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High Court of Sikkim Asserts Third-Party Rights in Challenging Arbitral Awards

In a recent landmark ruling, the High Court of Sikkim has significantly broadened the legal avenues for third parties to challenge arbitral awards related to immovable property. The court's decision, delivered by Justice Meenakshi Madan Rai, reinforces the rights of third parties, allowing them to file petitions under Order XXI Rule 97 of the Code of Civil Procedure (CPC) in conjunction with Section 47.

This ruling applies when third parties can demonstrate that an arbitral award is void or was secured through fraudulent means. Empowering Third Parties in the Legal Arena The High Court's ruling underscores a significant shift in legal perspectives. It firmly establishes that third parties, often referred to as objectors, have the right to participate in execution proceedings.

This right is especially pertinent when their property interests could face adverse consequences due to the sale of immovable property under execution.

The Court boldly states that "there is no bar under the law for a stranger to the proceedings who has an independent legal right to appear and contest the execution proceedings and whose property interests will be adversely affected by the sale of the property in execution proceedings, to point out that the Decree sought to be executed is a nullity."

The case under consideration centers on a 'Deed of Settlement' entered into by the petitioner and respondent no.1, aimed at dividing family properties. However, this deed was executed without the knowledge of respondent nos. 2-4, who are the direct descendants of respondent no.1. This critical detail adds a layer of complexity to the case, highlighting the undisclosed and potentially detrimental impact on the rights and interests of these respondents.

The 'Deed of Settlement' forms the nucleus of this legal dispute. It was conceived as an agreement between the petitioner and respondent no.1, primarily intended to partition family properties. However, the fact that respondent nos. 2-4 were kept in the dark about this crucial agreement is a significant revelation. This clandestine execution of the 'Deed of Settlement' raises pertinent questions about transparency, fairness, and the rightful disclosure of property-related arrangements within a family.

Subsequently, a 'Memorandum of Family Arrangement' entered the scene, containing an arbitration clause. This memorandum marked a pivotal development in the case, as it led to the issuance of an arbitral award concerning the family's properties. This award, which became the focal point of contention, triggered the execution proceedings under Section 36 of the Arbitration and Conciliation Act (A&C Act).

In response to the execution of the arbitral award, respondent nos. 2-4, upon discovering the undisclosed 'Deed of Settlement,' felt aggrieved and moved swiftly. They filed objections under Section 47 of the CPC coupled with Order XXI Rule 97. Their objections centered on the assertion that the arbitral award, which formed the basis for the execution, was tainted by fraudulent activities related to the undisclosed 'Deed of Settlement.' This marked the initiation of a legal battle that ultimately found its way to the High Court of Sikkim.

Legal Battlefront: Arguments on Jurisdiction

The legal skirmish in the courtroom witnessed a clash of arguments. The petitioner contended that the executing court had overstepped its jurisdiction by delving into the merits of the arbitral award. According to their perspective, objections regarding the award should have been pursued under Section 34 of the Arbitration Act, asserting that raising objections within the context of execution proceedings without challenging the decree itself was procedurally flawed.

In stark contrast, the respondents vehemently argued that third parties possessed the unequivocal right to challenge the execution of a decree. They supported their stance by invoking legal precedents, such as the case of Prasantha Banerji vs. Pushpa Ashoke Chandani, which upheld the rights of third parties in similar contexts. Additionally, they maintained that the original decree had been secured through fraudulent means, casting a shadow of doubt on its integrity. Furthermore, they raised concerns about the relationship between the arbitrator and the petitioner's son, invoking the provisions of the Arbitration Act.

Court's Penetrative Analysis and the Verdict

The High Court, in its meticulous analysis of the case, navigated through the intricate legal web. It spotlighted the significance of Explanation II of Section 47 of the CPC, which effectively deems purchasers of property through execution sales as parties to the suit from which the decree originates. This inclusion is pivotal, as it grants purchasers with an independent legal standing and recognizes the potential adverse impacts on their property interests. Consequently, it permits them to challenge the decree's legitimacy within the framework of execution proceedings.

Moreover, the court underlined the pivotal role played by the concealed 'Deed of Settlement' during the initial objection proceedings before the Sub-Divisional Magistrate (SDM). This concealment weighed heavily in shaping the court's perspective and bolstering the rights of the objectors to challenge the execution process.

Furthermore, the court clarified that Section 34 of the A&C Act exclusively applies to the parties directly involved in the arbitral award. Therefore, third parties, whose rights are directly affected by the award, are obligated to raise their objections within the executing court's purview.

In its ultimate verdict, the High Court upheld the executing court's decision and dismissed the petitioner's writ petition. This resounding ruling conclusively reinforces the rights of third parties to challenge arbitral awards within execution proceedings, marking a significant milestone in the legal landscape.

Case Title: Kiran Devi Chouraria v. Jhumar Mal Singhi, WP(C) No. 37 of 2017.

Date: 25.08.2023

Counsel for the Petitioner: Mr. N. Rai, Senior Advocate with Ms. Navtara Sarda, Mr. Yozan Rai, Ms. Tara Devi Chettri and Mr. Pradeep Tamang, Advocates

Counsel for the Respondent: Mr. A. Moulik, Senior Advocate with Mr. Ranjit Prasad, Advocate for Respondent Nos.2 to 4.