In Manappuram Asset Finance Ltd. v. Abdul Saleem A.B. & Ors., the Hon’ble Kerala High Court held that when an arbitral award is declared unenforceable during execution proceedings, the legal consequence is akin to the award being set aside. In such circumstances, fresh arbitral proceedings can be initiated only after issuing a fresh notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996.
The matter arose from disputes under loan agreements executed between the parties, which contained arbitration clauses. Invoking these clauses, arbitral proceedings were initiated and arbitral awards were subsequently passed by the arbitrators.
Following the passing of the awards, the petitioners approached the civil courts seeking execution of the arbitral awards. However, the execution courts dismissed the execution petitions after holding that the arbitrators had been unilaterally appointed, rendering the arbitral awards unenforceable in law.
The execution courts effectively declared the awards to be non est in the eyes of law. Subsequently, the petitioners approached the Hon’ble Kerala High Court by filing arbitration requests seeking appointment of an arbitrator to initiate fresh arbitration proceedings.
Before the Hon’ble Kerala High Court, the issue arose as to whether fresh arbitration proceedings could be initiated without issuing a fresh notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 after the arbitral awards had been declared unenforceable.
The Hon’ble Kerala High Court examined the legal position and made the following observations:
- When an arbitral award is declared unenforceable or a nullity by a competent court, even during execution proceedings, the legal effect is akin to the award being set aside.
- Once an award is declared a nullity, it loses its legal sanctity, becomes inoperative and ceases to have any legal force.
- In such circumstances, if a party seeks to initiate fresh arbitral proceedings, it is mandatory to issue a fresh notice invoking arbitration in accordance with Section 21 of the Arbitration and Conciliation Act, 1996.
The Hon’ble Kerala High Court further noted that in the present cases, after dismissal of the execution petitions, no fresh notices invoking arbitration had been issued to the respondents.
Accordingly, the Hon’ble Kerala High Court held that the arbitration requests were premature and closed the proceedings. However, liberty was granted to the petitioners to issue fresh notices invoking arbitration and seek appropriate legal recourse thereafter.
The judgment reiterates that once an arbitral award is declared unenforceable or treated as a nullity by a competent court, the arbitral process cannot be revived on the basis of the earlier notice and must recommence in accordance with the statutory procedure prescribed under Section 21 of the Arbitration and Conciliation Act, 1996.
