ENFORCEMENT OF ARBITRAL AWARD AS RULE OF COURT IN PAKISTAN THROUGH COURT OF LAW

By
MALIK M. HAFEEZ
(LLM. Candidate of PhD)

1. Introduction

Award means decision or determination rendered by Arbitrators upon a controversy submitted by the parties. Enforcement of arbitral award means that the execution of award accordingly.[1] Apart from the legal requirements, the execution of an award requires some little care in order to the formalities required by arbitration agreement. It has already been pointed out that any directions contained in the arbitration agreements as to the execution of the award should be carefully followed.[2] Unless otherwise agreed by the parties, an award by the tribunal made pursuant to an arbitration agreement is final and binding both on the parties and on any persons claiming through or under them. This means that, subject to any contrary agreement by the parties and to the right of challenge, once made the award is immediately enforceable. Many awards are implemented without the need for further steps to be taken against the losing party, but if a party refuses to comply with the award, enforcement proceedings will be necessary.[3]

2. Judgment in terms of Award:

Under section 15(1) of the Arbitration Act of 1899, the award was not incorporated into a decree but was enforceable as such, as if it was a decree of a Court. The present section makes a change inasmuch as the Court will now first pronounce a judgment in accordance with the award and upon the judgment the Court pronounces a decree. The English Law is also changed in this respect by the Act of 1934 (vide section 10). Though an award was executable as decree of a Court, the Court had no power under section 15 of the Act of 1899 to pass a decree on the basis of the award. But according to the present section i.e. Section 17 of the Arbitration Act, 1940 where the Court thinks that there is no need to remit the award for reconsideration or to set aside the award, the Court must pronounce judgment according to the terms of award subject to the expiry of limitation in application to set aside the award. An award under the Act has to be followed by a judgment and decree - without this procedure, the award cannot be enforced by the court of law.[4]

The provisions of section 17 of the Arbitration Act, 1940 are mandatory and the Court will have no jurisdiction to pass a decree in terms of the award without complying with the provisions of this section. Where there is no valid submission, there could be no award on which the Court could make a decree and if it is so made, it is based on something, which is not an award. Under this section the Court is to wait at least for a period of thirty days from the date of the service of notice of filing of the award before pronouncing judgment on the award. But such a judgment can be passed within the prescribed period if the parties so desired. An objection that there is no valid reference does not come within the scope of section 17 or section 30. Where no appeal has been filed against an order rejecting objection to an award but only against the final judgment and decree the award becomes final and the judgment can only by challenged on the grounds contained in section 17 of the Act. Where the application for filing of award and making it rule of Court has been made, the Court can make award a rule of Court under section 17 after dismissal of objections to the validity of the award. Award not made a rule of the Court would not operate to create any right, title or interest in the property, which is subject matter of the award.[5]

The following conditions must be complied with before the Court may pronounce judgment upon the award and before passing a decree: (1) The Court must have given notice to the parties of the filing of the award; (2) time for making an application to set aside the award must have expired or if such application has been made it must have been refused; (3) the Court must have seen that there was no cause to remit or set aside the award. All these conditions are cumulative and must be fully satisfied.[6]

Court’s judgment, upon the award filed with, does not depend upon the objections filed by the parties to the award. The law provides independent responsibility to the Court to examine the award and satisfy itself about the following aspects before passing a decree in terms of the award. This law confers suo moto powers, rather imposes duty, upon the Court to: (a) Find if there is any cause for remitting or setting aside the award, and, (b) decide about the competency of reference and the validity of the resulting award. (c) Correct or modify the award under its limited jurisdiction. In Pakistan, in case of M/s Awan Industries Ltd. v. Executive Engineer, Lined Channel Division,[7] the court held that the provisions of section 17 of the Arbitration Act impose a duty on Courts to see that there is no cause to remit the award or any of the matters referred to arbitration for reconsideration or, set aside the award. This can be done by the Court suo moto, apart from the application, which a party may make for either remission of the award or its reversal. Where, therefore, an award is found to be nullity because of the invalidity of the arbitration agreement or for any other reason or the award is prima facie illegal and not fit to be maintained, the Court has power under section 17 of the Act to set it aside without waiting for objection to award being filed or without considering any application for setting it aside, if there be any, and irrespective of the question whether the objection, if filed, was not within time. In India, in the case of Deo Narain Singh v. Siabar Singh[8] the Court held that the mere fact that an objection is not filed by any of the parties to the award, it does not altogether absolve the Court from its responsibility of deciding that there was a competent reference, and, the award was a valid award on the face of it. These are the matters, the Court observed, which really go to the root of the award itself and irrespective of any objection by the parties, these matters have to be decided by the Court before a decree can be passed on the basis of the award.

