Allahabad High Court Rules Commercial Court Can’t Reject Execution Application Filed Where Judgment Debtor Resides on Grounds of Lack of Territorial Jurisdiction

Posted On - 27 July, 2023 • By - King Stubb & Kasiva

In a significant development, the Allahabad High Court recently delivered a significant ruling concerning the execution of arbitral awards in Commercial Courts. The court unequivocally declared that a Commercial Court cannot dismiss an execution application solely based on the lack of territorial jurisdiction when the judgment debtor resides within that jurisdiction. This landmark decision was reached in the case of M/S Imagine Fashion Apparels Pvt. Ltd. v Presiding Officer Commercial Court and Anr.[1]

The judgment, delivered by a bench led by Justice Rohit Ranjan Agarwal, highlights the well-established legal principles governing the execution of arbitral awards, as elucidated by the Supreme Court in the case of Sundaram Finance Limited[2]. It emphasizes that Section 36 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), explicitly stipulates the applicability of the provisions of the Code of Civil Procedure, 1908 (“CPC”), for enforcing the award, treating it as a decree. Thus, the execution application filed by the petitioner in the jurisdiction where respondent No. 2 resides falls well within the territorial jurisdiction as provided under the Act.

Brief Background of the Case:

M/S Imagine Fashion Apparels Pvt. Ltd., an MSME located in Jhansi and engaged in the business of ready-made garments, supplied goods to Respondent No. 2, who also resides in Jhansi, thereby giving rise to a dispute between the parties.

To address this dispute, the Petitioner filed a claim petition for arbitration under Section 18 of the MSMED Act, 2006, with the Facilitation Council in Kanpur, seeking the principal amount along with interest. The Facilitation Council in Kanpur issued an Award, ordering the judgment debtor to pay the amount claimed by the Petitioner. As no objections or applications were filed under Section 34 of the Arbitration Act, the award acquired the status of a legally binding decision.

Following the finalization of the award, the Petitioner filed an execution application under Section 36 of the Arbitration Act before the Commercial Court in Jhansi, which is the jurisdiction where the Respondent resides. However, despite the award being granted by the MSME Facilitation Council in Kanpur, the Commercial Court erroneously held that it lacked territorial jurisdiction to adjudicate the matter due to the initial filing of the claim petition in Jhansi.

Consequently, the Commercial Court issued an order under Order VII Rule 10 of the CPC, directing the Petitioner to withdraw the execution application and file it before the Kanpur Court within seven days. As the Petitioner failed to comply within the given timeframe, the Commercial Court dismissed the execution case, invoking the provisions of Order VII Rule 11(d) and (f) of the CPC.

Challenging these decisions, the Petitioner approached the High Court under Article 227 of the Indian Constitution, seeking relief from the orders issued.

Observations made by the Hon’ble Allahabad High Court:

The Allahabad High Court delivered its verdict on the execution application filed in a commercial court, referring to the Supreme Court’s ruling in the case of Sundaram Finance Limited vs. Abdul Samad & Anr., (2018) 3 SCC 622. The Supreme Court’s decision established that Section 36 of the Arbitration Act allows for the execution of an arbitral award in the same manner as a decree under the Civil Procedure Code (CPC).

Based on this precedent, the High Court clarified that the execution proceedings for enforcing an arbitral award can be initiated anywhere in the country, as long as it falls within the jurisdiction where a CPC decree can be executed. The Court emphasized that there is no requirement to transfer the decree from the court that originally had jurisdiction over the arbitral proceedings. The High Court deemed the Commercial Court’s decision to return the execution application to the court in Kanpur, where the Facilitation Council issued the award, to be contrary to the Supreme Court’s ruling.

Regarding the issue of filing execution proceedings where the judgment debtor resides, the High Court held that such filing by the petitioner before the Commercial Court was in accordance with Section 36 of the Arbitration Act and the Supreme Court’s ruling in the Sundaram Finance case. The Court concluded that the Commercial Court’s refusal to entertain the execution application was entirely erroneous.

Consequently, the High Court set aside the previous orders and directed the Commercial Court in Jhansi to reinstate the execution case and proceed with the matter in accordance with the law.

[1] Neutral Citation No. – 2023: AHC:109515

[2] Sundaram Finance Limited vs. Abdul Samad & Anr., (2018) 3 SCC 622