Calcutta High Court
Assam State Weaving & Manufacturing Co. ... vs Vinny Engineering Enterprises (P) Ltd. ... on 2 December, 2009
Equivalent citations: AIR 2010 CALCUTTA 52, 2010 (3) AKAR (NOC) 263 (CAL), 2010 (3) AKAR (NOC) 263 (CAL.), 2010 AIHC (NOC) 608 (CAL.), 2010 CLC 511 (CAL), (2010) 3 ARBILR 47, (2010) 1 CAL HN 363, AIRONLINE 2009 CAL 12
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
EC No. 147 of 2009
GA No. 2864 of 2009
GA No. 2763 of 2009
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ASSAM STATE WEAVING & MANUFACTURING CO. LTD.
-Versus-
VINNY ENGINEERING ENTERPRISES (P) LTD. & ANOTHER
For the Award-holder: Mr. Sakya Sen, Adv.,
Mr. A. Chakraborty, Adv.
For the Award-debtor No. 1: Mr. Anirban Roy, Adv.,
Mr. Aniruddha Mitra, Adv.,
Mr. Jayanta Banerjee, Adv.,
For the Award-debtor No. 2: Mr. Abhrajit Mitra, Adv.,
Mr. Dipak Day, Adv.,
Ms. Noella Banerjee, Adv.
Hearing concluded on: December 1, 2009.
BEFORE
The Hon'ble Justice
SANJIB BANERJEE
Date: December 2, 2009.
SANJIB BANERJEE, J. : -
A legal question of some importance has arisen with only a solitary
precedent of some vintage rendered on an interpretation of the previous avatar of
the current applicable statute brought as a guiding light.
An award-holder seeks to implement an arbitral award of December 22,
2008. By the award substantial sums have been found due and owing from the
first judgment-debtor. The award-holder says that upon the expiry of the
statutory period as envisaged in Section 34 of the Arbitration and Conciliation
Act, 1996 and the award ripening for implementation as a deemed decree under
Section 36 of the Act, the award-holder caused such decree to be transmitted
from Guwahati to this Court.
The two parties arrayed as judgment-debtors have taken out GA No. 2864
of 2009 and GA No. 2763 of 2009, respectively, seeking dismissal of the
execution proceedings on the identical ground that they have not been furnished
copies of the award by the arbitrator.
The award-holder instituted a money suit before a court in Kamrup,
Guwahati alleging that the first award-debtor had wrongfully received payment
under an agreement of June 22, 1992 without supplying the material that the
agreement envisaged. In view of an arbitration clause contained in the
agreement, the disputes between the parties to the agreement were required to be
carried before an arbitrator. The arbitrator found in favour of the claimant on five
counts and the sum awarded was directed to be paid within three months from
the date of the making of the award, failing which interest at the rate of 18 per
cent was payable.
The original copy of the award supplied to the award-holder has been
appended to the execution application. The award-holder has pleaded in the
affidavit in support of the tabular statement that the "respondent has not chosen
to take delivery of the award ... upon payment of the pending remuneration of the said Arbitrator." It has been averred that the award remains unchallenged as no application for setting aside the same had been filed within the period prescribed therefor in the statute. The award-holder contends that the award has become final and binding and is executable in the same manner as a decree passed by a civil court by virtue of Section 36 of the 1996 Act. The award-holder informs that a tabular statement had been taken out on June 3, 2009 before the District Judge at Kamrup whereupon the award and deemed decree was transferred for execution to this Court.
Upon the execution proceedings being launched in this Court an order was made on September 23, 2009.
The award-debtors claim that by a writing of December 22, 2008 the arbitrator had forwarded a memorandum to advocates representing the award- debtors. A bill dated December 19, 2008 for a sum of Rs.94,000/- and another bill dated April 16, 2008 for a sum of Rs.48,000/- had been furnished on account of the remuneration of the arbitrator. The award-debtors claim that the arbitrator offered to make over the award to them only upon payment of the bills.
In addition to the common case, the second party arrayed as award-debtor has claimed that she was not a party to the arbitration agreement but was added by the arbitrator as a party to the reference and that neither could the award have been made against her nor has the award, as would be evident from the copy thereof made over to the award-holder, found her liable in any manner.
