Government Officials Not Personally Liable For State Department's Unpaid Arbitral Award: Chhattisgarh High Court

The Chhattisgarh High Court has recently held that government officers cannot be made personally liable for an unpaid arbitral award merely because they are responsible for processing or arranging payment on behalf of their department.

Justice Ravindra Kumar Agrawal observed, “The liability created by the award cannot, in execution, be converted into a personal monetary liability of an officer merely because such officer happens to be responsible for processing or arranging payment on behalf of the department.”

"If the award-debtor is a State department or authority, the Executing Court may certainly require the competent authority to disclose the position regarding assets, funds, sanctions or the steps taken for satisfaction of the award and may adopt the modes of execution permissible under Order XXI CPC; however, it cannot, merely for securing payment of a money award, impose upon individual officers a liability which does not flow from the award or from any adjudication in which they were personally liable", It added.

The court was partly allowing a petition filed by the State of Chhattisgarh challenging directions issued by a Commercial Court during execution of a ₹160.30-crore arbitral award in favour of ECI-Keystone (JV).

The dispute arose from the construction of two-lane stretches of NH-63 (Old NH-16) in the Bastar district under the Government of India's Left Wing Extremism Scheme. The State Public Works Department was the executing agency.

After the contractor's additional claim was rejected, it invoked arbitration.

A sole arbitrator passed an ex parte award of ₹160.30 crore with interest on September 2, 2022. The State's challenge was dismissed as time-barred, and its appeal and special leave petition were subsequently rejected.

During execution, the Commercial Court directed senior PWD officers to appear personally and furnish affidavits on payment. It later threatened contempt proceedings and personal liability. The award-holder said the amount had risen to ₹222.06 crore, with interest accruing at about ₹4.5 lakh a day. The State challenged these directions before the High Court.

ECI-Keystone argued that the award had attained finality and that the State could not indefinitely delay payment by citing internal approvals and administrative procedures.

The High Court held that the Commercial Court could seek information about the department's funds, assets, sanctions and steps taken towards payment. However, it could not turn those proceedings into a means of imposing personal liability on individual officers.

“However, an affidavit filed by an officer explaining the administrative or financial position cannot, by itself, be treated as an undertaking creating a personal obligation to discharge the liability of the award-debtor,” the court observed.

“Equally, a statement made during the course of hearing by an officer regarding the possibility or expected timeframe of obtaining sanction cannot be converted into a personal decree against that officer.”, it added.

The court also held that contempt proceedings cannot be used as a substitute for execution of a money award. Section 36 of the Arbitration and Conciliation Act, 1996 provides for enforcement of an arbitral award in the same manner as a court decree, while Order XXI of the Code of Civil Procedure sets out the machinery for executing such decrees.

“What the Executing Court cannot do is to convert the execution proceedings into proceedings against individual officers who are not personally liable under the award or to employ contempt jurisdiction as a mechanism for execution of the money award,” the court ruled.

The High Court also said the Commercial Court's reference to the pending Supreme Court review petitions as “hoping against hope” was unnecessary. However, the pendency of those reviews did not itself stay the award.

It set aside the directions requiring personal affidavits or undertakings from the officers, threatening personal financial liability for accruing interest or contemplating contempt proceedings merely for non-payment.

The execution proceedings will continue.

For Petitioners (State of Chhattisgarh and the Superintending Engineer): Government Advocate Rahul Tamaskar, Deputy Government Advocate Ghanshyam Kashyap. 

For Respondent (ECI-Keystone (JV)): Advocates Parvesh Buttan and Pushkar Bhandarkar.