Delay or omission on the part of the aggrieved party to file his objections within the statutory period of 30 days does not deprive the Court from exercising its limited jurisdiction to correct, modify or amend the award under limited circumstances. The Supreme Court of Pakistan, in case of Ascon Engineers (Pvt.) Ltd v. Province of Punjab, [9] held that there was no cavil with the proposition that objections to the award must be filed within 30 days from the date of notice under Article 158 of the Limitation Act. For instance, there is no objection to award but the Court seized with the matter i.e. Appellate Court exercising jurisdiction under section 30 of the Act or revisional jurisdiction under section 115, CPC has noticed that there is error apparent on the face of record, or award suffered from infirmity or legal defect and an error can be seen without substituting the opinion and in that case, the court can exercise jurisdiction to remove such defect or infirmity. It may also be noted that although the Appellate Court has very limited jurisdiction to interfere in the award but such limited jurisdiction can be exercised primarily with a view to save the award from remitting to the Arbitrator once again so the parties may not suffer rigors of proceedings either before the arbitrators or the Court.

The parties are at liberty to enter upon a compromise between them on matters decided by the award or outside it. Such a compromise can be reached even after the award has been filed in the Court, but before a decree in terms of the award has been passed. The compromise agreement between the parties shall substitute the award. Such a compromise may include matters that are: (a) Either not separable from the matters upon which the award is given; (b) or, separable from the matters on which the award is given. Resultantly, the award to that extent would be modified by the compromise reached between the parties and in that case the Court would pass a decree in terms of the modified award and not in terms of the original award made by the arbitrator(s) or umpire.

The Supreme Court of India, in case of Munshi Ram v. Banwari Lal & another,[10] held that if the parties were dissatisfied with the award and wanted to substitute it by a compromise involving matters alien to the original dispute which were inseparable, the court might supersede the submission, and left the parties to work out their agreement in accordance with the law outside the Arbitration Act. In such circumstances the new compromise itself may furnish a very good ground for superseding the reference and thus revoking the award. Where the parties do not throw the award overboard but modify it in its operation, the award, in so far as it is not altered, still remains operative and continues to bind the parties and cannot be revoked. In that contingency, the Court may follow one of the two modes indicated by the Privy Council, in Hemanta Kumari’s case.[11] As follows:

“If the whole of the subject matter of the compromise is within the reference, the Court may include in the operative part of the decree the award as modified; but if it is not so, the Court may confine the operative part of the decree to the award as far as accepted and the other terms of the settlement which form a part thereof, if severable and within the original reference, in a schedule to the decree. The portion included in the operative part would be executable, but the agreement included in the schedule would be enforceable as a contract, of which the evidence would be the decree; the power to record such an agreement and to make it a part of the decree, whether by including it in the operative portion or in the schedule, will follow from the application of the Code of Civil Procedure by section 41 of the Arbitration Act and also section 141 of the Code; In a reference without the intervention of the Court, the Court has no general jurisdiction over the subject-matter as in a reference in a pending suit. If the submission is superseded in the former, there is nothing more the Court can do, but in the latter, the Court must proceed with the suit before it and give effect to the compromise in the suit according to law.”

