Introduction
An arbitral award can be challenged by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Arbitration Act 1996'). Prior to the 2015 amendment, filing such an application automatically stayed the enforcement of the arbitral award, as per the unamended Section 36 of the Act. However, following the Arbitration and Conciliation (Amendment) Act, 2015, Section 36(2) was revised to clarify that filing an application to set aside an arbitral award does not automatically stay its enforcement. Instead, the party seeking to stay the award must file a separate application, and the court must pass a specific order to grant a stay on the award's enforcement.
This article provides a critical analysis of a recent judgment by the Bombay High Court, focusing specifically on the quantum of deposit required when an arbitral award is framed as a money decree.
Background of the Case
The Balmer Lawrie & Co. Ltd. (hereinafter referred to as the 'Petitioner')1, is an Indian Central Public Sector undertaking under the Ministry of Petroleum & Natural Gas. The company operates across various sectors, including industrial packaging, greases and lubricants, chemicals, travel and vacations, logistics infrastructure, logistics services, cold chain, and refinery and oil field services. Further, the Shilpi Engineering Private Limited Shilpi Engineering Private Limited(hereinafter referred to as the 'Respondent'), is a private company registered in Mumbai, Maharashtra. The company is involved in building complete constructions and civil engineering projects.
The dispute between the parties originated from a contractual agreement, which led to an arbitral award in favor of the Respondent, dated 05.07.2018. The Petitioner challenged this arbitral award under Section 36(3) of the Arbitration Act 1996, before Bombay High Court. The current issue before the Bombay High Court arises after the Petitioner has already provided a 100% bank guarantee for the awarded amount, including accrued interest, in the execution proceedings initiated in the Calcutta High Court. The Petitioner seeks a stay on the enforcement of the arbitral award and requested the Court to accept the bank guarantee as security, instead of depositing the awarded amount as required under Section 36(3) of the Arbitration Act 1996.
Key Issue/Prayer of Petitioner
The primary issue was whether the Petitioner could replace the mandatory deposit of the awarded amount with the bank guarantee already provided in the execution proceedings. The Court also had to determine whether the criteria for granting a stay under Section 36(3) of the Arbitration Act were the same as those under Section 37, which governs appeals from Section 34 petition.
Observation by High Court of Bombay
The Bombay High Court ruled that providing a bank guarantee does not satisfy the requirements of Section 36(3) of the Arbitration Act 1996. The court highlighted that the Arbitration Act 1996 specifically mandates the deposit of the awarded amount, including interest, in order to secure a stay on the enforcement of the award. The Court also clarified that the principles governing the granting of a stay under Section 36(3) and Section 37 were identical. It rejected the argument that these provisions could be distinguished, noting that an arbitral award is treated as a decree until a stay is granted. It emphasized that an arbitral award, even if challenged, is treated as a decree unless a stay is granted, and the same principles govern the granting of a stay under both provisions.
The bench relied on precedents from the Supreme Court such as Pam Developments Pvt. Ltd. v. State of West Bengal 2 and Toyo Engineering v. Indian Oil Corporation 3. where the Supreme Court held that a full deposit of the awarded amount is necessary to secure a stay on enforcement. The court also disagreed with the reasoning of the Calcutta High Court inKolkata Metropolitan Development Authority v. South City Projects (Kolkata) Ltd.,4 which had drawn a distinction between the provisions of Sections 36(3) and 37 as there is no basis for distinguishing between the applications under both Sections. Moreover, it was highlighted that Section 36(3) does not contemplate a liberal approach in imposing conditions for staying an arbitral award.
The Court noted that while considering an application under Section 36(3) of the Arbitration Act, 1996, such court exercises the discretion in granting a stay on the impugned award. The decision to impose conditions, as well as the extent of such conditions, depends on the facts and circumstances of each case. However, as per Court's opinion, in the present case, the Petitioner had failed to demonstrate the circumstances it was experiencing financial hardship in depositing the awarded amount. Furthermore, mere fact that it had furnished a bank guarantee during execution proceedings before the Calcutta High Court is not a relevant consideration when exercising discretion under Section 36(3) of the Act to impose conditions for granting a stay.
The Court also placed strong reliance on the consistent stand taken by the Supreme Court5 vis-à-vis award is a money decree, opining that a deposit of 100% of the awarded amount is required for granting a stay.6
Conclusion
The Bombay High Court's ruling reinforced the principle that arbitral awards, even when under challenge, must be treated as enforceable decrees. The Court granted a stay on the execution of the arbitral award but made it conditional upon the Petitioner depositing the full awarded amount, including interest, within six weeks. The Petitioner was permitted to apply to the Calcutta High Court for the withdrawal of the earlier bank guarantee once the deposit was made.
This decision serves as a crucial reminder of the need to uphold the integrity of arbitral awards and ensure the uniform application of stay provisions under the Arbitration Act, 1996. By requiring the deposit of the entire awarded amount, the Court emphasized that the procedural safeguards in the Arbitration Act, 1996 must be adhered to, reinforcing the finality of arbitral awards. This case provides clarity on the importance of complying with statutory requirements to ensure the smooth enforcement of arbitral decisions.
Footnotes
1 Balmer Lawrie | Govt. Booking & Manufacturing Portal
2 Pam Developments (P) Ltd. v. State of W.B., (2019) 8 SCC 112.
3 ToyoEngineeringCorporationand Another v. IndianOilCorporationLimited, 2021 SCC OnLine SC 3455.
4 Kolkata Metropolitan Development Authority v. South City Projects (Kolkata) Ltd., IA GA 1 of 2020 and A.P. No. 351 of 2020
5 Srei Infrastructure Finance Limited v. Candor Gurgaon Two Developers and Projects Pvt. Ltd., SLP (C) Nos. 20895-20897/2018
6 Manish v. Godawari Marathawada Irrigation Development Corpn., 2018 SCC OnLine SC 3863.
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