Decrees Cannot Be Turned into “Paper Tigers” by Permitting Post-Award Property Transfers: Supreme Court

The Supreme Court has reaffirmed that a person who purchases disputed property after the passing of an arbitral award cannot obstruct its attachment in execution proceedings.

A Bench of Justice Pankaj Mithal and Justice S.V.N. Bhatti warned that permitting such objections would derail the execution process, causing proceedings to get trapped “in an infinite loop and practically never get completed,” and reducing decrees to mere “paper tigers.”

The court emphasised its ruling in Jini Dhanrajgir v. Shibu Mathew (2023), that "winning a case is meaningless unless the winner actually gets the relief they sought,” and stressed that the provisions of the Code of Civil Procedure “must be employed to secure actual relief, not just a formal decree.”

The dispute arose from a 1998 sale agreement under which The Cotton Corporation of India Ltd. supplied cotton bales to a Coimbatore-based textile company. A dispute over payment led to arbitration in 1999.

On June 11, 2001, the arbitrator directed the company to pay over Rs. 26 lakh with 18 per cent interest and costs. The company challenged the award under Section 34 of the Arbitration and Conciliation Act, but the challenge was dismissed in 2013. No appeal followed, and the award became final.

Around the same time, the company defaulted on loans from ICICI Bank. The bank initiated proceedings under the SARFAESI Act and moved against its secured assets. As part of a tripartite arrangement between the bank, the company and the Managing Director's mother, a registered sale deed was executed in April 2015 in her favour.

She claimed that she had purchased the property for valid consideration, that she was the absolute owner, and that since the Section 34 challenge had already been dismissed, no litigation was pending on the date of purchase.

She argued that the award was merely a money decree and did not concern the immovable property. She contended that she could not be treated as a transferee pendente lite.

The decree holder responded that arbitration had commenced in 1999 and culminated in an award in 2001, and that the transfer in 2015 was clearly post-award. It also relied on her close relationship with the company and the non-production of the tripartite agreement preceding the sale to dispute her claim of absence of notice.

The Court noted that recovery proceedings under the SARFAESI Act are independent and do not shield the judgment debtor's property from other lawful claims.

Rejecting the appeal, the Court held that for the purposes of Order XXI Rule 102 of the Code of Civil Procedure, the relevant date is the institution of the proceedings and not merely the pendency of a challenge to the award.

It held that a judgment debtor cannot defeat a decree by alienating property after the decree is passed but before it is realised.

Finding that the purchaser had failed to establish absence of notice and that the arbitral award remained unsatisfied, the court dismissed the appeal. The top court directed the executing court to conclude the execution proceedings within two months.