In this article, Prashant Shukla does an analysis of Sundaram Finance Ltd. v. Abdul Samad.

Introduction

With the liberalization of the Indian economy, there was a proliferation of dispute in the commercial world. But, court proceedings, due to structural problems, took years to complete. This systematic problem gave way to devise alternate model. Parliament passed Arbitration and Conciliation Act, 1996, which repealed Arbitration Act of 1940.

But, even after completion of arbitration, there was a long delay in getting the award executed. This stemmed from the fact that first petition was supposed to be filed in the court that had jurisdiction over the proceeding for execution, and then the decree was transferred to a court where the property was situated. This led to extra expenditure on parties in terms of hiring lawyer, court fee, and other costs.

The Apex Court in Sundaram Finance Ltd. v. Abdul Samad[1] case, addressed the same question. The Court stated that the award can be directly filed in the Court where property or asset is required to be settled. In this paper, I shall be analyzing the reasoning adopted by the Court to arrive at this conclusion. I shall also be highlighting the importance of this holding and how it can change the way we understand enforcement of arbitral awards in India.

Analysis of Sundaram Finance Ltd. v. Abdul Samad

The facts of this case were as follows –

1. Sundaram Finance (Appellant) claimed that Respondent Abdul Samad approached it for grant of a loan so as to purchase a Tata-HCV, which was given to the Respondent on terms & agreement given in the loan agreement. The loan was supposed to be paid in instalments.[3] However, Respondent Abdul Samad defaulted on payment from 20th instalment. The possession of the car could not take place as it was argued to be stolen. Hence, arbitration proceeding was initiated.
2. The notice was served to the respondent who did not appear to defend the case. This resulted in an ex parte arbitration award for a certain sum of money with interest.
3. The trial court held that appellant was to file execution petition in the court of competent jurisdiction and obtain ‘transfer of the decree’ for the decree to be given effect in Madhya Pradesh and the court of competent jurisdiction was Tamil Nadu as Arbitration took place there.[4] The court relied on decision given by the Madhya Pradesh and Karnataka High Court for this purpose that had ruled that petition has to be filed in a court where arbitration took place and obtain the transfer of the decree to where the property is situated.
4. However, Appellant argued that since the award is enforceable as a decree under section 36 of the Arbitration Act 1996, execution proceedings can be filed in Madhya Pradesh.[5]
5. After trial ruled in favor of Respondent, Appellant filed an SLP in the Supreme Court, which was admitted primarily because there was a conflicting view among various High Courts. Madhya Pradesh, Himachal Pradesh, and Karnataka High Courts had ruled that transfer of decree should be obtained in order to file execution petition. These courts had ruled that since award took the effect of decree – the provisions relating to Code of Civil Procedure would apply, which provided for the transfer of decree under section 39.[6]
6. However, Madras High Court held that award was equated to decree only with reference to execution and not with reference to Court that passed it.[7] Therefore, provisions to that extent did not apply to the arbitral award. Similar view has been expressed by the Delhi High Court[8], Rajasthan High Court[9] and Allahabad High Court[10].
7. The Supreme Court went on to analyze various provisions of CPC and Arbitration Act and then it observed that award is executed as a decree by way of fiction as no decree is passed by the court.[11]
8. Moreover, there is a distinction with respect to the procedure to be followed when the decree is passed by the court. In those cases, a number of suits, appeal, etc. are mentioned, which is not required in the arbitral award.[12]
9. The Court further opined that “the enforcement mechanism, which is akin to the enforcement of a decree but the award itself is not a decree of the civil court as no decree whatsoever is passed by the civil court.”[13] This view is justifiable as it is not possible for the arbitral tribunal to enforce the award on its own and it requires State machinery to give effect to the award just like any other decree. Moreover, the arbitral award is treated as decree primarily for bringing in –the State, which can take all steps that are required for arrest, seizure, etc.
10. The Supreme Court then goes on to rebut the claim raised by the respondent. It argues that the line of reasoning that calls for filing incompetent jurisdiction and then obtaining transfer decree stems from section 42, which defines what jurisdiction is with respect to the arbitration agreement. And courts have seemed to have taken the view that same applies to the execution of the award.
11. However, section 42 has to be read in light of section 32 which defines termination of the proceeding. Section 32 states that arbitral proceedings stand terminated by the final arbitral award.[14] Therefore, section 42, which provides for arbitral proceeding stands terminated as soon as we get the arbitral award.[15]
12. In essence, the view of the court is that section 42 is effective only till there is no arbitral award and once arbitration comes to an end there is no need to rely upon it to interpret the jurisdiction of the court. This leads to the conclusion that section 36 (deeming provision) and 42 (jurisdictional provision) are not related to each other and section 36 comes into effect once there is an arbitral award.
13. In reference to this, the Court observes that “An award passed by the arbitral tribunal is deemed to be a decree under Section 36 of the said Act, there was no deeming fiction anywhere to hold that the Court within whose jurisdiction the arbitral award was passed should be taken to be the Court, which passed the decree. The said Act actually transcends all territorial barriers.”[16]
14. Therefore, the court took the view that enforcement of an award can be filed anywhere in the country wherever that decree can be executed and there is no need to obtain the transfer decree from the court which would have jurisdiction at the time of arbitration under section 42 of the Arbitration Act. This kind of analyses has various advantages – it reduces the transaction cost that parties might incur, saves time and procedurally more viable option to go with. What utility does filing in a court that had jurisdiction adds? It only prolongs the effect of the award, which in cases might be problematic. Suppose that case involved goodwill of a company – any delay, in such cases, would result in a loss to the party in whose favor it was awarded. But, with Sundaram Finance there would be a swift execution of the award.

