Arbitral Award Cannot Be Challenged Through Civil Suit: Delhi High Court

The Delhi High Court bench of Justice Jasmeet Singh has held that an arbitral award cannot be challenged through a civil suit, as such a course is clearly barred under Section 5 read with Section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act). Such a plaint deserves to be rejected under Order VII Rule 11(d) of the Civil Procedure Code, 1908 (CPC), on the ground that it is barred by law.The plaintiff has already invoked the criminal remedies by filing a complaint before the CBI and is also independently invoking the civil remedy by way of filing the present suit. The Plaintiff submitted that a suit is maintainable to set aside an Arbitral Award, which is obtained by fraud and the proceedings pursuant thereto are tainted by fraud. As the Arbitration Act does not provide any remedy in such a scenario wherein the fraud has been discovered post conclusion of the arbitration proceedings, the plaintiff cannot be rendered remediless and thus the present suit is maintainable.Per contra, the Defendants submitted that the pith and substance of the present suit is to question an International Award, which has attained finality till the Hon‟ble Supreme Court. The plaintiff seeks nullification of the Award, by way of a commercial suit which is unknown to law. Such recourse is barred by law under sections 5 and 34 of Arbitration Act. It was further submitted that If the present suit is held to be maintainable, Arbitral Awards and section 34 proceedings would lose all sanctity, and every Award Debtor shall seek to come up with a „new ground‟ to challenge the Award, by way of a suit. Holding such an action to be maintainable shall completely defeat the objectives of the Arbitration Act. The issue for determination in the present case was can a civil suit be maintainable to nullify an Arbitral Award when the same has attained finality as per the Arbitration Act. The Court observed that the court under Order VII Rule 11 of the CPC should only consider the plaint and annexed documents. If the averments are considered true and still no cause of action is disclosed, the plaint must be dismissed at the threshold to prevent abuse of process of the court. The plaint cannot be rejected partially. If one relief out of the reliefs can be allowed but others are barred, the court is prohibited from observing anything on the barred relief.The court noted that section 5 of the Arbitration Act entrenches the principle of minimal judicial interference and allows the court's interference in the matter where it is expressly allowed by Part 1. While the court's interference is limited, the court is allowed to intervene for facilitating and enforcing arbitration. Section 5 starts with a non-obstante clause giving provisions of part 1 an overriding effect over inconsistent laws for the time being in force.Based on the above, the court noted that in the present case, while reliefs such as declaration, recovery and permanent injunction have been sought, in substance the Arbitral Award which has attained finality has been challenged. The Plaintiff seeks to declare the award void and unenforceable.It held that “the Arbitral Award may be set aside “only” on the grounds mentioned there under. By using the word “only” twice, section 34 of 1996 Act makes it clear that no challenge to an Award can be launched outside of the said section and beyond the grounds specified therein. This means that section 34 of 1996 Act offers an exhaustive and exclusive remedy to contest an Arbitral Award.”The court further observed that the plaintiff contended that even if prayers a and c are barred still prayers b,d and e can be allowed as the plaint cannot be rejected in piecemeal. However, this contention was rejected and it was held that all these prayers are intrinsically linked to the nullification of the award. Since the court lacked jurisdiction to set aside the award, no independent reliefs can be granted. Moreover, the remaining claims are arbitrable in nature and the existence of an arbitration clause to resolve the dispute is undisputed.The court further observed that there is no dispute as to the execution of the main agreement (LTA) which contains an arbitration clause. The only dispute is with respect to the execution of Addendum 2 which the plaintiff claims to have been executed fraudulently. However, since the Arbitration Clause remains undisputed, such contention of fraud regarding Addendum 2 can be determined in arbitration.It concluded that section 9 of the CPC states that a civil court may try all suits unless expressly or impliedly barred. Section 5 read with section 34 of the Arbitration Act prohibits challenging an arbitral award through a civil suit. In the present case, the plaintiff is seeking to nullify the award indirectly by filing the civil suit which is barred by law therefore the plaint is liable to be rejected under Order VII Rule 11(d) of the CPC. Accordingly, the plaint was rejected.Case Title: MMTC LIMITED versus...

Arbitral Award Cannot Be Challenged Through Civil Suit: Delhi High Court

Mohd Malik Chauhan

Tags