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Whether and in what Manner the Declaratory Arbitral Awards are Enforceable in India

Updated: Jun 2

Ananya Pratap Singh, MCIArb, MSIArb M.Phil, University of Colombo (Present) LL.M (Int. Business Laws), National University of Singapore

There is no prohibition in the Arbitration & Conciliation Act, 1996 (‘Indian Arbitration Act’) prohibiting the Arbitral Tribunal from making a declaratory award.[1] Merely because an award is declaratory does not mean however that it is void for indefiniteness[2] and in turn incapable of execution.[3]


Form and Content of Valid Arbitral Award

To be valid, an award inter alia must satisfy two conditions, viz., (i) it must be certain and (ii) it must contain the decision. To be certain the award of the Arbitrator must be clear from the award along with nature and extent of duties it imposes on the parties. It must be clear as to what is required to be done and by whom. To comprise the decision, the award must be a complete decision in itself without leaving matters to be dealt with subsequently and must be clear, unambiguous and final in relation to the issues and claims with which it deals. [4]


In Lock v. Vulliamy.[5], it was observed that no precise form of words was necessary to constitute an award. It was sufficient if the language be as to show clearly that the arbitrator had come to a decision upon the points submitted to him. In case where an arbitrator had expressed a decisive opinion upon the matters submitted to him the award was good but where the arbitrator did not decide but merely suggested that one party should pay a certain amount to the other party, that would not constitute an expression of opinion that the party to whom the amount was allowed was entitled or had right to recover that amount.


The issue of whether declaratory awards are enforceable or not is no longer res integra in India. The issue came before the Supreme Court in Parkash Chand Khurana and Ors. vs. Harnam Singh and Ors.[6] wherein the award was assailed on the ground that the award is merely declaratory of the rights of the parties and is therefore inexecutable. In that case, Clause 7 of the award provided that on the happening of certain events the respondents ‘shall be entitled to take back the possession’. The Court, while refusing to upheld this contention observed that it is never a pre-condition of the executability of a decree that it must provide expressly that the party entitled to a relief under it must file an execution application for obtaining that relief. The tenor of the award shows that the arbitrator did not intend merely to declare the rights to the parties. It is a clear intendment of the award that if the appellants defaulted in discharging their obligations under the award, the respondents would be entitled to apply for and obtain possession of the property.

Similar issue was decided by the Calcutta High Court in Ramesh C. Vaish and Ors. vs. Banwarilal Jaipuria and Ors.[7]. In that case, the award contained a declaration that all the assets of Award Debtor and all its branches shall belong to Award Creditor. Adverting to this declaration, the court relied on the dictum of the Supreme Court in Parkash Chand Khurana and observed that it will not be correct to contend that there cannot be any declaratory award at all inasmuch as there may be cases where an award may be declaratory in nature. However, this case was decided while interpreting phraseology in the award and thus may not set precedent for all such awards as each awards needs to be dealt with on case by case basis.


Contingent Declaratory Awards

In past, there have been instances where the courts have refused to enforce a declaratory award due to their contingent nature. One such award was in question before the Punjab & Haryana High Court in Mool Chand Wasakhi Ram and Ors. vs. Tola Ram Suba Ram and Ors. [8]. The matter was decided in respect of the erstwhile Arbitration Act of 1940 (‘Old Act’) when the award creditor was required to approach the competent civil court to get judgment being passed in terms of the award before it could execute the decree drawn as per the judgment. A decree would follow pronouncement of such judgment and thus only the decree passed in terms judgment pronounced was executable in terms of the provisions of the Code of Civil Procedure, 1908 of India. Further, Section 32 of the Old Act bars the institution of suits concerning arbitration agreements or awards and provides that no arbitration agreement or award shall be set aside, amended, modified or in any way affected otherwise than as provided in the said Act.


In Mool Chand, the suit filed by the award creditor to give effect to the award was resisted by the award debtor on the ground that the suit to recover the amount in question is virtually a suit to enforce the award and, therefore, such a suit is barred under Section 32 of the Old Act. However, the Court was unimpressed with this argument and held that the award merged into the decree and it was the decree which had to be executed and the decree, in the very nature of things, being declaratory, could not be executed as declaratory decree needs no execution. In the new Indian Arbitration Act, the condition of filing a suit to execute an award has been done away and the award by its very nature is deemed to be a decree of competent court which is enforceable as per the provisions of the Civil Procedure Code, 1908.


