Arbitral Award Declared Unenforceable During Execution Proceedings Is Akin To Being Set Aside: Kerala High Court

The Kerala High Court has recently held that when an arbitral award is declared unenforceable during execution proceedings, the legal effect is akin to the award being set aside, and fresh arbitral proceedings can be initiated only after issuing a fresh notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996.

Closing a batch of arbitration requests as premature, a single bench of Justice S. Manu said that once an award is declared a nullity by a competent court, it loses its legal sanctity and the arbitral process must recommence in accordance with the statutory procedure governing the commencement of arbitration.

“Once the arbitral award is declared as unenforceable/nullity in the eye of law by a competent court, even during execution proceedings, the impact of such a finding is akin to that of setting aside an award. The outcome remains the same. The award loses its legal sanctity, becomes inoperative and loses all its force. Under such circumstances, also, declaration of law in M/s.Agro Indus Credits Limited would squarely apply. Therefore, if the execution court finds that an arbitral award is unenforceable and invalid for any reason, in order to initiate fresh arbitral proceedings, it is essential to make a fresh request/issue fresh notice as contemplated under Section 21 of the Act, 1996,” the Court observed.

The ruling came in arbitration requests filed by Manappuram Asset Finance Ltd. and PNY Sabha Finance Ltd. arising out of disputes under loan agreements containing arbitration clauses.

Invoking these clauses, arbitral proceedings were initiated and awards were passed by the arbitrators.

The petitioners then sought execution of the awards by approaching the civil courts concerned. The execution courts dismissed the execution petitions after holding that the arbitrators had been unilaterally appointed, rendering the awards unenforceable.

The declarations made by the execution courts were virtually to the effect that the awards were “non est in the eye of law.”

The Court referred to its earlier decision in Agro Indus Credits Limited v. Mangalan, which held that once an arbitration award is set aside or declared a nullity, to initiate fresh arbitral proceedings, it is indispensable to make a fresh request as contemplated under Section 21 of the Arbitration and Conciliation Act, 1996.

The Court found that after dismissal of the execution petitions, no fresh notices had been issued to the respondents.

“In all these cases, after dismissal of the Execution Petitions, no fresh notices were issued to the respondents. Therefore, these Arbitration Requests are premature,” the Court held.

Accordingly, the arbitration requests were closed. However, the Court clarified that it would be open to the petitioners to issue fresh notices to the respondents and seek recourse to the Court again if required.

For Petitioner (Manappuram Asset Finance Ltd.): Advocates C.K. Sreejith, Namitha Jyothish, Sujith K. Mohanan, Shaji Katayaprath, Kozhipurath Praseetha Gopalakrishnan.

For Petitioner (PNY Sabha Finance Ltd.): Advocates Akhil Alphonse G., Suresh G.