Madras High Court
M/S.Sundaram Finance Limited vs S.M. Thangaraj on 27 January, 2025
Author: N. Sathish Kumar
Bench: N. Sathish Kumar
C.R.P.No.5197 of 2024
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 27-01-2025
CORAM
THE HONOURABLE MR JUSTICE N. SATHISH KUMAR
C.R.P.No. 5197 of 2024
M/s.Sundaram Finance Limited,
21, Patullos Road, Chennai 600002.
Rep by its Senior Manager (Legal)
..... Petitioner
-Versus-
1.S.M. Thangaraj
2.T.Selvamani
3.M.Rajendran
..... Respondents
Petition filed under Section 115 of the Code of Civil Procedure, 1908,
praying to set aside the order dated 14.11.2024 made in E.P.No.640 of 2018 in
Arbitration Case No.CP No.RJ/SF/302/2017 by the learned II Additional
Subordinate Judge, Coimbatore.
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C.R.P.No.5197 of 2024
For Petitioner : Mr.Mr.Aravind P. Datar,
Senior Counsel for
Mr.M.Arunachalam
For Respondent : No appearance for R2
Revision against RR1 and 3
given up
ORDER
Challenging the order of the Executing Court / II Additional Subordinate
Judge, Coimbatore, dated 14.11.2024, suo motu, dismissing the Execution
Petition in E.P.No.640 of 2018 in Arbitration case No. CP No.RJ/SF/302/2017,
the decree holder has come up with the present revision petition.
2. The revision petitioner is the claimant and the respondents are the
respondents in the arbitration case in CP No.RJ/SF/302/2017 arose out of a
dispute over a loan transaction. The revision petitioner, a financial institution,
referred the matter to the sole arbitrator to adjudicate the dispute that arose
between the respondents and themselves. The sole arbitrator passed an award
on 13.02.2018 whereby the respondents were directed to pay to the revision
petitioner a sum of Rs.1,68,047.26 together with interest from 31.07.2017 till
date of realization of the said amount in full and also to pay a sum of Rs.1700/-
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towards arbitrator's fee and a sum of Rs.800/- towards expenses incurred by the
arbitrator. On the basis of the award, the revision petitioner initiated an
execution proceedings to get executed the award which was taken on file by the
learned II Additional Subordinate Judge, Coimbatore, in E.P.No.640 of 2018.
3. The learned Judge, however, suo motu, dismissed the execution
petition by order dated 14.11.2024 holding that the arbitrator was appointed
unilaterally and that the award made by the sole arbitrator is invalid due to a
lack of inherent jurisdiction; as a result, the award made by the sole arbitrator
in the arbitration case in CP No. RJ/SF/302/2017 was not enforceable and
could not be regarded as a valid award.
4. This court, by order dated 17.12.2024, admitted the revision petition
and directed the notice to be served on the respondents both through court as
well as privately. However, on 20.01.2025, when the matter came up for
hearing, the learned counsel for the revision petitioner had given up the claim
against the respondents 1 and 3. Despite service of notice, the 2nd respondent
did not enter appearance either in person or through counsel, and hence, the
matter was ordered to be listed today, printing the name of the 2nd respondent
on the cause list. Accordingly, it is listed today, and despite the name having
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been printed on the cause, the 2nd respondent has not entered appearance either
in person or through counsel. Therefore, this court has no other option except
to proceed with the matter further and pass orders on the merits.
5. Heard Mr.Arvind P.Datar, learned senior counsel for
Mr.M.Arunachalam, learned counsel on record for the revision petitioner.
6. Mr.Arvind P.Datar, learned senior counsel, would submit that the
executing court cannot suo motu annul the award when a party to the
agreement did not challenge the award on the ground of ineligibility of the
arbitrator under Section 12(5) of the Arbitration and Conciliation Act, 1996.
According to the learned senior counsel, when the party to the arbitral
proceedings did not choose to challenge the appointment of the arbitrator, the
same would, in the eye of law, amount to a waiver of applicability of provision
to Section 12(5) of the Arbitration and Conciliation Act, 1996.
7. Mr.Arvind P.Datar would further submit that the bar of ineligibility
partakes of a character of not being an absolute bar which would hit at the root
of the very assumption of jurisdiction at the inception, rendering the award a
nullity and hence, according to him, though the unilateral appointment of
arbitrator creates an ineligibility, the same would not amount to inherent lack
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of jurisdiction rendering the entire arbitral proceedings and the consequential
award nullity altogether.
8. In a nutshell, according to Mr.Arvind P.Datar, any award passed by
the arbitrator can be set aside only on an application under Section 34 of the
Arbitration and Conciliation Act, 1996. If the award passed by the arbitrator
has not been challenged by the aggrieved party, such award shall be final and
binding on the parties to the contract. Therefore, the executing court cannot
suo motu annul the arbitral award.
9. In support of his above submissions, Mr.Arvind P.Datar, would place
reliance upon the judgements in the cases of (i) Bhawarlal Bhandari vs.
