Friday 6 September 2013

At the stage of execution of Arbitral Award, there can be no challenge as to validity of Arbitral Award.




1. In India, arbitration proceedings and the enforcement of
  arbitral awards – domestic and foreign - are governed by the
   Arbitration and Conciliation Act 1996 (‘the Act’ or 'the 1996
      Act'). The 1996 Act is based on the United Nations
     Commission on International Trade Law (UNCITRAL) Model
    Law on International Commercial Arbitration. The enactment
   of the Act was a reflection of the Indian legislature's
  objective of ensuring speedy disposal of cases as well as to
 encourage arbitral tribunals to get parties to settle disputes
through the use of mediation and conciliation.
2. In dealing with the enforceability of awards under the Arbitration
  & Conciliation Act, 1996, we would primarily be concerned with
 two different classes of awards - (a) awards considered as
"domestic awards" under Part I of the Act and (b) awards which
are "foreign awards" under the Part II of the Act.
3. An Arbitral Award is the decision rendered by the Arbitral
  Tribunal which finally determines the issues submitted to it.
 Section 35 of the Arbitration and Conciliation Act 1996 states
that an arbitral award shall be final and binding on the parties
and persons claiming under them.

Thus an arbitral award
becomes immediately enforceable unless challenged under
Section 34.
4.
Section 36-Chapter VIII of the Act provides for enforcement of
domestic awards. Under the new dispensation in the Arbitration
and Conciliation Act 1996, the procedure under the 1940 Act
has been substituted by the simple procedure of giving effect to
the award as a decree. Section 36 of the 1996 Act provides as
under:
Sec.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 it were a decree of the court.
5. Thus, when the period for filing objections has expired or
  objections have been rejected, the award can be enforced under
 the Civil Procedure Code (CPC) in the same manner as if it were
a decree passed by a court of law. Section 36 declares that an
arbitral award has the force of the decree, though in fact it is not
a decree.
6. An ex parte Award passed by an Arbitral Tribunal under Section
  28 of the Act is also
 enforceable under Sec. 36. Even a
settlement reached by the parties under Section 30 of the Act
can be enforceable under Sec. 36 of the Act as if it is a Decree of
the Court.
7. Further, Section 74 of the 1996 Act makes the settlement
  agreement reached by the parties under conciliation process
 have the same status and effect as if it is an arbitral award on
agreed terms on the substance of the dispute rendered by an
Arbitral Tribunal under Section 30.
8.
Madras High Court in a recent case “ N.Poongodi Vs. Tata
Finance Ltd. [ 2005 (3) Arb. LR 423 Madras ] has laid down
categorically that once an arbitral award has become final and
binding upon the person or persons claiming under and bound by
the award, the said award is impressed with the character of a decree
and can be enforced under the Code of Civil Procedure 1908 in
the same manner as if it were a decree of the Court.
9. This new provision under the 1996 Act interestingly, to some
  extent, restores the position that existed before the Arbitration
 Act 1940 (the 1940 Act). Under Section 16 of the Arbitration Act
1899 (which was repealed by the 1940 Act), the award was
enforceable like a decree.
10. Earlier under the Arbitration Act 1940, an award had to be filed in the
   court for making it a Rule of Court. Objections from the parties were
  invited where no objections were filed or were sustained, the court
 would pass a judgment in terms of the award and then it was
converted into a decree for enforcement. The procedure for converting
an award into a decree was time consuming and more often than not
took years.
11. Checklist to be considered before enforcement
   of an Arbitration Award --
A) Whether the Award is a valid Award ?
• The enforceability of an Award will depend on the
   validity of the Award. An Award has to be valid before it
  is to be enforced.
• An Award has to be made as provided u/s.31 of the
   Arbitration and Conciliation Act, 1996. it has to be in
  writing and signed by the Members of the Arbitral
 Tribunal (if more than one arbitrator, signature of the
majority will suffice provided reason for the omitted
signature are stated.)
• The Award should state the reasons upon which the
   Award is based. This is not needed if the parties agreed
  to otherwise or the Award is as per settlement u/s. 30 of
 the Act.
• The Award has to state the date and place and is to be
   delivered to the parties.
B) Whether the time period of challenge of the Award is over?

Section 34 provides for the manner of challenge of
the arbitral Award.The time period for the challenge is
the expiry of 3 Months from the date of receipt of the
Award (and a further period of 30 days on sufficient
cause being shown for condonation of delay ) If that
period expires the award holder can apply for
enforcement of the Award as a decree of the Court. But
as long as this period has not elapsed, enforcement is
not possible.
C) What happens when there is a challenge under
Sec.34 of the Act

The award can be enforced as a decree only when the
application under Sec. 34 of the Act challenging the
award has been disposed off. The award can not be
enforced during its pendency.
12. Institution of Execution Petition
For execution of an Arbitral Award, the procedure as laid down in
the Order XXI of Civil Procedure Code 1908 (CPC) has to be
followed. Order XXI of the CPC lays down the detailed procedure
for enforcement of decrees. It is pertinent to note that Order
XXI CPC is the longest order in the schedule to the CPC
consisting of 106 Rules.
13.
All proceedings in execution are commenced by an Application
for Execution (R.10). The execution of a decree against property
of the judgment debtor can be under two heads :-
• Attachment of Property and
  • Sale of Property of the judgment debtor (JD)
• Attachment of Property : ‘Attachable property’
       belonging to a judgment debtor may be divided
      into two classes : (i) moveable and (ii) immoveable
     property. If the property is immoveable, the
    attachment is to be made by an order prohibiting
   the judgment debtor from transferring or charging
  the property in any way and prohibiting all other
 persons from taking any benefit from such a
transfer or charge. The order must be proclaimed at
some place or on adjacent to the property and a
copy of the order is to be affixed on a conspicuous
part of the property, and then upon a conspicuous
part of the Court house (O.XXI R.54). Where an
attachment has been made, any private transfer of
property attached whether it be movable or
immovable, is void as against all claims enforceable
under the attachment (S.64). If during the
pendency of the attachment, the judgment debtor
satisfies the Decree through the Court the
attachment will be deemed to be withdrawn. (0.XXI
R. 55). Otherwise the Court will order the property
to be sold (0.21 Rule 64).

