The matter is also required to be examined from another angle. If in a given case, the trial Court having jurisdiction decides an application under Section 34 of the Arbitration Act on merits and rejects the objection, and if an appeal is filed against it, the Court may consider the question as to what type of interim relief can be given in such case. However, in the instant case, the trial Court itself has come to a conclusion that it has no jurisdiction to entertain the application under Section 34 of the Arbitration Act. Considering the scheme of the Arbitration Act, an arbitral award becomes enforceable as a decree under Section 36 of the Arbitration Act when application under Section 34 is not preferred within time or such application though preferred, is refused. The word 'refused' would normally mean refused on merits. In the instant case, when the trial Court itself has come to a conclusion that it has no territorial jurisdiction, such refusal, therefore, cannot be said to be a refusal on merits. In the appeal preferred against the said order, this Court is required to consider the objection of the present applicant which were raised before the trial Court under Section 34 of the Arbitration Act. Since, the question regarding objections under Section 34 is the subject-matter of the First Appeal, and till the appeal is finally decided, it cannot be said that the objections raised by the present applicant under Section 34 of the Arbitration Act is 'refused', as the said question is already sub-judice in the First Appeal. When in the instant case, the trial Court itself has come to the conclusion that it has no territorial jurisdiction to decide the application under Section 34, in my view, it cannot be said that by the impugned order of the trial Court, the award of the Arbitrator has become final and enforceable, especially when in the main First Appeal, mis Court is required to examine the said aspect. 1
Indian Kanoon - http://indiankanoon.org/doc/1783611/
Gujarat High Court
Adiya Fuels Ltd. vs Bilt Chemicals Ltd. on 23 January, 2007
Equivalent citations: AIR 2007 Guj 140, 2007 (4) ARBLR 110 Gujarat
Author: P Majmudar
Bench: P Majmudar
JUDGMENT
P.B. Majmudar, J.
1. Rule, returnable today. Mr. A.R. Thacker waives service of rule on behalf of respondent. With the consent of parties, this application is taken up for final hearing today.
2. The applicant of this Civil Application has filed First Appeal No. 17 of 2006 under Section 37(i)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Arbitration Act') which is admitted by this Court and pending for final hearing. By this Civil Application, it is prayed that during the pendency of the said First Appeal, the order passed by the trial Court i.e. by learned Additional District Judge, Gandhidham, Kutch in C.M.A. No. 215 of 2005 may be stayed during the pendency of the appeal.
3. The Civil Application has been opposed by the respondents on the ground that the award given by the Arbitrator should be treated as a money decree, and therefore, absolute stay cannot be granted and the applicant may be directed to deposit the amount awarded by the Arbitrator.
4. Since, the Civil Application is hotly contested by the respondents, the same is required to be decided by giving appropriate reasons and by dealing with factual aspects of the case in detail as well as by considering the provisions of the Arbitration Act as well as case-laws cited by both sides in this behalf.
5. The opponent herein, formerly know as Bellarpur Industries Limited and now known as BILT Chemicals Limited, is a Company incorporated under the Companies Act and having its registered office at Binaga, Karnataka State. The applicant, was at the relevant time, engaged in the business of importing Furnace Oil from foreign countries and selling the same to its customers all over the country. It is the case of the applicant that in the year 1998, the applicant and opponent entered into negotiations for sale/purchase of Furnace Oil. The applicant made a formal offer for selling furnace oil and there was a counter-offer made by the opponent. It is not necessary to go into the minute details about the contract entered into between the parties as this Court is required to consider only whether another interim relief is required to be granted during the pendency of the appeal or not. However, suffice it to say that after some discussions between the parties, a contract was finalized and the applicant arranged for import of furnace oil from Bahrain Petroleum Company, which was to be sold to the opponent. It is the case of the applicant that the applicant has never agreed to the condition regarding arbitration clause which was suggested by the respondent in its letter dated 14-4-1998. Thereafter, a High Seas Sale Agreement dated 19-5-1998 was entered into between the applicant and the opponent and the terms and conditions and specification of cargo as well as jurisdiction of the Court were stated and incorporated in the writing. The case of the applicant is that there is no arbitration clause at all in the agreement entered into between the parties, and the agrement did not contain any cause for appointment of arbitrator for settlement of disputes, if any, between the parties.
6. Subsequently, a dispute arose between the parties as the opponent refused to uplift the cargo and refused to honour its commitment in respect of payments. The case of the applicant is that the applicant suffered massive loss, and therefore, the applicant has filed a suit being Special Civil Suit No. 24 of 2000 in the Court of Civil Judge, Senior Division. Gandhidham for recovery of Rs. 1,53,82,594/- with interest. The said suit is pending in the trial Court.
7. The opponent however referred the dispute and its claim against the applicant for arbitration, and requested its General Manager, one P. Ganpati Rao, to conduct arbitral proceedings in the matter. The case of the applicant is that though there is no arbitration agreement between the parties, the arbitrator has wrongly assumed jurisdiction and proceeded to conduct the arbitral proceedings. The arbitrator thereafter gave his award on 10-8-2002 directing the applicant to pay Rs. 2,11,04,202/- to the present opponent with interest at 18%p.a. from the date of the award till the date of payment.
8. The present applicant, thereafter, preferred an application before the trial Court under Section 34 of the Arbitration Act on the ground that the said award is invalid and devoid of any legal force and that the same is not enforceable as there was no arbitration clause in the agreement. The award of the Arbitrator was accordingly challenged on various grounds before the trial Court. The respondent herein appeared before the trial Court in connection with the said proceedings and filed its reply at Exh. 9 contending inter alia that the trial Court has no jurisdiction to entertain and decide the said application. It is the case of the opponent that Principal Civil Court at Karwar, Karnataka State is the only Court which has got jurisdiction the decide the application and that the award cannot be challenged before the Court at Gandhidham as it has no territorial jurisdiction to decide the application. It is also averred in the reply that there was an arbitration clause and the award of arbitrator is binding to both the sides. On merits also, the opponent tried to justify the order passed by the Arbitrator.
9. Learned trial Judge, after considering the arguments of both the sides, came to the conclusion that the Court cannot sit in appeal and decide the case on merits and reappreciate evidence which was led before the Arbitrator. The trial Court also found that the Arbitral Tribunal was competent to rule regarding its own jurisdiction. The trial Court also found that it cannot re-examine the question of jurisdiction which was dealt with by the Arbitrator and that the Court cannot set aside the award of the Arbitrator on the ground that the arbitrator has no jurisdiction to enter into reference and pass the award. The trial Court also found that the application under Section 34 for setting aside the award was not maintainable before the trial Court and the Court at Karwar is the only Court which has got jurisdiction to entertain such application. The trial Court specifically recorded a finding (at page 21 of the order) that it has no territorial jurisdiction. Though, having found that it has no territorial jurisdiction to decide the application under Section 34, the trial Court has decided the application on merits and has found that challenge made to the award dated 10-8-2002 is beyond the scope of Section 34 of the Arbitration Act, and therefore, the award of the arbitrator cannot be set aside under the provisions of Section 34 of the Arbitration Act. The learned trial Judge has, decided the matter on merits and recorded a finding (at page 23 of the order) that the arbitrator was competent under the provisions of Section 16(1) of the Arbitration Act to rule on its own jurisdiction and the findings and the conclusions arrived at by the arbitrator on this point cannot be challenged before the Court as the Court cannot sit in appeal over the award. On the aforesaid reasonings, the trial Court ultimately dismissed the said application which was submitted by the applicant under Section 34 of the Arbitration Act which is challenged by the applicant of this Civil Application by filing First Appeal under Section 37(i)(b) of the Arbitration Act. The First Appeal is already admitted by this Court, vide order dated 16-1-2006. This Civil Application for interim relief is pending since long.
