Whether Security Deposit of the Entire Awarded Amount is a Sine Qua Non for Staying Execution of a Domestic Award in India?

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Last year, the Supreme Court of India lifted its draconian regime of automatic stay on enforcement of domestic award pending appeal against them. In the landmark ruling of Hindustan Construction Company Limited & Anr v. Union of India & Ors 2019 SCC OnLine SC 1520, the Supreme Court inter alia held that automatic stay of awards as laid down in previous cases (National Aluminum Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd. and Anr. 2004 1 SCC 540 and Fiza Developers and Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr. (2009) 17 SCC 796 is incorrect.

Post Arbitration & Conciliation Amendment Act, 2015 (‘2015 Act’), Section 36 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) is amended and it now inter alia provides that when the limitation period prescribed for making an application to set aside the award is expired, or such application having been made is refused, the award, being final and binding, shall be enforced under the Code of Civil Procedure, 1908 of India (‘CPC’) as if it were a decree of the court.

It is pertinent to mention that in a Civil Court where a full-blooded appeal is filed against a decree of a court, Order XLI Rule 5 sub-rule 3(c) of CPC is to apply which inter alia empowers the Court to stay execution of such decree subject to party opposing execution to furnish security for the due performance of such decree. Further, Rule 5 sub-rule 5 states that if the judgment debtor fails to furnish the security, the Court shall not make an order staying the execution of the decree.

Thus, in the above backdrop it is reasonable to infer that once the time period prescribed under Section 34 of the Arbitration Act to challenge the award is expired, the award is deemed decree of the court which then becomes enforceable as per the provisions provided under CPC. Stay on such an award can be granted subject to party opposing execution of award/decree depositing security. But the question then arises as to how much should be the quantum of this security deposit? Should it be the entire amount or the quantum will be as per the discretion of the Court. This post discusses this question.

Power to Order Stay is Discretionary

On a consideration of Order XLI Rules 1(3) and 5(5) of CPC, the Supreme Court in Sihor Nagar Palika Bureau v. Bhabhlubhai Virabhai & Co.[1] inter alia held that the discretion lays with the appellate court to direct either deposit of the amount disputed in the appeal or to permit such security in respect thereof being furnished as the appellate court might think fit. It was further clarified that the discretion was to be exercised judicially and not arbitrarily, depending on the facts and circumstances of a given case. The said judgment also laid down that ordinarily, execution of a money decree was not stayed inasmuch as satisfaction of money decree does not amount to irreparable injury and in the event of the appeal being allowed, the remedy of restitution was always available to the successful party. However, the Court categorically noted that still the power is there, of course a discretionary power, and is meant to be exercised in appropriate cases.

Thus, though a decree for payment of money is not ordinarily stayed by the appellate court, yet, if it exercises its jurisdiction to grant stay in an exceptional case it may direct the appellant to make payment of the decretal amount with interest as a condition precedent to the grant of stay, though the decree under appeal does not make provision for payment of interest by the judgment-debtor to the decree-holder. Robust common sense, common knowledge of human affairs and events gained by judicial experience and judicially noticeable facts, over and above the material available on record – all these provide useful inputs as relevant facts for exercise of discretion while passing an order and formulating the terms to put the parties on.[2]

By virtue of Section 36 of the Arbitration Act, these principles enunciated by the Supreme Court in respect of stay of execution of a money decree under CPC are incorporated for enforcement of domestic awards in India as well. From the above dictum, it is reasonable to infer that the execution of money decree is the rule and stay is an exception to which discretion lies with the appellate court. By corollary, it may not be wrong to infer that in such case since stay is discretionary, the quantum of security deposit should follow such discretion. This is further substantiated by the fact that Arbitration Act which is special statute does not stipulate any fixed percentage in respect of security deposit to be made by the party opposing the execution of an arbitral award.

Orders of the Supreme Court

At this juncture, it is pertinent to discuss some of the orders passed by the Supreme Court (‘Orders’) wherein the Court has directed stay of award subject to the party opposing the execution of the award depositing the entire amount awarded without delving into the merits of the case.

