26/05/2020
The Supreme Court of India decided "Firm Rajasthan Udyog v. Hindustan Engineering & Industries Ltd.", a case concerning the powers of courts executing arbitral awards, and involving other issues of civil procedure, contract law and registration. Here is a brief note on the same.
Firm Rajasthan Udyog & Ors. v. Hindustan Engineering & Industries Ltd.
1. In 1966, Appellant (“A”) purchased about 100 acres of land. In 1973, acquisition proceedings were commenced, for the purpose of putting this land to Respondent (“R”)’s use. Between 1974 and 1994, A challenged the acquisition, and succeeded. However, in 1980, an arrangement was arrived at under which A agreed that it would sell about 48 acres of the land to R, at a price to be determined by arbitration. The reference was specific and required the arbitrator only to “determine compensation for the land”. Upon the making of the award, R was given the option either to accept the figure decided (whereupon a sale deed had to be executed), or to decline payment (in which event it would not be entitled to the land at all). It was to exercise this option within 45 days.
2. On 9 June 1985, the arbitrator made an award determining a price of Rs.12,18,700/-. The award was then “filed” under the Arbitration Act, 1940, for being made the “rule of the court”. R filed objections to it, and after a protracted fight the award was finally upheld in 1994. R then filed an application to “execute” the award, asking that A be compelled to conclude a sale. That application was allowed. A, however, took that order in appeal. During the pendency of this appeal, R also filed a civil suit seeking specific performance of the arrangement of 1980, but withdrew the same unconditionally, in 2006.
3. In 2016, A’s appeal (against the order for ex*****on of the award) was rejected and that rejection became the subject matter of appeal before the Apex Court.
4. A argued that both the reference to the arbitrator, and his ultimate award, were restricted to a determination of price. It was only after R “accepted” this price (and that within 45 days of the award) that a concluded contract for sale could be said to have come into existence. Otherwise, the passing of the award did not give R any “enforceable right” to buy the land at the price determined. As such, the executing court was in error in directing A to complete the sale. A also pointed to the unconditional withdrawal of R’s suit for specific performance, urging that this was, in its way, a recognition that a concluded contract had not yet come into being between the parties. It was lastly argued that were the award to be held executable, it would amount to a creation or recognition of rights in immovable property, and thus be subject to compulsory registration. Yet, neither the award nor the (written) arrangement of 1980, were registered. These, therefore, could not be looked at to conclude that R had any enforceable right to compel A to sell its land.
5. R, on the other hand, contended that by the 1980 arrangement, parties had struck a bargain for A to sell its land at the price determined by the arbitrator. Once a such an award was made, and upon its attaining finality, the executing court, in essence, did “substantial justice” by directing that a sale be effected. A had not itself questioned the 1980 arrangement as invalid [say, under Section 23 of the Contract Act (as one which was either unlawful, forbidden, fraudulent or opposed to public policy)] and should not be allowed to wriggle out of it on some pretextual basis. R further urged that A appeared motivated only by the rise in land values over the decades and that the executing court rightly saw through this. As for its withdrawing its own suit for specific performance, R claimed that this was done on legal advice, and because its application for ex*****on was, in any case, already pending.
6. Upholding A’s contentions in full, the Supreme Court held that;
(a) The terms of the reference to arbitration were specific and limited, only to determine a price for the land. The award passed on that reference, therefore, did nothing more.
(b) Under the 1980 arrangement, R did have an option to accept the price determined by the arbitrator and in which event, R could have, after accepting such price, sought to enforce that arrangement in a regular proceeding; but it could not do so in the guise of seeking “ex*****on” of the award (restricted as it was to deciding the price alone).
(c) The Court then referred to its prior decisions in Mangilal Sharma [(1998) 2 SCC 510], J&K Bank [(2004) 10 SCC 568], Gurdev Singh [(2007) 14 SCC 173] and Coal Linker [(2009) 9 SCC 491], and reaffirmed the principle that an award or decree may be executed only to the extent of what is actually awarded / decreed under it. The award in this case, being only declaratory in character, an executing court had no role to play and R’s remedy lay in filing an ordinary suit. R did in fact file such a suit (for specific performance) and it was there alone that it could have sought to enforce the arrangement for concluding a sale. However, it withdrew that suit unconditionally, and with it, “the matter with regard to the ex*****on of the sale deed in terms of the (1980 arrangement) came to an end.” R had, in other words, “abandoned its claim of ex*****on of the sale deed”. It could not then, independently, seek the same relief by asking a court to execute an award merely “declaratory of the price of the land.”
(d) The Court also observed that, upon the award being made, R had two options – it could either accept it and then enforce the further portion of the 1980 arrangement, viz. ex*****on of a sale deed; or it could reject the award and lose its right to have the sale concluded. There was, thus, also “no certainty” in the 1980 arrangement. That would only crystallize once R opted to accept the award price and thereupon sought enforcement of A’s (otherwise contingent) obligation to complete the sale.
(e) For an executing court to nonetheless compel A to complete a sale was a “relief…outside the realm of law”, since the thing it purported to enforce (the arbitral award) “did not contemplate the transfer of land” to R at all.
(f) The Court also upheld A’s argument on registration. Relying on the decision in Ramesh Kumar v. Furu Ram [(2011) 8 SCC 613], it held that even an arbitral award, were it to purport to create / declare a right, title or interest in property (which this award did not), the executing court may yet have been unable to act upon it absent its due registration.
(g) Lastly, and disposing of another of R’s contentions, the Court held that is was not a case where the executing court “(went) behind the decree” or “construed” any ambiguity in it “for doing complete justice” [unlike in cases cited for R (referred to in para 43 of the Court’s opinion)]. The lower court here had, instead, changed “the entire nature of the case (and granted) what was not awarded in favour of the respondent” in the first place. The award in the matter “was not a conclusive contract between the parties” and was incapable of being executed.
7. Although for these reasons the Court set aside the orders below, only to give a quietus to the dispute, it directed A to pay to R a sum of Rs.60,00,000/-, “towards the cost of litigation and other expenses incurred by (it).