Ambiguous Declaratory Awards

In North Eastern Electric Power Corporation Ltd. vs. Patel Engineering Ltd. and Ors.[9], one such declaratory award was first unsuccessfully assailed under Section 34 of the Indian Arbitration Act before the Additional Deputy Commissioner (Judicial), Shillong which resulted in further appeal under Section 37 of the Indian Arbitration Act before the High Court of Meghalaya.


In that case, the arbitrator declared in the award as follows “I have no hesitation in holding that the payment of extra lead is to be determined in accordance with Clause 33(ii)(a) for the item which has deviated being already available in the contract.” As apparent no crystallized sum was awarded in the aforesaid award by the arbitrator and the Award was only a declaratory award. The High Court took note of this fact and set aside the award while observing that the award in question is declaratory arbitral Awards and involved interpretation of Clauses 32(ii)(a) and 33(iii) of the Conditions of Contract and the arbitrator was required to interpret the same in accordance with the established rules of interpretation and in line with the fundamental policy of Indian law.


On the contrary, the Division Bench of the Bombay High Court in Michigan Engineers Pvt. Ltd. vs. Municipal Corporation of Greater Bombay[10] interpreted one such declaration/direction given by the arbitrator to be enforceable. In that case, the arbitrator has declared that certain items specified in tabular statement of the claimants are entitled to get additional payment at the enhanced/higher rates determined and specified by the arbitrator in later part of the award against each such item after adjusting the payment already made by the award debtor.

While upholding the award, the Bombay High Court reasoned that the award so passed by the Arbitrator was not beyond the terms of contract since as per the terms of the contract in that case the payment was subject to Arbitral Tribunal’s decision. Thus, it is not without jurisdiction and/or shows any illegal misconduct. The award passed, based upon the material placed on record, apart from the grant of reasonable compensation considering the nature of admitted work done under the supervision and control of the Award debtor. As the payment was subject to Arbitral Tribunal’s decision, this itself means it is permissible for the Arbitrator to award reasonable compensation, if the matter does not fall and cover by the special agreement. Therefore, the Court observed that even in absence of agreement in claimants rates and stipulated rates, if party agreed to refer the same issue for arbitral tribunal to adjudicate the decision of Arbitral Tribunal, binds all including the Award debtor.

At this juncture, it important to analyse the difference in the approach adopted by High Court of Meghalaya and Bombay High Court. In North Eastern, the award was devoid of any precise declaration as to what is to be awarded and it was simply mentioned that the payment of extra lead is to be determined in accordance with clauses of the contract. On the other hand, the award in question before the Bombay High Court in Michigan Engineers, categorically provided the additional payment the award creditor was entitled to in addition to being declaratory in nature. Thus, it infers that declaratory awards backed by proper reasoning and interpretation will pass the muster of a valid award and in turn may held to be enforceable.


Declaratory Awards Beyond the Scope of Reference

However, the questions ‘how’ and ‘what’ is to be awarded are not the only filters to be passed by such an award. In addition, the arbitrator should also be mindful of what is the precise scope of its reference in order to make sure that the arbitrator does not exceed its scope of authority or reference and thereby saving the award from falling prey to one of grounds to set aside the award. Precisely on this reason, one such award dealing with partition of family dispute has been set aside by the Delhi High Court in Padam Chand Jain vs. Hukam Chand Jain[11] since the said award was passed in favour of parties which were not parties to the reference or the dispute. Similarly, in [T]he Loot (India) Pvt. Ltd., and Ors. vs. Reliance Capital Limited and Ors.[12] a declaratory award which awarded an injunction which was not even prayed by the award holder was set aside by the Bombay High Court and held to be violative of the basic provisions of law, equity, the principle of natural justice and fair-play. Thus, it appears that a declaration must be within the four walls of what has been referred to the arbitrator and cannot be something beyond the scope of its authority/reference else such award may be held unsustainable as passed without jurisdiction.


However, setting aside of a declaratory award is not always the case since Section 34 court may also consider remanding it back to the arbitrator to rectify the incompleteness/ambiguity in the award. This was witnessed in the case of NHAI v. ITD Cementation India Limited[13] where the Arbitral Tribunal made a declaratory award only holding that the contractor is to be entitled to the amounts to be determined by NHAI. The Division Bench of the Delhi High Court was called upon to ascertain whether the award was bad and incomplete for the reason of not computing the amount due which the arbitrator had found due to the contractor in that case. Thus, in fact of that case, the Division Bench albeit upheld the award, remitted it back to the arbitrator only on the limited issue of quantification of the amount.