The award-debtors complain of suppression of material facts by the award- holder. They say that an arbitration petition was filed by the second award- debtor before the Gauhati High Court seeking a direction for a copy of the award being made over to her by the arbitrator. They say that such petition remains pending. They claim that till such time they get copies of the award due to them, the clock does not begin to run for them to apply for setting aside the award.
The award-debtors refer to Sections 34, 36 and 39 of the 1996 Act and suggest that the award-holder has jumped the gun; that the award has not fructified into any deemed decree that is capable of being executed. They submit that the present proceedings are wholly without jurisdiction and the fact that the award or deemed decree has been transmitted to this Court is of no significance since they had no notice of the execution application filed by the award-holder before the District Judge at Kamrup.
The award-debtors argue that Sections 14 and 38 of the Arbitration Act, 1940 may be seen as a persuasive guide for assessing the matter at hand. They assert that it was open to the award-holder to satisfy the arbitrator's claim on account of costs of the reference such that the award-debtors were afforded copies of the award. But in the absence of the award-debtors being furnished their copies of the award, the award-debtors urge, the time of three months as recognised in Section 34(3) of the 1996 Act would not begin to run.
The award-holder says that accepting the award-debtors' argument would amount to putting a premium on recalcitrance. The award-holder insists that the award-debtors were aware that an award had been made, that they had been put on notice that their copies of the award were available upon their discharging their share of the costs of the reference and their intransigence would not permit the award to be stillborn and incapable of implementation.
The award-debtors refer to a Division Bench judgment reported at AIR 1949 Cal 189 (Shib Krishna Tarafdar v. Sunil Kumar Tarafdar) which was rendered upon considering Section 14 and Section 38 of the 1940 Act. Some of the parties did not pay the arbitrators' fees consequent whereupon the arbitrators did not file the award. Two of the parties, one of whom had admittedly not paid a part of the arbitrators' fees, applied before the trial court, praying that the arbitrators be appointed receivers and the applicants' share of the residential house be mortgaged to raise the balance of the arbitrators' fees. The application was allowed and the arbitrators were appointed as receivers, but they reported that they had been unable to raise the money as no one was willing to advance the amount on the security of an undivided share of a joint family house. One of the original applicants applied a second time, this time praying that the arbitrators should be again appointed receivers to mortgage the shares of all the parties to raise their balance fees. The trial court rejected the second application on the ground that it could only make such order by consent and not otherwise. It was such order that was brought by way of a civil revision to this Court.
The Division Bench opined that a party wishing the award to be filed would have to pay the arbitrators' fees and recover the same from the other parties in separate proceedings or even at the time that the award was perfected as a decree of court under the 1940 Act; or else seek supersession of the reference. Paragraph 9 of the report summarises the legal position:
"[9] The Act, it appears to me, provides for two remedies and two remedies only. One is that the party who wishes the award to be filed can have his wish fulfilled by paying the costs himself. The recovery of the costs from the remaining parties must form the subject-matter of a separate proceeding or may perhaps be adjusted at the time of passing the final decree. The other remedy, it seems to me, is that if it is found that the arbitration is being brought to nothing by the recalcitrance of one of the parties who is refusing to pay his share of the arbitrators' fees, the person aggrieved may well make that a ground for an application for superseding the reference. The plaintiff has had these remedies open to him and if he did not take advantage of either, he cannot expect the Court to grant him a third and a new kind of remedy."
The award-debtors also rely on an unreported judgment of the Delhi High Court in OMP No. 111 of 2003 (National Project Construction Corporation v. Sharma and Associates Contractors (P) Ltd.) delivered on February 8, 2005. The opinion appears at paragraph 4 of the judgment:
"4. A party in whose favour the Award has gone, cannot be left high and dry and remediless. This Court is of the considered view that in such like situation, any party to the Award may make payment of entire costs to the Arbitrator, obtain the Award and the deliver a copy thereof to the opposite party which then shall be facing limitation if it intends to file objections against the Award. The party paying the entire costs may pray to the Court for recovery of costs also which it has paid for the opposite party or the Arbitrator may add these costs in the Award."
A judgment reported at (2005) 4 SCC 239 (Union of India v. Tecco Trishy Engineers and Contractors) is placed by the award-debtors to suggest that the delivery of an arbitral award is not a mere formality as the delivery of the award and the receipt thereof by a party sets in motion several periods of limitation and has the effect of conferring rights on the parties to the reference.
