In a significant ruling on the enforceability of arbitral awards, the Supreme Court stepped in to examine whether a property transferred to the mother of a company’s Managing Director could be shielded from execution proceedings arising out of a two-decade-old arbitral award. At the heart of the controversy was a crucial question: can a purchaser, closely related to the judgment-debtor, defeat a money decree by claiming to be an innocent third party long after the award has been passed?
The controversy began when The Cotton Corporation of India Limited secured an arbitral award in 2001 against M/s Lakshmi Ganesh Textiles Limited for unpaid dues arising from a 1998 cotton sale agreement. The award, later upheld after a failed Section 34 challenge, remained unsatisfied for years. Meanwhile, the company defaulted on loans from ICICI Bank, triggering SARFAESI proceedings. In 2015, amid recovery actions, a sale deed was executed transferring the disputed property to the appellant, who happened to be the mother of the company’s Managing Director and a former non-executive director.
When execution proceedings were revived in 2019 and the property was attached, she approached the court claiming absolute ownership as a bona fide purchaser without notice. Counsel for the appellant argued that no litigation was pending at the time of purchase and that the arbitral award was merely for recovery of money, unrelated to the immovable property. The decree-holder, however, alleged collusion and invoked the doctrine of lis pendens, asserting that post-award transfers cannot defeat execution.
The Apex Court was unequivocal. Relying on Order XXI Rule 102 of the CPC and reaffirming the doctrine of lis pendens, the Bench held that a transferee pendente lite, even in money decree cases, cannot resist execution. It rejected the argument that the absence of a pending Section 34 challenge insulated the transaction, clarifying that what matters is that the transfer occurred after institution of proceedings and after the award came into existence.
Quoting its earlier precedent, the Court reminded that “A transferee from a judgment-debtor is presumed to be aware of the proceedings before a court of law… If unfair, inequitable or undeserved protection is afforded to a transferee pendente lite, a decree-holder will never be able to realise the fruits of his decree.”
Delivering a sharp warning against procedural abuse, the Court observed that accepting such objections would reduce decrees to mere “paper tigers.” Consequently, the Civil Appeal was dismissed, and the executing court was directed to conclude the proceedings within two months.
Case Title: R. Savithri Naidu Vs. M/S The Cotton Corporation Of India Limited And Anr
Case No.: Special Leave Petition (Civil) No. 19779 Of 2024
Coram: Hon’ble Justice Pankaj Mithal, Hon’ble Justice S.V.N. Bhatti
Advocate for the Petitioner: AOR. Udian Sharma,
Advocate for the Respondent: Adv. Sunita Singh, AOR. Abhigya Kushwah, Adv. Pradeep Kumar Dubey, Adv. Siddharth Rajkumar Murarka, Adv. Rohan Rohatgi, Adv. Shubhangini Rohatgi, AOR. Garima Jain,
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