2016 (5) TMI 1608 - HC - Indian Laws

Jurisdiction - competent cort to enforce Arbitral Award - Prayers of the appellants for examination of the judgment-debtors, by summoning the judgment-debtors to this Court declined. Whether this Court is the appropriate Court of competent jurisdiction, to enforce an arbitral award under the 1996 Act? HELD THAT - By virtue of the forum selection clauses and a printed clause in the agreement indicating that the agreement was executed within the jurisdiction of the Court agreed upon, applications are filed in the Court of the choice of the financer as specified in the agreement for injunction and for appointment of Receivers in respect of assets financed to borrowers in different parts of India. Numerous such applications are filed in this Court. More often than not, the agreements are signed by the borrowers hundreds of miles outside the jurisdiction of this Court, through agents and even branch offices, even though the head-office and/or the registered office of the finance companies might be situate within the jurisdiction of this Court - All that might have been done within the jurisdiction of this Court, could very well be the affixation of the signature of the official of the financier and may be affixation of the seal of the financier. Applications are moved in this Court ex parte for injunction and orders of injunction are obtained. Middle income group borrowers defaulting in payment of instalments seldom appear to contest the proceedings, may be due to financial constraints or inconvenience otherwise of defending proceedings in a distant Court. Moreover, it is often seen that finance companies have their chosen arbitrators, who arbitrate disputes between the financiers and borrowers in bulk. By recourse to fine print terms exorbitant amounts are charged by way of cheque bouncing charges, which are many times the amount charged by banks for the bouncing of cheques, as noted by the leaned single Bench. When a contract appears to be unconscionable, the Court may intervene. It is for the Courts to ensure that no injustice is done to the financially weak. Similarly it is for the Court to exercise restraint before passing unduly harsh orders - A forum selection clause is not in itself unconscionable. The borrowers enter into agreements containing forum selection clauses with their eyes open, and also default in making payment as per agreement. The features noted by the learned single Bench in some of the awards of which execution has been sought, ex facie render these awards liable to be set aside on the ground of the same being against public interest. The limitation for filing an application for setting aside of the award would only start running from the date of receipt by the borrower and/or the guarantor of a copy of the award duly signed by the arbitrator. If an award is found ex facie unsustainable in law, the Court might decline to execute the award - However, where an application had earlier been filed in this Court, the Court cannot refuse to execute the award on the ground that the judgment-debtor and/or the assets were located outside the jurisdiction of this Court. Appeal allowed.

Summary

Issues Involved:
1. Jurisdiction of the Court to enforce an arbitral award.
2. Transfer of execution applications under Section 39 of the Code of Civil Procedure.
3. Interpretation of the term 'property' in Section 39 of the Code of Civil Procedure.
4. Applicability of Section 42 of the Arbitration and Conciliation Act, 1996.
5. Examination of judgment-debtor under Order 21, Rule 41 of the Code of Civil Procedure.
6. Execution against movable versus immovable property.

Detailed Analysis:

1. Jurisdiction of the Court to enforce an arbitral award:
The primary issue was whether the Court had jurisdiction to enforce an arbitral award under the Arbitration and Conciliation Act, 1996 (the 1996 Act). The Court held that it had jurisdiction to entertain the application for enforcement of the award against the judgment-debtors and their properties in view of Section 42 of the 1996 Act. Section 42 provides that once an application under Part I of the 1996 Act has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings.

2. Transfer of execution applications under Section 39 of the Code of Civil Procedure:
The Court examined whether an execution application should be transferred to another Court under Section 39 of the Code of Civil Procedure (CPC). It concluded that an arbitral award, for enforcement purposes, is deemed to be a decree, but it does not become a decree as defined in the CPC. Therefore, the provisions of Sections 38 and 39 of the CPC relating to the execution of decrees would not be applicable to arbitral awards.

3. Interpretation of the term 'property' in Section 39 of the Code of Civil Procedure:
The Court discussed whether the term 'property' in Section 39 of the CPC includes movable property. It held that the term 'property' in Section 39 is not limited to immovable property and includes movable property. The Court emphasized that the location of movable property cannot be determined with certainty as it can be moved from jurisdiction to jurisdiction.

4. Applicability of Section 42 of the Arbitration and Conciliation Act, 1996:
The Court reiterated that Section 42 of the 1996 Act has an overriding effect and would prevail over Section 36 of the 1996 Act, read with the provisions of the CPC relating to the execution of decrees. The Court cited several judgments to support this view, including the Supreme Court's decision in State of West Bengal v. Associated Contractors and other relevant cases.

5. Examination of judgment-debtor under Order 21, Rule 41 of the Code of Civil Procedure:
The Court addressed the issue of whether the judgment-debtor should be examined under Order 21, Rule 41 of the CPC. It held that the examination of the judgment-debtor is necessary to ascertain the assets and properties available for satisfying the award. The Court noted that the question of transferring the execution application to another Court could not arise at the stage of examining the judgment-debtor.

6. Execution against movable versus immovable property:
The Court discussed the execution of arbitral awards against movable and immovable property. It held that execution against movable property does not require the transfer of the decree or award since movable property can be moved from one jurisdiction to another. The Court also noted that there was a Receiver over the assets being the subject-matter of arbitration, and these assets were in the custody of the Court through the Receiver appointed by the Court.

Conclusion:
The appeal was allowed, and the judgment and order under appeal were set aside to the extent it related to the execution application being EC No. 142 of 2009. The execution application was directed to proceed before the single Bench of the Court in accordance with law. The Court emphasized the importance of ensuring that no injustice is done to the financially weak while also exercising restraint before passing unduly harsh orders.