2024 (11) TMI 48 - SC - Indian Laws

Challenge to arbitral award under Section 34 of the Arbitration and Conciliation Act 1996 - grant of stay on the execution of the award conditional on the respondent furnishing a bank guarantee - treatment of governmental versus private entities in arbitration proceedings - HELD THAT - In the present case, there is an arbitral award to the tune of approximately Rs 21 crores in favour of the appellant. The High Court, while issuing a direction for furnishing of a bank guarantee, dealt with only one of the claims which was awarded by the arbitral tribunal, namely, that which pertained to the refund of the cess under the Building and Other Construction Workers Welfare Cess Act 1996. In this regard, the High Court observed that the Deputy Chief Labour Commissioner, by its order dated 6 November 2019, held that the Cess Act was not applicable to the appellant which was therefore not required to pay cess under that statute. It noted that the arbitral tribunal had, however, rendered an award in which it directed the respondent to pay the appellant this amount, which had already been paid by the respondent to the appellant. The High Court granted a stay on the operation of the award subject to the respondent furnishing a bank guarantee for the principal amount awarded to the appellant, i.e. Rs 21,07,66,621. It held that it was not inclined to issue orders in relation to the interest and the costs awarded to the appellant because the petitioner is not a fly-by operator and is a statutory undertaking. The law qua arbitration proceedings cannot be any different merely because of the status of the respondent as a statutory undertaking. The High Court was in error in not even prima facie considering the fact that apart from the issue of cess, there was an arbitral award in favour of the appellant in regard to other claims as well. Further, the High Court ought not to have based its decision on the condition for the grant of stay on the status of the respondent as a statutory authority. The Arbitration Act is a self-contained code it does not distinguish between governmental and private entities. Hence, the decision of the Court cannot be influenced by the position of the party before it and whether it is a fly-by-night operator - the argument that the High Court was correct in directing the respondent to furnish bank guarantees in relation to the amount awarded because it is a statutory body is rejected. Under Order XLI Rule 5 of the CPC, the Court has the power to direct full or part deposit and/or the furnishing of security in respect of the decretal amount. Bearing in mind the principles which must guide the Court, we are of the view that the order of the High Court requires modification - The respondent shall deposit an amount quantified at 75% of the decretal amount, inclusive of interest, on or before 30 November 2024 before the High Court - Conditional on the deposit of the aforesaid amount within the period stipulated above, there shall be a stay on the enforcement of the arbitral award. The impugned judgment of the High Court shall stand modified - Appeal allowed.

Summary

Issues Involved:
1. Validity of the High Court's decision to grant a stay on the execution of an arbitral award by requiring only a bank guarantee.
2. Applicability of the Code of Civil Procedure (CPC) in arbitration proceedings concerning the stay of money decrees.
3. Treatment of governmental versus private entities in arbitration proceedings.

Issue-wise Detailed Analysis:

1. Validity of the High Court's Decision on Stay of Execution:
The primary issue in this case was whether the High Court was justified in granting a stay on the execution of the arbitral award by requiring the respondent to furnish only a bank guarantee. The appellant argued that the High Court should have directed the respondent to deposit the awarded amount as a condition for the stay, in line with the sanctity of arbitration and established precedents. The Supreme Court found that the High Court erred in not considering the entire arbitral award, which included multiple claims beyond the issue of cess. The Court emphasized that the status of the respondent as a statutory authority should not influence the conditions for granting a stay. The Supreme Court modified the High Court's order, directing the respondent to deposit 75% of the decretal amount, inclusive of interest, to stay the enforcement of the arbitral award.

2. Applicability of the CPC in Arbitration Proceedings:
The judgment analyzed the applicability of the CPC in arbitration proceedings, specifically concerning the stay of money decrees. Section 36(3) of the Arbitration and Conciliation Act requires courts to have due regard to the CPC provisions when granting a stay on an arbitral award for payment of money. However, the Supreme Court clarified that the reference to the CPC is guiding and not mandatory, emphasizing that the Arbitration Act is a self-contained code. The Court reiterated that the provisions of the CPC should be applied only insofar as they are consistent with the Arbitration Act, as established in Pam Developments Private Limited v. State of West Bengal.

3. Treatment of Governmental Versus Private Entities:
The Court addressed the issue of whether governmental entities should be treated differently from private parties in arbitration proceedings. It held that the Arbitration Act does not distinguish between governmental and private entities, and the conditions for granting a stay should not be influenced by the status of the party as a statutory body. The Court rejected the argument that the respondent's status justified the furnishing of a bank guarantee instead of a deposit, emphasizing that commercial transactions entail equal treatment under the law, regardless of the parties' nature. This principle was reinforced by the Court's reference to Toyo Engineering Corpn. v. Indian Oil Corpn. Ltd., which highlighted that considerations such as the size of the amount or the nature of the party (governmental or private) are irrelevant in determining the conditions for stay under Order XLI Rule 5 of the CPC.

In conclusion, the Supreme Court allowed the appeal, modifying the High Court's order to require a deposit of 75% of the decretal amount for the stay of the arbitral award, thereby reinforcing the principles of equal treatment and the integrity of the arbitration process.