Third Party Having Interest In The Immovable Property Can Challenge The Award Before The Executing Court If The Award Was Obtained Fraudulently: Sikkim High Court

The bench of Justice Meenakshi Madan Rai held that there is no bar under the law for a stranger to the proceedings who has an independent legal right to appear and contest the execution proceedings and whose property interests will be adversely affected by sale of the property in execution proceedings, to point out that the Decree sought to be executed is a nullity.

The Court also held that since Section 34 of the A&C Act applies only to the parties to the arbitral award, therefore, a third party the rights of which is affected by the arbitral award would have to raise objections before the executing court.

Facts

The petitioner and respondent no.1 entered into a ‘Deed of Settlement’ to divide the family properties. This agreement was executed without the knowledge of the respondent nos. 2-4 who are the progenies of the respondent no. 1. The respondent nos. 2-4 also approached the SDM to restrain the petitioner and respondent no.2 from alienating the family properties.

Thereafter, the petitioner and respondent no. 1 entered into a ‘Memorandum of Family Arrangement’ wherein an arbitration clause was inserted and the father-in-law of the petitioner’s son was named the arbitrator. Consequently, an arbitral award was passed in respect of the family properties. The award was put to execution under Section 36 of the A&C Act. The respondent nos. 2-4 filed objections under Section 47 R/W Order XXI Rule 97 of CPC. The Ld. Executing Court allowed the objections and held the award to be a nullity for having been obtained fraudulently as the fact of the execution of the deed of settlement was not disclosed to the objectors. Aggrieved by the impugned order, the petitioner filed a civil writ before the High Court.

Contention of the Parties

The petitioner made the following submissions against the impugned order:

• Referring to India Cements Capital Limited vs. William and Others, it's emphasized that the Court can't go beyond the Decree.
• Order XXI Rule 97 is meant for Decree Holders, not Objectors.
• Explanation II of CPC Section 47 indicates that Objectors lack standing.
• Challenge to the Award should be pursued under Section 34 of the Arbitration Act and it is beyond the scope of Section 36 to consider the award on its merits and objections can't be raised in execution without challenging the Decree.

The respondent made the following submissions in support of the impugned order:

• It was argued that a third party could not come into the execution petition, and reliance was placed on Prasantha Banerji vs. Pushpa Ashoke Chandani, asserting that Order XXI Rule 97 of the CPC could be invoked by an Objector.
• A fraudulent Decree was allegedly obtained as no dispute existed between the Judgment Debtor and the Decree Holder concerning properties in the "Memorandum of Family Arrangement".
• The relationship between the Arbitrator and the Decree Holder's son was challenged under Arbitration Act Section 12 read with Clauses 9, 10, 13 of Fifth Schedule.
• Reference was made to Noorduddin vs. Dr. K. L. Anand, arguing that a third party wasn't necessarily bound by a Decree and could resist its execution. An application under Order XXI Rule 97(1) was made.
• Bhavan Vaja and Others vs. Solanki Hanuji Khodaji Mansang and Another was referenced to underline that the Executing Court couldn't go behind the Decree but could ascertain its true effect.
• Relying on Shreenath and Another vs. Rajesh and Others, it was contended that a third party could claim an independent right and didn't have to wait for dispossession.
• Union of India vs. M/s. Jagat Ram Trehan and Sons was invoked to argue that an Award's voidness could be raised in execution proceedings.
• Directly attacking a Judgment and Decree was valid through objections or appeals, as established in this case.
• No error was seen in the Learned Trial Court's dismissal of the Decree, leading to the request for the current petition's dismissal.

Analysis by the Court

The Court observed that Explanation II to Section 47 outlines that purchasers of property through execution sales are deemed parties to the suit wherein the Decree was issued. Consequently, even if the ordinary rule excludes disputes between parties and strangers in execution sales, the addition of Explanation II permits purchasers to contest execution proceedings when they have an independent legal right and their property interests could be adversely affected by the sale. Thus, this allows them to challenge the legitimacy of the Decree in execution proceedings, invoking Order XXI Rule 97 of the CPC to anticipate dispossession.

The Court observed that by invoking Order XXI Rule 97 of the CPC, even though not directly involved in the arbitral proceedings, the Objector could seek redressal if the Award was not fairly granted. This term "fairly" finds significance due to the "Deed of Settlement" dated 11-06-2013 and the subsequent "Memorandum of Family Arrangement" dated 24-06-2013 entered into by the Decree Holder and Judgment Debtor. The Court highlighted that the "Deed of Settlement" was executed before the Respondent Nos. 2, 3, and 4 raised objections before the SDM, which was concealed from the Objector and the SDM during the initial objection proceedings. This non-disclosure influenced the Court's perspective.

The Court also held that since Section 34 of the A&C Act applies only to the parties to the arbitral award, therefore, a third party the rights of which is affected by the arbitral award would have to raise objections before the executing court. Accordingly, the Court dismissed the writ petition and upheld the impugned order.

Case Title: Kiran Devi Chouraria v. Jhumar Mal Singhi, WP(C) No. 37 of 2017.

Citation: 2023 LiveLaw (Sik) 7

Date: 25.08.2023

Counsel for the Petitioner: Mr. N. Rai, Senior Advocate with Ms. Navtara Sarda, Mr. Yozan Rai, Ms. Tara Devi Chettri and Mr. Pradeep Tamang, Advocates

Counsel for the Respondent: Mr. A. Moulik, Senior Advocate with Mr. Ranjit Prasad, Advocate for Respondent Nos.2 to 4.

Click Here To Read/Download Order