Case Summary: Sundaram Finance Limited v. S.M. Thangaraj & Ors.
Madras High Court, C.R.P. No. 5197 of 2024
Date of Judgment: 27-01-2025
Presiding Judge: Justice N. Sathish Kumar
Facts of the Case:
- M/s. Sundaram Finance Limited (petitioner) obtained an arbitral award in Arbitration Case No. CP No.RJ/SF/302/2017 about a loan dispute.
- The award directed the respondents (borrowers) to pay ₹1,68,047.26 with interest and more costs.
- The petitioner initiated execution proceedings(E.P. No. 640 of 2018) before the II Additional Subordinate Judge, Coimbatore.
- The executing court suo motu dismissed the Execution Petition on 14-11-2024, holding that the arbitrator was unilaterally appointed and thus lacked jurisdiction, rendering the award unenforceable.
- Aggrieved, Sundaram Finance filed a revision petition before the Madras High Court under Section 115 of the CPC, 1908.
Issues for Consideration:
1. Can an executing court dismiss an Execution Petition suo motu on the ground that the arbitrator was unilaterally appointed?
2. Does a party’s failure to challenge an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 amount to a waiver of objections?
3. Does the ineligibility of an arbitrator under Section 12(5) render the award void ab initio and unenforceable?
Court's Observations & Findings:
- Executing Court’s Limited Powers:
- The High Court held that an executing court cannot go behind the decree and does not have the jurisdiction to examine the validity of an arbitral award.
- Any challenge to an arbitral award must be made only through an application under Section 34 of the Arbitration and Conciliation Act, 1996.
- If no such challenge is made within the prescribed period, the award becomes final and binding under Section 36 of the Act.
- Unilateral Appointment of Arbitrator & Waiver under Section 12(5):
- While the Supreme Court in Perkins Eastman Architects DPC v. HSCC (India) Ltd. and TRF Ltd. v. Energo Engineering Projects Ltd. ruled that unilateral appointment of an arbitrator is invalid, this challenge must be raised before the appropriate forum.
- The High Court cited the proviso to Section 12(5), which allows parties to waive the objection to an arbitrator’s ineligibility through a written agreement.
- Since the respondents did not challenge the appointment under Section 34, their silence amounts to an implied waiver, of the objection.
- Precedents Cited:
- Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman (1970) 1 SCC 670 – Executing court cannot question the validity of a decree.
- Kotak Mahindra Bank Ltd. v. Shalibhadra Cottrade Pvt. Ltd. (2024) – Ineligibility of an arbitrator does not automatically render the award null and void.
- Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) (2024) – Prospective application of law regarding unilateral appointments in arbitration.
Final Judgment:
- The High Court set aside the executing court’s order dismissing the Execution Petition.
- It directed that executing courts must not suo motu dismiss execution petitionssolely on the ground that the arbitrator was unilaterally appointed.
- The execution of the arbitral award was restored, allowing Sundaram Finance to recover the dues as per the award.
KeyTakeaways:
1. An executing court cannot go beyond the decree or refuse execution on the ground that the arbitrator was unilaterally appointed.
2. Challenges to an arbitral award must be made through Section 34 within the statutory period; failure to do so results in waiver of objections.
3. Unilateral appointment does not automatically renderan arbitral award null and void, especially when the award has not been challenged under the proper legal provisions.
This judgment reinforces the limited scope of executing courts and upholds the principle that execution courts must enforce arbitral awards unless set aside through appropriate legal remedies.