10. Learned senior Counsel Mr. Mihir G. Thakore appeared for the applicant of the Civil Application and submitted that when the First Appeal is already admitted, the Court should confirm the interim relief staying the order of the trial Court as well as the award of the Arbitrator. It is submitted by Mr. Thakore that when the trial Court has specifically come to the conclusion that it has no territorial jurisdiction to decide the application, the trial Court could not have decided the application, the trial Court could not have decided the application on merits by coming to the conclusion that the award of the arbitrator is not required to be set aside by that Court as the Court cannot sit in appeal over the order of the arbitrator. Mr. Thakore submitted that when the Court has come to the conclusion that it has no territorial jurisdiction to decide the case, the Court could have returned the application for presentation to the appropriate Court under Order 7 of C.P.C. or could have merely rejected the application on the ground that it has no territorial jurisdiction, without observing anything on merits. He further submitted that there is hardly anything left to the applicant now even if it makes an application under Section 34 of the Arbitration Act before the Court at Karwar, as the trial Court has rejected the application on merits even though it has come to the conclusion that it has no territorial jurisdiction to entertain such application. Mr. Thakore submitted that in any case when the appeal is pending, interim relief is required to be confirmed till the appeal is decided. Mr. Thakore submitted that even on merits, there is nothing to show that there was any arbitration agreement at all and there is not a single document available on record by which it can be said that there is an arbitration clause in the agreement. Mr. Thakore submitted that the objections raised under Section 34 of the Arbitration Act, is therefore, required to be considered on its own merits and all these points can be adjudicated in the pending First Appeal which can be expedited and decided at the earliest.
11. On the other hand, Mr. J.R. Nanavati, who is appearing for the respondent submitted that so far as the award of the arbitrator is concerned, it is in the nature of money decree, and therefore, the applicant may be directed to deposit the amount, and the respondent may be permitted to withdraw the said amount by giving security. Mr. Nanavati further submitted that under the provisions of Order 41, Rule 5, C.P.C., normally money decree is not required to be stayed unless some exceptional grounds are made out for the same. Mr. Nanavati submitted that when the application submitted by the present applicant before the trial Court under Section 34 of the Arbitration Act has been refused by the trial Court, the respondent herein is entitled to execute the same treating the same as a decree of the Civil Court. It is submitted by Mr. Nanavati that in view of the rejection of the application under Section 34 the respondent has got an enforceable order/decree and if that award is stayed, the applicant may be directed to deposit the full amount and stay can be granted by asking him to deposit the full amount as it is in the nature of money decree, and the respondent may be directed to withdraw the entire amount as the respondents entitled to get the fruits of the award of the arbitrator as an enforceable right is created in favour of the respondent.
12. To substantiate his say, Mr. J.R. Nanavati has relied upon a decision of the Supreme Court in the case of Atma Ram Properties (P) Ltd. v. Federal Motors (P) Ltd. wherein
it has been held by the Supreme Court in Paragraphs 7 and 8 as under:
7. Sub-rules (1) and (3) of Rule 5 of Order 41 of the Code read as under:
5. Stay by appellate Court :- (1) An appeal shall not operate as stay of proceedings under a decree or order appealed from except so far as the appellate Court may order, nor shall execution of decree be stayed by reason only of an appeal having been preferred from the decree; but the appellate Court may for sufficient cause order stay of execution of such decree.
* * * * *
(3) No order for stay of execution shall be made under Sub-rule (1) or Sub-rule (2) unless the Court making it is satisfied
(a) that substantial loss may result to the party applying for stay of execution unless the order is made;
(b) that the application has been made without unreasonable delay; and
(c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him.
8. It is well settled that there preferring of an appeal does not operate as stay on the decree or order appealed against nor on the proceedings in the Court below. A prayer for the grant of stay of proceedings or on the execution of decree or order appealed against has to be specifically made to the appellate Court and the appellant Court has discretion to grant an order of stay or to refuse the same. The only guiding factor, indicated in Rule 5 aforesaid, is the - existence of sufficient cause in favour of the appellant on the availability of which the appellate Court would be inclined to pass an order of stay. Experience shows that the principal consideration which prevails with the appellate Court is that in spite of the appeal having been entertained for hearing by the appellate Court, the appellant may not be deprived of the fruits of his success in the event of the appeal being allowed. This consideration is pitted and weighed against the other paramount consideration: why should a party having succeeded from the Court below be deprived of the fruits of the decree or order in his hands merely because the defeated party has chosen to invoke the jurisdiction of superior forum. Still the question which the Court dealing with a prayer for the grant of stay asks itself is : why the status quo prevailing on the date of the decree and/or the date of making of the application for stay be not allowed to continue by granting stay, and not the question why the stay should not be granted.
13. Mr. J.R. Nanavati has also relied upon the judgment of Bombay High Court in the case of Dhunjibhoy Gowasji Umrigar v. Lisboa reported in ILR 13 Bom. 241 wherein the Division Bench of Bombay High Court has held where a party appealing against a decree, which directs him to pay money, may obtain stay of execution of decree, so far as it directs payment, on his lodging the amount in Court, unless the other party gives security for the repayment of the money in the event of the decree being reversed. If such security be given by the successful party, then stay of execution should not be granted. Relying upon the said judgment, it is argued mat his client is ready to give security if his client is permitted to withdraw the amount and the money decree should not be stayed by this Court.
14. Mr. Nanavati further submitted that considering the said aspects of the matter, the applicant may be directed to deposit the decretal amount and the respondent may be directed to withdraw the same by giving security. Mr. Nanavati further submitted that when the trial Court has rejected the application under Section 34 of the Arbitration Act, the award of the Arbitrator has become an enforceable decree and that is how it can be considered as a money decree. He submitted that in that view of the matter, unless an exceptional case is made out, stay against money decree is not required to be granted.
15. I have heard learned Advocates appearing for born the sides in detail.
16. The question which requires consideration in the present application is : whether the award of the arbitrator can be said to be a money decree and whether the analogy of money decree passed in civil suit can be made applicable to the award of the arbitrator or not, and whether during the pendency of the First Appeal, the order passed by the trial Court and/or an award of the arbitrator is required to be stayed or not?
17. In this connection, reference is required to be made to Sees. 34 and 36 of the Arbitration Act, which provides as under:
34. Application for setting aside arbitral award.
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3).
(2) An arbitral award may be set aside by the Court only if
(i) A party was under some incapacity, or
(ii) The arbitration agreement is not valid under the law to which the parties have subjected it or failing any indicating thereof, under the law for the time-being in force; or
(iii) The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submissions to arbitration, or it contains decision on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decision on matters not submitted to arbitration may be set aside; or
(v) The composition of the arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreements was in conflict with a provision of this Part from which the parties cannot derogate, or failing such agreement, was not in accordance with this parties,
(b) the Court finds that
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time-being in force, or,
(ii) The arbitral award is in conflict with the public policy of India.
Explanation :- Without prejudice to the generality of Sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral Tribunal.
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months, it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under Sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.
35. Finality of arbitral awards :- Subject to this Part, an arbitral award shall be final and binding on the parties and persons claiming under them respectively.
36. Enforcement :- where the time for making an application to set aside the arbitral award under Section 34 has expired or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.
18. As per the scheme of the Arbitration Act, the award of the Arbitrator achieves finality and becomes enforceable when the time for making an application to set aside the arbitral award under Section 34 has expired, or when such application is made, but refused by the Court. In the aforesaid two eventualities, the award of the arbitrator becomes enforceable. In the present case, an application under Section 34 has already been preferred before the trial Court within time, and therefore the question which requires determination is, whether the trial Court can be said to have refused such application after adjudicating the same on merits?
19. It is not in dispute that the trial Court has specifically recorded a finding that has no territorial jurisdiction to entertain the application under Section 34 of the Arbitration Act. It is a well settled position of law that when the Court has no jurisdiction, the rest of the observations made by the Court can be said to be mere incidental observations; since the trial Court has no jurisdiction, there is no question of adjudicating the dispute on merits by the Court. If the appellate Court comes to a conclusion that the trial Court had jurisdiction to decide such application only at that stage the question about considering the observation of the trial Court on merits is required to be taken into account. In my view, when the trial Court has already come to the conclusion that it has no territorial jurisdiction and when the aforesaid question is sub-judice in the First Appeal, this is not a case in which the applicant is required to be directed to comply with the arbitral award by ordering to deposit the full amount.
