Objections U/S 36 Of The A&C Act Permissible Only On Issues Relating To Patent Or Inherent Lack Of Jurisdiction Of The Tribunal: Jharkhand High Court

The Bench of Justice Anubha Rawat Choudhary held that challenge to an arbitral award can only be on the grounds enshrined under Section 34 of the Act, nevertheless, it is permissible to raise objections under Section 47 of the CPC at the stage of enforcement of the award under section 36 of the Act if those objections pertain to the lack of jurisdiction of the tribunal to pass an award or when the award is non-est or a nullity in the eyes of the law. However, such a defect in the award must be apparent on the face of the record and not require any factual determination.

Facts

A dispute arose between the parties pursuant to which the respondent referred the dispute to MSFE Council, Kolkata under Section 18 of the MSMED Act. On failure of the conciliation, the parties were referred to arbitration.

However, in the meantime the petitioner was admitted into insolvency and the moratorium under Sections 13 & 14 of IBC, 2016 was declared. Pursuant thereto, the arbitration proceedings were put at hold. After the notice inviting claims was issued by the IRP, the respondent submitted its claims and the IRP partly admitted those claims. The resolution was passed by the CoC and approved by the NCLT, Kolkata. The appeal against the approved plan was dismissed by the NCLAT and also the Supreme Court.

The moratorium came to an end upon the approval of the resolution plan, accordingly, the MSFE Council continued with the arbitration proceedings and delivered an award in favour of the respondent. The petitioner did not challenge the award under Section 34 of the A&C Act. However, it preferred objections ostensibly under Section 47 of CPC when the award was put to execution under Section 36 of the A&C Act. However, the executing court vide order dated 03.03.3023 rejected these objections as unmerited. Aggrieved thereby, the petitioner filed a writ petition against the order.

Grounds of Challenge

The petitioner challenged the impugned order on the following grounds:

• Decree of nullity can be assailed in execution or co-lateral proceedings.
• The provisions of Insolvency and Bankruptcy Code, 2016 have overriding effect and the dues of the operational creditor including the respondent was taken as NIL. Therefore, the Facilitation Council under MSME Act lost its jurisdiction to pass any award.
• Even if the award was not challenged under section 34 of the Arbitration and Conciliation Act, 1996, objection could have been taken at the stage of its enforcement when it is sought to be enforced under section 36 of the aforesaid Act of 1996 if the award was passed without jurisdiction.
• Section 47 of CPC is microscopic and lies in a very narrow inspection hole and the executing court can allow objection to executability of the decree if it is found that the same is void -ab-initio and is a nullity apart from the ground that it is not capable of execution under law either because the same was passed under ignorance of such provision of law or the law was promulgated making the decree un-executable after its passing.

The respondent made the following counter-arguments:

• That considering the scope of Article 227 of the Constitution of India, the impugned order does not call for any interference.
• Section 47 of CPC does not apply to execution proceedings under Section 36 of the A&C Act.
• The provisions of MSMED Act prevails over IBC provisions.
• That so far as the binding effect of Section 31 of Insolvency and Bankruptcy Code, 2016 is concerned, the same does not bar the legal remedy available to the party for realization of its debt.
• The proceedings before the MSEF Council began before the initiation of insolvency proceedings and were continued after the moratorium was over and the tribunal passed an award in favour of the respondent.
• That the amount NIL was not mentioned against the claims of the respondent.
• The petitioner has not challenged the arbitral award under Section 34 of the A&C Act, therefore, it has become final and binding on the parties.

Analysis by the Court

The Court held that held that the objections under Section 36 of the A&C Act permissible only on issues relating to patent or inherent lack of jurisdiction of the tribunal.

The Court held that challenge to an arbitral award can only be on the grounds enshrined under Section 34 of the Act, nevertheless, it is permissible to raise objections under Section 47 of the CPC at the stage of enforcement of the award under section 36 of the Act if those objections pertain to the lack of jurisdiction of the tribunal to pass an award or when the award is non-est or a nullity in the eyes of the law. However, such a defect in the award must be apparent on the face of the record and not require any factual determination.

The Court held that the point as to whether the realisable value with respect to one or the other creditor was nil or otherwise certainly require close examination of the resolution plan read with the orders passed by NCLT/NCLAT/Supreme Court which itself is a debatable issue on facts as well as on law, therefore, it cannot be said that the lack of jurisdiction is apparent on the face of the award or that the award is suffering from inherent lack of jurisdiction.

Finally, the Court decided the issue whether the tribunal lost its jurisdiction to proceed and pronounce the arbitral award in view of insolvency resolution plan duly approved under Section 31 of the IBC.

The Court held that irrespective of maintainability of the objection to arbitral award under section 47 of the CPC, on facts, the Facilitation Council did not lose its jurisdiction to proceed and pronounce the arbitral award on account of approval of the insolvency resolution plan of the petitioner under section 31 of the IBC. This is on account of the reason that the arbitral proceedings were initiated prior to insolvency resolution date, suspended during the moratorium period, resumed upon expiry of the moratorium period and the approved resolution plan did not determine the claim of the respondent as nil whose pending litigation before the west Bengal facilitation council was taken note of in the resolution plan

Accordingly, the Court dismissed the petition.

Case Details: M/s ESL Steel Limited v. Ispat Carriers Pvt Ltd, C.M.P. No. 376 of 2023

Date: 17.07.2023

Counsel for the Petitioner: Mr. Indrajit Sinha, Mr. Bibhash Sinha and Ms. Puja Agarwal, Advocates

Counsel for the Respondent: Mr. Atanu Banerjee, Mr. Rishi Pallava, Mr. Rajnish Kolawatia, and Mr. Prakash Kumar, Advocate

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