CONUNDRUM OF JURISDICTION OVER EXECUTION OF PARTIAL ARBITRAL AWARDS
Author: Prateek, V Year of B.A.,LL.B From Army Institute of Law, Mohali.
Post the passing of an arbitral award, where such an award has attained finality, it must be taken to an executing court by the award-holder under the Civil Procedure Code, 1908 (“CPC”) as the award becomes binding on both parties. Execution is an essential step in the ladder of arbitration since the purpose of arbitration is to provide speedy resolution of disputes, as held in Gas Authority of India Ltd. v. Keti Construction. But without execution of the award, this purpose cannot be achieved. Under s.36 of the Arbitration & Conciliation Act, 1996 (“A&C Act”), an executing court is required to execute the final arbitral award as if it is a court’s decree under the CPC. This raised questions regarding jurisdiction of a court over the execution proceedings. The dilemma plaguing this procedure was in cases where the award property or other assets necessary to execute the award fell outside the jurisdiction of the seat of arbitration. In such cases, the procedure under CPC for a decree would dictate that parties must seek transfer of execution proceedings to a court having appropriate jurisdiction. Dichotomous stances were taken by various courts on whether this procedure would apply to execution of arbitral awards or not.
While the Supreme Court has conclusively clarified the position regarding final arbitral awards through the judgment in Sundaram Finance v. Abdul Samad, it fails to resolve this issue for partial awards. Partial arbitral awards are made by an arbitral tribunal at an interim stage, and may be aimed at providing relief over issues that require quicker adjudication, or require adjudication and conclusion, before further proceedings can be undertaken. Yet, if unnecessary procedural barriers plague the execution process, the purpose of quicker resolution through partial awards is defeated. While the Supreme Court removed these barriers to execution of final arbitral awards, the ratio expressed in the judgment unintentionally excludes partial awards.
Finality in itself is a crucial aspect of such awards. As held an American case, a partial arbitral award will not make the Arbitral Tribunal functus officio with respect to the subject matter unless the award is intended to be final in nature. While Indian jurisprudence follows the same principles on finality, the issue of territorial jurisdiction still remains unclear post the Sundaram Finance Case when it comes to partial awards.
Scheme for Execution under the CPC
The procedural mechanism for execution is underlined by the CPC. Although the term “execution” has not been defined expressly under the CPC, meaning is derived out of provisions that govern its operation. As held in State of Rajasthan v. Rustamji Savaksha, execution largely refers to the fulfilment of requirements set out under a lawful decree, with the decree-holder being granted all rights vested in them by the decree.
Determination of Jurisdiction
The CPC provides an exhaustive list of courts that may execute a decree under sections 37 and 38. The former provides a definition of “courts which passed a decree”. As per this provision, the following courts would come under the definition of “courts which passed a decree”:
The court of first instance which made a decree, or by a Court to which it may be transferred for execution;
For an appellate decree, the court of first instance;
The court which has the jurisdiction to try a suit at the time of execution in cases where the court of first instance has ceased to exist; and
The court that, at the time of execution, has a valid jurisdiction to try the suit, in cases where jurisdiction for execution has ceased to lie with the court of first instance.
Application for Transfer
Provisions regarding transfer of execution proceedings are enumerated under s.39-42, read with Order XII Rules 3-9 of the CPC. Primarily, the court which made a decree is required to execute it. But under certain circumstances, this decree may be referred to another court for execution. This can be on request of the decree-holder, or undertaken suo moto. Under s.39 of the CPC, transfer has been envisioned under circumstances where:
The judgment-debtor actually and voluntarily resides or carries on business, or personally works for gain, within the jurisdiction of said court; or
The judgment-debtor does not have sufficient assets to satisfy the decree within local limits of the court which made the decree, but has property within the local limits of such other court; or
The decree has directions for sale or delivery of immovable property which is situated outside the local limits of said court; or
The Court which passed the decree considers, for any other reason recorded in writing, that the decree should be executed by another court.
Application for Execution
Upon the existence of these circumstances, a decree holder may seek transfer of the execution proceedings to a competent forum through an application made to the court which made the decree. This whole process is governed by Order XXI Rules 10-25 and 105-106 of the CPC. These proceedings are not of substantive nature, since the parties cannot use the same to appeal against the decree.
Execution Regime Post Sundaram Finance Ltd. v. Abdul Samad
The judgment sought to resolve the diametric approaches taken regarding the necessity to seek transfer of execution proceedings while enforcing domestic arbitral awards. Some High Courts opined that seeking transfer is a procedural necessity, while others held that the same was not essential for the enforcement of arbitral awards.