By a judgment dated 19 July 2018 passed in SREI Infrastructure Finance Ltd. vs. Candor Gurgaon Two Developers and Projects Pvt. Ltd.[3] the Calcutta High Court directed the petitioner in the application under Section 36(2) of the Arbitration Act to comply with the provisions of sub-rule (5) of Rule 5 of Order XLI of CPC for obtaining stay of operation of the money award passed by the sole arbitrator against it. The High Court directed the petitioner in the said application under Section 36 (2) of the Arbitration Act to deposit the entire amount awarded by the Arbitrator. The said judgment was carried before the Supreme Court in SREI Infrastructure Finance Limited vs. Candor Gurgaon Two Developers and Projects Pvt. Ltd.[4] By an order dated 14 September 2018, the Supreme Court upheld the findings of the Calcutta High Court requiring the petitioner to comply with the provisions of sub-rule (5) of Rule 5 of Order XLI of CPC as a condition for obtaining stay of operation of the arbitral award for payment of money. By the said order, the Supreme Court only modified the judgment of the Calcutta High Court only to the fact that there shall be interim stay of the award subject to the petitioner’s depositing 60% of the awarded amount and the remaining 40% of the awarded amount shall be secured by way of bank guarantee(s) of any nationalised bank.

Thus, it can be inferred that the Calcutta High Court exercised its discretion by directing the petitioner in that case to deposit the entire amount awarded by the arbitrator which was later upheld by the Supreme Court by only modifying the mode of deposit to be made.

In the similar vein, in judgment dated 19 March 2018, the arbitration Bench of the Bombay High Court in Shri Manish vs. Godawari Maharashtra Irrigation Development Corporation[5], had exercised discretion to direct deposit of 60% awarded amount. In appeal, the Supreme Court[6] vide order dated 16 July 2018, directed 100% deposit of the decretal amount the award being a money decree.

Similarly, in Kanpur Jal Sansthan and Ors. vs. Bapu Construction[7], the Supreme Court modified the judgment of the Allahabad High Court wherein the High Court has directed for deposit of the money and withdrawal of the 50% of the same without furnishing security and remaining half after furnishing security. The High Court has not given any justifiable reason for permitting such withdrawal. The Supreme Court, without commenting on the merits of the grounds sought before it, modified the order that the appellant shall furnish the security for the entire amount.

The question then arises as to whether these orders of the Supreme Court qualifies to be judicial precedent holding that in all cases 100% deposit is the norm? If this is to be taken as ratio from the above orders, then will it not nullify the discretion granted by the Supreme Court in Sihor Nagar Palika Bureau while interpreting sub-rule (5) of Rule 5 of Order XLI of CPC.

Whether the Orders qualify as Binding Precedent?

One may argue that the Orders does not qualify as precedent, as it contains no discussion and no reasoning on the issue at hand. The Supreme Court in umpteen number of cases have held that judgments of Courts are not to be construed as statutes, neither are they to be read as Euclid’s theorems. All observations made must be read in the context in which they appear.[8] To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes.[9]

However, at the same time it has been recently reiterated in Peerless General Finance and Investment Company Ltd. Vs. Commissioner of Income Tax[10] that a pronouncement of the Supreme Court, “even if it cannot be strictly called the ratio decidendi of the judgment would certainly be binding on the High Court”.

Similarly, in Oriental Insurance Co. Ltd. Vs. Meena Variyal[11], it was held that even an observation or an obiter of the Supreme Court is binding on the High Court in the absence of a direct pronouncement on that question, of the Supreme Court and in Sanjay Dutt Vs. State[12] it was held that even the obiter dicta of the Supreme Court is binding on other Courts in the country. Of course, the counsels have the privilege to contend so, to build a case for finally arguing before the Supreme Court itself.