Universal Heavy Mechanical Lifting Enterprises, 1999 (1) SCC 558; (ii)
Satish Karthikeyan vs. Axis Bank Limited [C.R.P.(NPD) No.3808 of 2023
dated 13.11.2024]; and (iii) Kotak Mahindra Bank Limited vs.
Shalibhadra Cottrade Private Limited and others [Execution Case No.193
of 2019 dated 02.07.2024].
10. The award in question was passed in the arbitration Case in
C.P.No.RJ SF/302/2017 on 13.02.2018. When the execution petition was filed,
the executing court placing reliance upon the provision in Section 12(5) of the
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Arbitration and Conciliation Act, 1996 and the judgement of the Hon'ble
Supreme Court in TRF Limited v. Energo Engineering Projects Limited
[(2017) 8 SCC 377 and Perkins Eastman Architects DPC and others v.
HSCC (India) Limited [AIR 2020 SC 39], suo motu, dismissed the Execution
Petition holding that the award is non est in the eye of law due to lack of
inherent jurisdiction on the ground of ineligibility of the arbitrator.
11. No doubt, the Hon'ble Supreme Court in the case of TRF Limited
and Perkins Eastman Architects' cases [cited supra] has held that unilateral
appointment of an arbitrator by one of the parties itself would come under the
purview of disqualification by ineligibility.
12. It is, however, relevant to note here that proviso to sub-section (5) of
Section 12 of the Arbitration and Conciliation Act, 1996, provides an option to
the parties to waive the applicability of provision to sub-section (5) by express
agreement in writing. Thus, an objection as to the applicability can be raised
under sub-section (5) of Section 12 of the Arbitration and Conciliation Act,
1996. As long as there is no objection raised, it cannot be said that a mere
unilateral appointment of arbitrator would vitiate the entire aribtral proceedings
which culminated in an award. The very proviso of sub-section (5) of Section
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12 of the Arbitration and Conciliation Act, 1996 would indicate that a mere
ineligibility does not make the entire arbitral proceedings void ab initio. In this
regard, it is relevant to refer to the judgement of the High Court of Calcutta in
the case of Kotak Mahindra Bank Limited v. Shalibhadra Cottrade Private
Limited (cited supra) wherein at paras 29, 30, 32 and 53 it has been held as
under:
“29. Thus, the very fact that the proviso contemplates
subsequent waiver of the objection as to ineligibility also
unerringly indicates that the ineligibility does not render the
entire proceeding void ab initio or a nullity at the inception.
If it were to be so, it would be non est and could not exist in
the eye of law. Such a fundamental defect cannot be cured
subsequently even by express waiver in writing.
30. Hence, in view of the provision of waivability
under the proviso to Section 12(5), the bar of ineligibility
partakes of a character of not being an absolute bar which
would hit at the root of the very assumption of jurisdiction
at the inception, rendering the award a nullity.
..... ..... ..... ..... ..... .....
32. Hence, although unilateral appointment creates an
ineligibility, the same is not of such a high stature as to
tantamount to an implicit and inherent lack of jurisdiction
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rendering the entire proceedings and the consequential
award a nullity altogether.
..... ..... ..... ..... ..... .....
..... ..... ..... ..... ..... .....
53. Thus, on a comprehensive consideration of the
above judgments, it is crystal-clear that the ineligibility of
the Arbitrator cannot be set up as a ground of
inexecutability of an award in a proceeding under Section
36 of the 1996 Act for the first time.”
13. In the case of Vasudev Dhanjibhai Modi v. Rajabhai Abdul
Rehman, (1970) 1 SCC 670, the Hon'ble Supreme Court has held that the
executing court cannot go behind the decree unless it is shown that it was
passed by a court inherently lacking jurisdiction and thus was a nullity. The
relevant portions of the judgement read as under:
“6. A court executing a decree cannot go behind
the decree: between the parties or their representatives it
must take the decree according to its tenor, and cannot
entertain any objection that the decree was incorrect in
law or on facts. Until it is set aside by an appropriate
proceeding in appeal or revision, a decree even if it be
erroneous is still binding between the parties.
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7. When a decree which is a nullity, for instance,
where it is passed without bringing the legal
representative on the record of a person who was dead at
the date of the decree, or against a ruling prince without a
certificate, is sought to be executed an objection in that
behalf may be raised in a proceeding for execution.
Again, when the decree is made by a court which has no
inherent jurisdiction to make objection as to its validity
may be raised in an execution proceeding if the objection
appears on the face of the record: where the objection as
to the jurisdiction of the Court to pass the decree does not
appear on the face of the record and requires examination
of the questions raised and decided at the trial or which
could have been but have not been raised, the executing
Court will have no jurisdiction to entertain an objection as
to the validity of the decree even on the ground of
absence of jurisdiction. In Jnanendra Mohan
Bhaduri v. Rabindra Nath Chakravarti [LR 60 IA 71] the
Judicial Committee held that where a decree was passed
upon an award made under the provisions of the Indian
Arbitration and Conciliation Act, 1899, an objection in
the course of the execution proceeding that the decree
was made without jurisdiction, since under the Indian
Arbitration Act, 1899, there is no provision for making a
decree upon an award, was competent. That was a case in
which the decree was on the face of the record without
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jurisdiction.”
