1. Agreement for processing paddy into rice — Breach of contract — Arbitral award — Execution proceedings under Section 36, Arbitration and Conciliation Act. (Para 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 )
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2017 Supreme(SC) 655
SUPREME COURT OF INDIA
ABHAY MANOHAR SAPRE, R. BANUMATHI, JJ.
Punjab State Civil Supplies Corporation Ltd. & Another – Appellant(s)
Versus
M/s Atwal Rice & General Mills Rep. by its Partners – Respondent(s)
Civil Appeal No. 8943 of 2017 (Arising out of SLP (C) No. 1552 of 2015)
Decided On : 11-07-2017
Advocates appeared:
For the Appellants:J.S. Wad & Co., Advocates.
For the Respondent:Mohit Kumar Shah, Advocate.
For the Appellants:J.S. Wad & Co., Advocates.
For the Respondent:Mohit Kumar Shah, Advocate.
Important Points
IMPORTANT POINTS
Arbitral award has the status of a decree of the Civil Court.
Executing court has to execute the decree as it is, it cannot go behind the decree. It can undertake limited inquiry regarding jurisdictional issues but cannot hold any kind of factual inquiry which may have the effect of nullifying the decree itself.
Orders without application of mind would be perverse and unsustainable.
Payment against decreetal amount without following procedure u/r 2, Order XXI is no payment under the Code.
Arbitral award has the status of a decree of the Civil Court.
Executing court has to execute the decree as it is, it cannot go behind the decree. It can undertake limited inquiry regarding jurisdictional issues but cannot hold any kind of factual inquiry which may have the effect of nullifying the decree itself.
Orders without application of mind would be perverse and unsustainable.
Payment against decreetal amount without following procedure u/r 2, Order XXI is no payment under the Code.
Subject
Execution of Arbitral Award - Enforcement of Arbitral Award
Act Referred
Headnote
(a) Arbitration and Conciliation Act, 1996 – Sections 35 and 36 r/w Order XXI, Code of Civil Procedure, 1908 – Arbitral award has the status of a decree of the Civil Court. (Para 19)
(b) Arbitration and Conciliation Act, 1996 – Sections 35 and 36 r/w Order XXI, Code of Civil Procedure, 1908 – Arbitral award attaining finality – Becoming a decree of the court – Executing court has to execute the decree as it is – It cannot go behind the decree – It can undertake limited inquiry regarding jurisdictional issues – But cannot hold any kind of factual inquiry which may have the effect of nullifying the decree itself. (Para 21)
AIR 1954 SC 340 – Relied upon
© Administration of Justice – Orders without application of mind – Would be perverse and unsustainable – Instantly, none of the nine objections raised by respondent not even referred in the orders – Objections ought to be raised at the stage of section 34 – No such objection could be raised after the award attained finality – Moreover, objections being devoid of merit oght to be rejected u/s 47, CPC. (Para 27, 28, 29, 30, 37)
(d) Code of Civil Procedure, 1908 – Order XXI, Rules 1 and 2 – Arbitral tribunal awarding Rs. 10,24,847.15 – Respondent claiming to have paid Rs. 3,37,885 in full satisfaction of decreetal amount – Courts below accepting – Incomprehensible – Secondly, having not followed procedure u/r 2 the payment is no payment towards decreetal amount under the Code. (Para 36)
Facts of the case:
The appellant and Respondent No.1 entered into an agreement whereby the appellant was to give their paddy to the respondents, who were to process the paddy in their Rice Mill and the resultant rice produced after processing paddy were to be delivered to the Food Corporation of India (FCI) for and on behalf of the appellant by the respondents. The time was made the essence of the agreement.
The respondents failed to process and deliver the full quantity of rice in terms of agreement to the FCI much less within the time framed it caused money losses to the appellant in addition to sustaining the damages due to non-delivery of the rice. The appellant claimed, in terms of the agreement, (1) 1½ times economic cost of balance paddy, (2) the cost of balance bags and sales tax @ 4.4% thereon, besides TDS on income tax @ 2.34%, and (3) other recovery.
Parties went for arbitration.
The Arbitrator allowed the appellant's claim in part and accordingly passed a money award for Rs. 1024847.15 with interest payable at the rate of 21% w.e.f. 01.01.1999 till realization in appellant's favour and against the respondents.
The respondents’ challenge to the award was rejected and it attained finality.
The appellant filed Execution Petition for enforcement of the award against the respondents. The respondents raised certain factual objections which were upheld by the Executing court.
The execution application filed by the appellant was dismissed.
The appellant filed revision before the High Court which has been dismissed.
