This article is written by Supriya Suresh Deokar, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.
Chapter VIII of the Arbitration and Conciliation Act,1996 (as amended by Act of 2015) (hereinafter referred to as ‘’Act’’) deals with finality and enforcement of arbitral awards.
S.36(1) of the Act dealing with enforcement of an award states that, ’Where the time for making an application to set aside the arbitral award under Section 34 of the Act has expired, then subject to stay granted by the court on the operation of the award, such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (hereinafter referred to as Code) as if it were a decree of the court. Section 36 makes it clear that the arbitral tribunal does not have the power to execute the award itself and for the purpose of enforcement, the award shall be enforced in accordance with the provisions of the code in the same manner as if it were a decree of the court. Therefore, the enforcement mechanism under the Act is akin to the enforcement of a decree.
Part II of the Code with execution of decrees. Section 38 of the code provides for the court which may execute the decree. Order XXI rule 10 of the code provides that where the decree holder decides to execute a decree, he shall apply to the Court which passed the decree or if the decree has been sent to another court, then to such Court for execution. Section 39 of the code provides transfer of decree. Section 39(4) was inserted to specify that the court which passed a decree shall not be empowered to execute such decree against any person or property outside the local limits of its jurisdiction.
Thus, what is important to understand in the context of an arbitral award is- In which court should the award holder file an execution application to enforce an arbitral award? It is clear from the scheme of the Act and more particularly section 36 thereof that in case of an award, there is no decree which is in existence and it is the award that must be executed as a decree by fiction. The word as if used in Section 36(1) of the Act creates a deeming fiction. Thus, to ascertain which court shall be competent to execute the award, the Act empowers the court to fall back to the provisions of the code for the purpose of execution. However, at the same time, this enabling provision is required to be enforcement of arbitration awards.
Important provisions of the Act
Section 2(1)(e): Court means
In the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the high court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any court of small Causes.
In the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration if the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court.
Section 34: Application for setting aside arbitral award
Recourse to a Court against an arbitral award may be made only by an application for setting award in accordance with subsection (2) and sub-section (3).
Section 36: Enforcement
Where the time for making an application to set aside the arbitral award under section 34 has expired, then subject to the provisions of sub-section (2), such 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 42: Jurisdiction
Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an arbitration agreement any application under this Part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings shall be made in that Court and in no other Court.
What is a Domestic Arbitral Award
The term Domestic award was not defined in Arbitration Act 1940 nor has it been defined in Model Law. Section 2(7) of the Arbitration Act, 1996 states that ‘an arbitral award made under Part one shall be considered as a domestic award’. A domestic award therefore must result from an arbitration held in India, in accordance with provisions of part-1 of this Act, given the scheme of the act, Part I would apply only to cases where the place of arbitration is in India. Section 2(2), mandates that part-I shall apply where the place of arbitration is in India.
Section 2(7) provides that an arbitral award made under part-I of this Act shall be considered as a domestic award. This implies that if the place of arbitration is in India then as per Section 2(2) of the Act, the arbitral proceeding will be governed by the provision of the arbitration Act.
In Centrotrade Mineral and Metal Inc v. Hindustan Copper Ltd., the issue arose before the Supreme Court whether an award passed by ICC arbitrator in London could be considered to be a domestic award since the arbitration agreement was governed by Indian laws. The court held that in view of sub section 2 and 7 of section 2 read with section 44 of the Act the award passed by the ICC arbitrator was not a domestic award. Sub section 7 of 2 provides that an arbitral award made under part-I shall be considered as domestic award.
So, domestic award means an award made under territory of India and it also includes International arbitration award, where one party is other than India on any citizen, government or institution other than India but award made in territory of India.
Domestic award is a result of domestic Arbitration. The term domestic arbitration has been used by the act in several places but the act did not define the same. The same has been defined by the Arbitration and Conciliation Amendment Bill in the following words:
“Domestic Arbitration” means an Arbitration relating to disputes arising out of legal relationships, whether contractual or not, where none of the parties is –
(i) an individual who is a national of or habitually resident in any country other than India; or
(ii) a body corporate which is incorporated in any country other than India; or
(iii) an association or a body of individuals whose central management and control is exercised in any country other than India; or
(iv) the Government of a foreign country, where the place of arbitration is in India and shall be deemed to include International Arbitration and International Commercial Arbitration where the place of arbitration is in India.”