20. The matter is also required to be examined from another angle. If in a given case, the trial Court having jurisdiction decides an application under Section 34 of the Arbitration Act on merits and rejects the objection, and if an appeal is filed against it, the Court may consider the question as to what type of interim relief can be given in such case. However, in the instant case, the trial Court itself has come to a conclusion that it has no jurisdiction to entertain the application under Section 34 of the Arbitration Act. Considering the scheme of the Arbitration Act, an arbitral award becomes enforceable as a decree under Section 36 of the Arbitration Act when application under Section 34 is not preferred within time or such application though preferred, is refused. The word 'refused' would normally mean refused on merits. In the instant case, when the trial Court itself has come to a conclusion that it has no territorial jurisdiction, such refusal, therefore, cannot be said to be a refusal on merits. In the appeal preferred against the said order, this Court is required to consider the objection of the present applicant which were raised before the trial Court under Section 34 of the Arbitration Act. Since, the question regarding objections under Section 34 is the subject-matter of the First Appeal, and till the appeal is finally decided, it cannot be said that the objections raised by the present applicant under Section 34 of the Arbitration Act is 'refused', as the said question is already sub-judice in the First Appeal. When in the instant case, the trial Court itself has come to the conclusion that it has no territorial jurisdiction to decide the application under Section 34, in my view, it cannot be said that by the impugned order of the trial Court, the award of the Arbitrator has become final and enforceable, especially when in the main First Appeal, mis Court is required to examine the said aspect. The observations of the trial Court on merits, therefore, can be said to be only of tentative in nature especially when the trial Court has come to the conclusion that it has no jurisdiction to decide the application. So far as a decree passed by Civil Court in a money suit is concerned, it is not subject to any such provisions of Section 34 of the Arbitration Act and the moment a decree is passed, straightaway such decree can be executed and appeal under Section 96 of Civil Procedure Code cannot be equated with an appeal under Section 37 of the Arbitration Act. So far as the award of the Arbitrator is concerned, as per the scheme of the Arbitration Act, it cannot become straightaway enforceable till the time-limit for preferring an application under Section 34 of the Arbitration Act has expired, or such application though preferred, is refused. Therefore, looking to the scheme of the Arbitration Act, an arbitral award cannot be said to be straightaway enforceable as a 'decree' of the Court and straightaway it cannot be said that it is a money decree. In such circumstances, the Court is required to consider the question of granting stay in different manner.
21. When the trial Court has found that the arbitrator has jurisdiction and the award is not required to be set aside, there is hardly anything left to the present applicant even to go before a Court according to which it has jurisdiction for setting aside the award. Since, the First Appeal is pending before this Court, at this stage, I would not like to comment upon the order of the trial Court on merits regarding refusal of application under Section 34 or whether in such proceedings the trial Court can decide the question about validity of arbitration agreement as said aspect is required to be decided as per the provisions contained under Section 34 of the Arbitration Act itself.
22. It is required to be noted that even if it is presumed that the Court has no power to return the application, in such a case, by applying analogy or Order 7 of C.P.C., then also the applicant can go to the competent Court by presenting an application and can get shelter of Section 14 of the Limitation Act and ask for excluding the time consumed in a wrong forum. However, the question about territorial Court is subject to scrutiny of this Court in the First Appeal. I am, therefore, of the view that this is not a case in which the applicant is required to be directed to deposit full amount by applying Order 41, Rule 5 of C.P.C.
23. At this stage, a reference is required to be made to the decision in the case of Paramjeet Singh Patheja v. I.C.D.S., Ltd. reported in 2006 AIR SCW 5718 wherein the Honourable Supreme Court has held that the arbitration is neither a decree nor an award for payment within the meaning of Section 9 of the Insolvency Act, and it is not rendered in a suit. In the aforesaid judgment, it is observed by the Supreme Court as under in Paragraphs 36 to 39:
36. It is settled by decision of this Court that the words 'as if in fact show the distinction between two things and such words are used for a limited purpose. They further show that a legal fiction must be limited to the purpose for which it was created.
37. Section 36 of the Arbitration & Conciliation Act, 1996 which is in pari materia with Section 15 of the 1899 Act, it set out herein below:
36. Enforcement .- Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court."
38. In fact, Section 36 goes further than Section 15 of the 1899 Act, and makes it clear beyond doubt that enforceability is only to be under the C.P.C. It rules out any argument that enforceability as a decree can be sought under any other law or that intiating insolvency proceeding is a manner of enforcing a decree under the C.P.C.
39. Therefore, the contention of the respondents that, an award rendered under the Arbitration and Conciliation Act, 1996 if not challenged within the requisite period, the same become final and binding as provided under Section 35 and the same can be enforced as a Decree as it is as binding and conclusive as provided under Section 36 and that there is no distinction between an Award and Decree does not hold water.
In Paragraphs 59 of the said judgment, the Apex Court observed as under:
59. The words "as if" demonstrates that award and decree or order are two different things. The legal fiction created is for the limited purpose of enforcement as a decree. The fiction is not intended to make it a decree for all purpose under all statutes, whether State or Central.
24. It is no doubt true that the observation of the Supreme Court in connection with 9(2) of, the Insolvency Act. However, it has been clearly observed in Clause (iv)(c) of Para 60 of the judgment that:
An award does not satisfy any of the requirements of a decree. It is not rendered in a suit nor is in an arbitral proceedings commenced by the institution of a plaint.
Therefore, such an award straightaway cannot be said to be a money decree as per the definition of decree in the Court Fees Act. The legal fiction is created for a limited purpose of enforcement as a decree.
25. Be that as it may, in the present case, the trial Court has recorded a specific finding that it has no jurisdiction. Considering the aforesaid aspect and considering the fact that appeal under Section 34 is under consideration of this Court in the First Appeal, and considering the fact that the award under the Arbitration Act by legal fiction can be termed as a decree, yet, when the entire question is to be thrashed out in the First Appeal, I am of the view that interim relief granted in the First Appeal is required to be continued till the disposal of the First Appeal and this is not a case where the applicant herein should be directed to deposit the entire amount especially when the trial Court, while deciding application under Section 34 of the Arbitration Act, has specifically found that it has no territorial jurisdiction to decide the same.
26. Considering the aforesaid aspects of the matter and considering the scheme of the Arbitration Act, 1996, in my view, the interim relief as prayed for by the applicant, which is prevalent since last more than one year, is required to be continued.
27. However, the applicant is directed to give solvent surety of marketable property in the sum of Rs. 2,50,00,000/- latest by 20th February, 2007 before the Registry of this Court. Mr. Thakore submitted that the Managing Director and another Director of the applicant firm would give solvent surety of their personal properties having marketable title in the aggregate sum of Rs. 2,50,00,000/-. It is, therefore, directed that Managing Director and another Director of the applicant firm shall file an undertaking before this Court on or before 1st February, 2007 to the effect that they will furnish solvent surety of their personal properties having marketable title to the Registry of this Court latest by 20th February, 2007. In case the undertaking is not filed on or before 1st February, 2007, and after filing the undertaking if solvent security is not furnished on or before 20th February, 2007, it would be open to the respondent to move the Court for vacating the interim relief.
28. The Civil Application is accordingly allowed. Rule made absolute accordingly. No order as to costs.
29. Considering the fact and circumstances of the case, the First Appeal is ordered to be listed for final hearing in the first week of April, 2007.
Print Page
Gujarat High Court
Adiya Fuels Ltd. vs Bilt Chemicals Ltd. on 23 January, 2007
Equivalent citations: AIR 2007 Guj 140, 2007 (4) ARBLR 110 Gujarat
1. Rule, returnable today. Mr. A.R. Thacker waives service of rule on behalf of respondent. With the consent of parties, this application is taken up for final hearing today.
2. The applicant of this Civil Application has filed First Appeal No. 17 of 2006 under Section 37(i)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Arbitration Act') which is admitted by this Court and pending for final hearing. By this Civil Application, it is prayed that during the pendency of the said First Appeal, the order passed by the trial Court i.e. by learned Additional District Judge, Gandhidham, Kutch in C.M.A. No. 215 of 2005 may be stayed during the pendency of the appeal.
3. The Civil Application has been opposed by the respondents on the ground that the award given by the Arbitrator should be treated as a money decree, and therefore, absolute stay cannot be granted and the applicant may be directed to deposit the amount awarded by the Arbitrator.
4. Since, the Civil Application is hotly contested by the respondents, the same is required to be decided by giving appropriate reasons and by dealing with factual aspects of the case in detail as well as by considering the provisions of the Arbitration Act as well as case-laws cited by both sides in this behalf.
