Having Interest in Immovable Property, Third Party can Challenge Award if it’s Obtained Fraudulently: Sikkim High Court

Having Interest in Immovable Property, Third Party Can Challenge Award if it’s Obtained Fraudulently: Sikkim High Court

Explains that an individual whose rights were affected was entitled to raise objections

The High Court of Sikkim has held that a third party can file a petition under O.XXI R.97 R/W Section 47 of CPC before the executing court if it proves that the arbitral award regarding the immovable property was obtained by fraud.

The bench of Justice Meenakshi Madan Rai held that there was no bar under the law for a stranger to have an independent legal right to contest the execution proceedings. He can point out that the decree to be executed was a nullity because his property interests would be adversely affected by its sale.

The court stated that since Section 34 of the Arbitration and Conciliation (A&C) Act, 1996 applied only to the parties to the arbitral award, a third party, whose rights were affected by it, would have to raise objections before the court.

The petitioner and respondent No.1 entered a ‘Deed of Settlement’ to divide the family properties. The agreement was executed without the knowledge of respondent Nos.2-4, the progenies of respondent No.1. The respondent Nos.2-4 approached the SDM to restrain the petitioner and respondent No.2 from alienating the family properties.

Thereafter, the petitioner and respondent No.1 entered a ‘Memorandum of Family Arrangement’ wherein an arbitration clause was inserted, and the father-in-law of the petitioner’s son was named the arbitrator.

As a result, an arbitral award was passed for the family properties and put to execution under Section 36 of the A&C Act.

The respondent Nos.2-4 filed objections under Rule 97 of CPC. The executing court allowed the objections and held the award as a nullity for being obtained fraudulently. That’s because the execution of the deed of settlement was not disclosed to the objectors.

Aggrieved by the impugned order, the petitioner filed a civil writ before the high court.

The petitioner made the following submissions against the impugned order:

• Referring to the India Cements Capital Limited vs. William and Others case, it's emphasized that the court can't go beyond the decree.

• Order XXI Rule 97 is meant for decree holders, not objectors.

• Explanation II of CPC Section 47 indicates that objectors lack standing.

• Challenge to the award should be pursued under Section 34 of the Arbitration Act. It is beyond the scope of Section 36 to consider the award on its merits and objections can't be raised in execution without challenging the decree.

On the other hand, the respondent made the submissions in support of the impugned order:

• It was argued that a third party could not come into the execution petition, and reliance was placed on the Prasantha Banerji vs. Pushpa Ashoke Chandani case, asserting that Order XXI Rule 97 of the CPC could be invoked by an objector.

• A fraudulent decree was allegedly obtained as no dispute existed between the judgment debtor and the decree-holder concerning properties in the ‘Memorandum of Family Arrangement.’

• The relationship between the arbitrator and the decree holder's son was challenged under Arbitration Act Section 12 read with Clauses 9, 10, 13 of the Fifth Schedule.

• Reference was made to the Noorduddin vs. Dr. K. L. Anand case, arguing that a third party wasn't necessarily bound by a decree and could resist its execution. An application under Order XXI Rule 97(1) was made.

• The Bhavan Vaja and Others vs. Solanki Hanuji Khodaji Mansang and Another case was referenced to underline that the executing court couldn't go behind the decree but could ascertain its true effect.

• Relying on the Shreenath and Another vs. Rajesh and Others case, it was contended that a third party could claim an independent right and didn't have to wait for dispossession.

• The Union of India vs. Jagat Ram Trehan and Sons case was invoked to argue that an award's voidness could be raised in execution proceedings.

• Directly attacking a judgment and decree was valid through objections or appeals, as established in this case.

• No error was seen in the trial court's dismissal of the decree, leading to the request for the current petition's dismissal.

Thus, the High Court observed that Explanation II to Section 47 outlined that purchasers of property through execution sales were deemed parties to the suit wherein the decree was issued. Therefore, even if the ordinary rule excluded disputes between parties and strangers in execution sales, the addition of Explanation II permitted purchasers to contest the proceedings. They have an independent legal right if their property interests are adversely affected by the sale. This allows them to challenge the legitimacy of the decree, invoking Rule 97 of the CPC to anticipate dispossession.

The judge observed that by invoking Rule 97, though not directly involved in arbitral proceedings, the objector could seek redressal if the award was not fairly granted. The term ‘fairly’ obtained significance due to the 11 June 2013 ‘Deed of Settlement’ and the subsequent 24 June ‘Memorandum of Family’ entered between the decree-holder and the judgment debtor.

The court highlighted that the ‘Deed of Settlement’ was executed before Respondent Nos.2, 3, and 4 raised objections before the SDM. Since this was concealed from the objector and the SDM during the initial objection proceedings, the non-disclosure influenced the perspective of the court.

Thus, Justice Rai upheld the impugned order and dismissed the writ petition.