While agreeing with the former approach, the Supreme Court held that an application for execution of a final arbitral award can be filed before any court that can meaningfully give effect to the award through holding a valid jurisdiction over subject matter of the award. Consequently, there is no requirement for the decree holder to first approach the court having jurisdiction under s.42 of the A&C Act with an application seeking transfer of execution proceedings to court having territorial jurisdiction over the subject matter of the arbitral award. While doing so, the court also upheld the views taken by the following High Courts (“HC”):
Delhi HC in Daelim Industrial Co Ltd v. Numaligarh Refinery Ltd.
Punjab & Haryana HC in Indusind Bank Ltd v. Bhullar Transport Co.
Madras HC in Kotak Mahindra Bank Ltd v. Sivakama Sundari
Karnataka HC in Sri Chandrashekhar v. Tata Motor finance Ltd.
Allahabad HC in GE Money Financial Services Ltd v. Mohd. Azaz
Kerala HC in Maharashtra Apex Corporation Ltd. v. Balaji G. and
Rajasthan HC in Kotak Mahindra Bank Ltd. v. Ram Sharan Gurjar.
The Supreme Court ruled that jurisdiction granted to a court under s.42 of the A&C Act is exhausted upon the termination of the arbitration through the tribunal passing a final award, as provided under s.32(1) of the Act. Additionally, the court clarified that although s.36 states that an arbitral award is deemed to be a court’s decree but the same is a legal fiction created by the legislation.
Interpretation reading exhaustion of jurisdiction under s.42 of the A&C Act, 1996:
S.42 of the A&C Act provides that jurisdiction over arbitral proceedings rest exclusively with the court before which the first application with respect to an arbitration agreement is made. As held in S.K. Brothers v. DDA, the provision only grants jurisdiction to a court for the duration of the arbitral proceedings and to applications arising out of such proceedings. But an application for execution of an award arises out of the award itself, and is not a manifestation of the arbitration proceedings. Further, S.32(1) of the A&C Act provides that the arbitration proceedings are terminated once the final award has been passed by the tribunal. Thus, the Supreme Court clarified that execution proceedings are not bound by the jurisdiction defined under S.42, since the same is exhausted upon the arbitration proceedings being terminated through the making of a final award.
This position was recently reiterated by the Apex Court in Amazon.com v. Future Retail Ltd. While discussing the extent of applicability of S.42 of the A&C Act, the Apex Court referred to the judgment in Sundaram Finance to uphold its ratio. The Court held that court’s jurisdiction under the provision is operational till the proceedings are terminated by operation of S.32(1) of the A&C Act. Yet, partial awards do not come under the ambit of S.32 since the arbitral proceedings do not get terminated upon the passing of partial awards as these are made at an interim stage.
Arbitral Award as Deemed Legal Fiction:
The court reiterated that the A&C Act requires execution of an arbitral award by deeming it as a decree. This postulates that the nature of an award of being a decree while being executed is that of a legal fiction, created to facilitate enforcement by judicial courts. This legal fiction allows the transfer requirement to be bypassed since where the decree in itself is a fiction, it cannot be attributed to any court. Therefore, the court having any other form of jurisdiction over the execution proceedings is deemed to have valid jurisdiction, which in this case would be the court which can give effect to the award due to its territorial jurisdiction over the award property.
Incomplete Impact of Court’s Interpretation
The Supreme Court’s judgment in the above-mentioned matter settled dissenting views taken by various courts in terms of the requirement of attaining transfer for execution of a final arbitral award as a civil court’s decree. This interpretation upholds the principles behind Arbitration as a concept in India with respect to final arbitral awards, since it streamlines the process of execution by removing unnecessary procedural impediments. This is unidirectional with the Act’s goal, as it has been held by courts that the Act’s scheme follows the purpose of reducing any unnecessary judicial interference in arbitration proceedings and ensuring quick resolution of disputes. Yet, although the end result is a forward step, the interpretation provided under this judgment poses a new challenge for execution of partial arbitral awards.
A Primer on Partial Arbitral Awards
Arbitration law in itself envisions remedies in various forms as it is an agile and dynamic mode of dispute resolution. One such remedy granted by arbitral tribunals is in the form of partial arbitral awards.
Definition of Award:
While s.2(1) of the A&C Act defines the term “arbitral award”, this definition in itself is not descriptive and only states that arbitral awards also include interim awards. Jurisdiction to pass an interim arbitral award is granted to arbitral tribunals under s.31(6) of the Act.
The term has been defined by Russel who describes an award as a “final determination of a particular issue or claim in the arbitration.” Hence an ‘arbitral award’ refers to determination or adjudication of a dispute on merits, whereby the subsequent settlement of rights and liabilities would constitute the effective part of an award.
