Order In Section 9 Of Arbitration Act Based On Settlement Is Enforceable As Decree : Delhi High Court

Section 36 of the CPC pertains to the "Application to orders" and addresses the execution of decrees and orders. It states that the provisions governing the execution of decrees will also apply to the execution of orders. This means that orders passed by a court, which are not formal decrees but still require enforcement, can be executed in the same manner as a decree.

Brief Facts:

The matter pertained to petitions where the disputes between the parties were referred to mediation by the Delhi High Court Mediation and Conciliation Centre which facilitated the drafting of Settlement Agreements to resolve the issues. The petitions before the High Court sought the enforcement of these Settlement Agreements, which share identical terms.

In 2014, Almond Infrabuild Private Limited & Anr. (Respondents) initiated a Group Housing Residential Project named "ATS Tourmaline," which operated under a guaranteed buyback and subvention scheme. Each investor received a residential unit and had the option to exit the project after 33 to 36 months by selling the unit back to Respondent 1 at a rate of ₹1,500 per sq. ft. above the booking price of ₹8,000 per sq. ft. As the project developer, Respondent 1 agreed to these buyback terms.

The Petitioners, Anand Gupta and Anuradha Vinod Gupta, invested in this project leading to the execution of a Memorandum of Understanding (MOU) with Respondent 1. Clause 8 of the MOU outlined that the Petitioners could request the buyback of their unit within the stipulated timeframe. If the repurchase price was delayed beyond 30 days, Respondent 1 would be liable to pay interest at 18% per annum. Further, until the repurchase price was fully paid, Respondent 1 was responsible for paying the EMIs and other related costs directly to the bank, indemnifying the Petitioners.

On 15 December 2016, Petitioner 1 expressed interest in exercising the buyback option and requested confirmation and payment by March 2017. Respondent 1 confirmed the binding nature of the MOU terms but subsequently suggested either taking possession of the unit or allowing more time for compliance with the MOU. The Petitioners were also asked to provide their bank loan details for facilitating EMI repayments.

As the deadline for payment approached on 1 April 2018, the petitioners inquired about the payment schedule but received no response. By January 2019, the Respondents defaulted on EMI payments which prompted the Petitioners to send a detailed legal notice on 1 April 2019. This notice alleged fraud and default on the buyback obligations demanding the payment of the buyback amount, accrued interest, and repayment of outstanding bank loans totaling ₹1.97 crores.

With no compliance from the Respondents, the Petitioners filed an application under Section 96 of the Arbitration and Conciliation Act, 1996 as the MOU provided for arbitration in dispute resolution. The case was settled through mediation and the application was subsequently disposed of.

Orders from the High Court included directions for the Respondents to file affidavits of their assets and were restrained from alienating them to the extent of the amount payable to the petitioners. The High Court also granted time for the Respondents to propose a payment schedule and ensure no further obligations on the petitioners' part. Subsequent court orders involved discussions about proposals for settlement, including assurances on EMI payments and arrangements for property sales. Most recently, on 27 February 2024, the Respondents assured timely EMI payments and readiness to sell the flats, while the Petitioners agreed to sign the Agreement to Sell provided indemnification and settlement of liabilities as per the Samadhan Agreement. The arguments in these petitions were heard on 10 July 2024 and orders were reserved.

Observations by the High Court:

The High Court began with the Respondents' contention that the order dated 18 November 2020, sought to be executed, was neither an "award" nor a "decree," and thus not executable under Section 36 of the Arbitration Act. The Respondents argued that since the execution petitions were filed under Order XXI Rule 109 read with Section 151 of the CPC, and not under Section 36 of the Arbitration Act, the Petitioners' request for enforcement was misplaced.

In response, the High Court referred to a precedent set by the Division Bench of the High Court in the case of Angle Infrastructure Pvt Ltd v Ashok Manchanda. The decision in Angle Infrastructure held that an order passed in a petition under Section 9 of the Arbitration Act, based on a settlement reached through mediation, qualifies as a "decree" and is therefore enforceable under the CPC. Justice Gita Mittal and Justice I.S. Mehta in Angle Infrastructure dealt with a situation where a settlement agreement, reached through mediation, was treated as a decree and thus enforceable like a decree.

The Division Bench in Angle Infrastructure considered whether a settlement agreement resulting from mediation could be equated to an arbitral award or decree. It was held that while a settlement arising from conciliation could be treated as an arbitral award under Section 74 of the Arbitration Act, a settlement resulting from mediation did not have the same status. However, the High Court held that despite this, an order based on such a settlement was nonetheless enforceable under the CPC.

