In a significant legal development, the Supreme Court of India has delivered a landmark judgement in a Stay Application filed by the State of West Bengal. The judgement addresses crucial aspects of the Arbitration Act and its implications on enforcement of arbitral awards. Stay tuned for detailed insights on this important case.
Facts
- Appellant’s bid was accepted on 26 March 2001 for a project.
- An agreement was registered on 2 April 2001 for the accepted bid.
- Retired Justice Sujit Kumar Sinha was appointed as the Arbitrator by the Calcutta High Court on 14 August 2003 to resolve disputes.
- Respondent filed a stay application under the amended Section 36(2) of the Arbitration Act before Calcutta High Court.
- The stay application of the respondent was dismissed in default on 27.09.2018.
- Respondent filed a fresh application for stay of the award even after the previous dismissal.
- Impugned order dated 13.12.2018 of unconditional stay was passed by relying on Order XXVII Rule 8A of CPC.
- Section 36 of the Arbitration Act has been amended with retrospective effect from 23.10.2015.
- Appellant completed the work under the agreement on 28.02.2002.
- Appellant submitted claims and dues before the Executive Engineer of Public Works on 26 May 2003.
- Arbitrator’s award dated 21 January 2010 favored the appellant with a sum of Rs.2,87,11,553/- plus interest.
- State of West Bengal filed an application under Section 34 of the Arbitration Act challenging the Arbitrator’s award.
- Appellant filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996.
- Claims of the appellant remain unpaid, leading to the filing of various applications for resolution.
- Appellant was granted the right to pray for release of the awarded amount if there was no stay on the operation of the award by 04.12.2018.
- Executing Court attached Rs. 2.75 Crores from the respondent-State of West Bengal on 03.10.2018.
- Executing Court relied on a previous order granting an unconditional stay of award to the State Government on 05.09.2018.
- In the event of non-stay of the award’s operation, the petitioner could request attachment of the amount in execution of the award as per the adjourned date of 18.09.2018.
Also Read: Justice Served: Ruling in the Case of CISF Appointment
Arguments
- The learned Senior Counsel for the petitioner argued that Section 36 of the Arbitration Act, which deals with the enforcement of the award, is the relevant provision to be considered.
- The counsel emphasized that only the provisions of Order XLI Rule 5 CPC should be taken into account as general guidelines when deciding on an application for stay under Section 36 of the Arbitration Act, excluding Order XXVII Rule 8A CPC.
- It was argued that even if Order XXVII Rule 8A CPC is considered, the courts should not grant an unconditional stay of the award, but instead could direct the deposit of the awarded amount.
- The appellant’s counsel relied on various decisions of the Court and the Law Commission’s report to support the arguments.
- In conclusion, it was contended that the Arbitration Act is a complete code and the provisions of Section 36 should be followed with due regard to the provisions of the CPC.
- Shri Grover argues that Order XXVII Rule 8A should be applied along with Order XLI Rule 5 to avoid enforcement of final decree against the Government.
- The Government, being considered solvent, is expected to honor the decree unlike private parties, justifying the stay of the award in such cases.
- Order XXVII Rule 8A pertains to the operation of stay in suits against the Government, which differs from private parties.
- The use of ‘shall’ in the proviso of Section 36(3) of the Arbitration Act makes the application of CPC mandatory in stay considerations under Section 36.
- The phrase ‘subject to such conditions’ in Section 36(3) only refers to the discretion of the High Court in granting a stay, without specific statutory conditions being imposed.
- The interpretation of ‘having due regard to’ in the proviso to Section 36(3) as mandatory is supported by the use of ‘shall’ at the beginning of the proviso.
- Under Order XLI Rule 5(3), a party seeking a stay must demonstrate substantial loss unless an order is granted; given the numerous arbitral proceedings against the Government, cumulative losses would be substantial.
Also Read: Land Acquisition Act Review: Quashed Judgement by Supreme Court
Analysis
- Section 80 of CPC requires a notice of two months before suing the Government, but this may not apply in cases under the Arbitration Act.
- Recommendation made to amend section 34 to empower civil courts to pass interim orders.
- Amendments suggested to section 36 to prevent automatic unenforceability of awards upon filing of applications under section 34.
- Provisions of CPC are to be followed as guidance, not mandatory.
- Rule 8A of Order XXVII CPC exempts Government from providing security mentioned in Rule 5 and 6 of Order XLI.
- Court discretion to grant stay in favor of the Government hinges on fulfillment of conditions in Rule 5(3) of Order XLI.
- Court may direct deposit of a part of decretal sum in favor of the State Government in appropriate cases.
- Older provisions exempted Government from providing security, but recent amendments allow for court discretion in directing deposit of decretal amount.
- No special treatment or exceptional provisions for the Government under the Arbitration Act.
- No requirement of a two-month notice to the Government before initiating arbitration proceedings.
- Section 36 of the Arbitration Act was amended/substituted vide Act 3 of 2016 with retrospective effect from 23.10.2015.
- The amendment in Section 36 introduced Sub-Section (3) which mandates certain conditions for granting stay of the operation of an arbitral award.
- The Court, while considering an application for grant of stay, must have due regard to provisions of the Code of Civil Procedure for grant of stay of a money decree.
- The amendment ensures that an arbitral award becomes enforceable as a decree only after the time for filing a petition under section 34 has expired or after the section 34 petition has been dismissed.
- The phrase ‘having regard to’ provides general guidance to the Government in determining the price of sugar.
- It is impermissible to direct the losing party to deposit any part of the award into Court under section 36 of the Act.
- The automatic suspension of award execution upon filing a section 34 petition hampers the alternate dispute resolution system of arbitration.
- The rule of construction regarding the Crown’s special treatment is deemed irrelevant in a democratic republic according to a Constitution Bench decision.
- Arbitration proceedings are meant for quick dispute resolution and automatic stay of a decree against the Government defeats this purpose.
- Section 18 of the Arbitration Act ensures equality for all parties involved in arbitration proceedings.
- A Full Bench of the Calcutta High Court held that the Government cannot obtain a stay of execution under Order XXVII Rule 8A of the CPC without complying with specified conditions.
- Rule 8A of Order XXVII CPC is considered archaic and not relevant in present times.
- Rule 8A exempts the Government from furnishing security but does not restrict the Court from directing deposit of the awarded amount.
- Even if Rule 8A is assumed to apply, the Court still has the power under Order XLI Rule 5 of CPC to direct full or part deposit of the amount.
Also Read: High Court’s Legal Analysis in Guarantor Protection Case
Decision
- The order passed by the Calcutta High Court granting unconditional stay of the arbitration award dated 21.01.2010 is not sustainable in the eye of the law.
- The appeals are allowed, and the order dated 13.12.2018 passed by the Calcutta High Court is quashed.
- The order dated 03.10.2018 of the Executing Court in E.C No 297 of 2018 is restored.
- No costs are ordered.
- The petitioner-award holder is directed to pray for the release of the attached amount as per the order dated 03.10.2018.
Case Title: PAM DEVELOPMENTS PRIVATE LTD Vs. THE STATE OF WEST BENGAL
Case Number: C.A. No.-005432-005432 / 2019