Meaning of a Partial Arbitral Award:
The Act also provides for awards that may be granted while the proceedings are not yet terminated or concluded. Such awards are known as interim or partial arbitral awards, and are considered by courts to fall under the definition of an ‘arbitral award’ under s.2(1)(c) of the A&C Act. The subject of partial arbitral awards was discussed extensively in Aero Club v. Solar Creations Pvt Ltd., where the court determined the following test for treating an interim or partial award as an “arbitral award” under s.2(1)(c):
That it satisfies the conditions laid down under the first three subsections under s.31;
It is in relation to "any matter" or issue under the dispute, for which the tribunal can make a final arbitral award; as specified under s.31(6) of the said Act; and
The nature, extent and intendment of such order, decision or adjudication must be final.
In IFFCO Ltd. v. Bhadra Products , it was held that an interim or partial award is a final award over the relevant subject matter, made at an interim stage, and must be conclusive to the extent of all issues that the arbitral tribunal aims to determine. In National Thermal Power Corporation Ltd (NTPC) v. Siemens Aktiengesellschaft (SAG), it has been held that s.2(1)(c) of the A&C Act includes interim and partial awards within the definition of an “arbitral award”, thus allowing, in principle, for the judicial execution of interim and partial awards. It has also been held by the court in Mcdermott International Inc vs Burn Standard Co. Ltd. that any partial award that assumed finality in terms of the subject matter being covered by it, would come under the scope of an interim award defined under s.2(1)(c) of said Act.
Enforceability of Partial Awards:
The concept of partial awards has become increasingly important over time and has lately been recognised as an important tool to ensure that arbitration attains its purpose of quick resolution of disputes. One of the earliest judgments to grant recognition to the concept of “interim awards” was in the case of Uttam Singh Duggal v. Hindustan Steel Ltd. where it was held that an interim award must decide on a part of the issue of liability, or claim at an interim stage of the arbitral proceedings.
In Satwant Singh Sodhi v. State of Punjab, the Supreme Court held that finality of an interim award will depend upon the form of the award. It was determined that if the interim award is purely provisional in nature and meant to be in force only until the final award is made, it will no longer be in effect upon the arbitral tribunal passing a final award. But, if the interim award is intended to eventually define the parties' rights, it will have the same weight as a final award.
The court may pass an interim award where some of the claims made by the claimant are admitted by the opposite party. In the case of Numero Uno International Ltd. v. Prasar Bharti, it was decided that payment of the acknowledged sums may be given by an interim award without the need to wait for the resolution of other issues, which could take a long time. If the judgment-debtor succeeds in their claim, to any complete or partial extent, at the conclusion of the arbitral proceedings, and if any sum is finally held receivable to one or the other party after adjustment of the amounts determined payable to the plaintiff, the arbitrator can make such adjustment. The payments made under an interim award would be factored into the final award.
Lastly, as held in Liberty Shoes Ltd. v. Harish Kumar Gupta, interim awards are enforceable under s.36 of the A&C Act, as if they are a decree of the court. A challenge to an interim award, like a final award, is possible under s.34(2) of the Act.
Enforcement Impeded by Interpretation under the Sundaram Finance Judgment
As it has been shown above, partial arbitral awards may be executed if finality has been attained. Since the objective of such awards is the expeditious resolution of disputes, it is imperative that these awards see timely execution as well.
Recently in 2021, in the case of Navayuga Engineering Co. v. Bangalore Metro Rail Corp. Ltd., the Supreme Court reiterated the need to avoid unnecessary delays that impede quick execution of arbitral awards. In Union of India v. UP State Bridge Corp. Ltd., the Court identified certain pillars of arbitration. The Court identified the first pillar as fair, speedy and inexpensive trial, and the second pillar as party autonomy regarding procedure. These pillars may be used as a guideline when interpreting the laws surrounding arbitration. These are instantly frustrated with the requirement to attain transfer as it leads to inordinate delays and expenses for the award-holder, and also leads to a lack of autonomy over selection of court that may have jurisdiction. This is especially problematic in view of Act’s scheme which otherwise allows parties to determine the court that may have jurisdiction over the arbitral proceedings.
Yet the interpretation in the Sundaram Finance Case envisions the cause of subverting the need to apply for transfer as the operation of s.42 read with s.32 of the A&C Act, whereby the arbitral proceedings have been terminated due to the passing of a final arbitral award and hence no court has a jurisdiction over the matter. This reasoning cannot be applied as it for partial awards, since in such cases there is no operation of s.32 and the arbitral proceedings are still not terminated, since adjudication continues over remaining issues. As a result, for execution of partial awards, where necessary assets required to give effect to the award are outside the territorial jurisdiction of the court under s.42 of the A&C Act, the decree-holder is forced to seek transfer of execution proceedings to the court where the award can be given effect.
Postulating an Alternative Approach Allowing Effective Execution
Before elaborating upon the possible solutions to the conundrum, it is pertinent to note that the principle need for speedy execution is justified. The objective of procedure is not to obstruct the administration of justice, but to facilitate it. Thus, the primary objective of any solution to the problem must be to allow quick resolution of disputes.
