Topic: Madhavpura Mercantile Cooperative Bank Limited v Shah Bhimani Chemicals Pvt Ltd

Madhavpura Mercantile Cooperative Bank Limited v Shah Bhimani Chemicals Pvt Ltd

The High Court Of Gujarat At Ahmedabad – Special Civil Application No. 4206 Of 2008 – With Civil Application No. 11857 Of 2008 - Special Civil Application No. 4206 Of 2008 - Approval And Signature: Honourable The Chief Justice Mr. K.S.Radhakrishnan Honourable, Mr.Justice Akil Kureshi - SCA/4206/2008 7/ 7

JUDGMENT

(Per : HONOURABLE THE CHIEF JUSTICE MR. K.S.RADHAKRISHNAN)

This writ petition has been preferred under Articles 226 and 227 of the Constitution of India, for a declaration that Section 36 of the Arbitration and Conciliation Act, 1996 is unconstitutional. Prayer has also been made for issuance of a writ of certiorari to quash order dated 2.11.2007 passed by the City Civil Court, rejecting request for execution of the arbitration award.

2.    Petitioner, a Mercantile Co-operative Bank, is having an award in its favour for Rs.17,95,81,261.75 paise. Bank filed Darkhast No. 339 of 2007 before the City Civil Court at Ahmedabad for enforcement of that award. In fact, respondents had given three cheques for a total amount of Rs. 2 lakhs towards payment of the amount due to the Bank. Cheques could not be encashed as by the time contesting respondents herein moved an application before the City Civil Court for setting aside the award under Section 34 of the Arbitration Conciliation Act, 1996 (for brevity ?Sthe Act??). By applying the principle laid down by the apex Court in National Aluminium Company Limited Vs. Pressteel and Fabrications Ltd. - AIR 2005 SC 1514, the Court took the view that since application for setting aside arbitration award was filed, the award becomes unexecutable till the application is finally disposed of. The City Civil Court therefore, passed an order to send back the petition to the Darkhast Department, and Department was directed to release the matter for further hearing only after final order is passed on the petition filed under Section 34 of the Act. Execution of award was suspended and Bank was directed to return cheques to the judgment-debtor.

3.    Learned

counsel for the Bank Mrs. Avani S. Mehta while challenging vires of Section 36 of the Act, submitted that principle laid down by the apex Court in the above mentioned decision would not apply to the facts of the present case. Learned counsel submitted that validity of Section 36 of the Act was not challenged before the apex Court and therefore, this Court should independently examine the scope and ambit of Section 36 of the Act, and the same be declared as unconstitutional. Learned counsel submitted that Section 36 of the Act was beyond the object and purpose sought to be achieved by the Act, which is considered as an alternative dispute redressal mechanism for speedy disposal of disputes. Learned counsel submitted that defeated party would deploy all conceivable and inconceivable procedure devices to delay the matter to the dis-advantage of a person who is favoured with an arbitration award. Learned counsel submitted that if the Court is not bestowed with appropriate powers to pass interim orders, that may ultimately defeat the execution of the award itself. Learned counsel also submitted that delay in execution of the award would cause serious injustice to the depositors of the bank and public interest would suffer.

4.    Senior Counsel Shri S.B. Vakil on the other hand contended that the Supreme Court while interpreting Section 36 of the Act, felt that the matter requires attention of the Parliament and unless and until Section 36 of the Act is amended, the award cannot be executed, if an application for setting aside the award is pending consideration. Learned counsel also submitted that similar provisions are also found in various legislations also and therefore, it is not unusual for the legislature to enact a provision like Section 36 of the Act.


The scope and ambit of Section 36 of the Act, directly came up for consideration of the apex Court in National Aluminium Co.Ltd. Vs. Pressteel & Fabrications Pvt.Ltd. (supra) and the provision was enlarged by the Supreme Court as follows:-

?S.....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 unexecutable. 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 Art. 142, 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 alternative dispute resolution system to which arbitration belongs. We do not find that there is a recommendation made by the concerned Ministry to the 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.??

6.    The Constitutional validity of Section 36 of the Act was, as such not challenged before the Supreme Court. However, Supreme Court expressed the opinion that even under Article 142, the Apex Court has to restrain itself from passing any order ignoring the statutory provision. We also find no ambiguity in Section 36 of the Act, which reads as follows:-

?S36.

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.??

7.    The language of Section 36 of the Act is clear and it specifically deals with enforcement of arbitration award. Section 34 deals with application for setting aside the arbitration award. Only where the time for making application to set aside the arbitral award under Section 34 of the Act has expired, or such an application has been rejected, the arbitral award can be enforced. True, arbitration award can be enforced under the Code of Civil Procedure in the same manner as if it was a decree of the Court. Under Section 151 of the Code of Civil Procedure, the Civil Court has got inherent power to make such orders as may be necessary to prevent the abuse of the process of Court. But the Court while exercising power under Section 151 of the Code, first has to consider whether exercise of such power is expressly prohibited by any other provisions of the Code of Civil Procedure and if there is no such prohibition, then the Court will consider whether such power should be exercised or not on the basis of facts mentioned in the application. In view of Section 36 of the Act placing an embargo on executing the arbitration award, the Civil Court cannot exercise powers under Section 151 of the Civil Procedure Code by issuing interim orders.

8.    Section 35 of the Arbitration and Conciliation Act, 1996 provides that subject to Part I of the Act, an arbitral award shall be final and binding on the parties and persons claiming under them. Section 36 of the Act makes an arbitral award enforceable under the Code of Civil Procedure in the same manner as if it were a decree of the Court once either 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 to been refused. Section 34, in turn, provides for certain grounds only on which an arbitral award can be set aside by the Court. Thus when an award of the Arbitrator is made enforceable through the Court machinery as if it were the decree of the Civil Court, the Legislature has in its wisdom found it appropriate to provide that such an enforcement can be made only after the time for setting aside the arbitral award under Section 34 has expired or such application having been made has been refused. This ensures that the person aggrieved by the award of the Arbitrator gets reasonable time to approach the Court for setting aside the award and if such an application is made, the same is disposed of by the Civil Court before the award can be enforced. Learned advocate for the petitioner has not been able to point out any unconstitutionality in the provision contained in Section 36. The provision is not shown to be outside the legislative competence of the Parliament or opposed to any of the constitutional provisions. The challenge to the constitutional validity of Section 36 of the Act, therefore, must be repelled.

9.    We also find no reason to interfere with the interim order dated 10.3.2008 passed by the Division Bench of this Court in Special Civil Application No. 4206 of 2008, directing the City Civil Court to dispose of Misc. Civil Application No. 567 of 2006 expeditiously. The respondent in no way said to have been aggrieved by such direction of early disposal of the application for setting aside the award. The direction was issued by the Court exercising powers under Article 226 and 227 of the Constitution of India. We find no illegality in that direction. Several factors may weigh with the Court for issuing such direction. The stake involved in the case is very high running into several crores of rupees and the public interest may also suffer if respondent takes any steps to defeat the ultimate execution of the award. We therefore find no reason to vary the interim order passed by the Division Bench.

10.    City Civil Court is therefore, directed to dispose of Misc. Civil Application No. 567 of 2006 as expeditiously as possible at any rate, on or before 31st December, 2008.

11.    With the aforesaid direction, petition stands disposed of.

12.    Consequently, Civil Application for vacating order dated 10.3.2008 also stands disposed of.

(K.S. Radhakrishnan, C.J.) - (Akil Kureshi, J.)