Allahabad High Court: Arbitral Award Unchallengeable Under Section 47 CPC In Execution Proceedings

Allahabad High Court: Arbitral Award Unchallengeable Under Section 47 CPC In Execution Proceedings

The Allahabad High Court has levied a penalty of Rs. 5 lakhs on the State of Uttar Pradesh for raising objections under Section 47 of the Civil Procedure Code in execution proceedings under Section 36 of the Arbitration and Conciliation Act, 1996. These objections pertained to issues that were already decided in an application under Section 34 but were not raised during the appeal under Section 37 of the 1996 Act.

In dismissing the appeal, Justice Shekhar B. Saraf emphasized, "The tactics employed by the petitioners (State of Uttar Pradesh), marked by consistent delay and obstructive behavior, deserve clear condemnation and warrant the imposition of significant costs. Delays only prolong injustice by depriving parties of their rightful claims."

Section 47 of the Civil Procedure Code outlines the issues that can be addressed by the court tasked with executing a decree or award. Section 36 of the Arbitration and Conciliation Act, 1996, delineates the process for enforcing arbitral awards in accordance with the procedures stipulated in the Civil Procedure Code for the execution of a decree.

The court determined that in execution proceedings, only matters directly related to the execution of the decree are to be addressed. It emphasized that the validity of the decree cannot be scrutinized during this stage, except in cases where the decree is inherently lacking in jurisdiction.

The court emphasized that the authority of an executing court is significantly more constrained and narrower compared to that of a revision or appellate court.

Drawing upon the principle of the decree's finality, the Court underscored that the executing court's jurisdiction under Section 47 of the CPC, 1908, is circumscribed and demands a clear demarcation of issues falling within its ambit. It stressed that objections raised must strictly relate to execution, discharge, or fulfillment of the decree and should not venture into substantive rights or legal matters beyond the decree's parameters.

The court emphasized the need to address frivolous objections filed under Section 47 of the CPC firmly.

The State of Uttar Pradesh and the respondent contracted for the construction of a cross-drainage siphon at Km 5.355 of the main canal as part of the Madhya Ganga Canal Phase-II Project in District Bijnor. Subsequently, a dispute arose between the parties, which was referred to arbitration. The state filed an application under Section 34 of the Arbitration and Conciliation Act, 1996, which was subsequently dismissed. Following this, a first appeal was filled with the High Court, but it was also rejected.

In 2018, the state filed a special leave petition before the Supreme Court, which was dismissed due to delays. Subsequently, a review petition was also dismissed by the Apex Court.

Subsequently, the respondent filed an execution application under Section 36 of the Arbitration and Conciliation Act, directing the State Bank of India, Main Branch Nazeebabad, Bijnor, to freeze the bank account of the Executive Engineer, Madhya Ganga Canal Construction Division, 7 Bijnor, and prohibit withdrawals from the account. The execution application was later transferred to the Commercial Court, Moradabad, which ordered the state to make payment of the awarded amount along with interest by October 22, 2022.

The state's objections filed under Section 47 of the CPC were dismissed. Subsequently, the state contested both the order mandating payment of the amount and the rejection of objections under Article 227 of the Constitution of India. They argued that the appointment of a sole arbitrator by the petitioner from a panel of engineers provided by the Chief Engineer of the State was in violation of the contract terms.

The contention was raised that since the award was tainted by fraud, the objection under Section 47 of the CPC should have been adjudicated on its merits. It was argued that fraud cannot be waived under Section 34 or Section 37 of the Arbitration and Conciliation Act.

The Court relied on the precedent set in Pradeep Mehra v. Harjivan J. Jethwa, where the Supreme Court has ruled that an executing court cannot review the merits of a decree. The Apex Court instructed all executing courts to refrain from entertaining any applications that were previously considered during the suit's adjudication or raised issues that could have been addressed during the suit's adjudication if the applicant had exercised due diligence. Additionally, a six-month timeframe was established to expedite the disposal of execution proceedings, addressing the issue of prolonged delays inherent in the Indian judicial system.

The Court emphasized the necessity for vigilance, noting that objections under Section 47 of the CPC could be employed to impede or prolong the execution process.

Drawing upon prior rulings of the Allahabad High Court in India Oil Corporation Ltd. and Anr. v. Commercial Court and Anr. As well as Sanjay Agarwal v. Rahul Agarwal, the Court reaffirmed that an arbitration award does not constitute a decree subject to challenge on its merits through objections filed under Section 47 of the CPC in execution proceedings under Section 36 of the Arbitration and Conciliation Act, 1996.

On substantive grounds, the Court noted that the challenge regarding the appointment of the sole arbitrator had been raised in the proceedings under Section 34 of the Act and had been duly addressed by the Court.

The Court maintained that the sole permissible basis for the state to challenge the arbitral award in objections under Section 47 of the CPC during execution proceedings was the inherent lack of jurisdiction. Additionally, the Court emphasized that once the arbitral award achieves finality, its integrity cannot be undermined through objections filed under Section 47 of the CPC.

The High Court upheld the order issued under Section 34 of the Arbitration and Conciliation Act, 1996. Nevertheless, the Court noted that objections pertaining to the appointment of an arbitrator were not raised during the appeal under Section 37 of the Act.

Finally, the Court affirmed that the Arbitration Act constitutes a comprehensive framework in its own right, offering a complete mechanism for contesting arbitral awards. As such, such awards cannot be challenged under Article 226 or 227 of the Constitution of India.

Drawing from the precedent set in the Supreme Court case of Rahul S. Shah v. Jinendra Kumar Gandhi, the Court levied a penalty of Rs. 5 lakhs on the State of Uttar Pradesh. It remarked that the state's employment of delaying tactics undermines the fundamental purpose of arbitration as a cost-efficient substitute for conventional litigation.