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2017 (3) TMI 1927 - HC - Indian LawsArbitral Award - fraud and collusion - jurisdiction of Arbitrator against JDs No. 2 to 5 - reference also to arbitration was not sought against JDs No. 2 to 5 - HELD THAT - The legal position is that an objection that the Court which passed the decree had no jurisdiction to pass the same can be taken under Section 47 of CPC in execution proceedings provided the said objection is evident on the face of the record and does not require any determination of facts. Such an objection has been distinguished from objections of other illegalities committed by the Court passing the decree viz. of awarding a high rate of interest, not awarding interest without giving any reasons therefor, not making the decree executable first against the principal debtor and making it executable simultaneously against principal debtor as well as guarantors etc., which cannot be taken in execution proceedings. What further emerges from the aforesaid judgments is that an objection that the Court which passed the decree had no jurisdiction to pass the same can be taken in execution proceedings only if it appears on the face of the record and does not require any determination of facts, not otherwise. Whether the said law applies to proceedings for execution of arbitral awards also particularly in the light of observations in MSP Infrastructure Ltd. and Bharti Cellular Ltd. 2012 (9) TMI 1239 - DELHI HIGH COURT ? - HELD THAT - The observations MSP Infrastructure Ltd. and Bharti Cellular Ltd. supra to the effect that the judgments of civil law would not apply to a proceeding under special law as the Arbitration Act, apply to only the proceedings provided for under the Arbitration Act and cannot be extended to the proceedings for execution of an Arbitral Award, as if it were a decree of the Court. Once the Arbitration Act, 1996 itself has conferred on the Arbitral Award the status of a decree of the Civil Court and made the same executable in accordance with the provisions of CPC, there are no reason to apply the aforesaid observations made in an entirely different context i.e. to execution proceedings - the observations aforesaid in MSP Infrastructure Ltd. and Bharti Cellular Ltd. have to be harmonised with Jagat Ram Trehan 1996 (1) TMI 485 - DELHI HIGH COURT which is a judgment on the proposition that a plea of lack of jurisdiction of the Arbitral Tribunal even if not taken by way of opposition to making the same rule of the Court, can be taken under Section 47 of the CPC in proceedings for execution thereof. It is quite evident from the face of the record that the sale of paper were made by the DH to JD No. 1, the bills/invoices containing the arbitration clause were in the name of JD No. 1, the account in the books of the DH was in the name of the JD No. 1 and in accordance with the arbitration clause on the bills/invoices, reference of disputes to arbitration was sought by the DH from the Paper Merchants Association (Regd.) against JD No. 1 and the Paper Merchants Association (Regd.) made the reference of dispute between DH and JD No. 1 to Mr. Ram Bhaj Mittal aforesaid - The Arbitral Tribunal owes its jurisdiction to the arbitration agreement. The arbitration agreement in the present case is contained on the bills/invoices but which have been raised by DH on JD No. 1. From the arbitration clause contained on the said bills/invoices, JDs No. 2 to 5, even though Directors of JD No. 1, did not become privy to the arbitration clause. It has thus but to be held that Mr. Ram Bhaj Mittal, the sole Arbitrator appointed by Paper Merchants Association (Regd.) was neither authorised by Paper Merchants Association (Regd.) to adjudicate the disputes between DH and the JDs No. 2 to 5 nor under any agreement had such jurisdiction. The objection of the JDs No. 2 to 5 in the present case falls within the ambit of the judgments cited by the senior counsel for the JDs No. 2 to 5 as well as within the ambit of Vasudev Dhanjibhai Modi 1970 (3) TMI 166 - SUPREME COURT cited by the counsel for DH, and is entitled to succeed. Thus, the execution petition, insofar as against JDs No. 2 to 5, is dismissed declaring the Arbitral Award against the JDs No. 2 to 5 to be without jurisdiction - application dismissed.
Issues Involved:
1. Execution of an Arbitral Award. 2. Personal liability of directors for the debts of a private limited company. 3. Jurisdiction of the Arbitral Tribunal. 4. Applicability of Section 47 of the CPC to execution proceedings of arbitral awards. 5. Validity of objections raised in execution proceedings. Detailed Analysis: 1. Execution of an Arbitral Award: The decree holder (DH) sought execution of an Arbitral Award dated 21st December 2006, which mandated the recovery of Rs. 3,44,28,861/- with interest from the date of the Award till realization. The Award was in favor of Khanna Traders and against Scholar Publishing House Pvt. Ltd. and others. The DH filed applications under Order XXI Rule 41 and Rule 37 to 40 of the CPC for disclosure of assets and arrest of the judgment debtors (JDs). 2. Personal Liability of Directors for Company Debts: The JDs No. 2 to 5, who were directors of JD No. 1, contended that they could not be held personally liable for the debts of the company. The court noted that liability cannot extend to shareholders/directors unless they have extended personal guarantees or made themselves personally liable. The arbitral award did not address how JDs No. 2 to 5 were made personally liable, leading to the prima facie view that the Award against them might be a nullity. 3. Jurisdiction of the Arbitral Tribunal: The JDs No. 2 to 5 argued that the Arbitrator had no jurisdiction over them as the reference to arbitration was only against JD No. 1. The court examined the documents and found that the reference to arbitration was indeed sought only against JD No. 1, and the Paper Merchants Association (Regd.) appointed the Arbitrator to settle disputes involving JD No. 1 only. There was no basis for the Arbitrator to pass the Award against JDs No. 2 to 5, who were merely directors of JD No. 1. 4. Applicability of Section 47 of the CPC to Execution Proceedings of Arbitral Awards: The court considered whether objections under Section 47 of the CPC could be raised in execution proceedings of arbitral awards. It was held that an objection regarding the jurisdiction of the court that passed the decree could be taken in execution proceedings if it was evident on the face of the record and did not require determination of facts. The court harmonized this with the principle that objections to the jurisdiction of the Arbitral Tribunal could be raised under Section 47 CPC, even if not taken under Section 34 of the Arbitration Act, 1996. 5. Validity of Objections Raised in Execution Proceedings: The court found that the objections raised by JDs No. 2 to 5 regarding the jurisdiction of the Arbitral Tribunal were valid. The Arbitral Award against JDs No. 2 to 5 was declared without jurisdiction as the arbitration agreement was between DH and JD No. 1 only. The execution petition against JDs No. 2 to 5 was dismissed, and the Arbitral Award against them was declared null and void. Conclusion: The court dismissed the execution petition against JDs No. 2 to 5, declaring the Arbitral Award against them to be without jurisdiction. The applications filed by the DH under Order XXI Rule 41 and Rule 37 to 40 CPC were also dismissed. Further proceedings were scheduled for 15th May 2017.
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