To best appreciate the matter, Sections 14 and 38 of the 1940 Act and Sections 34, 36 and 39 of the 1996 Act need to be seen:
The Arbitration Act, 1940 "14. Award to be signed and filed: (1) When the arbitrators or umpire have made their award, they shall sign it and shall give notice in writing to the parties of the making and signing thereof and of the amount of fees and charges payable in respect of the arbitration and award.
(2) The arbitrators or umpire shall, at the request of any party to the arbitration agreement or any person claiming under such party or if so directed by the court and upon payment of the fees and charges due in respect of the arbitration and award and of the costs and charges of filing the award, cause the award or a signed copy of it, together with any depositions and documents which may have been taken and proved before them, to be filed in the Court, and the Court shall thereupon give notice to the parties of the filing of the award.
(3) Where the arbitrators or umpire state a special case under clause (b) of section 13, the Court, after giving notice to the parties and hearing them, shall pronounce its opinion thereon and such opinion shall be added to, and shall form part of, the award."
"38. Disputes as to arbitrator's remuneration or costs: (1) If in any case an arbitrator or umpire refuses to deliver his award except on payment of the fees demanded by him, the Court may, on an application in this behalf, order that the arbitrator or umpire shall deliver the award to the applicant on payment into Court by the applicant of the fees demanded, and shall, after such inquiry, if any, as it thinks fit, further order that out of the money so paid into Court there shall be paid to the arbitrator or umpire by way of fees such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant.
(2) An application under sub-section (1) may be made by any party to the reference unless the fees demanded have been fixed by written agreement between him and the arbitrator or umpire, and the arbitrator or umpire shall be entitled to appear and be heard on any such application. (3) The Court may make such orders as it thinks fit respecting the costs of an arbitration where any question arises respecting such costs and the award contains no sufficient provision concerning them."
The Arbitration and Conciliation Act, 1996 "34. Application for setting aside arbitral award. - (1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub- section (3).
(2) An arbitral award may be set aside by the Court only if--
(a) the party making the application furnishes proof that--
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation.-- Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
"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."
"39. Lien on arbitral award and deposits as to costs.--(1) Subject to the provisions of sub-section (2) and to any provision to the contrary in the arbitration agreement, the arbitral tribunal shall have a lien on the arbitral award for any unpaid costs of the arbitration.
(2) If in any case an arbitral tribunal refuses to deliver its award except on payment of the costs demanded by it, the Court may, on an application in this behalf, order that the arbitral tribunal shall deliver the arbitral award to the applicant on payment into Court by the applicant of the costs demanded, and shall, after such inquiry, if any, as it thinks fit, further order that out of the money so paid into Court there shall be paid to the arbitral tribunal by way of costs such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant.
(3) An application under sub-section (2) may be made by any party unless the fees demanded have been fixed by written agreement between him and the arbitral tribunal, and the arbitral tribunal shall be entitled to appear and be heard on any such application.
(4) The Court may make such orders as it thinks fit respecting the costs of the arbitration where any question arises respecting such costs and the arbitral award contains no sufficient provision concerning them."
The combined effect of Section 14(2) and Section 38 of the old Act was that a party to a reference could not have the award filed unless he paid off the balance of the fees due to the arbitrators, whether such balance was due from him or was on account of any other party to the reference. The 1940 Act did not empower the court to compel a party to a reference, by means of any interim order at the instance of another party, to pay the share of the arbitrator's fees due from the first party. In Shib Krishna Tarafdar the Division Bench noticed that Section 18 of the 1940 Act could be invoked only after an award had been filed and a decree passed thereon. A view was also taken that Section 41 of the previous Act did not conceive of a situation where the court could direct the parties to pay their proportionate shares of the arbitrator's fees in order that the award may be brought on record.
Section 34(3) of the 1996 Act, in its relevant part, makes the clock begin to tick, so to say, only upon the receipt of an arbitral award by the concerned party thereto. The legal fiction under Section 36 of the present Act, that elevates an award to the status of a decree without the award being made a judgment of court, operates only when "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 second limb of Section 36 does not apply in this case and it is only the first part of the section that needs to be considered. The legal fiction brought about by a deeming provision has to be strictly construed. An award would only be deemed to be a decree under Section 36 if (as is relevant in this case) the time for making a setting aside application in respect thereof has expired. For any prescribed time to expire there must be a beginning point. Section 34 makes the receipt of an arbitral award the beginning point for the time computed under sub-section (3) to be assessed. If there is no receipt of the award, the time does not begin to run. If the time does not begin to run, there is no question of the time limit expiring.