The High Court noted that the Respondents in the present case ignored the broader implications of the Angle Infrastructure ruling. While the order dated 18 November 2020 was neither an award nor a decree, the Angle Infrastructure decision affirmed that such an order is executable in the same manner as a decree, as stated in Section 36 of the CPC. This was highlighted in paragraph 83 of the Angle Infrastructure judgment, which held that an order disposing of a petition based on a settlement agreement is executable under Section 36 of the CPC in the same manner as a decree.

Therefore, the High Court rejected the Respondents' objection that the order dated 18 November 2020 could not be executed under the CPC due to its nature as neither an award nor a decree. The High Court held that despite changes in legislation with the enactment of the Mediation Act, 2023, the principle established in Angle Infrastructure remains applicable to this case. The Settlement Agreement was executed prior to the Mediation Act coming into force, and the rationale of the earlier case was directly relevant. Thus, the High Court held that the execution petition was maintainable and the order dated 18 November 2020 was enforceable as if it were a decree.

In addressing the issue of territorial jurisdiction concerning the execution petitions, the Respondents argued that the petitions are not maintainable before the High Court because their assets are located outside Delhi. This argument was grounded in the belief that since the Respondents' assets are not situated within High Court's jurisdiction, it lacked the authority to adjudicate the execution petitions.

However, the High Court referred to the decision of the Supreme Court in Sundram Finance v Abdul Samad. The Supreme Court highlighted a critical distinction between a decree and an arbitral award with respect to execution. The Supreme Court clarified that while an arbitral award under Section 36 of the Arbitration Act is deemed executable as a decree of a court, this does not imply that the arbitral award becomes a decree of the court that rendered it. Instead, the execution of such an award must be pursued based on the location of the assets rather than the jurisdiction of the court that issued the award.

The High Court held that the same principle applied: an arbitral award's executability is tied to the location of assets, not the jurisdiction of the court that passed the award. Therefore, if the assets are located outside the High Court's jurisdiction, the court would need to issue precepts to the court(s) where the assets are situated. However, the order dated 18 November 2020 that the Petitioners sought to execute was not an arbitral award but an order, thus, the High Court differed from the principles applicable to arbitral awards as described in Sundram Finance.

The High Court held that the appropriate course of action is to file the execution petition before it, as it was the court that passed the order. If execution involves assets outside the High Court's jurisdiction, the bench held that it would issue precepts to the respective courts where these assets are located. Hence, the execution petitions were maintainable before the High Court, and the Respondents' objection on this ground was rejected.

Regarding the relief sought, the Petitioners primarily sought directions for the Respondents to make payments in accordance with the Settlement Agreement. The primary prayer was for the Respondents to clear the remaining loan amount with ICICI Bank and to fulfill their other financial obligations under the agreement.

The High Court noted that the Settlement Agreement's terms were clear and unambiguous. The agreement outlined the obligations of the Respondents, including paying specific amounts to the petitioners irrespective of the sale of the apartment, clearing the entire loan amount, and compensating for any penalties in case of default. The High Court held that the Respondents' argument—that their obligations were contingent on the sale of the apartment—contradicted the Settlement Agreement's explicit provisions.

Given the failure of the respondents to adhere to their financial obligations as per the Settlement Agreement, the High Court held that they were jointly and severally liable to pay the total settled amount along with interest at 18% per annum.

Therefore, the High Court ordered the Respondents to deposit the entire amounts payable to the Petitioners, including the settled amount, remaining loan balance, and interest, within two weeks. Additionally, the agricultural properties in Uttar Pradesh, offered as collateral, were to be attached and cannot be dealt with until the dues are fully paid.

Case Title: Anand Gupta & Anr. Vs M/S. Almond Infrabuild Private Limited & Anr. And Connected Matters

Citation: 2024 LiveLaw (Del) 986

Case Number: OMP (ENF.) (COMM.) 148/2021 & CCP(O) 9/2024, CRL.M.A. 1903/2023, EX.APPL.(OS) 2751/2022, EX.APPL.(OS) 78/2023 and connected matters

Advocate for the Decree Holder: Mr. Saif Khan, Mr. Swastik Bisarya, Mr. Achuthan Sreekumar, Mr. Rohil Bansal and Ms. Apoorva Prasad, Advs.

Advocate for the Judgment Debtors: Mr. Kartik Nayar, Adv. with Mr. Krish Kalra and Mr. Divyansh Rai, Advs.

Date of Judgment: 3 September 2024

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