3. How an Award is made a Rule of Court?

After filing the award before the Court of competent jurisdiction for purpose of making it a rule of Court, the Court issues the notice to the parties to the effect that the award has been filed before the Court. If any party files any objection against the award before the Court, the court decides these objections accordingly, otherwise pass the decree in terms of award. In Pakistan, Article 178 of the law of Limitation[12] allows a period of 90 days for filing the award in the Court. These 90 days are to be counted from the notice of making the award. In case of Haji Abdullah v. S. Iqbal Naseem, the award was signed on 18.3.1985 and filed by the Arbitrator on 6.8.1985, obviously after 4 months and 22 days. The Court rejects the objection that the award has been filed after the expiry of time limit prescribed by the Limitation Act. Elaborating this issue, the Court held that the period of 90 days allowed under Article 178 of the Limitation Act would be applicable only in such cases where a party to the Arbitration Agreement moved the Court for filing of the award. This article would have no application if the Arbitrator himself filed the award in Court. The Court observed that none of the parties had applied to the Court for a direction to the Arbitrator for filing the Award in Court. The arbitrators filed the Award with a covering letter. This action of the Arbitrator was held to be a ministerial act to which Article 178 of the Limitation Act had no application. Under section 96 of the Court of Civil Procedure all decrees are appealable but Section 17 of the Arbitration Act 1940 makes a decree /rule of Court passed on the basis of an award is non-appealable, unless it is: (i) in excess of the award, or (ii) not in accordance with the award. Before the Court passes a decree under this section, it will have to wait for the period of limitation (thirty days) prescribed for filing objections. If a decree is passed before the period expires, an appeal against the decree might be maintainable.[13]

The award rendered by an arbitrator is lifeless and is not capable of being executed till the time when the Court infuses the life in it by passing a decree in accordance with the same.[14] Where the award was not presented before any Court for making the same rule of the Court, the award couldnot operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, in the property in dispute.[15] Mere making of an award simplicitor was of no value and did not create, extinguish or pass any right, title or interest and no party could be prejudiced by mere existence of the award. It only becomes effective when it is made rule of the Court. Until the decree is passed, the award has no status in the eyes of law.[16] Section 14 (2) of the Arbitration Act, 1940 requires the Arbitrator to file the award in the Court for making it rule of the Court and further requires that the Court give notice to the party after filing of it. The purpose of notice is to enable the parties to file their objections, if any, within the prescribed period of time.[17] An award, which has not been made rule of Court, does not require registration but after making the rule of Court, its registration becomes compulsory.[18]

4. Finality of Decree:

It is the right of a party to challenge the award, according to the provisions of the Arbitration Act, 1940, before pronouncing the judgment by the Court but not in any other way. On becoming a decree of the Court, the only remedy opened to the party is to appeal from the decree and that can only appeal on the ground that the decree was in excess of or not in accordance with the award. No suit lies against the award to challenge the validity and effectiveness of the award.[19] Where the objections against the award have been over-ruled and a decree has been passed in terms of the award, an appeal will not lie from such a decree and such decree will be final. The decision / award given by the Arbitrator, when it becomes final, put an end to all the controversies between the parties. If the Court passes decree in terms of award without allowing the parties within prescribed time for filing objections against the award it is liable to be set aside.

4. Execution of Decree in Terms of Award:

Under section 15 of the Arbitration Act, 1899, an award filed in Court was enforceable as it was a decree. The proceedings for enforcement of an award under section 15 were governed by section 47 of Civil Procedure Code, and an appeal was competent from an order rejecting such application. But under the section 17 of the Act, 1940 the Court must pronounce a judgment according to the award and upon the judgment so pronounced a decree shall follow. This decree is to be executed like any other decree passed by a Civil Court. An executing Court can neither refuse to execute an award nor amend it in any way, unless it is apparent on the face of the award that it has been passed without jurisdiction. If the award merely declares the rights of the parties in the property and does not state that possession is to be delivered to the parties, the award is merely declaratory and is not capable of being executed. A party to the award cannot, for the first time, in the execution proceeding raise an objection about valuation in order to oust the jurisdiction of the Court. Nor can it raise in the execution proceedings, the question as to the jurisdiction of the Court to entertain the suit in which the reference was made.