Thus, even if it is presumed that the Orders are not precedents, then also devoid of any direct precedent on the issue at hand, the Orders will be binding precedents on the High Court. However, the question still remains as to whether in the said Orders, the Supreme Court had only exercised its discretion directing 100% deposit of the awarded amount or whether the Supreme Court has set 100% deposit of the awarded amount as a rule defying the discretion provided in Sihor Nagar Palika Bureau.

Recently, in Power Mech Projects Ltd v. SEPCO Electric Power Construction Corporation O.M.P.(I) (COMM.) 523/2017 decided on 17 February 2020, HMJ Jyoti Singh of the Delhi High Court, relying on the Orders observed that going by the recent judgments of the Supreme Court (the Orders) as well as the facts of that case, the petitioner must deposit 100% of the awarded amount to secure the respondent.

In another recent case of Indian Oil Corporation Limited v. Toyo Engineering Corporation & Anr. O.M.P. (COMM) 316/2019 decided on 6 March 2020, HMJ Jyoti Singh reiterated that at the stage of hearing enforcement application, the Court can exercise its discretion on the basis of the law and the facts and circumstances of the case and decide whether the entire awarded amount should be deposited or a part of the said amount. This is purely in the discretion of the Court and the discretion has to be exercised in the facts and circumstances of each case. Interestingly, in that case, the Court has directed the petitioner to make only a partial deposit of the awarded amount, which works out to only about 20%. Distinguishing Power Mech ProjectsHMJ Jyoti Singh in Indian Oil Corporation Limited reemphasized that this is purely in the discretion of the Court and the discretion has to be exercised in the facts and circumstances of each case.

Comments

While the Orders takes precedence on all the High Courts, I believe that the Supreme Court in the Orders has exercised its discretion in directing the appellant to deposit 100% of the decretal amount which is in line with the ratio of Sihor Nagar Palika Bureau. However, the said Orders may not be taken as providing a straitjacket formula for all such cases. This view is substantiated by judgments from several High Courts pan India where the courts have exercised their discretion and awarded less than 100% of the decretal amount as tabularised below:-

Cases Awarded Amount Amount of deposit directed
GNG Exports vs. Sinosteel Pvt. Ltd 2019(5)ArbLR587(Cal) Rs. 61,15,659

 

 

Deposit of Rs. 20 lakhs and bank guarantee of Rs. 18,92,000/

 

North Eastern Electric Power Corporation Ltd.  vs. Patel Engineering Ltd.  AIR 2018 Meghalaya 18 Rs. 1064 crores (tentatively worked out disputed balance amount)

 

 

Deposit of Rs. 53.2 (5% of tentatively worked out disputed balance amount)
Ecopack India Paper Cup Pvt. Ltd. vs. Sphere International 2018(4)ABR552 Rs. 47,56,388 No deposit
Manibhai and Brothers vs.  Birla Cellulosic Civil Application (For Orders) No. 11793 of 2015 in First Appeal No. 3176 of 2012 (Gujarat High Court)

 

Rs. 2,04,03,021

 

Deposit of Rs. 1,10,00,000
Jaipur Municipal Corporation and Ors. vs. Shilpa Construction D.B. Civil Misc. Appeal No. 4360 of 2018, Rajasthan High Court (Jaipur Bench)

 

Rs. 4,66,40,116/- with interest @ 12% per annum effective the date of the award

 

25% amount of the award in the Court or a bank draft of 25% of the award amount
Bihar Rajya Pul Niram Nigam Ltd. vs. SDB-SPS (JV), order dated 07.09.2018, in OMP (COMM) 382/2018,

NHAI vs. Jogbani Highways Private Ltd order dated 08.08.2018 in OMP (COMM) 347/2018,

V. Cubed Private Limited & Anr. Vs. M/s. Unique Infoways Private Limited, order dated 07.05.2019 in OMP (COMM) 185/2019

All in Delhi High Court

50% of the awarded amount

Similarly, there are cases where full amount is directed to be deposited. Some of them are tabularised below:-