Conclusion

From the above judicial precedents, it is reasonable to infer that whilst declaratory awards are executable in India, the same requires to be final, clear and certain on what is required to be done and by whom without any ambiguity. At the outset, it appears to be a sine qua non that the declaration rendered by the Arbitrator must be within the limits of powers conferred upon him by the parties as anything declared or awarded beyond the specific agreement between the parties may fall foul to Section 34(2)(a)(iv) of the Indian Arbitration Act i.e. matters beyond the scope of submission to arbitration by parties. As the genesis of arbitrator’s powers to award a relief lies in party autonomy, the arbitrator cannot award anything beyond its scope of reference and resultantly any declaration made in excess to its scope of authority is untenable. Mere declaration without proper interpretation of either terms of contract or fundamental policy of Indian law may also render such an award unenforceable as being passed against the public policy of Indian law. However, if a declaratory/directional award provides precise figure which is awarded to the award creditor in addition to being declaratory may pass the muster of Section 34/37 of the Indian Arbitration Act.


Thus, the question arises how to execute/enforce a declaratory award/decree. A declaratory decree under the law declares the right and status of the parties and, as such, a decree cannot be put into execution. Order 21 Code of Civil Procedure, 1908 relates to execution of different decrees but it does not provide any mode for executing a declaratory decree. However, under Order 41 Rule 5 read with Section 151 Code of Civil Procedure the effect and operation of the declaratory decree can always be stayed by the appellate court. The law on principles of stay and its operation is plain and simple. If the appellate court grants a stay then the operation of the judgment and decree passed by the subordinate court shall remain stayed but if a stay has not been prayed for or stay has not been granted by the appellate court then in cases of executable decrees, the decrees can be executed and in cases of declaratory decrees the parties would be bound by the declaration so issued by the competent courts.[14]


The Award creditor in conjunction with the Arbitral tribunal may also consider taking remedy to Section 27(5) of Indian Arbitration Act, under which any non-compliance of an arbitral tribunal’s order or conduct amounting to contempt during the course of the arbitration proceedings can be referred to the appropriate court to be tried under the Contempt of Courts Act, 1971. Section 27(5) reads as under:-

(5) Persons failing to attend in accordance with such process, or making any other fault, or refusing to give their evidence, or guilty of any contempt to the arbitral tribunal during the conduct of arbitral proceedings, shall be subject to the like disadvantages, penalties and punishments by order of the Court on the representation of the arbitral tribunal as they would incur for the like offences is suits tried before the Court.


Recently, the Supreme Court of India in Alka Chandewar v. Shamshul Ishrar Khan[15] while interpreting Section 27(5) inter alia observed that on a literal reading of the above provision it is apparent that a person guilty of contempt during the pendency of proceedings is covered by section 27(5) and the extent and scope of this provision is not confined to cases where the orders pertaining to taking evidence are violated by the parties. The Supreme Court held that section 27(5) specifically provides that persons guilty of any contempt of the arbitral tribunal during the conduct of the arbitral proceedings is within its ken.

References:

[1] National Thermal Power Corporation Ltd. vs. Wig Brothers Builders and Engineers Ltd. 2009 (2) ARBLR 238 (Delhi)


[2] Gangadhar Laxman Deshpande vs. Dattatraya Laxman Deshpande 1937(39) BomLR159


[3] Raghavendra Ayyaji Desai vs. Gururao Raghavendra Desai I.L.R. (1913) 37 Bom. 442


[4] Union of India (UOI) vs. Punjab Communications Ltd. and Ors. 2003 (2) ArbLR 604 (HP)


[5] 39 R.R. 577 cited with approval in Municipal Corporation of Delhi vs. Fruit and Vegetable Merchants Union, Delhi and Ors. (1975) ILR 2 Delhi 429


[6] [1973] 3 SCR 802


[7] AIR 1999 Cal 339


[8] AIR 1963 P&H 387


[9] 2020 (1) GLT 482


[10] 2016 SCC OnLine Bom 2173


[11] 1998 (47) DRJ 802


[12] 2013 (3) ArbLR 397 (Bom)


[13] 2007 (4) ArbLR 555 (Delhi)


[14] Gopal Vat Industries vs. The State of Bihar and Ors. 2003(1)PLJR6


[15] 2017 SCC OnLine SC 758

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