5. Procedure of Execution:

When the award becomes the rule of the Court and the Court pronounces the judgment in terms of award, such rule of Court or judgment becomes the decree of the Court. The execution process of decree of the court is given in the Code of Civil Procedure. The execution proceedings are very complicated and time gaining. The execution of decree passed in terms of award will be executed according to the Code of Civil Procedure. Part-II i.e. Section 36 to 74, of the Code of Civil Procedure deals with the execution proceedings of the decree and Order 21 of the Code of Civil Procedure provides complete procedure for the execution of decree.[20]It is admitted fact that the execution of decree, passed in term of domestic award as well as in terms of foreign award, will be governed under the Code of Civil Procedure. In the enforcement of foreign judgment in any country, there are two principles: first is the principle of comity and second is the principle of reciprocity. Section 13 of the Code of Civil Procedure provides the procedure for the enforcement of foreign judgment and the conditions mentioned in above-noted section 13 are based on the doctrine of comity but the foreign award is not considered equal to the foreign judgment. It is pertinent to note that the Code of Civil Procedure, 1908, governs the procedure of execution of decree passed in terms of domestic award as well as foreign award.

Mostly, decrees passed in terms of award, are money decree. Rule 10 of Order 21 of Code of Civil Procedure provides the procedure for filing an application for the execution of the decrees and rule 23-A of the said Order provides that (a) in the case of a decree for the payment of money, the party either deposit the decretal amount in the Court or furnishes security for its payment; and (b) in the case of any other decree, the objecting party furnishes security for the due performance of the decree. This rule provides discretion to the executing Court to take security instead of decretal amount in money decree and in other decrees, this is a main hurdle in smooth and rapid execution of decree. Rule 58 to 103 of Order 21 of the Code of Civil Procedure is very complicated procedure, which deals with the procedure of investigation and objection, sale of the property whether moveable or immovable, and resistance to the delivery of possession to the decree holder or purchaser. These provisions of law provide further remedy to the parties in execution proceedings in the form of appeal, revision and constitutional petitions, which basically start the third round of litigation which commences from executing Court and goes up to the Apex Court. This is the difficulty in the execution of decree.

6. Remedies against Execution of Award:

The Convention of 1958, on the recognition and enforcement of foreign arbitral award, superseded the Geneva Convention 1927. In Geneva Convention, 1927 the burden of proof lies on the party who wants to enforce the award, while the Convention 1958 shifted the duty of burden of proof to the party who defended to enforce the arbitral award. The Convention 1958 provides seven limited defenses. The five of these are given in defenses Parsons and Whittemore Overseas Co. v. Societe General De L’Industrie Du Papier (Rakta)[21]

(1) When foreign award is contrary to the public policy.

(2) When subject matter of differences is not capable of settlement through arbitration i.e. non-arbitrability.

(3) When inadequate opportunity is given to the party to present his defense.

(4) When arbitration proceedings are conducted in excess of the jurisdiction of arbitration.

(5) When award is given manifest disregard of law.

7. Award Operating as res-judicata:

The doctrine of res-judicata is the principle of law of procedure which is categorically explained and defined in section 11 of the Code of Civil Procedure, 1908. A judgment and decree based on award is final and it would constitute res-judicata. A judgment by consent is intended to put a stop to litigation between the parties. A judgment and decree passed in terms of award, after solemn investigation by arbitrators, may constitute res-judicata. An award incorporated in a decree operates as res-judicata to bar a subsequent suit in respect of the same cause of action even though the award is not strictly in terms of reference. In case the Court hears and decides the question of validity of the reference as well as award, the party aggrieved cannot be allowed to re-agitate the same question in a subsequent suit.[22]

[1]. Black’s Law Dictionary 5th Ed. p. 474.

[2]. Arbitrations & Awards by David M. Lawrance published by The Estate Gazette LTD. London, p. 85.

[3]. Russell on Arbitration published by Sweet & Maxwell, Ed. 23rd (2007) p. 450.

[13]. Haji Abdullah v. S. Iqbal Naseem PLJ 1987 Kar 455

[15]. Haji Muhammad v Syed Manzoor Hussain Shah PLD 2003 Lah 208.

[16]. Abdul Karim v. Mirza Bashir Ahmed PLD 1974 SC 61., Rai Batey Khan v. Raja, 1991 MLD 587.

[19]. Ismail Muhammad Bhai v. Yousaf Ali , 1992 SCMR 699.

[20]. Code of Civil Procedure Act V of 1908.

[21]. U.S. Supreme Court of Appeals, 2nd Circuit, 1974.(508 F.2 d. 969).

[22]. Section 11 of the Cod e of Civil Procedure,1908 (Act V of 1908), Commentary by Aamer Raza Khan, 9th ed. 2005 p.59.