Impact of Sundaram Finance case to Arbitration in India

The primary impact of Sundaram Finance is that there will be a reduction in the procedural requirement that has to be followed. There would be no application of Code of Civil Procedure with regard to execution. Hence, Court will only be a facilitator to the extent of giving effect to the award. Once the validity of award has been proved there would be no need to go to various courts to get the award executed.

Moreover, this would make Arbitration Act more exhaustive in a sense that we are relying upon its provision to give effect to the award. So far various High Courts relied upon CPC to interpret the nature of the award after arbitration was over. But with this judgment, there is much more clarity on interplay between CPC and Arbitration Act, which has been limited to the extent of reading award equivalent to decree and no more. This judgment also establishes the distinctive nature of the Arbitration Act. At the same time, it brings lot more clarity to parties that are arbitrating as they would know that after the award is declared, they can go to a place where there is property and get the award enforced.

On the other hand, a position with respect to enforcement of the foreign arbitral award is settled. In Fuerst Day Lawson Ltd. v. Jindal Exports Ltd.[17] case the Supreme Court ruled that in one proceeding a court can decide enforceability of award and then take effective steps to execute the same. There is no need to file another application to convert award into decree as one proceeding can serve both purposes. It was argued in that case that there should be separate application just like Arbitration Act, 1940.[18] To this, the Supreme Court observed that it was a technical and has no consequence to the ultimate result.[19] Therefore, in one proceeding these steps can be taken.

This means that there is uniformity with respect to domestic and foreign awards. Now, only one application has to be filed to get the award enforced. This can be done where the award can be enforced. In case of foreign it will be High Court and in case of domestic, the district court – wherever property is present or award can be given effect to. Hence, this judgment is yet another example of India promoting arbitration as a means of settling the dispute and avoiding multiplicity of litigation.

Conclusion

In conclusion, Sundaram Finance case once again shows that the Supreme Court will adopt for the interpretation that favors arbitration as a means of settling the dispute. Now, instead of filing an application in the court of competent jurisdiction one has to just file it wherever award can be executed. This interpretation avoids any kind of multiplicity of litigation and calls for a standard mechanism to get the award enforced. The bone of contention in these cases the application of CPC, which court has rightly avoided. This goes on to prove that the Arbitration Act is exhaustive code and reliance on CPC is limited to the extent of creating a fiction with respect to the arbitral award. With this judgment, there is uniformity with regard to domestic and foreign award in a sense that now only one application has to be filed.

References

[1] Sundaram Finance Ltd. v. Abdul Samad, Civil Appeal No.1650 of 2018.

[2] Sundaram Finance Ltd. v. Abdul Samad, CIVIL APPEAL No.1650 of 2018.

[3] Id., ¶ 3.

[4] Id., ¶ 4.

[5] Id.

[6] Computer Science Corp. India Pvt. Ltd. v. Harish Chandra Lodwal, AIR 2006 MP 34; Jasvinder Kaur v. Tata Motor Finance Limited, CMPMO No.56/2013 decided on 17.9.2013; I.C.D.S. Ltd. v. Mangala Builders Pvt. Ltd. AIR 2001 Karnataka 364.

[7] Kotak Mahindra Bank Ltd. v. Sivakama Sundari, (2011) 4 LW 745.

[8] Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd, 2009 159 DLT 579.

[9] Kotak Mahindra Bank Ltd. v. Ram Sharan Gurjar, (2012) 1 RLW 960.

[10] GE Money Financial Services Ltd. v. Mohd. Azaz, 2013 SCC OnLine All 13365.

[11] Supra Note 27, ¶ 10.

[12] Order 21, Rule 11, Code of Civil Procedure, 1908.

[13]Supra Note 27, ¶ 15.

[14] § 32(1), New Act.

[15] Supra Note 27, ¶ 19.

[16] Supra Note 27, ¶ 22.

[17] M/s. Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., MANU/SC/0329/2001.

[18] Id.

[19] Id.