14. The above mentioned judgement in Vasudev Dhanjibhai v. Rajabhai
Abdul Rehman [(1970) 1 SCC 670] was followed by the Hon'ble Supreme
Court in the case of Bhawarlal Bhandari v. Universal Heavy Mechanical
Lifting Enterprises (cited supra). In Bhawarlal Bhandari's case the Hon'ble
Supreme Court has held that even if the decree was passed beyond the period
of limitation, it would be an error of law or at the highest, a wrong decision,
which can be corrected in appellate proceedings and not by the executing court
which was bound by such decree.
15. In the case of ONGC Limited v. M/s. Modern Constructions and
Company reported in (2014) 1 SCC 648, the Hon'ble Supreme Court has held
that executing court cannot go behind the decree and in absence of any
challenge to the decree, no objection can be raised in execution.
16. In the case of Shivshankar Gurjar v. Dilip [(2014) 2 SCC 465], the
Hon'ble Supreme Court has observed that the executing court cannot go behind
the decree; it has no jurisdiction to modify a decree; and it must execute the
decree as it is.
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17. A constitution bench of the Hon'ble Supreme Court in the case of
Central Organisation for Railway Electrification v. ECI SPIC SMO
MCML (JV), a Joint Venture Company [2024 (6) CTC 495] in a majority
view has held that Unilateral appointment clauses in public-private contracts
are violative of Article 14 of the Constitution and the principle of express
waiver contained under the proviso to Section 12(5) also applies to situations
where the parties seek to waive the allegation of bias against an arbitrator
appointed unilaterally by one of the parties. After the disputes have arisen, the
parties can determine whether there is a necessity to waive the nemo judex
rule. The Hon'ble Supreme Court has, however, held that “the law laid down in
the said judgement will apply prospectively to arbitrator appointments to be
made after the date of the judgement. This only will apply prospectively to
arbitrator appointments to be made after the date of this judgement. The
doctrine of prospective overruling was specifically made by the Hon'ble
Supreme Court taking note of the fact that change in law may have the effect of
distorting established rights and commercial bargains between parties. To
avoid large-scale social and economic disruption, this Court can exercise its
discretionary jurisdiction under Article 142 to give prospective effect to its
decisions.”
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18. Further, the Hon'ble Supreme Court has applied the doctrine of
prospective overruling to bring about a smooth transition of the operation of
law without unduly affecting the rights of people who acted upon the overruled
law.
19. Even in a minority view one of the Hon'ble Judges has held that the
occasion for the court to examine the constitution of the independent and
impartial tribunal under the arbitration clause will arise when one of the parties
makes an application under Sections 11, 14 or 34. It is not permissible for the
court to give an advance declaration that all such agreements which enable one
of the parties to unilaterally constitute the arbitral tribunal would be void per
se. No two agreements are the same and it is necessary for the court to examine
the text and context of the agreement.
20. It is also further to be noted that to set aside an arbitral award, an
application under Section 34 of the Arbitration and Conciliation Act, 1996 is
must. The very wording employed in Section 34 of the Arbitration and
Conciliation Act, 1996, reads as follows:
“Recourse to a Court against an arbitral award
may be made only by an application for setting aside
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such award in accordance with sub-section (2) and sub-
section (3)”
Therefore, the words employed in Section 34 “recourse to a court against an
arbitral award may be made only by an application for setting aside the
award” make it clear that an award has to be set aside only in the manner
known to law as provided under Section 34 of the Arbitration and Conciliation
Act, 1996. As long as an aggrieved party to the award did not challenge the
award passed against him in the manner known to law, the arbitral award shall
be final and binding on the parties and the persons claiming under them
respectively. When a party to the award had not chosen to challenge the award
within the time prescribed, such award shall be enforced in accordance with the
provisions of the Code of Civil Procedure in the same manner as if it was a
decree passed by the Civil Court. Therefore, as no objection was raised and the
respondent has waived the objection and also did not choose to file any
application under Section 34 of the Arbitration and Conciliation Act, 1996
seeking to set aside the award, such award has to be executed. Therefore, the
executing court cannot go into the validity of the arbitral award. The issue of
ineligibility of the arbitrator cannot be raised during the pendency of the
execution proceedings. Thus, this court is of the view that order passed by the
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executing court suo motu dismissing the execution petition filed by the revision
petitioner to get executed the arbitral award cannot be sustained in the eye of
law. This revision petition succeeds accordingly.
In the result, the revision petition is allowed; the order dated 14.11.2024
passed by learned II Additional Subordinate Judge, Coimbatore, suo motu,
dismissing the Execution Petition in E.P.No.640 of 2018 in Arbitration Case
No.CP No.RJ/SF/302/2017 is set aside. This court directs that the Executing
Courts should not suo motu dismiss the Execution Petition(s) solely on the
ground of unilateral appointment of an arbitrator. No costs.
Index : yes / no 27-01-2025
Neutral Citation : yes / no
kmk
To
1.The II Additional Subordinate Judge, Coimbatore.
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N.SATHISH KUMAR.J.,
kmk
27..01..2025
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