Section 39 of the 1996 Act, much like Section 38 of the old Act, recognises an arbitral tribunal's lien over the award. The section conceives of a situation where there may be a dispute between the arbitral tribunal and one or more parties to the reference as to the costs of the arbitration. Upon an arbitral tribunal refusing to deliver its award unless its demand for payment of costs were met by a party, an application may be carried to court for directing the tribunal to deliver the award to the applicant. Sub-section (2) contemplates an applicant thereunder to put into court the costs demanded by the arbitral tribunal. Upon such costs being deposited the court may order the tribunal to deliver the award to the applicant. The court can thereafter inquire into the propriety of the costs demanded and deal with the matter following the inquiry.
Sub-section (3) of Section 39 permits an application under sub-section (2) to be carried by any party to the reference only on condition that the fees demanded were not as fixed by written agreement between the applicant and the arbitral tribunal. The sub-section does not limit an application to be made under sub-section (2) only by a party who has been refused the delivery of the award. The delivery that Section 39 speaks of is the physical delivery of the document embodying the award and not merely the pronouncement of the award. For, it is the physical receipt of the document that would entitle a party to apply for setting aside the award or for implementing it.
Nothing in the 1996 Act prevents a party to a reference paying up the arbitral tribunal's fees not paid by another to ensure that the award is effective. Till such time that the parties to the reference receive their copies of the award, the beneficiary of the award cannot reap the fruits thereof. If the arbitral tribunal's fees, or a part thereof, remain unpaid and the recalcitrance of one or more parties is taken into account for the time under Section 34(3) of the Act to be deemed to commence upon a demand being made by the tribunal for the share of the costs, it would lead to a serious anomaly. Take the case where one party has paid his share of the costs of arbitration and the other has not, despite due notice in such regard. If the receipt of the notice demanding such party's share of costs of arbitration be taken as the starting point of the clock beginning to run under Section 34(3) of the Act, the arbitral tribunal may be left high and dry without its costs met. For, the beneficiary of an award is not obliged under the Act to include the unpaid costs of the arbitration in its application for implementing the deemed decree. If the recalcitrance of a party to meet his share of the costs of arbitration is to be appropriately dealt with, the perceived punishment of such party being precluded from challenging the award would not be adequate; as such party may get away by paying the awarded amount in the execution proceedings and never be required to pay his unpaid share of the costs of the reference unless the arbitral tribunal brought an action therefor.
The principle as recognised by the Division Bench in dealing with a matter under the 1940 Act holds good for the 1996 Act. A party to a reference wishing to obtain the benefit under the award has to fork out the costs of the reference not paid by one or more of the other parties to ensure that such other parties obtain their copies of the award so that the time under Section 34(3) of the Act can begin to run thereafter. Unless the clock is started under Section 34(3), the time can never expire within the meaning of Section 36 of the 1996 Act and the legal fiction thereunder cannot come into play.
The receipt of copies of the arbitral award by all parties to a reference is a jurisdictional fact that has to be established before a court assumes authority to set about implementing the award.
The would-be decree-holder here is a mere award-holder yet for the award has not ripened to a decree in the absence of the receipt of the arbitral award by the other parties to the reference. These execution proceedings were misconceived and cannot be continued.
EC No. 147 of 2009 is dismissed but without any order as to costs. The order made in the execution proceedings stands vacated. GA No. 2763 of 2009 and GA No. 2864 of 2009 are allowed without costs. It is made clear that nothing in this order should be deemed to be of any effect as to the substance of the disputes between the parties and all observations should be confined to the context of the limited adjudication as to whether the award that is at the heart of the execution proceedings was capable of immediate implementation.
The award-holder will be entitled to the return of the original copy of the award filed here upon a copy thereof, duly certified by advocate-on-record, being furnished to be retained with the records.
Urgent certified photostat copies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(Sanjib Banerjee, J.) Later:
The award-holder prays for a stay of operation of the order which is declined.
(Sanjib Banerjee, J.)