Enforcement of a Domestic Arbitral Award and the Jurisdiction of the Supervisory Court

Q: When a domestic arbitral award is to be enforced under Section 36 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), can the supervisory court, the “Court” defined in Section 2(1)(e), entertain the enforcement application even though the judgment debtor neither resides nor owns property within its territory?

It is submitted that it can, for two reasons. First, the Supreme Court’s decision in Sundaram Finance confers a choice on the award holder. It does not take jurisdiction away from the supervisory court. Second, the legal fiction in Section 36, which allows an award to be enforced as though it were a decree, is enabling, not disabling. It adds a forum for the award holder’s convenience. It does not remove the forum the Act already provides.

Evolve Legal
Jun 30
8 min read

When a domestic arbitral award is to be enforced under Section 36 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), can the supervisory court, the “Court” defined in Section 2(1)(e), entertain the enforcement application even though the judgment debtor neither resides nor owns property within its territory?

It is submitted that it can, for two reasons. First, the Supreme Court’s decision in Sundaram Finance confers a choice on the award holder. It does not take jurisdiction away from the supervisory court. Second, the legal fiction in Section 36, which allows an award to be enforced as though it were a decree, is enabling, not disabling. It adds a forum for the award holder’s convenience. It does not remove the forum the Act already provides.

The whole difficulty in this area comes from one confusion: reading a permission as though it were a restriction. Sundaram Finance says the award holder may go straight to the court where the assets lie. That is a permission. It has been misread as a command, that the award holder must go there, and that the supervisory court therefore loses its jurisdiction. Once the permission to go elsewhere is separated from a supposed command to go only elsewhere, the apparent conflict disappears. A rule that adds a forum cannot, in the same breath, subtract one.

This article first sets out the statutory scheme and the leading authorities, then turns to a related question on which the Supreme Court’s own decisions appear to pull in opposite directions: whether Section 42 of the Arbitration Act reaches an application for enforcement under Section 36.

The statutory scheme

Section 2(1)(e) defines “Court” as the principal civil court of original jurisdiction in a district, including a High Court exercising ordinary original civil jurisdiction, which would have jurisdiction over the subject matter of the arbitration had it been the subject matter of a suit. The reference to a suit draws in Section 20 of the Code of Civil Procedure, 1908 (“CPC”), under which a suit lies where the defendant resides or carries on business, or where the cause of action arises wholly or in part. Read by itself, then, Section 2(1)(e) points to the court of the defendant’s place or the court where the cause of action arose.

Section 20 of the Arbitration Act adds a second route. It recognises party autonomy and lets the parties choose a “seat” of arbitration, a neutral place that need have no connection with the cause of action or with the defendant’s location.

Section 42 ties these threads together. It opens with a non obstante clause and provides that once an application under Part I has been made to a Court in respect of an arbitration agreement, that Court alone has jurisdiction over the arbitral proceedings and over all subsequent applications arising out of the agreement. Its purpose is to prevent a conflict of jurisdiction by gathering supervisory control over a given arbitration in a single court. A concrete example shows how this works. Suppose the parties have not fixed a seat under Section 20, and before any seat is determined, part of the cause of action arises in Mumbai, part in Delhi, and the defendant carries on business in Ahmedabad. Under Section 2(1)(e) read with Section 20 CPC, all three courts could decide the subject matter of the arbitration. If, before the arbitration begins, a Section 9 application is made to the principal civil court in Mumbai, then by force of Section 42 that court becomes the exclusive forum for everything that follows.

In BGS SGS Soma JV v. NHPC^[1], the Supreme Court read Sections 2(1)(e), 20 and 42 together and held that where the parties designate a seat, the designation operates like an exclusive jurisdiction clause: the court at the seat is the supervisory court, and it alone hears the Part I applications arising from the arbitration. This harmonised Section 20 with Section 2(1)(e) and widened the definition of “Court” to take in the court of the chosen seat.

The reach of Section 42 was settled in State of West Bengal v. Associated Contractors^[2]. Part of the cause of action had arisen in Jalpaiguri. Before the arbitration began, the contractor obtained interim relief under Section 9 from the Calcutta High Court. The State then filed its Section 34 challenge in the District Court at Jalpaiguri. A bench of three judges held that the words “with respect to an arbitration agreement” give Section 42 a wide reach, covering every application under Part I, whether made before, during or after the arbitration. Sections 8 and 11 fall outside Section 42, because applications under them are not made to a “Court” as defined. But a Section 9 application is made to a “Court”, and so, by Section 42, all later applications, including the Section 34 challenge, must go to the same court. The Calcutta High Court alone, therefore, could hear the challenge.

Section 36 governs enforcement. It provides that an award is enforced under the CPC in the same manner as if it were a decree of the court. The fiction it creates is a narrow one: the award is treated as a decree only for the purpose of enforcement, and not for all purposes.^[3]

The CPC’s execution provisions complete the picture. A decree may be executed by the court that passed it or by a court to which it is transferred (Section 38). A decree is transferred for execution to the court where the judgment debtor resides or carries on business, or where its property lies (Section 39). And a court that passed a decree cannot execute it against a person or property outside its own limits (Section 39(4)). Order XXI contains the detailed machinery of execution.

