When arbitration award will become unexecutable?

In the case of National Aluminum Co. Ltd. (supra), during the course of hearing before the Supreme Court, a request was made that since the matter had been pending more than sixteen years the respondent should be directed to deposit the amount awarded by the Arbitrator and it is in these circumstances that Supreme Court had an occasion to interpret Section 34 of Arbitration And Conciliation Act and while referring to the mandatory provision, as detailed in Section 34 of Arbitration and Conciliation Act, the Supreme Court declined to exercise its jurisdiction as no special grounds had been urged. The Apex Court also noticed the mandatory language of Section 34 of 1996 Act that an award when challenged under Section 34 within the time stipulated therein becomes unexecutable.

IN THE HIGH COURT OF DELHI

EX. P. 93/2010

Decided On: 24.10.2011

Appellants: M/S M.D. Overseas Ltd
Vs.
Respondent: Canara Bank

Hon'ble Judges/Coram:
Hon'ble Mr. Justice G.S. Sistani

1 Present petition has been filed by decree holder under Section 36 of Arbitration and Conciliation Act seeking enforcement of award dated 14.9.2002.

2. The judgment debtor has filed objections under Section 47 read with Section 151 of the Code of Civil Procedure. The sole ground taken in the objections is that the judgment debtor has filed an appeal against the order of the Single Judge dated 20.1.2010 by which the objections to the award were dismissed and the appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996, is a statutory appeal and therefore is in continuation of the original proceedings, which were pending under Section 34 of the Act.

3. Learned senior counsel for the judgment debtor submits that present execution petition is not maintainable in view of expressed language of Sections 34 and 36 of Arbitration and Conciliation Act, 1996, by which in case the award is challenged within the stipulated period, the same becomes unexecutable. Senior counsel further submits that since the appeal is in continuation of a suit pendency of appeal by itself would amount to stay of the award till the decision in the appeal. In support of his submission, learned senior counsel for the judgment debtor has relied upon National Aluminum Co. Ltd. v. Pressteel & Fabrications (P) Ltd. & Another, reported at MANU/SC/1082/2003 : (2004) 1 SCC 540, more particularly para 10. Counsel for the judgment debtor has also relied upon National Buildings Construction Corporation Ltd. v. Lloyds Insulation India Ltd., reported at MANU/SC/1296/2004 : (2005) 2 SCC 367, more particularly paras 3 to 6. Para 10 of National Aluminum Co. Ltd. (supra) relied upon by counsel for the judgment debtor reads as under:

10. Learned counsel for the applicant then contended that nearly 16 years have gone by since the dispute between the parties arose and since the said dispute was first referred to an arbitrator. After the passage of such a long time, the applicant has been able to get only a partial award in his favour, but still he is unable to enjoy the fruits of that award also because of the proceedings initiated under Section 34 of the 1996 Act. In this factual background, he prays that to do complete justice, we should consider the objections of both the parties to the said award and decide the same in these proceedings. Since we have come to the conclusion that the parties having agreed to the procedure under the 1996 Act to be followed by the arbitrator for the post-award proceedings also, the provisions of the said Act would prevail and the said statute having specifically provided for a remedy under Section 34 of the 1996 Act, it may not be proper for us to exercise our jurisdiction under Article 142 of the Constitution to adjudicate upon the objections filed by both the parties to the award. Learned counsel then prayed that at least the amount representing that part of the award which is in their favour should be directed to be deposited in the competent civil court by the respondents herein so that the applicant could enjoy the fruits of the said award during further proceedings. At one point of time, considering the award as a money decree, we were inclined to direct the party to deposit the awarded amount in the court below so that the applicant can withdraw it on such terms and conditions as the said court might permit them to do as an interim measure. But then we noticed from the mandatory language of Section 34 of the 1996 Act, that an award, when challenged under Section 34 within the time stipulated therein, becomes unexecutuble. There is no discretion left with the court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible. On facts of this case, there being no exceptional situation which would compel us to ignore such statutory provision, and to use our jurisdiction under Article 142, we restrain ourselves from passing any such order, as prayed for by the applicant.

