Madras High Court
Iocee Exports Ltd. vs Kalyanee Marine And Ors. on 18 July, 2006
Equivalent citations: III(2007)BC93
Author: S. Rajeswaran
Bench: S. Rajeswaran
ORDER S. Rajeswaran, J.
1. This Application has been filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter called 'the Act') to pass a pro-order prohibiting the Garnishce/3rd respondent from paying a sum of Rs. 7,80,000/- with the Bank guarantee bearing No. LG/109/6/99 executed by them in favour of the 1st respondent pending execution of the award dated 10.3.2006 passed by the 2nd respondent and also prohibiting the 1st respondent from encashing the above said Bank guarantee pending execution of the award dated 10.3.2006 passed by the 2nd respondent.
2. The brief facts leading to the filing of the Application are as follows:
An award was passed by the 2nd respondent-Arbitrator against the applicant-Company on 10.3.2006. As per the award dated 10.3.2006, the applicant herein was directed to pay a sum of Rs. 15,36,032/- to the 1st respondent and by the very same award 2nd respondent-Arbitrator directed the 1st respondent to invoke the Bank guarantee dated 1.2.1999 of 3rd respondent-Bank for a sum of Rs. 7,80,173/-. Challenging the award, a Petition under Section 34 of the Act 1996 was filed in O.P. No. 360/2006 and this Court admitted the O.P. No. 360/2006 on 7.7.2006 and ordered private notice to the respondents in that O.P.
3. It is the case of the applicant that pending the O.P. No. 360/2006, the 1st respondent is also attempting to invoke the Bank guarantee executed by the applicant in favour of the 3rd respondent-Bank. Hence the present Application has been filed for injunction under Section 9 of the Act, 1996.
4. Heard the learned Counsel for the applicant. I have also perused the documents and the judgments referred to in support of his submissions.
5. An award was passed on 10.3.2006 against the applicant, in which the applicant was directed to pay a sum of Rs. 15,36,032/- together with simple interest at 12% per annum from 10.3.2006 till realisation in full. By the very same award dated 10.3.2006 the 2nd respondent-Arbitrator directed the 3rd respondent-Bank to invoke the Bank guarantee given by the applicant to the tune of Rs. 7,80,173/-. Challenging the award dated 10.3.2006 an O.P. No. 360/06 was filed by the applicant herein and the same was admitted by me on 7.7.2006 and I have also ordered private notice to the parties returnable by two weeks. Thereafter the applicant sent private notice to respondents 1 and 2 informing about the O.P. No. 360/2006 and calling upon them to appear before this Court. That being so, I am unable to comprehend how the 1st respondent herein can invoke the Bank guarantee as directed by the 2nd respondent-Arbitrator in the award dated 10.3.2006. The 1st respondent's right to invoke the Bank guarantee arose only because of the award of the 2nd respondent-Arbitrator which is under challenge in O.P. No. 306/2006. Once the arbitration award is challenged under Section 34 of the Act, 1996 and the same is pending consideration by the Court, the same cannot be enforced and executed till a final decision is made in the Petition filed under Section 34 of the Act, 1996.
6. Under Section 35 of the Act, 1996, an arbitration award shall be final and binding on the parties and under Section 36 of the Act, the award can be enforced only after the expiry of the time for making an Application under Section 34 of the Act or if an Application has been made, only after it has been refused by the Court. Till such time, the award cannot be enforced.
7. For better appreciation, Section 36 is extracted below:
36. Enforcement.-Where the time for making an Application to set aside the arbitral award under Section 34 has expired, or such Application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.