The decisions

In Sundaram Finance Ltd. v. Abdul Samad^[4], the Supreme Court resolved a conflict among the High Courts on a single question: must a domestic award first be filed before the supervisory court and then transferred for execution to the court where the assets lie, or can it be filed for execution directly in that court? Holding that the Arbitration Act transcends territorial barriers, the Court ruled that enforcement may be sought directly in any court where the award can be executed, with no need to obtain a transfer from the supervisory court.

That holding raised a further question. If the award holder may go straight to the court where the assets are, does the supervisory court retain any jurisdiction to entertain an enforcement application at all, where the judgment debtor and its property lie outside that court’s territory? It is here that the difference between conferring a choice and ousting a jurisdiction does the work.

In Global Asia Venture Company v. Arup Parimal Deb^[5], the seat was Mumbai and the award was made there, but the judgment debtor’s assets all lay outside Mumbai. The decree holder filed for enforcement in the Bombay High Court, the Section 2(1)(e) Court. The judgment debtor objected, relying on Section 39(4) CPC. The High Court held that Sundaram Finance does not oust the jurisdiction of the Section 2(1)(e) Court. What Sundaram Finance gives the award holder is a jurisdictional choice that an ordinary decree holder does not have: the award holder is not forced to come to the Section 2(1)(e) Court only to be sent on to a local court for execution. That choice does not strip the Section 2(1)(e) Court of its jurisdiction. The Court rested on three points. First, that the Arbitration Act transcends territorial barriers, so Section 39(4) CPC does not stand in the way. Second, that there is a basic difference between executing a civil decree and enforcing an arbitral award, the Section 36 fiction being limited and enabling rather than disabling. Third, that it would make no sense for territoriality to be transcended from the start of the arbitration, through the Section 34 challenge, only to halt at enforcement.

The Delhi High Court took the same view in Gujarat JHM Hotels Ltd. v. Rajasthali Resorts and Studios Ltd.^[6]. A party may enforce the award before the competent court at the seat. Sundaram Finance widens, not narrows, this position by also giving the party the choice to execute directly in the court where the judgment debtor resides or its assets lie.

The Gujarat High Court, in M/s Meridian Hotels Pvt. Ltd. v. M/s OYO Hotels and Homes Pvt. Ltd.^[7], faced the same objection, that the judgment debtor’s assets were all outside the court’s territory. It held that an enforcement application under Section 36 cannot, at the very threshold, be treated as outside the jurisdiction of the Section 2(1)(e) Court, all the more so where the judgment debtor had itself brought its Section 34 challenge before that very court.

The Bombay High Court has very recently taken the same view in Manjeet Singh T. Anand v. Nishant Enterprise HUF^[8].

Conclusion

These decisions read Sundaram Finance for what it decided (that the award holder gains a forum, not that the supervisory court loses one), and that reading fits the design of the Arbitration Act. It is also the only practical reading. An award holder will often not know where the judgment debtor’s assets are. In that ordinary case the award holder must be able to approach the supervisory court in the first instance, joining an application under Order XXI Rule 41 CPC to have the judgment debtor disclose its assets. To deny the Section 2(1)(e) Court even the power to entertain the enforcement application would leave the award holder with the heavy task of locating the debtor’s assets before it could so much as file.

A related question: does Section 42 reach Section 36?

The conclusion above answers, in large part, a further and more theoretical question, whether Section 42 extends to an enforcement application under Section 36. On this, two decisions of the Supreme Court appear to pull in opposite directions, and the difference between them turns on a single word.

In Associated Contractors, the bench of three judges held that Section 42 applies to every application under Part I, whether made before, during or after the award, which would carry it into a Section 36 enforcement application. In Sundaram Finance, at paragraph 17, the Court reasoned the other way: since Section 32 provides that the arbitral proceedings terminate with the final award, Section 42 has no further role to play at the stage of enforcement. Sundaram Finance did not notice the larger bench’s decision in Associated Contractors.

The conflict narrows on inspection, because the two decisions rest on different words. Sundaram Finance reasons from the termination of the arbitral proceedings. But Section 42 is not confined to “proceedings”. Its operative words are wider and uses the phrase “all subsequent applications arising out of that agreement”. An application to enforce the award is an application arising out of the arbitration agreement, and it does not stop being one merely because the proceedings before the tribunal have ended. The premise on which Sundaram Finance rests (that the proceedings are over) does not meet the wider language on which Section 42 actually turns.

The former view is, it is submitted, the correct one, for three reasons. First, Associated Contractors is a decision of a larger bench and prevails over Sundaram Finance. Second, the phrase “all subsequent applications arising out of that agreement” are wide enough to take in an enforcement application. Third, as the Bombay High Court reasoned in Global Asia Venture, it would be incongruous for the transcending of territoriality to begin at the inception of the arbitration and continue through the Section 34 challenge, only to come to a halt at enforcement.

If that view is right, the Section 2(1)(e) Court read with Section 42 keeps its jurisdiction to entertain a Section 36 application, alongside the court where the judgment debtor resides or its property lies. If it is wrong, if Section 42 has nothing to say about enforcement, then the supervisory court loses even the power to entertain a Section 36 application where all the judgment debtor’s assets are outside its territory. The point awaits authoritative resolution by a bench that confronts Associated Contractors directly, which paragraph 17 of Sundaram Finance did not.

For further inquiries, please reach out to the author: