decree, but the award itself is not a decree of the civil court.
• The Court reasoned that Section 42 of the Arbitration & Conciliation Act, 1996, which deals with jurisdiction, applies to arbitral proceedings and not to execution proceedings.
• The Court noted that the arbitral proceedings terminate with the final award, and therefore, Section 42 of the Arbitration & Conciliation Act, 1996, is not relevant for execution proceedings.
• The Court observed that the provisions of the Code of Civil Procedure, 1908, relating to the transfer of decrees do not apply to arbitral awards, as the award is not a decree passed by a civil court.

The Court rejected the interpretation that an arbitral award must first be filed in the court with jurisdiction over the arbitration proceedings and then transferred to the court where the assets are located. The court stated, “We are, thus, unhesitatingly of the view that the 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.”

The Court further clarified that, “It is, thus, the enforcement mechanism, which is akin to the enforcement of a decree but the award itself is not a decree of the civil court as no decree whatsoever is passed by the civil court.” The Court also stated, “The said Act actually transcends all territorial barriers.”

The Court held that the view taken by the Madhya Pradesh High Court and the Himachal Pradesh High Court was not good in law, while the views of the Delhi High Court, Kerala High Court, Madras High Court, Rajasthan High Court, Allahabad High Court, Punjab & Haryana High Court, and Karnataka High Court reflected the correct legal position.

The court did not find any alternative interpretation that would support the view that an arbitral award must be transferred before execution.

Key Takeaways

• An arbitral award can be executed directly in any court where a decree can be executed.
• There is no need to first file the award in the court with jurisdiction over the arbitration proceedings and then obtain a transfer of the decree.
• This ruling simplifies the process of executing arbitral awards, making it more efficient and less time-consuming.
• The judgment clarifies the interpretation of Section 36 of the Arbitration & Conciliation Act, 1996, and its relationship with the Code of Civil Procedure, 1908.
• The judgment promotes the enforcement of arbitral awards across India by removing procedural hurdles.

Directions

The Supreme Court set aside the trial court’s order dated 20 March 2014, and restored the execution application filed by the appellant before the Morena courts. The parties were left to bear their own costs.

Development of Law

The ratio decidendi of this case is that an arbitral award can be executed directly in any court where a decree can be executed, without needing a transfer from the court with jurisdiction over the arbitration. This decision clarifies the law and settles the conflicting views of various High Courts. This judgment changes the previous position of law as held by the Madhya Pradesh High Court and the Himachal Pradesh High Court by overruling their view.

Conclusion

The Supreme Court’s judgment in Sundaram Finance Limited vs. Abdul Samad clarifies that an arbitral award can be executed directly in any court where a decree can be executed, without the need for a transfer from the court with jurisdiction over the arbitration proceedings. This decision streamlines the process of enforcing arbitral awards across India, making it more efficient and accessible.

Category

• Arbitration Law
  • Arbitration & Conciliation Act, 1996
  • Section 36, Arbitration & Conciliation Act, 1996
  • Section 2(e), Arbitration & Conciliation Act, 1996
  • Section 42, Arbitration & Conciliation Act, 1996
  • Section 32, Arbitration & Conciliation Act, 1996
  • Execution of Arbitral Awards
• Civil Procedure Code
  • Code of Civil Procedure, 1908
  • Section 37, Code of Civil Procedure, 1908
  • Section 38, Code of Civil Procedure, 1908
  • Section 39, Code of Civil Procedure, 1908
  • Section 46, Code of Civil Procedure, 1908
  • Order XXI, Rule 6, Code of Civil Procedure, 1908
  • Order XXI, Rule 11(2), Code of Civil Procedure, 1908
  • Execution of Decrees

FAQ

Q: Where can an arbitral award be executed?
A: An arbitral award can be executed in any court in India where a decree can be executed. This means you can file for execution in the court where the assets of the person against whom the award is made are located.

Q: Do I need to first file the award in the court where the arbitration took place?
A: No, you do not need to first file the award in the court that had jurisdiction over the arbitration proceedings. You can directly file for execution in the court where the assets are located.

Q: What does “enforced as if it were a decree of the court” mean?
A: It means that for the purpose of execution, an arbitral award is treated the same way as a decree issued by a civil court. However, the award itself is not a decree of a civil court.

Q: Does the court where the arbitration took place have any role in execution?
A: No, the court where the arbitration took place does not have any special role in the execution of the award. The execution can be done by any court where the decree can be executed.

Q: What if the person against whom the award is made has assets in multiple locations?
A: You can choose to execute the award in any court where they have assets. You are not restricted to the court where the arbitration took place.