5. The opponent herein, formerly know as Bellarpur Industries Limited and now known as BILT Chemicals Limited, is a Company incorporated under the Companies Act and having its registered office at Binaga, Karnataka State. The applicant, was at the relevant time, engaged in the business of importing Furnace Oil from foreign countries and selling the same to its customers all over the country. It is the case of the applicant that in the year 1998, the applicant and opponent entered into negotiations for sale/purchase of Furnace Oil. The applicant made a formal offer for selling furnace oil and there was a counter-offer made by the opponent. It is not necessary to go into the minute details about the contract entered into between the parties as this Court is required to consider only whether another interim relief is required to be granted during the pendency of the appeal or not. However, suffice it to say that after some discussions between the parties, a contract was finalized and the applicant arranged for import of furnace oil from Bahrain Petroleum Company, which was to be sold to the opponent. It is the case of the applicant that the applicant has never agreed to the condition regarding arbitration clause which was suggested by the respondent in its letter dated 14-4-1998. Thereafter, a High Seas Sale Agreement dated 19-5-1998 was entered into between the applicant and the opponent and the terms and conditions and specification of cargo as well as jurisdiction of the Court were stated and incorporated in the writing. The case of the applicant is that there is no arbitration clause at all in the agreement entered into between the parties, and the agrement did not contain any cause for appointment of arbitrator for settlement of disputes, if any, between the parties.
6. Subsequently, a dispute arose between the parties as the opponent refused to uplift the cargo and refused to honour its commitment in respect of payments. The case of the applicant is that the applicant suffered massive loss, and therefore, the applicant has filed a suit being Special Civil Suit No. 24 of 2000 in the Court of Civil Judge, Senior Division. Gandhidham for recovery of Rs. 1,53,82,594/- with interest. The said suit is pending in the trial Court.
7. The opponent however referred the dispute and its claim against the applicant for arbitration, and requested its General Manager, one P. Ganpati Rao, to conduct arbitral proceedings in the matter. The case of the applicant is that though there is no arbitration agreement between the parties, the arbitrator has wrongly assumed jurisdiction and proceeded to conduct the arbitral proceedings. The arbitrator thereafter gave his award on 10-8-2002 directing the applicant to pay Rs. 2,11,04,202/- to the present opponent with interest at 18%p.a. from the date of the award till the date of payment.
8. The present applicant, thereafter, preferred an application before the trial Court under Section 34 of the Arbitration Act on the ground that the said award is invalid and devoid of any legal force and that the same is not enforceable as there was no arbitration clause in the agreement. The award of the Arbitrator was accordingly challenged on various grounds before the trial Court. The respondent herein appeared before the trial Court in connection with the said proceedings and filed its reply at Exh. 9 contending inter alia that the trial Court has no jurisdiction to entertain and decide the said application. It is the case of the opponent that Principal Civil Court at Karwar, Karnataka State is the only Court which has got jurisdiction the decide the application and that the award cannot be challenged before the Court at Gandhidham as it has no territorial jurisdiction to decide the application. It is also averred in the reply that there was an arbitration clause and the award of arbitrator is binding to both the sides. On merits also, the opponent tried to justify the order passed by the Arbitrator.
9. Learned trial Judge, after considering the arguments of both the sides, came to the conclusion that the Court cannot sit in appeal and decide the case on merits and reappreciate evidence which was led before the Arbitrator. The trial Court also found that the Arbitral Tribunal was competent to rule regarding its own jurisdiction. The trial Court also found that it cannot re-examine the question of jurisdiction which was dealt with by the Arbitrator and that the Court cannot set aside the award of the Arbitrator on the ground that the arbitrator has no jurisdiction to enter into reference and pass the award. The trial Court also found that the application under Section 34 for setting aside the award was not maintainable before the trial Court and the Court at Karwar is the only Court which has got jurisdiction to entertain such application. The trial Court specifically recorded a finding (at page 21 of the order) that it has no territorial jurisdiction. Though, having found that it has no territorial jurisdiction to decide the application under Section 34, the trial Court has decided the application on merits and has found that challenge made to the award dated 10-8-2002 is beyond the scope of Section 34 of the Arbitration Act, and therefore, the award of the arbitrator cannot be set aside under the provisions of Section 34 of the Arbitration Act. The learned trial Judge has, decided the matter on merits and recorded a finding (at page 23 of the order) that the arbitrator was competent under the provisions of Section 16(1) of the Arbitration Act to rule on its own jurisdiction and the findings and the conclusions arrived at by the arbitrator on this point cannot be challenged before the Court as the Court cannot sit in appeal over the award. On the aforesaid reasonings, the trial Court ultimately dismissed the said application which was submitted by the applicant under Section 34 of the Arbitration Act which is challenged by the applicant of this Civil Application by filing First Appeal under Section 37(i)(b) of the Arbitration Act. The First Appeal is already admitted by this Court, vide order dated 16-1-2006. This Civil Application for interim relief is pending since long.
10. Learned senior Counsel Mr. Mihir G. Thakore appeared for the applicant of the Civil Application and submitted that when the First Appeal is already admitted, the Court should confirm the interim relief staying the order of the trial Court as well as the award of the Arbitrator. It is submitted by Mr. Thakore that when the trial Court has specifically come to the conclusion that it has no territorial jurisdiction to decide the application, the trial Court could not have decided the application, the trial Court could not have decided the application on merits by coming to the conclusion that the award of the arbitrator is not required to be set aside by that Court as the Court cannot sit in appeal over the order of the arbitrator. Mr. Thakore submitted that when the Court has come to the conclusion that it has no territorial jurisdiction to decide the case, the Court could have returned the application for presentation to the appropriate Court under Order 7 of C.P.C. or could have merely rejected the application on the ground that it has no territorial jurisdiction, without observing anything on merits. He further submitted that there is hardly anything left to the applicant now even if it makes an application under Section 34 of the Arbitration Act before the Court at Karwar, as the trial Court has rejected the application on merits even though it has come to the conclusion that it has no territorial jurisdiction to entertain such application. Mr. Thakore submitted that in any case when the appeal is pending, interim relief is required to be confirmed till the appeal is decided. Mr. Thakore submitted that even on merits, there is nothing to show that there was any arbitration agreement at all and there is not a single document available on record by which it can be said that there is an arbitration clause in the agreement. Mr. Thakore submitted that the objections raised under Section 34 of the Arbitration Act, is therefore, required to be considered on its own merits and all these points can be adjudicated in the pending First Appeal which can be expedited and decided at the earliest.
11. On the other hand, Mr. J.R. Nanavati, who is appearing for the respondent submitted that so far as the award of the arbitrator is concerned, it is in the nature of money decree, and therefore, the applicant may be directed to deposit the amount, and the respondent may be permitted to withdraw the said amount by giving security. Mr. Nanavati further submitted that under the provisions of Order 41, Rule 5, C.P.C., normally money decree is not required to be stayed unless some exceptional grounds are made out for the same. Mr. Nanavati submitted that when the application submitted by the present applicant before the trial Court under Section 34 of the Arbitration Act has been refused by the trial Court, the respondent herein is entitled to execute the same treating the same as a decree of the Civil Court. It is submitted by Mr. Nanavati that in view of the rejection of the application under Section 34 the respondent has got an enforceable order/decree and if that award is stayed, the applicant may be directed to deposit the full amount and stay can be granted by asking him to deposit the full amount as it is in the nature of money decree, and the respondent may be directed to withdraw the entire amount as the respondents entitled to get the fruits of the award of the arbitrator as an enforceable right is created in favour of the respondent.
12. To substantiate his say, Mr. J.R. Nanavati has relied upon a decision of the Supreme Court in the case of Atma Ram Properties (P) Ltd. v. Federal Motors (P) Ltd. wherein
it has been held by the Supreme Court in Paragraphs 7 and 8 as under:
7. Sub-rules (1) and (3) of Rule 5 of Order 41 of the Code read as under:
5. Stay by appellate Court :- (1) An appeal shall not operate as stay of proceedings under a decree or order appealed from except so far as the appellate Court may order, nor shall execution of decree be stayed by reason only of an appeal having been preferred from the decree; but the appellate Court may for sufficient cause order stay of execution of such decree.
* * * * *
(3) No order for stay of execution shall be made under Sub-rule (1) or Sub-rule (2) unless the Court making it is satisfied
(a) that substantial loss may result to the party applying for stay of execution unless the order is made;
(b) that the application has been made without unreasonable delay; and
(c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him.
