1 HIGH COURT OF MADHYA PRADESH : JABALPUR SINGLE BENCH: J.K. MAHESHWARI, J. ARBITRATION APPEAL NO.38 OF 2009 M/s Banco Construction Co. vs Union of India PRESENT : For appellant : Shri Arvind Dudawat, Advocate For respondent : Shri Anand Singh, Advocate -------------------------------------------------------------------------------------------------- ORDER (22/09/2011) Assailing the order dated 11.9.2009 passed by VI Additional District Judge, Bhopal in Execution Case (Arbitration) bearing No.561/05, the appellant has preferred this appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act'). By the said order request to suspend the execution proceedings till decision on the application of appellant under Section 34 of the Act has been rejected, and the said application has also been dismissed for the reason it is barred by res judicata. 2. The facts leading to this case are that an arbitral award was passed on 11.1.2002. Two applications under Section 34 of the Act to set aside the said award were filed within the prescribed period of limitation, one is by the appellant in the Court of VI Additional District Judge, Gwalior on 27.3.2002, and another is by the respondent in the Court of V Additional District Judge, Bhopal for awarding the interest. The application filed by the appellant has been 2 transmitted as per order dated 2.4.2004 passed by the Gwalior Bench in M.C.C. No.99/2004 to Bhopal. In the meantime appellant opposed the application of respondent and filed the reply. The Court while deciding the said application first observed that the ground so raised in reply by the appellant in additional pleas may be adjudicated while considering the application filed by him, but in later part of the order some observations were made reiterating the findings as recorded in arbitral award. On filing application for execution of award by respondent under Section 36 of the Act, objection has been filed by appellant inter alia contending that the award is unexecutable without deciding the application of Section 34 of the Act. But the objection so filed and the application, both have been rejected, by the order impugned and it is held that on account of rejection of application under Section 34 of the Act of the respondent, principle of res judicata to consider the application of appellant shall be applicable, however merit of their contention cannot be gone into. 3. Shri Arvind Dudawat, learned counsel appearing on behalf of the appellant referring Section 36 of the Act, contends that when an application to set aside the arbitral award has been filed prior to expiry of the period of limitation i.e. 90 days, the enforcement of the arbitral award until decision on the said application remain suspended, however trial Court committed an error in passing the order impugned in execution case. It is urged that the Apex Court in the case of National Aluminium Co. Ltd. Vs. Pressteel & Fabrications (P) Ltd and another, (2004) 1 SCC 540, has laid down the said principle of law. It is submitted by him that the application under Section 34 of the Act filed by the respondent for setting aside the arbitral award was only on the issue of not awarding the interest, while in the application of appellant various points were raised on merit inter alia challenging the award, however the order 3 rejecting the application of respondent would not operate as res judicata to decide the application filed by appellant, therefore the finding as recorded in the order impugned is unsustainable in law. Learned Judge committed an error by considering the application for setting aside the arbitral award along with the execution proceedings filed by the respondent. In fact, the application for setting aside the arbitral award ought to have been considered separately thereafter only the execution proceedings may be continued. In view of the foregoing, prayer is made to set aside the impugned order and to direct the Trial Court to decide the application under Section 34 of the Act filed by appellant prior to enforcement of award. 4. On the other hand Shri Anand Singh, learned counsel representing Union of India, contends that while deciding the application filed by the respondent under Section 34 of the Act vide order dated 26.11.2002, the similar objection has been decided, however the said order shall operate as res judicata in view of Section 11 of the Code of Civil Procedure and the application filed by the appellant under Section 34 of the Act is liable to be dismissed. It is contended by him that Trial Court has rightly rejected the application filed by appellant applying the principle of res judicata. It is further submitted that if the application filed by the appellant for setting aside the arbitral award was not entertainable, however consideration of such application along with the execution proceedings filed by respondent is merely an irregularity to which interference by this Court is not warranted. In view of the foregoing, it is urged that the order passed by the Trial Court is in accordance to law and the appeal filed by the appellant may be dismissed. 5. After having heard learned counsel appearing for the parties and on 4 perusal of the facts which are no more in dispute, the arbitral award was passed on 11.1.2002. The application filed under Section 34 by the appellant on 27.3.2002 in the Court of VI Additional District Judge Gwalior has been transferred to Bhopal as per order dated 2.4.2004 passed in M.C.C. No.99/2004 by the Gwalior Bench of this Court. In the meantime respondent has filed the application under Section 34 of the Act, on 28.2.2002 raising issue of not awarding the interest. The reply has been filed by the appellant supporting the award on the issue of not granting the interest, raising some additional pleas also. The Trial Court on 26.11.2002 decided the said application, and observed that the objections as raised by the appellant by way of additional plea may be decided while adjudicating application filed by him, and in the operative para finding has been recorded reiterating the findings as recorded in award. In such circumstances, the question arises for consideration whether such finding will have implication of principles of res judicata as per Section 11 of the Code of Civil Procedure in the facts of the present case and if it is not then the Trial Court was justified in rejecting the application and the objection regarding enforceability of the award by the order impugned. 6. To deal with the said issue, and the rival submission of the parties the relevant provisions of the Arbitration and Conciliation Act, 1996 is required to be taken note of. In Chapter VII of the Act the recourse against arbitral award is specified. On filing application by any of the party under Section 34, raising grounds specified in section (2)(a)(i) to (v) the arbitral award may be set aside, simultaneously on the grounds specified under sub-section (2) (b) (i) to (ii) of Section 34 of the Act the Court itself is having power to set aside the award. Thereafter Chapter VIII of the Act deals with finality and enforcement of arbitral award. As per Section 35 of the Act, the arbitral award shall be final and binding 5 on the parties, and Section 36 deals with the enforcement. In the present case, in the proceedings for enforcement of the award, the application filed by the appellant under Section 34 of the Act and the objection to suspend such proceeding has been decided, however provisions of Section 36 is relevant in the facts of the present case which is reproduced as under :- “36. Enforcement.- Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court. “ 7. In the case of National Aluminium Co. Ltd. (supra) the Apex Court while dealing the issue of pendency of application under Section 34 of the Act, and enforcement of the award as per Section 36 of the Act and on pressing the issue to find out some interim measure curtailing delay in arbitral proceedings to enforce the award during the pendency of such application exercising power under Article 142 of the Constitution, observed in para 10 as under:- “But then we noticed from the mandatory language of Section 34 of the 1996 Act, that an award, when challenged under Section 34 within the time stipulated therein, becomes unexecutable. There is no discretion left with the court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible. On facts of this case, there being no exceptional situation which would compel us to ignore such statutory 6 provisions, and to use our jurisdiction under Article 142, we restrain ourselves from passing any such order, as prayed for by the applicant.” 8. Bare reading of Section 36 of the Act makes it clear that after passing an arbitral award, if an application under Section 34 of the Act for setting aside the arbitral award has been filed prior to expiry of the period of limitation as specified under sub-section (3) of Section 34 of the Act, it is required to be adjudicated and after passing the order on such application, the award shall be enforced in the manner as if it were a decree of the civil court. Thus the implication of the language of Section 36 of the Act indicates the automatic suspension of the arbitral award if the application has been filed within the period of limitation. It is clear that such award becomes unexecutable on filing the application under Section 34 of the Act by any of the parties or on taking cognizance by court. In view of the foregoing, during pendency of the proceedings under Section 34 of the Act no discretion left with the Court to proceed on an application under Section 36 of the Act, if any, filed for enforcement of the award. 9. In the present case, after passing the arbitral award two applications were filed under Section 34 of the Act, one is by the respondent on the issue of not granting the interest and other is by the appellant assailing the merits of the award. The application filed by the respondent was rejected on 26.11.2002 thereafter the application filed by the appellant has been transmitted by the High Court from Gwalior to Bhopal as per order dated 02.04.2004 passed in M.C.C. No. 99/2004. The execution case bears No. 561/2005 however it appears that the execution proceedings were filed during the pendency of the application under Section 34 of the Act filed by the appellant and after its 7 transmission to Bhopal which remained pending. As per language Section 36 of the Act, it is apparent that if an application under Section 34 of the Act is filed within the period of limitation, enforcement of the arbitral award cannot be continued because it remains unexecutable till decision on the said application. Thus, it was the bounden duty of the Court to first decide the application under Section 34 of the Act filed by the appellant, thereafter only the execution proceedings initiated by the respondent can be proceeded with. In the present case the Trial Court has not taken the said recourse of the law on the contrary on filing an application by the appellant to suspend the execution proceedings, it is rejected and the application for setting aside the arbitral award has also been rejected in the execution proceedings. The said recourse can not be held justifiable, and as per procedure known to law. 10. It is further seen that the Trial Court by the order impugned passed in the execution case rejected the application for setting aside the arbitral award filed by the appellant for the reason that such an application is barred by res judicata. The principle of res judicata attracts only when the matter directly and substantially in issue in the former suit between the same parties which has been heard and finally decided by such Court. In this case the parties are the same and after passing the award, application filed by the respondent under Section 34 of the Act has been decided affirming the award on an issue of not granting interest, while in the application of the appellant merit of the award has been assailed on various grounds other than the issue of interest. Thus, the fact in issue in the application filed by the appellant is different and has not been heard and finally decided by the Court. It is not out of place to mention that the Court while deciding the application of respondent in the order observed that the objections raised by the appellant shall be considered while deciding his 8 application. In the said facts, principle of res judicata is having no application in the present case. 11. It is to be observed that Section 34 of the Act empowers any of the party to take recourse, against arbitral award by applying to court on the ground as specified under Section 34(2) (a) (i) to (v) and the Court may itself set aside the award as per grounds specified in Section 34 (2)(b) (i) & (ii) of the Act. In the facts of this case, the issues raised by the appellant to set aside the arbitral award are different than the issue raised by the respondent in his application, however, the trial Court committed an error in rejecting the application of appellant applying the principle of res judicata. Till decision on the such application the arbitral award becomes unexecutable by legal fiction, and the effect thereof is that the arbitral award shall remain suspended till adjudication of the application for setting aside such award. Thus the application for setting aside the arbitral award is required to be decided first, then only the execution proceedings can be proceeded with. The Trial Court with utmost haste has rejected the application of the appellant under Section 34 of the Act in the execution case, and also rejected the objection to not to enforce the award, applying the procedure not recognized by law. In view of the foregoing discussions, the order impugned is hereby set aside. 12. Consequently, this appeal succeeds and is hereby allowed. The order impugned dated 11.9.2009 passed by VI Additional District Judge, Bhopal in Execution Case (Arbitration) No.561/05 is set aside. The Trial Court is directed to decide the application under Section 34 of the Act filed by appellant on merit, till then arbitral award shall be unexecutable, as per scheme of the Act. It is seen that the proceeding under Sections 34 of the Act is pending since 9 last more than 9 years, however it is directed that the Trial Court shall proceed to decide such application now within a period of six months from the date of production of the certified copy of this order. In the facts and circumstances of the case, parties are directed to bear their own costs. (J.K. Maheshwari) Judge DV 10