An arbitral award is unenforceable if it arises from an agreement lacking an arbitration clause; specific incorporation of such clauses in contracts is crucial for validity.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 31(5) - Civil Procedure Code, 1908 - Order XXI Rule 41(2) and (3) - Award dated 11.01.2018 declared a nullity as it arose from an Exit MoU lacking an arbitration clause, rendering it unenforceable - Court emphasized the necessity of an arbitration clause incorporated through specific reference in contracts. (Paras 11, 12, 35)

(B) Jurisdiction of Arbitral Tribunal - Absence of an arbitration clause in the Exit MoU invalidates the Tribunal's jurisdiction and the resultant award. Court ruled that an arbitrator could not be appointed without an incorporated arbitration clause, thus rendering the award void. (Paras 20, 21, 36)

(C) Enforcement of Arbitration Awards - Issues concerning the enforceability of an arbitral award may be raised in execution proceedings, particularly if it is contended to be a nullity. The court observed that lack of adequate stamping can lead to challenges in enforcement, but claims must raise jurisdictional defects to be valid. (Paras 34, 36)

Facts of the case:
The application sought compliance from the judgment debtor regarding assets for satisfaction of an arbitral award. The respondent contested the award on grounds of lack of service and absence of an arbitration clause in the underlying MoU.

Findings of Court:
Court held that the award was unenforceable due to absence of an arbitration clause, thus rejecting the application and execution petition.

Issues: The court addressed whether the arbitral award lacked validity due to absence of an arbitration clause, whether the award could be questioned due to insufficient stamping, and implications of a prior Delhi High Court order on the proceedings.

Ratio Decidendi: The court determined that an arbitration clause must be specifically incorporated for enforceability; since the Exit MoU lacked such provisions, the award lacked jurisdictional validity, constituting a nullity.

Result: Application dismissed; Execution Petition rejected.

COMMON ORDER

Application No.1883 of 2025 has been filed by the applicant/ award holder seeking for a direction to the respondent/judgment debtor to file an affidavit stating the particulars of all the encumbrance free assets, both movable and immovable including the bank statements pertaining to the accounts in the names of the judgment debtor company and its directors and in case of disobedience, to proceed further against the Managing Director/Director of the judgment debtor by detaining in a civil prison under Order XXI Rule 41(3) of the Civil Procedure Code (CPC).

2. The main execution petition has been filed seeking to arrest and detain the directors of the judgment debtor - Mr.Sundeep Kabra and Mr.Banwari Lal Kabra in the civil prison till the satisfaction of the award amount.

3. Heard both.

4. The applicant is represented by the Interim Resolution Professional (IRP) appointed by the National Company Law Tribunal concerned under the Insolvency and Bankruptcy Code, 2016 .

5. The case of the applicant is as follows :

(i) An Arbitral Tribunal was constituted pursuant to the order dated 09.5.2016 passed by the Delhi High Court in Arbitration Petition No.343 of 2015. The claim against the respondent arose under the Exit Memorandum of Understanding (MoU) dated 11.3.2014. Pursuant to the reference made, the Arbitral Tribunal, after considering the claim made by both parties and the materials that were relied upon, passed an award dated 11.1.2018 directing the respondent to pay (i) a sum of Rs.85,21,630/- together with interest at the rate of 13% per annum from 11.3.2014 till the date of filing the claim petition on 20.7.2016; (ii) another sum of Rs.42,98,303/- towards letter of credit; and (iii) a further sum of Rs.3,31,330/- on account of EMD.

(ii) The award dated 11.1.2018 has become final and the respondent/judgment debtor failed to comply with the award. In view of the same, the applicant wanted to proceed against the respondent for recovery of money and for that purpose, the above execution petition has been filed before this Court. Later, the above application has been filed seeking for a direction to the respondent/judgment debtor to file an affidavit furnishing the particulars of all encumbrance free assets as provided under Order XXI Rule 41(2) of the CPC and in case of disobedience, to pass an order against the Managing Director/ Director of the respondent under Order XXI Rule 41(3) of the CPC.

6. The respondent initially filed a counter affidavit wherein they took a stand that a copy of the award was not served on the respondent/judgment debtor as required under Section 31 (5) of the Arbitration and Conciliation Act, 1996 (for short, the Act) and that the respondent came to know about passing of the award only on 06.6.2025 after receiving the notice in the above application.

7. An additional counter has been filed by the respondent to the following effect:

A petition under Section 34 of the Act was filed by the respondent before the Delhi High Court challenging the award dated 11.1.2018. But, the Delhi High Court disposed of the said petition on 28.8.2025 as not maintainable on the ground that the applicant was under the Corporate Insolvency Resolution Process (CIRP) by leaving open all the contentions to be raised by the respondent in the execution proceedings pending before this Court. The award is inadequately stamped and such an inadequate stamping of the arbitral award can be dealt with at the time of enforcement of the award. Therefore, the award becomes inexecutable unless the award is properly stamped as required under the Indian Stamp Act, 1899 .

8. In the initial counter that was filed before this Court, the respondent took a stand that they were willing to pay a sum of Rs.65 lakhs towards full and final settlement of the outstanding amount payable to the applicant/award holder and expressing their mind, they sent an e-mail on 25.6.2025 to the applicant. However, the applicant has not sent any reply to that.

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2025 Supreme(Online)(Mad) 77936

An arbitral award is unenforceable if it arises from an agreement lacking an arbitration clause; specific incorporation of such clauses in contracts is crucial for validity.

Cases Referred (3)