8. It is well settled that there preferring of an appeal does not operate as stay on the decree or order appealed against nor on the proceedings in the Court below. A prayer for the grant of stay of proceedings or on the execution of decree or order appealed against has to be specifically made to the appellate Court and the appellant Court has discretion to grant an order of stay or to refuse the same. The only guiding factor, indicated in Rule 5 aforesaid, is the - existence of sufficient cause in favour of the appellant on the availability of which the appellate Court would be inclined to pass an order of stay. Experience shows that the principal consideration which prevails with the appellate Court is that in spite of the appeal having been entertained for hearing by the appellate Court, the appellant may not be deprived of the fruits of his success in the event of the appeal being allowed. This consideration is pitted and weighed against the other paramount consideration: why should a party having succeeded from the Court below be deprived of the fruits of the decree or order in his hands merely because the defeated party has chosen to invoke the jurisdiction of superior forum. Still the question which the Court dealing with a prayer for the grant of stay asks itself is : why the status quo prevailing on the date of the decree and/or the date of making of the application for stay be not allowed to continue by granting stay, and not the question why the stay should not be granted.
13. Mr. J.R. Nanavati has also relied upon the judgment of Bombay High Court in the case of Dhunjibhoy Gowasji Umrigar v. Lisboa reported in ILR 13 Bom. 241 wherein the Division Bench of Bombay High Court has held where a party appealing against a decree, which directs him to pay money, may obtain stay of execution of decree, so far as it directs payment, on his lodging the amount in Court, unless the other party gives security for the repayment of the money in the event of the decree being reversed. If such security be given by the successful party, then stay of execution should not be granted. Relying upon the said judgment, it is argued mat his client is ready to give security if his client is permitted to withdraw the amount and the money decree should not be stayed by this Court.
14. Mr. Nanavati further submitted that considering the said aspects of the matter, the applicant may be directed to deposit the decretal amount and the respondent may be directed to withdraw the same by giving security. Mr. Nanavati further submitted that when the trial Court has rejected the application under Section 34 of the Arbitration Act, the award of the Arbitrator has become an enforceable decree and that is how it can be considered as a money decree. He submitted that in that view of the matter, unless an exceptional case is made out, stay against money decree is not required to be granted.
15. I have heard learned Advocates appearing for born the sides in detail.
16. The question which requires consideration in the present application is : whether the award of the arbitrator can be said to be a money decree and whether the analogy of money decree passed in civil suit can be made applicable to the award of the arbitrator or not, and whether during the pendency of the First Appeal, the order passed by the trial Court and/or an award of the arbitrator is required to be stayed or not?
17. In this connection, reference is required to be made to Sees. 34 and 36 of the Arbitration Act, which provides as under:Mobile ViewGujarat High CourtIndian Kanoon - http://indiankanoon.org/doc/1783611/
Gujarat High Court
Adiya Fuels Ltd. vs Bilt Chemicals Ltd. on 23 January, 2007
Equivalent citations: AIR 2007 Guj 140, 2007 (4) ARBLR 110 Gujarat
Author: P Majmudar
Bench: P Majmudar
JUDGMENT
P.B. Majmudar, J.
1. Rule, returnable today. Mr. A.R. Thacker waives service of rule on behalf of respondent. With the consent of parties, this application is taken up for final hearing today.
2. The applicant of this Civil Application has filed First Appeal No. 17 of 2006 under Section 37(i)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Arbitration Act') which is admitted by this Court and pending for final hearing. By this Civil Application, it is prayed that during the pendency of the said First Appeal, the order passed by the trial Court i.e. by learned Additional District Judge, Gandhidham, Kutch in C.M.A. No. 215 of 2005 may be stayed during the pendency of the appeal.
3. The Civil Application has been opposed by the respondents on the ground that the award given by the Arbitrator should be treated as a money decree, and therefore, absolute stay cannot be granted and the applicant may be directed to deposit the amount awarded by the Arbitrator.
4. Since, the Civil Application is hotly contested by the respondents, the same is required to be decided by giving appropriate reasons and by dealing with factual aspects of the case in detail as well as by considering the provisions of the Arbitration Act as well as case-laws cited by both sides in this behalf.
5. The opponent herein, formerly know as Bellarpur Industries Limited and now known as BILT Chemicals Limited, is a Company incorporated under the Companies Act and having its registered office at Binaga, Karnataka State. The applicant, was at the relevant time, engaged in the business of importing Furnace Oil from foreign countries and selling the same to its customers all over the country. It is the case of the applicant that in the year 1998, the applicant and opponent entered into negotiations for sale/purchase of Furnace Oil. The applicant made a formal offer for selling furnace oil and there was a counter-offer made by the opponent. It is not necessary to go into the minute details about the contract entered into between the parties as this Court is required to consider only whether another interim relief is required to be granted during the pendency of the appeal or not. However, suffice it to say that after some discussions between the parties, a contract was finalized and the applicant arranged for import of furnace oil from Bahrain Petroleum Company, which was to be sold to the opponent. It is the case of the applicant that the applicant has never agreed to the condition regarding arbitration clause which was suggested by the respondent in its letter dated 14-4-1998. Thereafter, a High Seas Sale Agreement dated 19-5-1998 was entered into between the applicant and the opponent and the terms and conditions and specification of cargo as well as jurisdiction of the Court were stated and incorporated in the writing. The case of the applicant is that there is no arbitration clause at all in the agreement entered into between the parties, and the agrement did not contain any cause for appointment of arbitrator for settlement of disputes, if any, between the parties.
6. Subsequently, a dispute arose between the parties as the opponent refused to uplift the cargo and refused to honour its commitment in respect of payments. The case of the applicant is that the applicant suffered massive loss, and therefore, the applicant has filed a suit being Special Civil Suit No. 24 of 2000 in the Court of Civil Judge, Senior Division. Gandhidham for recovery of Rs. 1,53,82,594/- with interest. The said suit is pending in the trial Court.
7. The opponent however referred the dispute and its claim against the applicant for arbitration, and requested its General Manager, one P. Ganpati Rao, to conduct arbitral proceedings in the matter. The case of the applicant is that though there is no arbitration agreement between the parties, the arbitrator has wrongly assumed jurisdiction and proceeded to conduct the arbitral proceedings. The arbitrator thereafter gave his award on 10-8-2002 directing the applicant to pay Rs. 2,11,04,202/- to the present opponent with interest at 18%p.a. from the date of the award till the date of payment.
8. The present applicant, thereafter, preferred an application before the trial Court under Section 34 of the Arbitration Act on the ground that the said award is invalid and devoid of any legal force and that the same is not enforceable as there was no arbitration clause in the agreement. The award of the Arbitrator was accordingly challenged on various grounds before the trial Court. The respondent herein appeared before the trial Court in connection with the said proceedings and filed its reply at Exh. 9 contending inter alia that the trial Court has no jurisdiction to entertain and decide the said application. It is the case of the opponent that Principal Civil Court at Karwar, Karnataka State is the only Court which has got jurisdiction the decide the application and that the award cannot be challenged before the Court at Gandhidham as it has no territorial jurisdiction to decide the application. It is also averred in the reply that there was an arbitration clause and the award of arbitrator is binding to both the sides. On merits also, the opponent tried to justify the order passed by the Arbitrator.
9. Learned trial Judge, after considering the arguments of both the sides, came to the conclusion that the Court cannot sit in appeal and decide the case on merits and reappreciate evidence which was led before the Arbitrator. The trial Court also found that the Arbitral Tribunal was competent to rule regarding its own jurisdiction. The trial Court also found that it cannot re-examine the question of jurisdiction which was dealt with by the Arbitrator and that the Court cannot set aside the award of the Arbitrator on the ground that the arbitrator has no jurisdiction to enter into reference and pass the award. The trial Court also found that the application under Section 34 for setting aside the award was not maintainable before the trial Court and the Court at Karwar is the only Court which has got jurisdiction to entertain such application. The trial Court specifically recorded a finding (at page 21 of the order) that it has no territorial jurisdiction. Though, having found that it has no territorial jurisdiction to decide the application under Section 34, the trial Court has decided the application on merits and has found that challenge made to the award dated 10-8-2002 is beyond the scope of Section 34 of the Arbitration Act, and therefore, the award of the arbitrator cannot be set aside under the provisions of Section 34 of the Arbitration Act. The learned trial Judge has, decided the matter on merits and recorded a finding (at page 23 of the order) that the arbitrator was competent under the provisions of Section 16(1) of the Arbitration Act to rule on its own jurisdiction and the findings and the conclusions arrived at by the arbitrator on this point cannot be challenged before the Court as the Court cannot sit in appeal over the award. On the aforesaid reasonings, the trial Court ultimately dismissed the said application which was submitted by the applicant under Section 34 of the Arbitration Act which is challenged by the applicant of this Civil Application by filing First Appeal under Section 37(i)(b) of the Arbitration Act. The First Appeal is already admitted by this Court, vide order dated 16-1-2006. This Civil Application for interim relief is pending since long.