4. Paras 3 to 6 of National Buildings Construction Corporation Ltd. (supra) relied upon by counsel for the judgment debtor reads as under:

3. An application was made by the respondent challenging that part of the award which related to the finding of the arbitrator in favour of the appellant. While the challenge was pending, an application for execution was moved by the respondent for recovery of the entire amount of Rs.13,97,072.24 from the appellant. The application for execution was allowed. Being aggrieved, the appellant preferred an appeal before the Division Bench. Pending the appeal before the Division Bench, the Division Bench had granted stay of the order of the executing court subject to the appellant depositing a sum of Rs.5,00,000/-. The said amount of Rs.5,00,000/-was deposited and has been withdrawn by the respondent against a bank guarantee. The Division Bench was of the view that since there was no challenged by the appellant to the finding of the arbitrator that an amount of Rs. 13,97,072.24 was payable, the respondent was entitled to execute the award for that amount. The Division Bench in disposing of the appeal directed the appellant to deposit a further sum of balance awarded amount and gave liberty to the respondent to withdraw the same upon furnishing appropriate security.
4. The matter has been brought before this Court by the appellant inter alia on the ground that this Court had in National Aluminum Co. Ltd. v. Pressteel & Fabrications (P) Ltd. held on a construction of Section 36 of the Arbitration and Conciliation Act, 1996, that there was no power in a Court to direct the execution of an award when an application under Section 34 of the Act challenging the award was pending. Being prima facie satisfied with the submission of the appellant, we had stayed the operation of the impugned order of the Division Bench.
5. The learned counsel appearing on behalf of the respondent has submitted that in fact there were two separate awards: one which allowed the respondent's claim up to Rs.13,97,072.24 and the second which allowed the appellant's counterclaim for Rs.9,85,316. It is contended that since the respondent alone had challenged the award in favour of the appellant, it was open to the respondent to execute that portion of the award which was in the respondent's favour and against which no application under Section 34 was pending.
6. We are of the view that the award clearly states that after an adjustment of accounts, the only amount payable by the appellant to the respondent was Rs.4,11,756. How the arbitrator arrived at this figure is not for us to see. For the purpose of Section 36 of the Act, the court cannot be called upon to go behind the awarded amount and deal with the processes by which the amount was arrived at. There is on record only one award for the amount of Rs.4,11,756. Even though the respondent claims that the application under Section 34 was filed in respect of part of the award, it is in fact only a process by which the arbitrator has arrived at the awarded amount. This would mean that the award as a whole cannot be enforced under Section 36 of the Act. As held by this Court in National Aluminum Co. Ltd., (SCC p.546, para 10)

... The mandatory language of Section 34 (Section 36) of the 1996 Act, that an award, when challenged under Section 34 within the time stipulated therein, becomes unexecutable. There is no discretion left with the Court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible.

5. Learned senior counsel for the judgment debtor has also relied upon Nachiappa Chettiar v. Subramaniam Chettiar, reported at MANU/SC/0185/1959 : (1960) 2 SCR 209 and Chandi Prasad And Others v. Jagdish Prasad and Others, reported at MANU/SC/0852/2004 : (2004) 8 SCC 724.

6. Learned counsel for the decree holder submits that judgments sought to be relied upon by counsel for the judgment debtor are not applicable to the facts of the present case as they do not pertain to Section 37 of Arbitration and Conciliation Act. Counsel further submits that even otherwise application for stay made by judgment debtor in FAO(OS) 504/2010 was dismissed, which is evident from a certified copy of the order dated 18.10.2010, which has been placed on record. Counsel next submits that the present issue is fully covered by a judgment passed by a Division Bench of this Court in the case of D'cor India P. Ltd. v. National Building Const. Corpn. L., reported at MANU/DE/8162/2007 : 142 (2007) DLT 21, more particularly paras 4, 8 to 15, which are reproduced below:

4. In the Execution Petition filed by the Appellant herein, the question before the learned Single Judge was as to whether the execution Petition was maintainable in view of the pendency of the appeals. After discussing the facts and the law the learned Single Judge held that during pendency of the appeals Execution Petition could not be entertained and dismissed the same. Hence the Execution First Appeal by the claimant.
8. In the above cited case the learned Single Judge has minutely examined the provisions of law for distinguishing a decree passed in a civil suit and an Award passed in arbitration proceedings and has extensively referred to the provisions of the Code of Civil Procedure for execution of the decrees and has then interpreted Section 35 & 36 of the Act to hold that there is no automatic stay due to pendency of the appeal.
9. At this stage we may reproduce Sections 35 & 36 of the Arbitration & Conciliation Act, 1996 which are as under:

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.

10. The learned Counsel for the Respondent has given prominence to the words "this part" mentioned in Section 35 of the Act and wants it to be read as part-I of the entire Act, which also contains Section 37 of Chapter IX (Appeals) of the Act under which the Appeal was filed and is pending. In all there are 4 parts in the Act. We may mention here that the part-I of the Act has 10 Chapters. Chapter No. VIII deals with Finality and Enforcement of Arbitral Award, while Chapter IX of Part-I deals with appeals; part-II of the Act deals with Enforcement of Certain Foreign Award; part -III relates to Conciliation and Part IV has Supplementary Provisions.
11. Needless to say that as per established principles of interpretation an Act is to be interpreted keeping in view the harmonious construction so as to advance the object of the legislation. The object of the Act is to provide speedy remedy for the commercial and other related transactions and to avoid the procedural delays in the routine suits in the courts of law. When viewed in this background we are of the opinion that the term "this Part" used in Section 35 of the Act refers to the Chapter No. VIII only and neither to the Chapter IX (Appeals) nor to the entire Part-I of the Act. This interpretation, in our view, is in consonance with the language of Section 36 of the Act, because inbuilt limitations qua enforcement/execution are legislated in Section 36 (supra) of the Act, regarding enforcement of the Decree.
12. In the case before us the application under Section 34 of the Act for setting aside the Award has been refused (dismissed) and therefore the award becomes executable under Section 36 of the Act as a decree under the Code of Civil Procedure. The provisions of Order 41 Rule 5 of the Code of Civil Procedure are as under:

5. Stay by Appellate Court. -(1) An appeal shall not operate as a stay of proceedings under a decree or order appealed from except so far as the Appellate Court may order, nor shall execution of a 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.
(2) Stay by Court which passed the decree. -Where an application is made for execution of an appealable decree before the expiration of the time allowed for appealing there from, the Court which passed the decree may on sufficient cause being shown order execution to be stayed.
(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.

(4) [Subject to the provisions of Sub-rule (3)], the Court may make an ex parte order for stay of execution pending the hearing of the application.
[(5) Notwithstanding anything contained in the foregoing sub-rules, where the appellant fails to make the deposit or furnish the security specified in sub-rule (3) of Rule 1, the Court shall not make an order staying the execution of the decree.

13. At this stage we may refer to the Introduction, Statement of Objects and Reasons and Preamble to the Arbitration & Conciliation Act, 1996. The sum and substance of these sub-headings in the Arbitration & Conciliation Act, 1996 is that the outdated Arbitration Act, 1940 was replaced by the Arbitration & Conciliation Act, 1996 to make it more responsive to contemporary requirement; to make provisions for an Arbitral procedure which is fair, efficient and capable of meeting the needs of specific arbitration; to minimize the supervisory role of the courts in the arbitral process and to provide that every final Arbitral Award is enforced in the same manner as if it were a decree of the Court.
14. If we read the provisions of Section 35, 36 & 37 of the Act and Order 41 Rule 5 of the Code of Civil Procedure in the light of the laudable objects of the Arbitration & Conciliation Act, 1996, we find that there is no manner of doubt that the very purpose of Arbitration & Conciliation Act, 1996 is to curb the procedural delays as are inherent in the routine civil disputes in the courts. In fact a summary proceedure has been envisaged in the Act in contradistinction to the Arbitration Act of 1940.
15. Now if the execution of the Decree followed by Award is to be delayed as suggested by learned Counsel for the Respondent by treating the pendency of Appeal as automatic stay then the new legislation i.e., the Arbitration & Conciliation Act, 1996 instead of being an efficient and speedy remedy would be reduced to a remedy worst than what we already had, that is the civil suits and the deep routed procedural delays till passing of the decree and even thereafter but we may hasten to add that even in civil suits' decrees there is no automatic stay on pendency of the Appeal and stay even if granted in execution of civil suits' decrees is more often than not a conditional stay and preferably subject to deposit of the decretal amount. Had the legislature intended to give the provision of stay of execution on filing of an Appeal under Section 37 of the Act, it would have given the provision in the Act itself, in pari materia with Order 41 Rule 5 of the Code of Civil Procedure. Since it has not been done by the legislature, in our view, it will not be possible to provide unconditional automatic stay under the principle of merger. So from whatever angle we examine this proposition, the interpretation, in our view, falls in favor of non-automatic stay.