8. In National Aluminium Co. Ltd. v. Pressteel & Fabrications (P) Ltd. , the Hon'ble Supreme Court held as follows:
10. Learned Counsel for the applicant then contended that nearly 15 years have gone by since the dispute between the parties arose and since the said dispute was first referred to an arbitrator. After the passage of such a long time, the applicant has been able to get only a partial award in his favour, but he is still unable to enjoy the fruits of that award also because of the proceedings initiated under Section 34 of the 1996 Act. In this factual background, he prays that to do complete justice, we should consider the objections of both the parties to the said award and decide the same in these proceedings. Since we have come to the conclusion that the parties having agreed to the procedure under the 1996 Act to be followed by the arbitrator for the post-award proceedings also, the provisions of the said Act would prevail and the said statute having specifically provided for a remedy under Section 34 of the 1996 Act, it may not be proper for us to exercise our jurisdiction under Article 142 of the Constitution to adjudicate upon the objections filed by both the parties to the award. Learned Counsel then prayed that at least the amount representing that part of the award which is in its favour should be directed to be deposited in the competent Civil Court by the respondents herein so that the applicant could enjoy the fruits of the said award during further proceedings. At one point of time, considering the award as a money decree, we were inclined to direct the party to deposit the awarded amount in the Court below so that the applicant can withdraw it, on such terms and conditions as the said Court might permit it to do as an interim measure. But then we noticed from the mandatory language of Section 34 of the 1996 Act, that an award, when challenged under Section 34 within the time stipulated therein, becomes inexecutable. There is no discretion left with the Court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent any direction from us contrary to that, also becomes impermissible. On facts of this case, there being no exceptional situation which would compel us to ignore such statutory provision, and to use our jurisdiction under Article 112 we restrain ourselves from passing any such order, as prayed for by the applicant.
11. However, we do notice that this automatic suspension of the execution of the award, the moment an Application challenging the said award is filed under Section 34 of the Act leaving no discretion in the Court to put the parties on terms, in our opinion, defeats the very objective of the Alternate Dispute Resolution System to which arbitration belongs. We do find that there is a recommendation made by the Ministry concerned to Parliament to amend Section 34 with a proposal to empower the Civil Court to pass suitable interim orders in such cases.
In view of the urgency of such amendment, we sincerely hope that necessary steps would be taken by the authorities concerned at the earliest to bring about the required change in law.
9. In the above judgment, the Hon'ble Supreme Court held that an award when challenged under Section 34, within the time stipulated it becomes inexecutable.
10. In National Buildings Construction Corporation Ltd. v. Lloyds Insulation India Ltd. 2005(2) SCC 367, the Hon'ble Supreme Court held that as follows:
6. We are of the view that the award clearly states that after an adjustment of accounts, the only amount payable by the appellant to the respondent was Rs. 4,11,756/-. How the arbitrator arrived at this figure is not for us to see. For the purposes of Section 36 of the Act, the Court cannot be called upon to go behind the awarded amount and deal with the process by which the amount was arrived at. There is on record only one award for the amount of Rs. 4,11,756/-. Even though the respondent claims that the Application under Section 34 was filed in respect of part of the award, it is in fact only a process by which the arbitrator has arrived at the awarded amount. This would mean that the award as a whole cannot be enforced under Section 36 of the Act. As held by this Court in National Aluminium Co. Ltd. v. Pressteel & Fabrications (P) Ltd. .
...mandatory language of Section 34 (Section 36) of the 1996 Act, that an award, when challenged under Section 34 within the time stipulated therein, becomes inexecutable. There is no discretion left with the Court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible.
11. In the above judgment, the Hon'ble Supreme Court has reiterated the law laid down by the Hon'ble Supreme Court earlier by following the judgment National Aluminium Co. Ltd. v. Pressteel & Fabrications (P) Ltd. (supra).
12. In The Superintending Engineer (Highways & Rural Works) v. Deivasigamani, D. C IV (2004) CLT 120 : 2004(4) CTC 1, a Division Bench of this Court following the ratio as laid down in National Aluminium Co. case (supra), held that a Petition challenging the award is admitted, the award becomes inexecutable.
13. Thus from the above law laid down by the Hon'ble Supreme Court and the Division Bench of this Court, it is very clear that the 1st respondent in the above Application cannot approach the 3rd respondent-Bank to invoke the Bank guarantee as the same part of the award dated 10.3.2006 which has become inexecutable as the O.P. No. 360/2006 having been admitted by this Court, challenging the same award.
14. This being the legal position, the above Application filed by the applicant restraining the 3rd respondent-Bank from paying the amounts covered under the Bank guarantee is redundant and not maintainable.
15. The applicant is however directed to send a copy of this order to the 3rd respondent-Bank informing them about the inexecutability of the entire award of the 2nd respondent-Arbitrator dated 10.3.2006 including the direction by the 2nd respondent-Arbitrator directing the Bank to permit the 1st respondent to invoke the Bank guarantee given by the applicant herein.
16. With this above observation, this Application is dismissed as not maintainable. No costs.