10. Learned senior Counsel Mr. Mihir G. Thakore appeared for the applicant of the Civil Application and submitted that when the First Appeal is already admitted, the Court should confirm the interim relief staying the order of the trial Court as well as the award of the Arbitrator. It is submitted by Mr. Thakore that when the trial Court has specifically come to the conclusion that it has no territorial jurisdiction to decide the application, the trial Court could not have decided the application, the trial Court could not have decided the application on merits by coming to the conclusion that the award of the arbitrator is not required to be set aside by that Court as the Court cannot sit in appeal over the order of the arbitrator. Mr. Thakore submitted that when the Court has come to the conclusion that it has no territorial jurisdiction to decide the case, the Court could have returned the application for presentation to the appropriate Court under Order 7 of C.P.C. or could have merely rejected the application on the ground that it has no territorial jurisdiction, without observing anything on merits. He further submitted that there is hardly anything left to the applicant now even if it makes an application under Section 34 of the Arbitration Act before the Court at Karwar, as the trial Court has rejected the application on merits even though it has come to the conclusion that it has no territorial jurisdiction to entertain such application. Mr. Thakore submitted that in any case when the appeal is pending, interim relief is required to be confirmed till the appeal is decided. Mr. Thakore submitted that even on merits, there is nothing to show that there was any arbitration agreement at all and there is not a single document available on record by which it can be said that there is an arbitration clause in the agreement. Mr. Thakore submitted that the objections raised under Section 34 of the Arbitration Act, is therefore, required to be considered on its own merits and all these points can be adjudicated in the pending First Appeal which can be expedited and decided at the earliest.
11. On the other hand, Mr. J.R. Nanavati, who is appearing for the respondent submitted that so far as the award of the arbitrator is concerned, it is in the nature of money decree, and therefore, the applicant may be directed to deposit the amount, and the respondent may be permitted to withdraw the said amount by giving security. Mr. Nanavati further submitted that under the provisions of Order 41, Rule 5, C.P.C., normally money decree is not required to be stayed unless some exceptional grounds are made out for the same. Mr. Nanavati submitted that when the application submitted by the present applicant before the trial Court under Section 34 of the Arbitration Act has been refused by the trial Court, the respondent herein is entitled to execute the same treating the same as a decree of the Civil Court. It is submitted by Mr. Nanavati that in view of the rejection of the application under Section 34 the respondent has got an enforceable order/decree and if that award is stayed, the applicant may be directed to deposit the full amount and stay can be granted by asking him to deposit the full amount as it is in the nature of money decree, and the respondent may be directed to withdraw the entire amount as the respondents entitled to get the fruits of the award of the arbitrator as an enforceable right is created in favour of the respondent.
12. To substantiate his say, Mr. J.R. Nanavati has relied upon a decision of the Supreme Court in the case of Atma Ram Properties (P) Ltd. v. Federal Motors (P) Ltd. wherein
it has been held by the Supreme Court in Paragraphs 7 and 8 as under:
7. Sub-rules (1) and (3) of Rule 5 of Order 41 of the Code read as under:
5. Stay by appellate Court :- (1) An appeal shall not operate as stay of proceedings under a decree or order appealed from except so far as the appellate Court may order, nor shall execution of decree be stayed by reason only of an appeal having been preferred from the decree; but the appellate Court may for sufficient cause order stay of execution of such decree.
* * * * *
(3) No order for stay of execution shall be made under Sub-rule (1) or Sub-rule (2) unless the Court making it is satisfied
(a) that substantial loss may result to the party applying for stay of execution unless the order is made;
(b) that the application has been made without unreasonable delay; and
(c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him.
8. It is well settled that there preferring of an appeal does not operate as stay on the decree or order appealed against nor on the proceedings in the Court below. A prayer for the grant of stay of proceedings or on the execution of decree or order appealed against has to be specifically made to the appellate Court and the appellant Court has discretion to grant an order of stay or to refuse the same. The only guiding factor, indicated in Rule 5 aforesaid, is the - existence of sufficient cause in favour of the appellant on the availability of which the appellate Court would be inclined to pass an order of stay. Experience shows that the principal consideration which prevails with the appellate Court is that in spite of the appeal having been entertained for hearing by the appellate Court, the appellant may not be deprived of the fruits of his success in the event of the appeal being allowed. This consideration is pitted and weighed against the other paramount consideration: why should a party having succeeded from the Court below be deprived of the fruits of the decree or order in his hands merely because the defeated party has chosen to invoke the jurisdiction of superior forum. Still the question which the Court dealing with a prayer for the grant of stay asks itself is : why the status quo prevailing on the date of the decree and/or the date of making of the application for stay be not allowed to continue by granting stay, and not the question why the stay should not be granted.
13. Mr. J.R. Nanavati has also relied upon the judgment of Bombay High Court in the case of Dhunjibhoy Gowasji Umrigar v. Lisboa reported in ILR 13 Bom. 241 wherein the Division Bench of Bombay High Court has held where a party appealing against a decree, which directs him to pay money, may obtain stay of execution of decree, so far as it directs payment, on his lodging the amount in Court, unless the other party gives security for the repayment of the money in the event of the decree being reversed. If such security be given by the successful party, then stay of execution should not be granted. Relying upon the said judgment, it is argued mat his client is ready to give security if his client is permitted to withdraw the amount and the money decree should not be stayed by this Court.
14. Mr. Nanavati further submitted that considering the said aspects of the matter, the applicant may be directed to deposit the decretal amount and the respondent may be directed to withdraw the same by giving security. Mr. Nanavati further submitted that when the trial Court has rejected the application under Section 34 of the Arbitration Act, the award of the Arbitrator has become an enforceable decree and that is how it can be considered as a money decree. He submitted that in that view of the matter, unless an exceptional case is made out, stay against money decree is not required to be granted.
15. I have heard learned Advocates appearing for born the sides in detail.
16. The question which requires consideration in the present application is : whether the award of the arbitrator can be said to be a money decree and whether the analogy of money decree passed in civil suit can be made applicable to the award of the arbitrator or not, and whether during the pendency of the First Appeal, the order passed by the trial Court and/or an award of the arbitrator is required to be stayed or not?
17. In this connection, reference is required to be made to Sees. 34 and 36 of the Arbitration Act, which provides as under:
34. Application for setting aside arbitral award.
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3).
(2) An arbitral award may be set aside by the Court only if
(i) A party was under some incapacity, or
(ii) The arbitration agreement is not valid under the law to which the parties have subjected it or failing any indicating thereof, under the law for the time-being in force; or
(iii) The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submissions to arbitration, or it contains decision on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decision on matters not submitted to arbitration may be set aside; or
(v) The composition of the arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreements was in conflict with a provision of this Part from which the parties cannot derogate, or failing such agreement, was not in accordance with this parties,
(b) the Court finds that
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time-being in force, or,
(ii) The arbitral award is in conflict with the public policy of India.
Explanation :- Without prejudice to the generality of Sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral Tribunal.
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months, it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under Sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.
35. Finality of arbitral awards :- Subject to this Part, an arbitral award shall be final and binding on the parties and persons claiming under them respectively.
36. Enforcement :- where the time for making an application to set aside the arbitral award under Section 34 has expired or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.
18. As per the scheme of the Arbitration Act, the award of the Arbitrator achieves finality and becomes enforceable when the time for making an application to set aside the arbitral award under Section 34 has expired, or when such application is made, but refused by the Court. In the aforesaid two eventualities, the award of the arbitrator becomes enforceable. In the present case, an application under Section 34 has already been preferred before the trial Court within time, and therefore the question which requires determination is, whether the trial Court can be said to have refused such application after adjudicating the same on merits?
19. It is not in dispute that the trial Court has specifically recorded a finding that has no territorial jurisdiction to entertain the application under Section 34 of the Arbitration Act. It is a well settled position of law that when the Court has no jurisdiction, the rest of the observations made by the Court can be said to be mere incidental observations; since the trial Court has no jurisdiction, there is no question of adjudicating the dispute on merits by the Court. If the appellate Court comes to a conclusion that the trial Court had jurisdiction to decide such application only at that stage the question about considering the observation of the trial Court on merits is required to be taken into account. In my view, when the trial Court has already come to the conclusion that it has no territorial jurisdiction and when the aforesaid question is sub-judice in the First Appeal, this is not a case in which the applicant is required to be directed to comply with the arbitral award by ordering to deposit the full amount.
