Delhi High Court: Lien On Arbitral Award And Deposits As To Costs

Delhi-High-Court

Section 39 of the Arbitration & Conciliation Act (‘Arbitration Act’) recognises an arbitral tribunal’s lien over the award. The section conceives of a situation where there may be a dispute between the arbitral tribunal and one or more parties to the reference as to the costs of the arbitration. Upon an arbitral tribunal refusing to deliver its award unless its demand for payment of costs were met by a party, an application may be carried to Court for directing the tribunal to deliver the award to the applicant. Sub-section (2) contemplates an applicant there under to put into Court the costs demanded by the arbitral tribunal. Upon such costs being deposited the Court may order the tribunal to deliver the award to the applicant. The Court can thereafter inquire into the propriety of the costs demanded and deal with the matter following the inquiry.

Sub-section (3) of Section 39 permits an application under Sub-section (2) to be carried by any party to the reference only on condition that the fees demanded were not as fixed by written agreement between the applicant and the arbitral tribunal. The Sub-section does not limit an application to be made under Sub-section (2) only by a party who has been refused the delivery of the award.[1] For the ease of reference, Section 39 of the Arbitration Act is reproduced hereunder:-

Section 39 – Lien on arbitral award and deposits as to costs

(1) Subject to the provisions of sub-section (2) and to any provision to the contrary in the arbitration, agreement, the arbitral tribunal shall have a lien on the arbitral award for any unpaid costs of the arbitration.

(2) If in any case an arbitral tribunal refuses to deliver its award except on payment of the costs demanded by it, the Court may, on an application in this behalf, order that the arbitral tribunal shall deliver the arbitral award to the applicant on payment into Court by the applicant of the costs demanded, and shall, after such inquiry, in any, as it thinks, fit, further order that out of the money so paid into Court there shall be paid to the arbitral tribunal by way of costs such sum as the Court may consider reasonable and that the balance of the money, if any, shall be refunded to the applicant.

(3) An application under sub-section (2) may be made by any party unless the fees demanded have been fixed by written agreement between him and the arbitral tribunal, and the arbitral tribunal shall be entitled to appear and be heard on any such application.

(4) The Court may make such orders as it thinks fit respecting the costs of the arbitration where any question arises respecting such costs and the arbitral award contains no sufficient provision concerning them.

In the above backdrop, the question then arises as to what is the exact stage when an application under Section 39(2) of the Arbitration Act can be filed by the party in the Court? Is it at any stage when the arbitral tribunal refuses to render the award due to non-payment of its costs that a party can file an application under Section 39(2) of the Arbitration Act seeking the court to direct the arbitrator tribunal to deliver the award to the applicant on its depositing in the Court costs so demanded by the Tribunal? Or is it only at the stage when an arbitration Award has been made and not delivered that such an application can be filed? The question has been answered by the Delhi High Court recently in M/S Janapriya Engineerss vs Union Of India O.M.P.(MISC.)(COMM.) 377/2019 decided on 5 June 2020.

To appreciate the issue, attention may be drawn to the words like ‘delivery’, ‘refuses to deliver its award’ in Section 39. The presence of the words in the said Section pre-supposes that an arbitration Award has been made, on which the Arbitrator has exercised lien and not delivered the Award. It is in that eventuality, that a party is entitled to approach the Court under Section 39(2) of the Arbitration Act to obtain the Award, subject to deposit of the costs as demanded by the arbitrator.

Perusal of Section 39 (2) of the Arbitration Act clearly contemplates that the application is maintainable when the Award is made, but not delivered to the parties as a party has not paid the fee demanded by the arbitrator. There is a purpose for delivery of the Award as the delivery of Award shall entitle a party to either challenge the Award or seek execution of the same. It is in such a situation a party can invoke the provision of Section 39(2) of the Arbitration Act.

Thus, the delivery that Section 39 speaks of is the physical delivery of the document embodying the award and not merely the pronouncement of the award. For, it is the physical receipt of the document that would entitle a party to apply for setting aside the award or for implementing it.[2]

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

[1] Assam State Weaving and Manufacturing Co. Ltd. vs. Vinny Engineering Enterprises (P) Ltd. and Ors. AIR 2010 Cal 52

[2] Assam State Weaving and Manufacturing Co. Ltd. vs. Vinny Engineering Enterprises (P) Ltd. and Ors. AIR 2010 Cal 52

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