The Telangana High Court has ruled that in proceedings for execution of an arbitral award the whole gamut of CPC is not attracted, and a Court while dealing with an application under Section 36 of the Arbitration and Conciliation Act, 1996 (A&C Act) for enforcement of an award is not bound by the provisions of Section 47 of the Code of Civil Procedure, 1908 (CPC) and is not required to decide on the validity of the award before seeking its enforcement.
The Bench, consisting of Justice P. Naveen Rao and Dr. Justice G. Radha Rani, held that the term 'in accordance with the CPC' employed in Section 36 of the A&C Act cannot be read out of context or inconsistent with the rest of the sections of the A&C Act. The Court added application of Section 47 of CPC would leave Section 34 of the A&C Act redundant and it will be inconsistent with the scheme of the A&C Act.
The petitioner partnership firm M/s. M.S.R. Enterprises was awarded a contract by the Southern Power Distribution Company Limited. The petitioner and the 1st respondent M/s. Pooja Enterprises entered into a sub-contract for execution of the work. A dispute arose between the parties concerning payment of the bills raised by the 1st respondent. Thereafter, a settlement was arrived at between the parties before the Arbitrators, as per which the petitioner agreed to pay a certain amount and the first respondent agreed to confine its claim to the said amount as full and final settlement. Accordingly, an arbitral award was made as per the settlement arrived between the parties. However, despite the said settlement, the amount was not settled between the parties and hence the 1st respondent filed an execution petition before the Additional District Judge (ADJ) for execution of the award.
The 1st respondent/award holder filed an application under Order 21 Rule 46A read with Section 151 of the Code of Civil Procedure, 1908 (CPC) before the ADJ, to direct the garnishees- respondent no. 2 to 5, i.e., the Southern Power Distribution Company of Telangana Limited, to withhold the award amount by not disbursing the same to the petitioner/judgment debtor.
The District Court allowed the petition of the respondent no. 1 and directed the garnishees- respondent no. 2 to 5 to withhold the award amount and credit the amount to the account of the award holder/respondent no. 1. The petitioner/ judgment debtor filed a revision petition before the Telangana High Court against the order of the District Court.
The petitioner M/s. M.S.R. Enterprises submitted before the High Court that the District Court had no power to issue garnishee order. The petitioner contended that the arbitral award was forged and fabricated and thus not binding on the petitioner. The petitioner added that it had filed an application under Section 34 of the A&C Act to set aside the arbitral award on the ground of fraud. The petitioner averred that the Execution Court in an application seeking enforcement of an award is bound by the provisions of the CPC and that, as required by Section 47 of CPC, the Execution Court ought to have decided the validity of the award before seeking its enforcement.
The petitioner contended that it was not just and proper to direct the recovery of the arbitral amount without deciding the validity of the award. The petitioner added that the jurisdictional aspect can still be gone into even at the stage of seeking enforcement of the award.
The respondent no. 1 / award holder M/s. Pooja Enterprises submitted that the Execution Court has limited jurisdiction under Section 36 of the A&C Act and it is only required to enforce the award already passed. The 1st respondent contended that in proceedings under the A&C Act, Section 47 of CPC is not attracted and the Execution Court cannot travel beyond the award nor can it decide the validity or legality of an award.
Section 36 (1) of the A&C Act provides that where the time for making an application to set aside the arbitral award under Section 34 has expired, the arbitral award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court. Section 36 (2) provides that where an application to set aside the arbitral award has been filed under Section 34, the filing of such an application shall not by itself render the award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award.
Section 47 of the CPC deals with the questions to be determined by the Court while executing a decree. It provides that all questions arising between the parties to the suit in which the decree was passed, relating to the execution, discharge or satisfaction of the decree, shall be determined by the Court executing the decree and not by a separate suit.
The High Court ruled that Section 36 of the A&C Act does not envisage granting leave to a party to arbitration proceedings to raise pleas on maintainability of the arbitral award once the award has become final or where no restraint order is passed in an application for setting aside the award under Section 34.
The Court added that in proceedings for execution of a decree in a civil suit the whole gamut of CPC is not attracted and the Execution Court is only tasked to enforce the arbitral award.
The Court ruled that an arbitral award can be challenged only on the grounds prescribed under Section 34 of the A&C Act and subject to the parameters set out in Section 34, an award passed by the arbitrator is final and binding on the parties.
The Court held that the term 'in accordance with the CPC' employed in Section 36 cannot be read out of context or inconsistent with the rest of the sections of the A&C Act. The Court added that accepting the contention regarding application of Section 47 of CPC would leave Section 34 of the A&C Act redundant and it will be inconsistent with or independent of the scheme of the A&C Act.
The Court ruled that an arbitral award is conferred with finality even before the execution proceedings are set in motion, which signifies the intention of the legislature to ensure that the A&C Act is a self-contained law.
"Under CPC finality of a decree is reached after decision under Section 47 (when raised), but as evident from Section 34 in arbitration proceedings, finality to the award is brought out even before execution proceedings are set in motion. This signals the intention of the legislature to ensure alternate dispute resolution is actually effective via self-contained law."
The High Court noted that the Supreme Court in the case of Pam Developments Private Limited versus State of West Bengal (2019) had held that the reference to CPC in Section 36 of the A&C Act is only to guide the court as to what conditions can be imposed by the Court, and the same have to be consistent with the provisions of the A&C Act. The Supreme Court had ruled that the A&C Act is a self-contained Act, and the provisions of CPC will apply only insofar as the same are not inconsistent with the spirit and provisions of the A&C Act.
The Court further observed that as per the Andhra Pradesh Arbitration Rules, 2000, formulated by the High Court under the A&C Act, 1996, the whole gamut of CPC is not extended to arbitration proceedings, but only few provisions of CPC are made applicable. The Court noted that as per Rule 12 (2), complete discretion is vested in the Court to suitably modify the requirements of provisions of CPC, or to ignore the provisions of CPC and proceed otherwise. The Court added that the only requirement to proceed otherwise is that the Court must assign reasons. Also, the Court ruled that when procedural formalities were not observed by the lower Court, the party must satisfy the appellate Court how prejudice was caused to it.
Therefore, the Court ruled that the A&C Act is a self-contained Code, which comprehensively deals with all aspects of arbitration and it does not envisage the application of whole gamut of CPC. The Court held that CPC can only guide the Court in dealing with applications under the A&C Act and complete discretion is vested in the Court to adopt its own procedure. The High Court added that the Court cannot go into merits of the claims and should only deal with enforcement of the award, treating the award as final.
Therefore, the Court held that there was no error made by the District Court in the discretion exercised by it in issuing garnishee order.
The Court thus dismissed the Civil Revision Petition.
Case Title: M/s. M.S.R. Enterprises versus M/s. Pooja Enterprises
Citation: 2022 LiveLaw (Tel) 40
Dated: 28.04.2022 (Telangana High Court)
Counsel for the Petitioner: Manjari Ganu, appearing for Sunil B. Ganu, counsel for petitioner
Counsel for the Respondent: A. Sudarshan Reddy, senior counsel appearing for A. Prabhakar Rao counsel for respondent No.1; R. Vinod Reddy, standing counsel for TR TRANSCO for respondents 2 to 5.