20. The matter is also required to be examined from another angle. If in a given case, the trial Court having jurisdiction decides an application under Section 34 of the Arbitration Act on merits and rejects the objection, and if an appeal is filed against it, the Court may consider the question as to what type of interim relief can be given in such case. However, in the instant case, the trial Court itself has come to a conclusion that it has no jurisdiction to entertain the application under Section 34 of the Arbitration Act. Considering the scheme of the Arbitration Act, an arbitral award becomes enforceable as a decree under Section 36 of the Arbitration Act when application under Section 34 is not preferred within time or such application though preferred, is refused. The word 'refused' would normally mean refused on merits. In the instant case, when the trial Court itself has come to a conclusion that it has no territorial jurisdiction, such refusal, therefore, cannot be said to be a refusal on merits. In the appeal preferred against the said order, this Court is required to consider the objection of the present applicant which were raised before the trial Court under Section 34 of the Arbitration Act. Since, the question regarding objections under Section 34 is the subject-matter of the First Appeal, and till the appeal is finally decided, it cannot be said that the objections raised by the present applicant under Section 34 of the Arbitration Act is 'refused', as the said question is already sub-judice in the First Appeal. When in the instant case, the trial Court itself has come to the conclusion that it has no territorial jurisdiction to decide the application under Section 34, in my view, it cannot be said that by the impugned order of the trial Court, the award of the Arbitrator has become final and enforceable, especially when in the main First Appeal, mis Court is required to examine the said aspect. The observations of the trial Court on merits, therefore, can be said to be only of tentative in nature especially when the trial Court has come to the conclusion that it has no jurisdiction to decide the application. So far as a decree passed by Civil Court in a money suit is concerned, it is not subject to any such provisions of Section 34 of the Arbitration Act and the moment a decree is passed, straightaway such decree can be executed and appeal under Section 96 of Civil Procedure Code cannot be equated with an appeal under Section 37 of the Arbitration Act. So far as the award of the Arbitrator is concerned, as per the scheme of the Arbitration Act, it cannot become straightaway enforceable till the time-limit for preferring an application under Section 34 of the Arbitration Act has expired, or such application though preferred, is refused. Therefore, looking to the scheme of the Arbitration Act, an arbitral award cannot be said to be straightaway enforceable as a 'decree' of the Court and straightaway it cannot be said that it is a money decree. In such circumstances, the Court is required to consider the question of granting stay in different manner.
21. When the trial Court has found that the arbitrator has jurisdiction and the award is not required to be set aside, there is hardly anything left to the present applicant even to go before a Court according to which it has jurisdiction for setting aside the award. Since, the First Appeal is pending before this Court, at this stage, I would not like to comment upon the order of the trial Court on merits regarding refusal of application under Section 34 or whether in such proceedings the trial Court can decide the question about validity of arbitration agreement as said aspect is required to be decided as per the provisions contained under Section 34 of the Arbitration Act itself.
22. It is required to be noted that even if it is presumed that the Court has no power to return the application, in such a case, by applying analogy or Order 7 of C.P.C., then also the applicant can go to the competent Court by presenting an application and can get shelter of Section 14 of the Limitation Act and ask for excluding the time consumed in a wrong forum. However, the question about territorial Court is subject to scrutiny of this Court in the First Appeal. I am, therefore, of the view that this is not a case in which the applicant is required to be directed to deposit full amount by applying Order 41, Rule 5 of C.P.C.
23. At this stage, a reference is required to be made to the decision in the case of Paramjeet Singh Patheja v. I.C.D.S., Ltd. reported in 2006 AIR SCW 5718 wherein the Honourable Supreme Court has held that the arbitration is neither a decree nor an award for payment within the meaning of Section 9 of the Insolvency Act, and it is not rendered in a suit. In the aforesaid judgment, it is observed by the Supreme Court as under in Paragraphs 36 to 39:
36. It is settled by decision of this Court that the words 'as if in fact show the distinction between two things and such words are used for a limited purpose. They further show that a legal fiction must be limited to the purpose for which it was created.
37. Section 36 of the Arbitration & Conciliation Act, 1996 which is in pari materia with Section 15 of the 1899 Act, it set out herein below:
36. Enforcement .- Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court."
38. In fact, Section 36 goes further than Section 15 of the 1899 Act, and makes it clear beyond doubt that enforceability is only to be under the C.P.C. It rules out any argument that enforceability as a decree can be sought under any other law or that intiating insolvency proceeding is a manner of enforcing a decree under the C.P.C.
39. Therefore, the contention of the respondents that, an award rendered under the Arbitration and Conciliation Act, 1996 if not challenged within the requisite period, the same become final and binding as provided under Section 35 and the same can be enforced as a Decree as it is as binding and conclusive as provided under Section 36 and that there is no distinction between an Award and Decree does not hold water.
In Paragraphs 59 of the said judgment, the Apex Court observed as under:
59. The words "as if" demonstrates that award and decree or order are two different things. The legal fiction created is for the limited purpose of enforcement as a decree. The fiction is not intended to make it a decree for all purpose under all statutes, whether State or Central.
24. It is no doubt true that the observation of the Supreme Court in connection with 9(2) of, the Insolvency Act. However, it has been clearly observed in Clause (iv)(c) of Para 60 of the judgment that:
An award does not satisfy any of the requirements of a decree. It is not rendered in a suit nor is in an arbitral proceedings commenced by the institution of a plaint.
Therefore, such an award straightaway cannot be said to be a money decree as per the definition of decree in the Court Fees Act. The legal fiction is created for a limited purpose of enforcement as a decree.
25. Be that as it may, in the present case, the trial Court has recorded a specific finding that it has no jurisdiction. Considering the aforesaid aspect and considering the fact that appeal under Section 34 is under consideration of this Court in the First Appeal, and considering the fact that the award under the Arbitration Act by legal fiction can be termed as a decree, yet, when the entire question is to be thrashed out in the First Appeal, I am of the view that interim relief granted in the First Appeal is required to be continued till the disposal of the First Appeal and this is not a case where the applicant herein should be directed to deposit the entire amount especially when the trial Court, while deciding application under Section 34 of the Arbitration Act, has specifically found that it has no territorial jurisdiction to decide the same.
26. Considering the aforesaid aspects of the matter and considering the scheme of the Arbitration Act, 1996, in my view, the interim relief as prayed for by the applicant, which is prevalent since last more than one year, is required to be continued.
27. However, the applicant is directed to give solvent surety of marketable property in the sum of Rs. 2,50,00,000/- latest by 20th February, 2007 before the Registry of this Court. Mr. Thakore submitted that the Managing Director and another Director of the applicant firm would give solvent surety of their personal properties having marketable title in the aggregate sum of Rs. 2,50,00,000/-. It is, therefore, directed that Managing Director and another Director of the applicant firm shall file an undertaking before this Court on or before 1st February, 2007 to the effect that they will furnish solvent surety of their personal properties having marketable title to the Registry of this Court latest by 20th February, 2007. In case the undertaking is not filed on or before 1st February, 2007, and after filing the undertaking if solvent security is not furnished on or before 20th February, 2007, it would be open to the respondent to move the Court for vacating the interim relief.
28. The Civil Application is accordingly allowed. Rule made absolute accordingly. No order as to costs.
29. Considering the fact and circumstances of the case, the First Appeal is ordered to be listed for final hearing in the first week of April, 2007.
34. Application for setting aside arbitral award.
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3).
(2) An arbitral award may be set aside by the Court only if
(i) A party was under some incapacity, or
(ii) The arbitration agreement is not valid under the law to which the parties have subjected it or failing any indicating thereof, under the law for the time-being in force; or
(iii) The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submissions to arbitration, or it contains decision on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decision on matters not submitted to arbitration may be set aside; or
(v) The composition of the arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreements was in conflict with a provision of this Part from which the parties cannot derogate, or failing such agreement, was not in accordance with this parties,
(b) the Court finds that
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time-being in force, or,
(ii) The arbitral award is in conflict with the public policy of India.
Explanation :- Without prejudice to the generality of Sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral Tribunal.
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months, it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under Sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.
35. Finality of arbitral awards :- Subject to this Part, an arbitral award shall be final and binding on the parties and persons claiming under them respectively.
36. Enforcement :- where the time for making an application to set aside the arbitral award under Section 34 has expired or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.