Cases Awarded Amount Amount of deposit directed
National Thermal Power Corporation Ltd. vs. Siemens Atiengesellschaft C.M. No. 14904/2012 in FAO (OS) No. 372/2012, (Delhi High Court) Euros 17,158,557 plus interest of Euros 7,604,296.38

 

Full
Parvati Devi Khemka and Ors. vs. J.J. Grihanirman Private Limited C.O. No. 4242 of 2018. Calcutta High Court Rs. 3 Crore being the valuation of the property to which the petitioners are entitled, being 50 per cent of the entire constructed area Full
National Insurance Co. Ltd. vs. Sambhav Industries Review Petition No. 155/2018, Madhya Pradesh High Court (Gwalior Bench) Rs. 11,70,18,676/

 

Full
Mathur & Kapre Associates Private Limited v. ESIC, order dated 16.07.2019 in OMP (ENF) (COMM) 114/2019

Serum Institute of India Ltd. v. Union of India, in order dated 12.09.2019 in OMP (ENF) (COMM) 158/2019

Zapdor-UBS-ABN (JV) v. Central Organization of Railway Electrification (Core): Order dated 18.09.2019 passed in OMP (ENF) (COMM) 163/2019

S. Ghosh & Associates v. Delhi Development Authority: Order dated 25.09.2019 passed in OMP (ENF) (COMM) 169/2019

Seaspray Shipping Co. Ltd. v. Steel Authority of India Ltd: Order dated 26.09.2019 passed in OMP (ENF) (COMM) 80/2019

All in Delhi High Court

  Full

From the above tables, it is apparent that the Courts are exercising their discretion in deciding the quantum of decretal amount to be deposited as security before granting stay on execution of award.

Further, a bare perusal of the provisions of Section 36 of the Arbitration Act shows that the jurisdiction so conferred on the Court is a discretionary jurisdiction. The proviso to Sub-section (3) further makes it implicit that the provisions of Order 41 Rule 1 Sub-Rule 3 and Rule 5 of CPC would become relevant. In exercising powers under Order 41 Rule 5 the Court exercises its discretion and may grant a stay to the execution of a decree if “sufficient cause” is made out and the party seeking stay satisfies the Court that it will sustain substantial loss and inter-alia satisfies the condition as stipulated in sub-Rule 3 of Rule 5.

Thus, under the scheme of the provisions of Section 36 of the Arbitration Act read with Order 41 Rules 1 and 5 of CPC, it is for the Court to consider the facts and circumstances of the case and exercise its discretion either to grant a stay to the execution of the decree and if so to impose or not to impose any other condition, as the Court may deem appropriate which includes depositing full or certain percentage of the decretal amount. The discretion so vested in the Court is required to be exercised judicially and not arbitrarily and in the interest of justice.

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

[1] (2005) 4 SCC 1

[2] Atma Ram Properties (P) Ltd. vs. Federal Motors Pvt. Ltd. (2005) 1 SCC 705

[3] G. A. No. 1401 of 2018 with A. P. No. 346 of 2018, G. A. No. 1399 of 2018 with A. P. No. 343 of 2018 and G. A. No. 1400 of 2018 with A. P. No. 345 of 2018 ()

[4] Order dated 14 September 2018 in SLP(C) No(s). 20895-20897/2018

[5] CA No. 14464/2017 19-03-2018 in CA No. 3538/2016 passed by the High Court Of Judicature At Bombay At Aurangabad

[6] Manish vs. Godawari Marathawada Irrigation Development Corporation in Special Leave to Appeal [C] 11760-11761/2018

[7] (2015)5SCC267

[8] BGS SGS SOMA JV vs. NHPC Ltd. 2019(6)ArbLR393(SC)

[9] Union of India (UOI) vs. Amrit Lal Manchanda and Anr. (2004) 3 SCC 75

[10] 2019 SCC OnLine SC 851

[11] (2007) 5 SCC 428

[12] (1994) 5 SCC 402

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