7. Counsel for the decree holder submits that similar view has also been taken by Calcutta High Court in the case of Sarkar and Sarkar v. State of West Bengal & Ors., reported at MANU/WB/0056/2006 : AIR 2006 Cal 149, more particularly paras 6 to 8, which are reproduced below:

6. Now, the question is as to whether the appeal admitted by the appellate Court against the order of refusal to set aside under Section 37 is a continuation of the application under Section 34 so as to disentitle the award holder to proceed with the execution application or not. Mr. Banerjee submits that if the language of Section 36 is read carefully together with Section 37 it would appear that the specific stay of operation of the Award is required to be obtained from the Appeal Court and indeed the appellant prayed for and it was not granted. If the appeal is treated to be automatic continuation of the action under Section 34 the whole object of the language of Section 34 is rendered nugatory.
7. Mr. Roychoudhury submits that the provisions of Sections 34 and 37 have to be read in consonance with Section 35 of this Act. Section 35 deals with subject to the provision of this part meaning thereby the Award reached finality as and when the action taken under Section 34 is dismissed at the end of the appeal, namely, after the appeal is dismissed as because there is no provision for second appeal. Of course, the constitutional provision to approach the Supreme Court is not and cannot be touched by this enactment.
8. In my view, of course, at this stage, prima facie, the right of appeal has been given to the unsuccessful litigant under Section 37 but filing of appeal does not operate as stay automatically. I am of the view that the stay of operation of the Award has to be obtained once the litigant is unsuccessful before the first Court.

8. Heard counsel for the parties. The basic facts leading to the filing of the present execution petition are not in dispute. The objections to the award filed by the parties stand dismissed by a Single Judge of this Court. The Judgment debtor (Objector herein) thereafter assailed the Order of the Single Judge by filing an appeal registered as FAO(OS)No.504/2010. Along with the appeal the judgment debtor also filed an application being CM No.14144/2010 seeking stay of the impugned order. The Division Bench by an order dated 18.10.2010 dismissed the application by observing that there were no grounds to stay the impugned order. The order dated 18.10.2010 declining the stay has attained finality. The main thrust of the argument of Mr. Y.P. Narula, Senior Advocate, is that mere pendency of the appeal by itself would make the award unexecutable as the appeal is in continuation of the original proceedings, which was pending under Section 34 of Arbitration and Conciliation Act. The submissions made by learned counsel for the Objector are without any force and the judgments sought to be relied upon are also not applicable to the facts of the present case.

9. In the case of National Aluminum Co. Ltd. (supra), during the course of hearing before the Supreme Court, a request was made that since the matter had been pending more than sixteen years the respondent should be directed to deposit the amount awarded by the Arbitrator and it is in these circumstances that Supreme Court had an occasion to interpret Section 34 of Arbitration And Conciliation Act and while referring to the mandatory provision, as detailed in Section 34 of Arbitration and Conciliation Act, the Supreme Court declined to exercise its jurisdiction as no special grounds had been urged. The Apex Court also noticed the mandatory language of Section 34 of 1996 Act that an award when challenged under Section 34 within the time stipulated therein becomes unexecutable.

10. Learned senior counsel for the judgment debtor is unable to satisfy this Court, however, the aforementioned judgment would be applicable to the facts of this case as in the present case the objections to the award have already been dismissed by a Single Judge of this Court. Similar, view has been expressed by the Apex Court in the case of National Aluminum Co. Ltd. (supra) where it has been observed that there was no power in a Court to direct execution of an award when an application under Section 34 of the Act challenging the award was pending. It is also worthwhile to notice that the judgment debtor had filed an application for stay of the impugned order in the FAO(OS) 504/2010. The Division Bench had expressly declined to stay the impugned order.

11. Present case is fully covered in law by the decision rendered by a Division Bench of this Court in the case of D'cor India P. Ltd. (supra). Accordingly, objections stand dismissed.

EX.P. 93/2010

12. By a separate order the objections filed by the judgment debtor have been dismissed.

13. Learned counsel for the decree holder submits that funds of the judgment debtor lying in Canara Bank Oversees Branch, Main Building, 39, Connaught Circus, New Delhi, to the tune of Rs.63,15,210/-together with interest be attached.

14. Accordingly, the bank account of judgment debtor in Canara Bank, Overseas Bank, B-39, Connaught Circus, New Delhi, be attached to the tune of Rs.63,15,210/-together with interest at the rate of 9% from 14.9.2002 till the date of attachment.

15. List on 17.1.2012.

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