18. As per the scheme of the Arbitration Act, the award of the Arbitrator achieves finality and becomes enforceable when the time for making an application to set aside the arbitral award under Section 34 has expired, or when such application is made, but refused by the Court. In the aforesaid two eventualities, the award of the arbitrator becomes enforceable. In the present case, an application under Section 34 has already been preferred before the trial Court within time, and therefore the question which requires determination is, whether the trial Court can be said to have refused such application after adjudicating the same on merits?
19. It is not in dispute that the trial Court has specifically recorded a finding that has no territorial jurisdiction to entertain the application under Section 34 of the Arbitration Act. It is a well settled position of law that when the Court has no jurisdiction, the rest of the observations made by the Court can be said to be mere incidental observations; since the trial Court has no jurisdiction, there is no question of adjudicating the dispute on merits by the Court. If the appellate Court comes to a conclusion that the trial Court had jurisdiction to decide such application only at that stage the question about considering the observation of the trial Court on merits is required to be taken into account. In my view, when the trial Court has already come to the conclusion that it has no territorial jurisdiction and when the aforesaid question is sub-judice in the First Appeal, this is not a case in which the applicant is required to be directed to comply with the arbitral award by ordering to deposit the full amount.
20. The matter is also required to be examined from another angle. If in a given case, the trial Court having jurisdiction decides an application under Section 34 of the Arbitration Act on merits and rejects the objection, and if an appeal is filed against it, the Court may consider the question as to what type of interim relief can be given in such case. However, in the instant case, the trial Court itself has come to a conclusion that it has no jurisdiction to entertain the application under Section 34 of the Arbitration Act. Considering the scheme of the Arbitration Act, an arbitral award becomes enforceable as a decree under Section 36 of the Arbitration Act when application under Section 34 is not preferred within time or such application though preferred, is refused. The word 'refused' would normally mean refused on merits. In the instant case, when the trial Court itself has come to a conclusion that it has no territorial jurisdiction, such refusal, therefore, cannot be said to be a refusal on merits. In the appeal preferred against the said order, this Court is required to consider the objection of the present applicant which were raised before the trial Court under Section 34 of the Arbitration Act. Since, the question regarding objections under Section 34 is the subject-matter of the First Appeal, and till the appeal is finally decided, it cannot be said that the objections raised by the present applicant under Section 34 of the Arbitration Act is 'refused', as the said question is already sub-judice in the First Appeal. When in the instant case, the trial Court itself has come to the conclusion that it has no territorial jurisdiction to decide the application under Section 34, in my view, it cannot be said that by the impugned order of the trial Court, the award of the Arbitrator has become final and enforceable, especially when in the main First Appeal, mis Court is required to examine the said aspect. The observations of the trial Court on merits, therefore, can be said to be only of tentative in nature especially when the trial Court has come to the conclusion that it has no jurisdiction to decide the application. So far as a decree passed by Civil Court in a money suit is concerned, it is not subject to any such provisions of Section 34 of the Arbitration Act and the moment a decree is passed, straightaway such decree can be executed and appeal under Section 96 of Civil Procedure Code cannot be equated with an appeal under Section 37 of the Arbitration Act. So far as the award of the Arbitrator is concerned, as per the scheme of the Arbitration Act, it cannot become straightaway enforceable till the time-limit for preferring an application under Section 34 of the Arbitration Act has expired, or such application though preferred, is refused. Therefore, looking to the scheme of the Arbitration Act, an arbitral award cannot be said to be straightaway enforceable as a 'decree' of the Court and straightaway it cannot be said that it is a money decree. In such circumstances, the Court is required to consider the question of granting stay in different manner.
21. When the trial Court has found that the arbitrator has jurisdiction and the award is not required to be set aside, there is hardly anything left to the present applicant even to go before a Court according to which it has jurisdiction for setting aside the award. Since, the First Appeal is pending before this Court, at this stage, I would not like to comment upon the order of the trial Court on merits regarding refusal of application under Section 34 or whether in such proceedings the trial Court can decide the question about validity of arbitration agreement as said aspect is required to be decided as per the provisions contained under Section 34 of the Arbitration Act itself.
22. It is required to be noted that even if it is presumed that the Court has no power to return the application, in such a case, by applying analogy or Order 7 of C.P.C., then also the applicant can go to the competent Court by presenting an application and can get shelter of Section 14 of the Limitation Act and ask for excluding the time consumed in a wrong forum. However, the question about territorial Court is subject to scrutiny of this Court in the First Appeal. I am, therefore, of the view that this is not a case in which the applicant is required to be directed to deposit full amount by applying Order 41, Rule 5 of C.P.C.
23. At this stage, a reference is required to be made to the decision in the case of Paramjeet Singh Patheja v. I.C.D.S., Ltd. reported in 2006 AIR SCW 5718 wherein the Honourable Supreme Court has held that the arbitration is neither a decree nor an award for payment within the meaning of Section 9 of the Insolvency Act, and it is not rendered in a suit. In the aforesaid judgment, it is observed by the Supreme Court as under in Paragraphs 36 to 39:
36. It is settled by decision of this Court that the words 'as if in fact show the distinction between two things and such words are used for a limited purpose. They further show that a legal fiction must be limited to the purpose for which it was created.
37. Section 36 of the Arbitration & Conciliation Act, 1996 which is in pari materia with Section 15 of the 1899 Act, it set out herein below:
36. Enforcement .- Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court."
38. In fact, Section 36 goes further than Section 15 of the 1899 Act, and makes it clear beyond doubt that enforceability is only to be under the C.P.C. It rules out any argument that enforceability as a decree can be sought under any other law or that intiating insolvency proceeding is a manner of enforcing a decree under the C.P.C.
39. Therefore, the contention of the respondents that, an award rendered under the Arbitration and Conciliation Act, 1996 if not challenged within the requisite period, the same become final and binding as provided under Section 35 and the same can be enforced as a Decree as it is as binding and conclusive as provided under Section 36 and that there is no distinction between an Award and Decree does not hold water.
In Paragraphs 59 of the said judgment, the Apex Court observed as under:
59. The words "as if" demonstrates that award and decree or order are two different things. The legal fiction created is for the limited purpose of enforcement as a decree. The fiction is not intended to make it a decree for all purpose under all statutes, whether State or Central.
24. It is no doubt true that the observation of the Supreme Court in connection with 9(2) of, the Insolvency Act. However, it has been clearly observed in Clause (iv)(c) of Para 60 of the judgment that:
An award does not satisfy any of the requirements of a decree. It is not rendered in a suit nor is in an arbitral proceedings commenced by the institution of a plaint.
Therefore, such an award straightaway cannot be said to be a money decree as per the definition of decree in the Court Fees Act. The legal fiction is created for a limited purpose of enforcement as a decree.
25. Be that as it may, in the present case, the trial Court has recorded a specific finding that it has no jurisdiction. Considering the aforesaid aspect and considering the fact that appeal under Section 34 is under consideration of this Court in the First Appeal, and considering the fact that the award under the Arbitration Act by legal fiction can be termed as a decree, yet, when the entire question is to be thrashed out in the First Appeal, I am of the view that interim relief granted in the First Appeal is required to be continued till the disposal of the First Appeal and this is not a case where the applicant herein should be directed to deposit the entire amount especially when the trial Court, while deciding application under Section 34 of the Arbitration Act, has specifically found that it has no territorial jurisdiction to decide the same.
26. Considering the aforesaid aspects of the matter and considering the scheme of the Arbitration Act, 1996, in my view, the interim relief as prayed for by the applicant, which is prevalent since last more than one year, is required to be continued.
27. However, the applicant is directed to give solvent surety of marketable property in the sum of Rs. 2,50,00,000/- latest by 20th February, 2007 before the Registry of this Court. Mr. Thakore submitted that the Managing Director and another Director of the applicant firm would give solvent surety of their personal properties having marketable title in the aggregate sum of Rs. 2,50,00,000/-. It is, therefore, directed that Managing Director and another Director of the applicant firm shall file an undertaking before this Court on or before 1st February, 2007 to the effect that they will furnish solvent surety of their personal properties having marketable title to the Registry of this Court latest by 20th February, 2007. In case the undertaking is not filed on or before 1st February, 2007, and after filing the undertaking if solvent security is not furnished on or before 20th February, 2007, it would be open to the respondent to move the Court for vacating the interim relief.
28. The Civil Application is accordingly allowed. Rule made absolute accordingly. No order as to costs.
29. Considering the fact and circumstances of the case, the First Appeal is ordered to be listed for final hearing in the first week of April, 2007.
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