Arbitral Award Can't Be Challenged U/S 47 CPC In Execution Proceedings: Allahabad High Court Imposes ₹5 Lakh Cost On State

The Allahabad High Court has imposed a cost of Rs. 5 lakhs on the State of Uttar Pradesh for raising objections under Section 47 of CPC in execution proceedings under Section 36 of the Arbitration and Conciliation Act, 1996 on the grounds which were decided in application under Section 34 but were not raised in appeal under Section 37 of the 1996 Act.

While dismissing the appeal, Justice Shekhar B. Saraf held

“The tactics employed by the Petitioners (State of Uttar Pradesh) characterized by their persistent delay and obstructionist behaviour, merit unequivocal condemnation and necessitate the imposition of substantial costs. Delay tactics serve to perpetuate injustice by denying parties their rightful entitlements.”

Section 47 CPC provides for the questions which can be dealt with by the Court executing a decree/award. Section 36 of the 1996 Act provides for enforcement of arbitral awards as per the procedure prescribed in CPC for execution of a decree.

The Court held that the questions to be decided in execution proceedings are limited to the matter pertaining to the execution of the decree and the validity of the decree cannot be gone into at the stage of execution proceedings. The Court held that the validity of a decree can only examined by the Court if the decree suffers from inherent lack of jurisdiction.

The Court held that the powers of an executing court are more limited and narrower than the powers of the revision or appellate court.

While relying on the principle of finality of a decree, the Court held that

“The limited scope of the executing court's jurisdiction under Section 47 of the CPC, 1908 requires a precise delineation of the issues that fall within its purview. Courts must ensure that objections pertain solely to matters concerning execution, discharge, or satisfaction of the decree and do not encroach upon substantive rights or legal issues beyond the decree's scope.”

The Court held that frivolous objections filed under Section 47 CPC must be dealt with strongly.

Factual Background

State of Uttar Pradesh and the respondent entered into a contract for construction of cross drainage, siphon at Km 5.355 of main canal under Madhya Ganga Canal Phase-II Project in District Bijnor. The dispute between the parties was referred to arbitration. State filed an application under Section 34 of the Act, 1996 which was rejected. Thereafter, a first appeal was filed before the High Court which was also dismissed.

In 2018, State preferred a special leave petition before the Supreme Court which was dismissed on the ground of delay. Review petition was also dismissed by the Apex Court.

Thereafter, respondent filed an execution application under Section 36 of the Act where and order was passed directing the State Bank of India, Main Branch Nazeebabad, Bijnor to cease the bank account of Executive Engineer, Madhya Ganga Canal Construction Division – 7 Bijnor and not to permit withdrawal from the said account. Subsequently, the execution application was transferred to Commercial Court, Moradabad who directed the State to make payment of the award amount along with interest on or before 22.10.2022.

Objections filed by the State under Section 47 CPC were rejected. State challenged the order directing payment of the amount as well as the order rejecting the objections under Article 227 of the Constitution of India on grounds that the appointment of sole arbitrator by the petitioner from a panel of engineers provided by the Chief Engineer of the State was contrary to the contract.

It was argued that since the award was vitiated by fraud, objection under Section 47 CPC ought to have been decided on merits. It was argued that fraud cannot be waived under Section 34 or Section 37 of the Act.

High Court Verdict

The Court relied on Pradeep Mehra v. Harjivan J. Jethwa where the Supreme Court held that an executing court cannot go behind a decree. The Apex Court had directed all executing Courts to refrain from entertaining any such application(s) which was already considered by the court while adjudicating the suit or which raises any such issue which otherwise could have been raised and determined during adjudication of suit if due diligence was exercised by the applicant. Further, a time frame of 6 months was given to dispose of execution proceedings in lieu of the inordinate delay which forms a part of Indian judicial system.

The Court held that the Court must be vigilant as objection under Section 47 CPC can be used to delay or obstruct the execution process.

“Parties may resort to frivolous or dilatory objections in an attempt to prolong proceedings or gain tactical advantage. Courts must exercise vigilance in identifying and dismissing such objections to ensure expeditious and effective enforcement of decrees.”

Relying on earlier decisions of the Allahabad High Court in India Oil Corporation Ltd. and Anr. v. Commercial Court and Anr. and Sanjay Agarwal v. Rahul Agarwal, the Court held that an arbitration award is not a decree which can be challenged on merits by way of objections filed under Section 47 of CPC in execution proceedings under Section 36 of the Act of 1996.

On merits, the Court observed that the challenge to the appointment of sole arbitrator had been raised in proceedings under Section 34 of the Act and had been dealt with by the Court.

“The principles enshrined in Section 34 of the Act underscore that interference with arbitral awards should only occur in exceptional cases, where the grounds specified in the Act are met. The Petitioner's attempts to circumvent the procedural and substantive framework established by the Act, and to re-litigate matters already addressed under Section 34 of the Act, undermine the efficiency and finality of arbitration proceedings.”

The Court held that the inherent lack of jurisdiction was only ground of challenge available with the State to the arbitral award in objections under Section 47 CPC in execution proceedings. The Court held that once the arbitral award has attained finality, its sanctity cannot be undermined by way of objections under Section 47 CPC.

“Execution proceedings, far from being a battleground for a rematch on the merits of the arbitral award, serve as the denouement of the legal drama – a final act in which the award holder claims their just reward. Like the closing scene of a play, execution proceedings bring the curtain down on the dispute, allowing the parties to turn the page and move forward. To raise objections under Section 47 of the CPC, 1908 in the execution proceedings would be akin to attempting to rewrite the script of a play after the final curtain call – a futile endeavour that serves only to prolong the agony of litigation and delay the inevitable conclusion.”

The order passed under Section 34 of the Act of 1996 was upheld by the High Court. However, the Court observed that the objections regarding the appointment of an arbitrator were not raised in appeal under Section 37 of the Act.

Lastly, the Court held that the Arbitration Act is a code in itself and provides a complete mechanism for challenging arbitral awards. The same cannot be challenged under Article 226 or 227 of the Constitution of India.

Relying on the decision of the Supreme Court in Rahul S. Shah v. Jinendra Kumar Gandhi, the Court imposed a cost of Rs. 5 lakhs on the State of Uttar Pradesh. The Court observed that delay tactics being used by the State frustrate the objective of arbitration being a cost-effective alternative to traditional litigation.

Case Title: State of Uttar Pradesh and Others v. Shri Raj Veer Singh [MATTERS UNDER ARTICLE 227 No. 6346 OF 2022]

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