Objections under Section 47 CPC Sustainable Only Against Void or Jurisdictionally Defective Awards: Supreme Court

Introduction

In MMTC Limited v. Anglo American Metallurgical Coal Pvt. Ltd.1, the Supreme Court of India examined whether objections raised under Section 47 of the Code of Civil Procedure, 1908, could be used to challenge the enforcement of an arbitral award. The central question was whether allegations of fraud within a company could render an arbitral award unenforceable.

Facts

MMTC Limited and Anglo-American Metallurgical Coal Pvt. Ltd. entered into a Long-Term Agreement (LTA) on 7 March 2007 for the supply of coking coal, with multiple delivery periods and an option for MMTC to extend it by two years, which it exercised for the fifth delivery period (1 July 2008–30 June 2009). In 2012, Anglo initiated arbitration alleging MMTC’s failure to lift the contracted coal quantities and claimed damages based on the difference between the agreed price of USD 300 per metric tonne and the market price of USD 126. The arbitral tribunal, by majority, awarded Anglo USD 78.72 million with interest and costs in May 2014.

MMTC’s challenge under Section 34 of the Arbitration and Conciliation Act, 1996 was dismissed by a Single Judge, and although the Division Bench set aside the award, the Supreme Court restored it in December 2020, reducing only the interest rate on review. After MMTC deposited around ₹1,087 crores during enforcement proceedings, it lodged CBI complaints alleging collusion and inflated pricing. Relying on these claims of fraud, MMTC filed objections under Section 47 of the CPC to stop the enforcement of the arbitral award. However, the Delhi High Court rejected these objections and permitted Anglo to withdraw the awarded amount, which led MMTC to challenge the decision before the Supreme Court.

Analysis

The central question before the Supreme Court was whether MMTC’s objections under Section 47 of the CPC were maintainable after the arbitral award had already attained finality under the Arbitration Act.

The Court began by reiterating the principle that an objection under Section 47 CPC may be raised only in a narrow set of circumstances. Such objections are confined to the situations where the decree or award is a nullity, i.e. the decree or award is jurisdictional defect, or is otherwise void. The executing court, the Supreme Court observed, cannot reopen or re-examine already decided issues in the original proceedings. Borrowing from Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman2, the court underlined that an executing court cannot go behind the decree. Only decrees that are nullities, for example, where a court lacked inherent jurisdiction, can be challenged during execution.

MMTC’s primary argument was that its senior officers had colluded with Anglo’s representatives to set an inflated price for coal during the fifth delivery period, amounting to a fraud on MMTC and the public exchequer. The Court observed that this allegation was not a fraud on the arbitral tribunal or on the judicial process. More accurately, it was an assertion of internal wrongdoing at MMTC which was brought four years after the arbitration was concluded, and after the Supreme Court had upheld the award. The Court determined these allegations did not prejudice the arbitral process and did not render the award incapable of being executed.

The Court distinguished between fraud that vitiates the judicial process and fraud that affects only internal matters of a company. Only the former could render an award void. The Court stated that MMTC’s allegations, even if assumed to be true, did not amount to a fraud that undermined the jurisdiction or authority of the arbitral tribunal. The existence of internal collusion or breach of duty by company officials could not nullify the award.

The Court referred to S.P. Chengalvaraya Naidu v. Jagannath3 and Indian Bank v. Satyam Fibres (India) Pvt. Ltd.4, which held that fraud vitiates all judicial acts. However, it clarified that fraud must be proven with clear and cogent evidence. The registration of an FIR or preliminary investigation by the CBI did not meet that standard and could not be relied upon to reopen finalised adjudications.

The Court also discussed the “business judgment rule,” observing that decisions taken by company officials in commercial transactions must be evaluated based on what reasonable and competent officers could have done under the circumstances. The role of courts is not to substitute their judgment for that of business executives unless the decision falls outside the range of reasonableness. In MMTC’s case, there was no evidence that its officers acted in a manner no reasonable director would have.

The Court also stressed that Section 47 of the CPC cannot allow either a reopening of disputes or a new round of litigation following an award that is final. That is the rationale for Section 47 as observed in Rahul S. Shah v. Jinendra Kumar Gandhi5 which stated that the purpose of Section 47 is to promote the efficient and effective enforcement of decrees, not to revisit the substance of the substantive decision. Allowing such objections, like those raised by MMTC, would defeat one of the key objectives of the Arbitration and Conciliation Act.

After reviewing the case, the Court concluded that MMTC’s objections did not stem from any jurisdictional error or legal invalidity. The allegations of collusion and misconduct were seen as internal management issues within MMTC, which had no bearing on the arbitral tribunal’s authority or the fairness of the proceedings. The Court also noted that MMTC had been an active participant in the arbitration and subsequent court proceedings for nearly a decade without ever alleging fraud. It observed that MMTC’s sudden claims of having “discovered” fraud only after the conclusion of all appeals appeared to be a delaying tactic rather than a genuine revelation.

Judgment

The Supreme Court rejected the appeal by MMTC and made a ruling in favour of the Delhi High Court. The Court held that the objections raised under Section 47 of the CPC could not be entertained, making it clear that the arbitral award was valid and should be fully enforced. The Court also ordered that the decree holder, Anglo American Metallurgical Coal Pvt. Ltd., was entitled to withdraw the amount deposited accompanied by the accrued interest.

The Court reiterated that objections under Section 47 can be raised only if the decree or award is a nullity because of a fundamental lack of jurisdiction or a similar flaw in it. It reasoned that to allow MMTC’s objections would simply extend the litigation into matters which were finalized, which cannot contradict the principle of finality in arbitral enforcement. The alleged internal fraud in MMTC did not render the award void or un-enforceable.

Conclusion

In the case of MMTC Limited v. Anglo American Metallurgical Coal Pvt. Ltd., the Supreme Court of India considered challenges to objections under Section 47 of the Code of Civil Procedure, 1908 in resisting the enforcement of an arbitral award. The principal question for the court’s consideration was whether the claims of fraud in a corporation would render the arbitral award unenforceable.