Whether HC Has Jurisdiction To Execute Arbitral Award Obtained By Bank Or Financial Institution? Bombay HC To Decide [Read Order]

The Bombay High Court will soon be hearing a matter on a crucial point of law, whether an arbitral award obtained by an entity covered under the Recovery of Debts Due to Banks and Financial Institutions Act 1993 (RDDBI), can be executed by the High Court or has to be sent to the Debt Recovery Tribunal for execution.

Justice GS Patel has framed four questions of law that will be examined by the high court in an arbitration case between Kotak Mahindra Bank and Baun Foundation Trust, while hearing Chamber Summons application filed by Baun.

Justice Patel, in an ad-interim order, acknowledged that there were many advocates who are concerned with the moot issue as there are “several hundred matters” in the high court for the enforcement of arbitral awards at the instance of an entity covered by the RDDBI Act. He appointed senior advocate Zal Adhyarujina as the amicus curiae to assist the court in this matter.

Case Background

Kotak obtained an arbitral award against Baun dated August 3, 2017. Since the arbitral claimant (Kotak) is a bank, it is therefore covered by the provisions of the RDDBI Act, as also by the SARFAESI Act. Moving in execution, Kotak attached Baun’s movables, fittings and fixtures in a residential flat at Malabar Hill of which Baun is the licensee. Thereafter, Baun filed an application for Chamber Summons in the execution application filed by Kotak before the high court.

Submissions

Abhinav Chandrachud along with Amit Vyas of Vertices Partners appeared on behalf of applicant Baun Foundation. Chandrachud submitted that when an award goes unchallenged, or where the result is an award, it is put into enforcement as a decree of the court.

A decree is covered by the definition of a debt under the RDDBI Act. Now, Section 18 of the RDDBI Act confers exclusive jurisdiction on the Debts Recovery Tribunal where debts are sought to be recovered by banks and non-banking financial institution. If, therefore, every decree is a debt, and it makes no difference whether the decree arises from a judgment of a court or from an award of a tribunal that is enforceable as a decree, then it is only the DRT that has exclusive jurisdiction to put that arbitral award into execution, Chandrachud said.

Chandrachud relied on the decision of a bench of the high court in the case of Bank of India v Shree Satya Corporation & Ors & Bhagvatibai B Khetan & Ors in support of his argument.

What Court Said

Justice Patel noted: “The effect or impact of accepting this argument is possibly far greater than the apparent narrowness of the proposition might suggest. There is the question of what is to be done with a host of pending enforcement orders in execution, matters where a receiver has been appointed in execution, disclosures have been ordered, warrants issued, attachments levied and so on.”

He further noted that there are many advocates who are concerned with this issue and how they wish to address the court and make their submissions:

“These Advocates say they want to address the Court on these questions. Also, and without meaning any disrespect to Dr. Chandrachud and only because I think it is appropriate to have an independent perspective, I will request Mr Zal Andhyarujina, or if he is unable for any reason to accept the assignment, Mr Sharan Jagtiani to assist the Court as amicus. I leave it to them to decide if both will appear together.”

Following questions will now be examined by the court:

(a) Whether an arbitral award in the hands of an entity covered by the RDDBI Act must be sent to the Debt Recovery Tribunal for enforcement and execution?

b) Whether this Court has no jurisdiction to entertain any execution application in respect of an arbitral award obtained by an entity covered by the RDDBI Act?

(c) The scope of the Division Bench decision in Bank of India v Shree Satya Corporation & Ors & Bhagvatibai B Khetan & Ors?

(d) If the answer to questions (a) or (b) (or both) is in the affirmative, what is the effect on past orders in execution of such awards, and on pending execution applications where orders have been passed?

Thus, Justice Patel instructed the prothonotary to notify these questions of law to be taken up for hearing after the upcoming summer vacation.

Read the Order Here