Separate Legal Existence of Partial Arbitral Awards from On-Going Arbitral Proceedings
The problem at hand is primarily caused by the limited interpretation of the mechanism for exhaustion of court’s jurisdiction over the arbitral award. The general principle established by the court must be upheld to the extent that applications for execution do not arise out of the arbitration proceedings, but out of the arbitral award itself. Further, as held in National Thermal Power Corp. Ltd. v. Siemens Aktiengesellschaft (SAG) a partial award is proprio vigore, and is therefore complete and independent in itself. Consequently, upon a partial award being made, it is severed from the on-going arbitral proceedings and all claims covered by the award cannot be re-visited in the subsequent arbitral proceedings. Therefore, such a partial arbitral award is an independent legal fiction in itself, separate from the ongoing proceedings, and must be executed as the decree of a court that has a valid jurisdiction to enforce it. Through this interpretation, the reliance on s.32 is bypassed since involving the provision excludes all scenarios where the arbitration has not been terminated. This removes the necessity to seek transfer in cases where the court under s.42 lacks the necessary territorial jurisdiction.
Doctrine of Forum Conveniens for Determining Jurisdiction
Favouring convenience and expeditious execution while resolving this conundrum is important since application of the doctrine of forum conveniens has been observed to be expressly excluded by s.42 of the A&C Act in Jindal Vijayanagar Steel Ltd. v. Jindal Praxair Oxygen Co. Ltd. But since it is already argued that s.42 does not apply to execution, it is further postulated that the doctrine must consequently be used as a benchmark for determining jurisdiction over execution proceedings. Black’s Law Dictionary defines ‘forum conveniens’ as “the Court in which an action is most appropriate brought, considering the best interests of parties and witnesses.”
The sole mode to circumvent such restriction against the application of the principle under s.42 of the A&C Act is to completely separate the partial arbitral award from operation of the provision. This is already possible through an interpretation of the partial award as it having a separate legal existence and being completely excluded from subsequent operation of the arbitral proceedings, as shown above.
Thereby the only requirement is to legitimize the application of this doctrine. As per s.37(b) of the CPC, in cases where the court that passed a decree has ceased to have jurisdiction over execution, or has ceased to exist, such other court that has jurisdiction over the original suit is determined to be the court which passed the decree for the purpose of execution. Courts have held that this provision can also be applied to arbitral tribunals that are deemed to have ceased to exist. The jurisdiction to try an original suit could therefore be determined through s.20 of the CPC, which grants legitimacy to the doctrine of forum conveniens, as held by the courts. Since the law provides for a legal fiction to facilitate execution in cases where a court has ceased to exist, this can be further extended to partial awards as well. As argued above, partial awards have a separate legal identity from the arbitration proceedings. Therefore, the arbitral tribunal that passed the partial award has ceased to exist in relation to this award, since it does not have jurisdiction over the issues determined by the award anymore. This creates space for the application of the legal fiction envisioned under the CPC for execution, thus allowing the doctrine of forum conveniens to be made applicable to execution proceedings for partial awards.
Exclusion of partial arbitral awards from this execution regime is particularly problematic since it causes redundancy in the arbitral process by pushing the award-holder back into procedural shackles. While the necessity for transfer is reasonable for proceedings under the CPC, they are not relevant under arbitration proceedings. An arbitral award capable of being executed always makes the tribunal functus officio with respect to the subject matter. Thus, there is no issue of res judicata or lis pendens that would require the award holder to seek transfer of execution proceedings, as otherwise required under proceedings governed by the CPC. This was also accepted by the court in Sundaram Finance where the court, while discussing the procedural necessity of transfer under the CPC, stated that the same are not applicable to the award which is deemed a legal fiction for enforcement as a decree.
The following suggestions provide solutions to the issues highlighted under this article:
Legislative changes should be made to the A&C Act to give express approval to partial awards as a final form of award executable independently of the final arbitral award;
Such awards should be expressly made independent of any on-going arbitral proceedings so as to avoid application of s.42 of the A&C Act;
Court should recognise importance of the doctrine of forum conveniens for the purpose of granting jurisdiction over execution of arbitral awards; and
Jurisdiction under s.37(b) of the CPC must be recognised as an applicable legal fiction for execution of arbitral awards.
Such instant form of execution is in line with the law’s aim to achieve quick redressal and settlement of disputes through arbitration. Legitimacy is also sought from the principle underlining the objective of procedure as a facilitator in administration of justice, and not a roadblock to the same. Thus, it is argued that partial arbitral awards must be made capable of execution without a necessity to seek transfer in cases where the court under s.42 lacks jurisdiction to execute the award.