Pre-requisite conditions for filing Enforcement
An award holder would have to wait for a period of 90 days after the receipt of the award prior to applying for enforcement and execution. During the intervening period (A further period of 30 days may be granted by a court upon sufficient cause being shown for condonation of delay), the award may be challenged in accordance with Section 34 of the Act. After expiry of the aforesaid period, if a court finds the award to be enforceable, at the stage of execution, there can be no further challenges as to the validity of the arbitral award. Prior to the 2015 amendment Act, an application for setting aside an award tantamount to a stay on proceedings for execution of the award. However, by virtue of the Amendment Act a party challenging an award would have to move a separate application in order to seek a stay on the execution of an award.
The procedure for enforcement and execution of the Domestic awards and Foreign awards is governed primarily by the Arbitration and Conciliation Act 1996 and the Code of Civil Procedure 1908. Arbitral awards are enforced as a decree of the Court and principles of natural justice apply to the execution proceedings. The execution of the domestic awards are dealt with by the provisions of Part I of the Arbitration and Conciliation Act 1996, while the foreign awards are dealt with by Part II of the Act.
With regard to enforcement of domestic awards, after the period for filing the application under section 34 for setting aside the arbitral award is over and irrespective of whether a separate application under Section 34 is filed or not, Section 36 (as per 2015 Amendment Act) mandates that the award shall be enforced as if it were a decree of the court as per the provisions of the Code of Civil Procedure 1908, unless the court grants an order of stay of the operation of the arbitral award for payment of money on such a separate application with due regard to Code of Civil Procedure 1908.
Appropriate court for the execution of the arbitral award
In case of domestic awards, the jurisdiction for the execution of arbitral awards would be the Commercial Courts exercising such jurisdiction which would ordinarily lie before any Principal Civil Court of original jurisdiction in a district, as well as the Commercial Division of the High Court in the exercise of its ordinary original civil jurisdiction.
The Supreme Court, in Sundaram Finance Ltd. v. Abdul Samad and Anr, has stated that ‘the enforcement of an award through its execution can be filed anywhere in the country where such decree can be executed and there is no requirement for obtaining a transfer of decree from the Court, which would have jurisdiction over the arbitral proceedings’.
Stamping and registration of awards
In case of domestic awards, Section 35 of the Stamp Act 1899 states that an award which is not sufficiently stamped is inadmissible. The amount of the stamp duty varies from state to state depending upon where the award is made. Also, under section 17 of the Registration Act 1908, it is mandatory for an award to be registered if it affects the immovable property, else will be rendered invalid.
Since domestic awards are executed as a decree of the court, the Limitation Act 1963 applies to Arbitration and prescribes a period of 12 years for enforcement of such an award. As regards the execution of foreign award, different views have been expressed by the courts, some deeming it as a decree and therefore a limitation of period of 12 years would be applicable, whereas some courts are of the view that since there is no provision under the Limitation Act for making an application for execution of a foreign award, such application will be governed by the residuary Article 137 of the Limitation Act and therefore such application has to be made within a period of three years and subsequently once the application is determined to be enforceable in India, such decree can be executed within a period of twelve years as per Article 136 of the Limitation Act.
Section 36 of the Act is an enabling provision that allows the courts to execute an award as if it were a decree of the court. This deeming fiction created by the statute has been subject of some scrutiny by the courts in India resulting into varied interpretations on the manner of enforcement, the place of enforcement and the jurisdiction of different courts etc.
The Supreme court in Sundaram Finance settled the position on the manner of enforcement by holding that for the purpose of section 36 of the Act, there is no court which passed the decree and the execution application can be directly filed anywhere in the country where the award can be executed. Section 36 provides that the legislative intent which allowed smooth enforcement of arbitral awards to be executed as decrees. It is hoped that the courts in India consistently follow Sundaram Finance while executing arbitral awards in letter and spirit and insistence must not be on following the rigours of the code.
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