Finding of the Court:
The execution application filed by the appellant (decree holder) for execution of the award/decree dated 01.06.2001 was maintainable; no amount was paid by the respondents to the appellant pursuant to the award/decree so as to enable the executing Court to record its full satisfaction in accordance with the provisions of Order 21 Rules 1 and 2; and all objections raised by the respondents under Section 47 of the Code against the award/decree are liable to be rejected as being wholly devoid of any merits.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Challenge to award validity and interest calculations — Claim of full satisfaction of the decree through out-of-court payment. (Para 23 , 24 )
3. Executing court cannot go behind the decree or conduct factual inquiries into merits; out-of-court payments must be certified under Order 21 Rule 2, CPC. (Para 18 , 19 , 20 , 21 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 )
4. An executing court cannot go behind the decree to examine merits; payments made out of court must comply with Order 21 Rules 1 and 2, CPC. (Para 21 , 35 , 36 )
5. Appeal allowed — Impugned orders set aside — Executing court directed to recover the full awarded decretal amount. (Para 38 , 39 , 40 )
6. Can an executing court conduct a factual inquiry into the merits of an arbitral award?
No. An executing court must execute the decree as it is and cannot go behind the decree or hold factual inquiries that nullify it, except for limited jurisdictional issues that render the decree a nullity. (Para 21 , 31 )
7. When should objections regarding the merits or validity of an arbitral award be raised?
Such objections must be raised during the challenge to the award under Section 34 of the Arbitration and Conciliation Act; they cannot be raised during execution proceedings once the award attains finality. (Para 30 , 31 )
8. How must a payment made out of court by a judgment debtor be recognized for adjustment against a decretal sum?
Under Order 21 Rules 1 and 2 of the CPC, such payments must be certified by the Court. Without such certification, the payment cannot be recognized by the executing court for adjustment against the decretal amount. (Para 34 , 35 , 36 )
JUDGMENT
Abhay Manohar Sapre, J.
Leave granted.
2. This appeal is filed against the final judgment and order dated 17.10.2014 passed by the High Court of Punjab & Haryana at Chandigarh in Civil Revision No. 3602 of 2013 whereby the High Court dismissed the revision petition filed by the appellants herein and affirmed the order dated 03.11.2012 passed by Additional District Judge, Jalandhar in Execution SR. No. 37 of 2010 by which the execution petition relating to arbitration award dated 01.06.2001 was dismissed.
3. In order to appreciate the short controversy involved in this appeal, few relevant facts need mention infra.
4. The appellant is a State owned Corporation engaged in supply of civil commodities in the State of Punjab. Respondent No. 1 is a partnership firm whose partners are respondent Nos. 2 to 4. The firm is engaged in the business of running a rice Mill in Jalandhar.
5. On 01.01.1996, the appellant and Respondent No.1 entered into an agreement. In terms of this agreement, the appellant was to give their paddy to the respondents, who were to process the paddy in their Rice Mill and the resultant rice produced after processing paddy were to be delivered to the Food Corporation of India (FCI) for and on behalf of the appellant by the respondents. Since the agreement was in relation to processing of paddy and then supply of rice to public at large through FCI, the time was made the essence of the agreement so that the concerned departments would be able to supply the rice in time to public at large.
6. It is the case of the appellant that the appellant delivered 62944 bags weighing 40790 quintals of fine variety of paddy and 90303 bags weighing 58696.95 quintals of IR 8 variety of paddy to the respondents for processing and converting into Rice for being supplied to the FCI. The respondents duly acknowledged the receipt of paddy from the appellant on 27.11.1995 and 06.12.1995.
7. The respondents, however, could only process and deliver to the FCI 27950.75 quintals of fine variety rice and 22955.32 quintals of IR - 8 variety of rice till 30.06.1996. Thereafter the respondents could deliver 710.00 quintals of fine variety of rice and 14441.04.200 quintals of IR -8 variety of rice in 1075 bags after 30.06.1996.
8. Since the respondents failed to process and deliver the full quantity of rice in terms of agreement to the FCI much less within the time framed, it caused money losses to the appellant in addition to sustaining the damages due to non-delivery of the rice. According to the appellant, since the respondents committed breach of the agreement because they were not able to perform their part of the agreement, the appellant became entitled, in terms of the agreement, to recover from the respondents (1) 1½ times economic cost of balance paddy, (2) the cost of balance bags and sales tax @ 4.4% thereon, besides TDS on income tax @ 2.34%, and (3) other recovery.
9. The agreement contained an arbitration clause for resolving all disputes arising between the parties in relation to the agreement. The appellant accordingly gave notice to the respondents requesting them for referring the disputes, which had arisen between them to the Arbitrator. The respondents acceded to the appellant's request and accordingly the disputes were referred to the sole Arbitrator-one Mr. O. P. Garg. The arbitrator embarked upon the reference made to him by the parties. The parties filed their respective claims and adduced evidence in support of their stand.
10. On 01.06.2001, the Arbitrator delivered a reasoned award. The Arbitrator allowed the appellant's claim in part and accordingly passed a money award for Rs. 1024847.15 with interest payable at the rate of 21% w.e.f. 01.01.1999 till realization in appellant's favour and against the respondents.
11. The respondents, felt aggrieved of the award, filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") and questioned its legality and corre
