Introduction

Post the amendment having come into force w.e.f. 23.10.2015, it is now well known that in the event the Judgment Debtor desires to challenge the Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’), a separate application for stay has to be preferred under Section 36(2) of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as ‘the Amended Act’). Once an application for stay of an Arbitral Award is preferred under Section 36(2) of the Amended Act, 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 [Section 36(3) of the Amended Act]. Section 36(3) of the Amended Act is followed by a Proviso, which contemplates that the Court shall while considering an application for stay of an Arbitral Award for payment of money, have due regard to the provisions of Code of Civil Procedure, 1908 (hereinafter referred to as ‘CPC’).

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This Article aims to analyze the provisions of Section 36 of the Amended Act vis-à-vis the provisions of CPC and the case laws pertaining to the same, so as to provide an insight as to whether an Arbitral Award for payment of money, can be stayed by the Court without imposing conditions in the form of deposit or furnishing security or whether the Court is bound to impose conditions as aforementioned without any discretionary powers.

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Analysis

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Section 36 of the Amended Act reads as follows:

 

“36. Enforcement

 

(1) Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were a decree of the Court.

 

(2) Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.

 

(3) Upon filing of an application under sub-section (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).”

 

The use of ‘may’ in the main provision of Section 36(3) hinges towards an intention to grant discretion to the Court on whether stay should be granted or not. Whereas the second ‘may’ used is to show that if the Court comes to a conclusion that stay has to be granted, the Court again has the discretion to decide as to whether conditions, if any, are to be imposed or not. Therefore, from a bare reading of Section 36(3) of the Amended Act, it can be deduced that it is well within the Court’s power and discretion to grant stay without imposition of any conditions, with the only requirement to be fulfilled of recording reasons in writing. 

 

However, Section 36(3) of the Amended Act has to be read alongwith its Proviso. It is well-settled law that a Proviso cannot enlarge the scope of the main section[1]. The Proviso contemplates that the Court ‘shall’ i.e. it has to mandatorily while considering an application for stay of an Arbitral Award for payment of money, have due regard to the provisions of CPC.

 

It may be noted at this stage that Section 36(3) of the Amended Act, the main section, does not differentiate between an Arbitral Award and an Arbitral Award for payment of money, which factor needs to be borne in mind.

 

The usual procedure followed by Courts across India in cases involving an application for stay of an Arbitral Award for payment of money is to immediately turn to Order XLI Rule 1 and Order XLI Rule 5 of the CPC. Suffice it to state that a co-joint reading of Order XLI Rule 1 and Order XLI Rule 5 CPC will lead to a conclusion that in case the Applicant (Judgment Debtor) fails to make deposit or furnish security, the Court ‘shall’ not make an order staying the execution of the money decree.

 

Therefore, from the reading of Section 36(3) of the Amended Act alongwith its Proviso and Order XLI of CPC, it is clear that in cases involving an Arbitral Award for payment of money (money decree), if and only if the Applicant deposits or furnishes security, can the Court consider granting of stay.

 

However, recently the Hon’ble Apex Court in the case of Pam Developments Private Limited v. State of West Bengal[2] has held that the phrase used in the Proviso to Section 36(3) of the Amended Act [‘having regard to’], makes the application of provisions of CPC for money decree only directory in nature and not mandatory. The relevant paragraph of the Judgment is reproduced herein for ready reference:

 

“20. In our view, in the present context, the phrase used is “having regard to” the provisions of CPC and not “in accordance with” the provisions of CPC. In the latter case, it would have been mandatory, but in the form as mentioned in Rule 36(3) of the Arbitration Act, it would only be directory or as a guiding factor. Mere reference to CPC in the said Section 36 cannot be construed in such a manner that it takes away the power conferred in the main statute (i.e. the Arbitration Act) itself. It is to be taken as a general guideline, which will not make the main provision of the Arbitration Act inapplicable. The provisions of CPC are to be followed as a guidance, whereas the provisions of the Arbitration Act are essentially to be first applied. Since, the Arbitration Act is a self-contained Act, the provisions of CPC will apply only insofar as the same are not inconsistent with the spirit and provisions of the Arbitration Act.”  

 

Taking cue from the aforementioned judgment where the Hon’ble Apex Court has held that the applicability of provisions of CPC in cases under Section 36 of the Amended Act is only to guide the Court and on a closer perusal of Section 36(3) of the Amended Act, it would be well within the Judgment Debtor’s right to contend that the Court has all the discretion to grant an unconditional stay of an Arbitral Award for payment of money, without following the provisions of Order XLI CPC. It goes without saying that an exceptional case has to be made out by the Judgment Debtor in order for the Court to grant an unconditional stay[3]. However, once the Court decides that undue hardship will be caused to the Judgment Debtor if a conditional stay is granted (in terms of deposit or furnishing security), the only requirement to be satisfied by the Court is to record the reasons in writing for granting an unconditional stay.

 

As a matter of fact, this very same view was endorsed in a decision rendered by the Hon’ble Bombay High Court in the case of Ecopack India Paper Cup Pvt. Ltd. v. Sphere International[4] in the year 2018 i.e. much before the passing of the decision in Pam Developments (supra). The Ld. Single Judge had granted an unconditional stay of the Arbitral Award against which Ecopack India Paper Cup Pvt. Ltd. was in appeal. The Hon’ble Bombay High Court rejecting the appeal held that under the scheme of the provisions of Section 36 read with Order XLI Rule 1 and Order XLI Rule 5 of the CPC, the party opposing grant of a stay cannot assert a proposition that it would be mandatory for the court to impose a condition for a stay to the execution proceedings. 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 or impose or not impose any other condition, as the Court may deem fit [Relevant Paragraphs 4 and 10].

