Supreme Court of India: No Special Treatment To The Government As Award Debtor While Considering Its Application For Stay Of Enforcement Of An Arbitral Award

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In case of Pam Developments Private Ltd vs The State Of West Bengal 2019 SCC OnLine SC 852, the Supreme Court dealt with two peculiar questions of law. First, whether there is an automatic stay on enforcement of award passed against the Government when the award is under challenge due to the fact that the Government is always presumed to be solvent. Second, whether the Court can exempt the Government, as an award debtor, from making the deposit of the awarded amount while dealing with Government’s stay application against enforcement of the arbitral award. While dealing with these issues, the Court inter alia observed that in case an award passed against the Government is allowed to be automatically stayed, the very purpose of quick resolution of dispute through arbitration would be defeated as the Award holder would be fully deprived of the fruits of the award. The Court also observed that under the scheme of the Arbitration & Conciliation Act, 1996 (‘Act’) no distinction is made nor any differential treatment is given to the Government and therefore, the Court has the power to direct the Government as an Award debtor to deposit the awarded amount while considering its application for grant of stay. Further, the Court held that in such cases, the provisions of Code of Civil Procedure of India (‘Code’) would act as a guiding factor so far they are consistent with the provisions of the Act. Detailed case analysis given below:-

Factual Matrix

The Appellant (‘Contractor’) applied for a tender issued by the Respondent (‘Employer’) which is the State Government of West Bengal. Certain dispute arose between the parties and the Contractor filed an application seeking appointment of an arbitrator before the High Court under Section 11(6) of the Act. The Court appointed an arbitrator who partially allowed the claims of the Contractor. The award was challenged by the Employer under Section 34 of the Act before the High Court. While the application to set aside the award was pending, the Contractor filed an application for the execution of the award under Section 36 of the Act as amended by the 2015 Amended Act which inter-alia removed the provision of automatic stay on enforcement of award when the same is in appeal. The Supreme Court of India in Board of Control for Cricket in India vs Kochi Cricket Private Limited (2018) 6 SCC 287 held that the amended provisions of Section 36 of the Act would also apply to the proceedings where the award was challenged before the 2015 Amendment Act came in force.

In response to the Contractor’s application, the Employer filed an application for stay of enforcement under amended Section 36(2) of the Act which was dismissed, and the High Court passed an order of attachment against the Employer. Thereafter, the Employer filed another application seeking unconditional stay of enforcement of the award which was granted by the High Court relying on the provisions on the CPC (Order XXVII Rule 8A). The Contractor challenged this decision of the High Court before the Supreme Court of India in the present case.

Applicable Legal Principles

Section 36(3) of the Act

Section 36. Enforcement.

(3) Upon filing of an application under subsection (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing: Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).”

Order XXVII, Rule 8A of CPC

8A. No security to be required from Government or a public officer in certain cases.No such security as is mentioned in rules 5 and 6 of Order XLI shall be required from the Government or, where the Government has undertaken the defence of the suit, from any public officer sued in respect of an act alleged to be done by him in his official capacity.”

Order XLI Rule 5(5) of CPC

Stay by Appellate Court.

(5) Notwithstanding anything contained in the foregoing subrules, where the appellant fails to make the deposit or furnish the security specified in subrule (3) of rule 1, the Court shall not make an order staying the execution of the decrees.”

Parties Contentions

The Contractor contended as under:

  • That the provisions of CPC ought not to be considered while deciding the application for stay of enforcement of an award. Atmost the provisions of CPC should be treated as non-mandatory ‘guiding principle’ in this regard;
  • That Court cannot provide special treatment to the Government while considering an application for stay of award against such entity as provided under CPC;
  • That in the alternative, even if the provisions of CPC are to be considered then also the Court ought not pass an unconditional stay and could direct deposit of awarded amount as provided under CPC (Order XLI Rule 5) for the Government in order to seek stay on enforcement of award which is deemed decree.

Per contra, Employer contended as under

  • That while deciding the application for enforcement of an award, it is mandatory for the Court to consider the equivalent provisions of CPC (Order XXVII Rule 8A) which deals with stay of money decree which will be extended to such application by virtue of the terms ‘subject to such conditions’ and ‘have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure’ provided under Section 36(3) of the Act;
  • That since the Government is always considered to be solvent, the award against Government necessarily requires to be stayed in case of a Government being a judgment debtor.
  • That as per CPC (Order XXVII Rule 8A), the Government is exempted from furnishing any security and since security is a genre and deposit is its species, there would be no requirement of the Government deposit the awarded amount.

Judgement

The Court held as under:

  • The phrase “have due regard to” would only mean that the provisions of CPC are to be taken into consideration, and not that they are mandatory;
  • CPC will only be a guiding factor and not mandatory while considering an application for enforcement of an award under Section 36 of the Act;
  • Although Order XXVII Rule 8A of CPC may exempt the Government from the mandatory obligation of furnishing security for seeking stay of execution of a money decree as under Rule 5(5) of Order XLI, the said provision cannot be said to operate as an absolute clog on the discretion of the court to direct the deposit of the decretal amount as a condition for grant of stay of execution of the decree in appropriate cases more particularly when such direction is coupled with the liberty to the decree holder to withdraw a portion thereof in part satisfaction of the decree without prejudice and subject to the result of the appeal;
  • Even otherwise Order XXVII Rule 8A is only applicable on security and not on deposit which would mean that Rule 8A does not exempt the Government from making deposit, which the Court has the power to now direct under Order XLI Rule 5(5) of CPC.
  • The Act mandates that the parties shall be treated with equality therefore there cannot be any special treatment given to the Government as a party.

My Comments

In this case, the court rightly held that the Act is a self-contained Act and the provisions of the CPC will only apply as long as they are in consonance with the spirit and principles engrafted in the Act. The Court also held that since the Act provides for equal treatment of parties, the Court while exercising its discretion under Section 36(3) of the Act read with Order XLI Rule 5(5) of CPC, can direct the Government to deposit the awarded amount. Therefore, there is no exceptional treatment to be given to the Government while considering its application for stay on enforcement of the award.

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