Execution Proceedings Not Maintainable Against Decision Of Court In A Petition Filed Under Section 34 Of The A&C Act: Telangana High Court

The Bench, consisting of Justice P. Naveen Rao and Dr. Justice G. Radha Rani, ruled that execution proceedings are not maintainable with respect to the decision of a Civil Court in a petition filed under Section 34 of the A&C Act.

After some disputes arose between the parties with respect to a Development Agreement in relation to a specified property, the respondent M/s P.S.R. Constructions invoked the Arbitration clause for referring the dispute to arbitration. The respondent sought damages against the appellants for cancellation of the Development Agreement. The Arbitrator granted relief against only one party and rejected the claims raised against the appellants. The respondent filed an application under Section 34 of the A&C Act before the District Court against the award of the Arbitral Tribunal refusing claims raised against the appellants. The District Court held that it was competent to modify the award while exercising power under Section 34 of the A&C Act, and hence it modified the arbitral award by fixing liability on the appellants.

The respondent M/s P.S.R. Constructions filed an Execution Petition before the District Court seeking execution of the order passed modifying the arbitral award under Section 34. The appellants filed an application against the Execution Petition filed by the respondent, which was dismissed by the District Judge.

The appellants challenged the order passed by the District Judge modifying the arbitral award under Section 34 of the A&C Act by filing an appeal, and the order dismissing appellants' application against the Execution Petition by filing a revision petition, before the Telangana High Court.

The appellants submitted before the Telangana High Court that the decision of the District Judge amounted to modification of the award. The appellants averred that as per Section 34 of the A&C Act, the Court can only uphold or set aside the award, but it has no power to modify or change the award. Therefore, the appellants contended that the order of the District Judge was without jurisdiction and was ex-facie illegal. The appellants added that the respondent sought to enforce an order modifying the arbitral award by filing an Execution Petition before the District Court.

The appellants contended that under Section 36 of the A&C Act only an award passed by the Arbitrator can be enforced, and not the order of a Civil Court in a petition filed under Section 34 to set aside the award.

The appellants submitted that no power is vested in the District Court to seek enforcement of an illegal order and therefore, the Execution Petition filed by the respondent was not maintainable against appellants. The appellants added that the order of the District Court itself was erroneous, therefore, the question of its enforcement did not arise.

The High Court observed that the Supreme Court in the case of McDermott International Inc versus Burn Standard Company Limited (2006) had observed that in a petition filed under Section 34 of the A&C Act, the Court cannot correct the errors of an Arbitrator and it can only quash the arbitral award. Also, the High Court noted, the Supreme Court in the case of Project Director, National Highways Authority of India (NHAI) versus M. Hakeem & Anr. (2021) had held that Section 34 of the A&C Act does not include within it a power to modify the arbitral award.

The High Court thus ruled that the scope of consideration of a Civil Court in an application filed under Section 34 of the A&C Act to set aside an arbitral award is limited. The Court added that the Civil Court can either set aside or affirm the award, but it cannot modify it.

The High Court held that the District Court had erred in fixing liability on the appellants, since in effect it had modified and altered the arbitral award. Therefore, the High Court set aside the order of the District Court.

The High Court ruled that the Execution Petition filed by the respondent seeking enforcement of the award as modified by the District Court was not maintainable. The Court held that in view of Section 36 of the A&C Act, execution proceedings are not maintainable with respect to the decision of a Civil Court in a petition filed under Section 34.

The Court held that no award was passed by the Arbitrator against the appellants, also the decision of the District Court extending liability on the appellants was set aside by the High Court. Therefore, the Court ruled that the Execution Petition was not maintainable against the appellants.

The High Court thus concluded that the Civil Court is not competent to alter or modify the arbitral award in a petition filed under Section 34 of the A&C Act, and the Execution Petition is maintainable only against the award of the Arbitrator under Section 36 of the A&C Act.

The High Court thus allowed the appeal and the revision petition filed by the appellants/petitioners.

Case Title : Mrs. Ragya Bee (deceased) and Others versus M/s. P.S.R. Constructions

Dated: 27.01.2022 (Telangana High Court)

Citation: 2022 LiveLaw (Tel) 28

Counsel for the Appellants: Mr. Anand Kapoor, Mr. I. V. Radhakrishna Murthy, Mr. A.M. Rao

Counsel for the Respondent: Mr. E. Madan Mohan Rao, senior counsel appearing for Venugopal Julamanti