 

Ecopack India Paper Cup Pvt. Ltd. challenged the said decision before the Hon’ble Apex Court and under order dated 23.07.2018, the Hon’ble Apex Court disposed of the Special Leave Petition without interfering with the impugned judgment dated 14.03.2018[5].

 

As stated hereinabove, the instantaneous reaction for any Court in India while considering an application under Section 36 of the Amended Act for stay of Arbitral Award for payment of money is to direct the Applicant (Judgment Debtor) to deposit or furnish security. This is evident from the order dated 16.07.2018 passed in Manish v. Godawari Marathawada Irrigation Development Corporation[6] and order dated 14.09.2018 passed in SREI Infrastructure Finance Limited v. Candor Gurgaon Two Developers and Projects Ltd.[7]. In both these orders, the Hon’ble Apex Court has as a matter of course, ‘mandated’ deposit/ furnishing security of 100% Arbitral Award amount.

 

It is true that an unconditional stay of an Arbitral Award for payment of money can be granted only in exceptional cases and considering the facts and circumstances of the case. However, there also cannot be a blanket rule for seeking deposit / security in each case for the grant of stay. In this regard, the Court should be liberal enough to consider such a submission in a case where the Arbitral Award is on the face of it ex-facie illegal and arbitrary. In such cases, it would be wholly illogical in directing the Judgment Debtor to deposit the entire Arbitral Award.

 

In a recent judgment of the Hon’ble Delhi High Court in the case of Power Mech Projects Ltd. v. SEPCO Electric Power Construction Corporation[8], the Judgment Debtor had canvassed this very argument. The Hon’ble Delhi High Court while rejecting the argument of the Judgment Debtor has been pleased to hold under Paragraph 28 of the Judgment: “While it cannot be said as a principle of law that there is a mandate that in every case the Court must insist on a 100% deposit, before hearing a petition under Section 34 of the Act or before staying the enforcement of the Award, as the amount of deposit would depend on the facts of the case and is in the discretion of the Court hearing the petition, Mr. Nigam is correct in his submission that the circumstances and the facts of the present case warrants that the petitioner should be directed to deposit the principal amount awarded to the respondent before the petitioner is heard on merits”. It may be noted that an appeal against the said decision is pending in the Hon’ble Delhi High Court[9].

 

Even though the argument of the Judgment Debtor has been rejected by the Hon’ble Delhi Court, the operative portion of the Judgment as quoted hereinabove shows that the Court is not averse to the proposition that 100% deposit is not the rule of law and it is always the Court’s discretion to do away with this condition if deemed fit in the facts and circumstances of the case.

 

Interestingly, the Hon’ble Delhi High Court in a recent Judgment dated 06.03.2020 passed in the case of Indian Oil Corporation Limited v. Toyo Engineering Corporation Limited[10], has distinguished its Judgment dated 17.02.2020 passed in the case of Power Mech Projects Ltd. (supra) and disallowed the application for modification preferred by the Respondents (Decree Holder) for enhancing the deposit from 20% to 100%. While doing so, the Court has accepted the argument of the Judgment Debtor that there is no mandate of law that in every case the Court should direct 100% deposit of the awarded amount.

 

 

[1] Ambalal Sarabhai Enterprises Ltd. v. Amrit Lal and Co.; (2001) 8 SCC 397

[2] (2019) 8 SCC 112

[3] Malwa Strips Private Limited v. Jyoti Limited; (2009) 2 SCC 426

[4] Decision dated 14.03.2018 in Appeal No. 101 of 2018 in Notice of Motion No. 2059 of 2017

[5] Special Leave Petition (Civil) No. 16605 of 2018- Ecopack India Paper Cup Pvt. Ltd. v. Sphere International

[6] Special Leave Petition (Civil) No. 11760-11761/2018

[7] Special Leave Petition (Civil) No. 20895-20897/2018

[8] Judgment dated 17.02.2020 passed in O.M.P.(I) (COMM.) 523/2017

[9] FAO (OS) (COMM) 59/2020

[10] O.M.P. (COMM) 316/2019 and IA 10900/2019

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Conclusion

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Therefore, taking note of the recent decisions, it would not be incorrect to state that an unconditional stay of Arbitral Award for payment of money can be granted by the Court after taking into consideration the facts and circumstances of the case, with the only requirement being to record the reasons for doing the same in writing.

 

Since this entire article is premised on the ratio of CPC being directory in nature [Pam Developments Private Limited (supra)], it is necessary to point out a probable question that can be raised by Court whilst canvassing the argument of unconditional stay by the Judgment Debtor.

 

The Hon’ble Apex Court in Pam Developments Private Limited (supra) has held that since the Arbitration Act is a self-contained Act, the provisions of CPC will apply only to the extent the same are not inconsistent with the spirit and provisions of the Arbitration Act. Relying on this observation, the Courts may counter question that since the Arbitration Act does not specifically deal with the issue of enforcement of Arbitral Award for payment of money, whereas the same is specifically dealt with under CPC and there being nothing inconsistent between this provision of CPC and Arbitration Act, it would be prudent to apply the provisions of CPC to a Section 36(2) application. 

 

To this, it can be contended that firstly the application of CPC is directory. Assuming without accepting that CPC has to be applied, the Court also has to consider the provisions of Order XXXIX and can grant an interim relief on the basis of (i) Prima-facie case (ii) Balance of Convenience and (iii) Irreparable loss, without going to the provisions of Order XLI CPC.

Thus, in cases where the Hon’ble Apex Court has adopted an approach mandating deposit or furnishing security, it would be interesting to see if any Court accepts this contention of the Judgment Debtor that there is always a discretion available with the Court to pass an unconditional stay if the Arbitral Award for payment of money is ex-facie illegal and arbitrary.