Sale of attached property :
Order XXI lays down a detailed procedure for sale of
attached property whether movable or immovable. If
the property attached is moveable property, which is
subject to speedy and natural decay, it may be sold
at once (R.43). Every sale in execution of a Decree
should be conducted by an officer of the Court
except where the property to be sold is a negotiable
instrument or a share in a corporation which the
Court may order to be sold through a broker (0.XXI
R.76).
14. Where an enforcement of an Arbitral Award is sought under
   Order XXI CPC by a decree holder the legal position as to
  objections to it is clear. At the stage of execution of the Arbitral
 Award, there can be no challenge as to validity of the Arbitral
Award. The Hon’ble Supreme Court in Vasudev Dhanjibhai Modi
 Vs. Rajabhai Abdul Rahman [ (1970) 1 SCC 670 ] held that the
court executing the decree can not go beyond the decree and
between the parties or their representatives it must take the
decree according to its tenor and can not entertain any objection
that the decree was incorrect in Law or in facts. This principle
was affirmed in case of Bhawarlal Bhandari Vs. Universal Heavy
Mechanical Lifting Enterprises [ 1999 1 SCC 558 ]. Further, in
case State Bank of India Vs. INDEXPORT Registered and Ors. [
1992 3 SCC 159 ] it was held that the executing court can not go
beyond the decree and the only ground of challenge is on the
ground of jurisdiction. Thus, once a party has failed in its
challenge to the award u/s 34 of the Act, the grounds given in
the said Sec.34 would not be available to the party challenging
the executing petition.
15. Difficulties experienced :
Main difficulties which a party experiences
enforcement of an Arbitral Award are :
while seeking
An Arbitral Award under the 1996 Act can not be enforced as a
Decree till the period of challenge under Sec.34(3) is over or the
objections filed have been dismissed. It is a common practice
that whenever an Arbitral Award is made, the party adversely
affected by it files a petition u/s 34 of the Act in the Court and
the Court issues notice.Then, till the time this objection petition
is dismissed the said award can not be enforced. Given the
delays in our judicial system, it almost takes years for the
Objection Petition to be disposed off and till such time the party
having the arbitral award in its favour remains in limbo. Thus,
the laudable objective behind doing away of legal proceedings to
make the arbitral award a Rule of Court under the 1940 Act by
introducing Sec.36 in the 1996 Act has been diluted to a great
extent.
With a view to get over this difficulty in enforcement of Arbitral
Awards, it is proposed to make some amendments in Sec.36 in
the Arbitration & Conciliation (Amendment) Bill 2003 [ which is
under consideration of the Government ]. It is proposed to
provide for, inter alia, that mere filing objection petition under
Sec.34 will not operate as stay of the award and the court may
grant stay of the operation of the award subject to imposition of
such conditions as it may deem fit to impose and the power to
impose conditions include the power to grant interim measures
not only against the parties to the award but also against the
third parties in order to protect the interest of the party in whose
favour the award is passed. The proposed Sec.36 is extracted
below :
"36. (1) Where the time for making an application to
set aside the arbitral award under sub-section (1) of
section 34 has expired, then, subject to the
provisions of sub-sections (2) to (4), 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.
(2) Where an application is filed in the Court under
sub-section (1) of section 34 to set aside an arbitral
award, the filing of such an application shall not by
itself operate as a stay of the award unless, upon a
separate application made for that purpose, the
Court grants stay of the operation of the award in
accordance with the provisions of sub-section (3).
(3) Upon filing of the separate application under sub-
section (2) for stay of the operation of the award,
the Court may, without prejudice to any action it
may take under sub-section (1) of section 37C and
subject to such conditions as it may deem fit to
impose, grant stay of the operation of the arbitral
award for reasons in brief to be recorded in writing:
Provided that the Court shall, while considering the
grant of stay, keep the grounds for setting aside the
award in mind.
(4) The power to impose conditions referred to in
sub-section (3) includes the power to grant interim
measures not only against the parties to the award
or in respect of the property which is the subject-
matter of the award but also to issue ad interim
measures against third parties or in respect of
property which is not the subject-matter of the
award, in so far as it is necessary to protect the
interests of the party in whose favour the award is
passed.
(5) The ad interim measures granted under sub-
section (4) may be confirmed, modified or vacated,
as the case may be, by the Court subject to such
conditions, if any, as it may, after hearing the
affected parties, deem fit.".
The Execution procedure laid down in Order XXI of CPC is
lengthy, complex and time consuming and almost a never
ending story.
By the time the stage of filing execution comes, the party
against whom the award had come, cleverly disposes off
its assets so as to defeat the execution proceedings.
Unless a party has taken interim orders u/s 9 of the Act
against disposal of assets etc. there are good chances that
by the time execution application is filed, the JD would
have practically spirited away all its assets.


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