Introduction
Most challenging stage of a suit for recovery and/ or an arbitration proceeding is executing a money decree and/ or a money award. There must be lakhs of decree and/ or money awards languishing across the country in various forums, which are pending for execution. These decree and/ or award remain unexecuted for various reasons. This write up is an attempt to explore nuances one of such problems.
The Problem
Execution of a decree or arbitral award often encounters a road block when the Judgment Debtor does not have any asset within the territorial jurisdiction of the court that passed the decree or within whose jurisdiction an arbitral award is passed, however, the Judgment Debtor has properties outside the jurisdiction of the said court.
More often than not, in an arbitration clause, the place of arbitration is fixed at the arbitration clause itself. Generally, at the time of formation of contract, it is not a consideration whether parties have marketable assets or not while fixing a place of arbitration.
However, after a dispute, either during an arbitral proceeding (for an interim order under Section 9 or Section 17 of the Arbitration & Conciliation Act, 1996) or a post award execution proceeding under Section 27 of the Arbitration & Conciliation Act, 1996, marketable asset either movable or immovable become vital. As for execution of money award, one of most effective way of realizing the money is attachment and sale of assets of Judgement Debtor.
Transfer Of Execution Proceedings
In event of the eventuality that the Judgment Debtor does not have any asset within the territorial jurisdiction of the court that passed the decree or within whose jurisdiction an arbitral award is passed, however, the Judgment Debtor has properties outside the jurisdiction of the said court, the Award Holder applies for transfer of the execution proceedings to that jurisdiction where the Judgment Debtor have assets.
The Concept Of Precept
In a recent judgment of Hon’ble Delhi High Court provide a detailed roadmap for how a court can sell property located outside its “home city” or jurisdiction. This case involved a building in Gurugram, Haryana, that needed to be sold to pay off a debt from a court case in Delhi.
Section 39 CPC Limitation
Under Section 39 of the Code of Civil Procedure (CPC), a court in one city (like Delhi) cannot directly reach out and sell a building in another city (like Gurugram). The law states that if the property is outside the local limits of the Delhi court, the Delhi court must “send” or transfer the decree to the court where the property is actually located. Section 39(4) explicitly says that a court has no authority to execute a decree against property outside its own local limits.
| Provision | Effect |
|---|---|
| Section 39 CPC | Decree must be transferred to court where property is located |
| Section 39(4) CPC | Court cannot execute decree outside its territorial jurisdiction |
Precept Under Section 46 CPC
However, to the relief of the Decree Holder, because it takes time to officially transfer a case between cities, the winning party (the Decree Holder) can ask for a “Precept” under Section 46 of the CPC.
A Precept is like an urgent request from the Delhi Court to the Gurugram Court. In effect, it says “We haven’t finished the paperwork to transfer the whole case yet, but please ‘freeze’ (attach) this property immediately so it doesn’t get sold in the meantime”.
- This “freeze” is only temporary.
- It lasts for two months.
- To keep the freeze active, the Delhi Court must either extend it or the whole case must be officially transferred to Gurugram within those two months.
Official Procedure for Selling Property Outside a Court’s Jurisdiction
The Judgment concludes that there are five (5) steps of the official procedure for selling property outside a court’s jurisdiction:
| Step No. | Procedure | Description |
|---|---|---|
| 1 | Issuing a Precept (Section 46) | The current court sends a request to the local court to attach the property for two months. |
| 2 | Transfer of Decree (Section 39) | The winning party must move the current court to officially transfer the case to the local court. |
| 3 | Filing Execution | The winning party must then file a fresh “Execution Petition” in the local court. |
| 4 | Deciding Ownership (Order XXI Rule 58) | If someone else claims they own the property, the local court will hold a hearing to decide who is the true owner. |
| 5 | The Sale | Once ownership is clear and the decree is transferred, the local court proceeds to auction the property and distribute the money. |
Conclusion
When parties enter into an agreement, particularly one containing an arbitration clause, they often focus on the seat of arbitration without considering the practical realities of asset location. This oversight can create significant complications at the stage of enforcement. If the judgment debtor has no assets within the territorial jurisdiction of the court that passed the decree or arbitral award, execution becomes cumbersome, requiring transfer of proceedings to another jurisdiction. The enforcement of monetary awards is most effective through attachment and auction of property, but jurisdictional limitations under Section 39 of the Code of Civil Procedure (CPC) restrict a court from directly executing against property outside its local limits.
Above-discussed ruling of the Hon’ble Delhi High Court provides a structured roadmap to address this challenge. By recognizing the utility of a “Precept” under Section 46 CPC, the court has ensured that decree holders are not left vulnerable during the interim period before formal transfer of execution proceedings.
The Five-Step Process Provides Clarity
- Issuing a precept
- Transferring the decree
- Filing execution in the local court
- Adjudicating ownership disputes
- Auctioning the property
The five-step process—issuing a precept, transferring the decree, filing execution in the local court, adjudicating ownership disputes, and finally auctioning the property—offers clarity and predictability in situations where assets lie beyond the originating court’s jurisdiction.
Importance Of Foresight While Drafting Agreements
Therefore, parties must be conscious of the commercial geography of their counterparties at the time of drafting agreements. Identifying where marketable assets are located and aligning the seat of arbitration accordingly can prevent unnecessary procedural hurdles. Yet, if such complications do arise, the principles laid down by the Delhi High Court provide much-needed relief.
They balance procedural integrity with practical enforcement, ensuring that arbitral awards and decrees do not remain paper victories but translate into tangible recovery. In essence, foresight at the contracting stage minimizes risk, while judicial innovation safeguards fairness when unforeseen jurisdictional barriers emerge.
