2024 INSC 827 Page 1 of 11

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No 12097 of 2024

(Arising out of SLP(C) No 25369 of 2024)

International Seaport Dredging Pvt Ltd .... Appellant

Versus

Kamarajar Port Limited ....Respondent

J U D G M E N T

Dr Dhananjaya Y Chandrachud, J

1. Leave granted.

2. The appeal arises from an interim order dated 9 September 2024 of a Single

Judge of the High Court of Judicature at Madras in A No 4236 of 2024 in Arb OP

(Com Div) No 335 of 2024.

3. The respondent issued a Letter of Award for executing Capital Dredging Phase- III

at Kamarajar Port to the appellant for an approximate sum of Rs 274 crores. On

12 August 2015, the parties entered into a contract for the following work to be

conducted by the appellant:

a. Capital dredging of Container Berth and Multi Cargo Berths and their

approaches;

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b. Capital dredging of Coal Berth 3 & Coal Berth 4 and their approaches;

c. Removal of onshore boulders and transportation to the designated area;

d. Removal of offshore boulders and transportation to the designated area;

e. Removal of offshore identified debris/wrecks; and

f. Environmental monitoring.

4. These tasks were to be completed on or before 11 April 2017. Thereafter,

disputes arose between the parties . The appellant invoked the arbitration

agreement. The arbitral proceedings commenced and the three-member arbitral

tribunal made an award on 7 March 2024 directing the respondent to:

a. Pay the appellant a sum of Rs 21,07,66,621 towards the claims that were

allowed in its favour;

b. Pay the appellant interest on the amount awarded at the rate of nine per cent

per annum from 15 November 2017 until the date of the award if the payment

was made within three months, and, if not, at the rate of twelve per cent per

annum from the date of the award till the date of payment ; and

c. Pay the appellant Rs 3,20,86,405 by way of costs.

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5. Both parties filed applications under Section 33 of the Arbitration and Conciliation

Act 1996

1 for correction of the award and for additional arbitral awards. The

arbitral tribunal d ismissed the application filed by the respondent. It allowed the

application filed by the appellant only to the extent of increasing the costs awarded

to it by Rs 12,00,000 to reflect the fees paid to the arbitral tribunal subsequent to

the parties filing their memo of costs.

6. The respondent challenged the arbitral award under Section 34 of the Arbitration

Act and moved an application for stay of execution. The High Court, by its

impugned judgment and order dated 9 September 2024, granted a stay on the

execution of the award conditional on the respondent furnishing a bank guarantee

in the sum of Rs 21,07,66,621 within a period of eight weeks.

7. The judgment of the High Court has been assailed by the original claimant of the

arbitral proceeding (i.e., the appellant in this case) whose contention is that since

the award operates as a money decree under Section 36 of the Arbitration Act, the

High Court was not justified in directing merely the furnishing of a bank guarantee

in relation to the principal amount. The appellant contends that the respondent

ought to have instead been directed to deposit the amount awarded to i t as a

condition for the grant of a stay on the execution of the award.

8. Mr Shyam Divan, senior counsel appearing on behalf of the appellant, has urged

that: (i) A body of precedent has emerged from this Court in terms of which the

sanctity of arbitration must be preserved by requiring the deposit of the amount

1 “

Arbitration Act”

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awarded as a condition for the stay on the enforcement of the award; (ii) The

amended provisions of the Arbitration Act require that while considering an

application for stay of an award for the payment of money, due regard has to be

had to the provisions of the Code of Civil Procedure 1908

2; and (iii) The award of

Rs 21,07,66,621 covered ten claims of which three were awarded in full and seven

in part. The High Court while ordering a stay, has essentially furnished only two

reasons. The first reason pertains to the question of cess, while the only other

reason is that the respondent is not “a fly by operator”.

9. Mr C A Sundaram, senior counsel appearing on behalf of the respondent, submits

that: (i) The amended provisions of the statute incorporate provisions of the CPC

in regard to ordering a stay of an award which contains provisions for the payment

of money; (ii) Under Order XLI Rule 5 of the CPC, the requirement is for furnishing

of security and the deposit of money should not, therefore, be regarded as a

default option; (iii) The High Court had due regard to the fact that the respondent is

a statutory body and correctly held that security should be furnished in the form of

a bank guarantee; (iv) A s such the impugned judgment should not be interfered

with under Article 136 of the Constitution; and (v) The body of precedents which

Mr Divan relied on pertains to appeals under Section 37 of the Arbitration Act .

10. Section 36(2) of the Arbitration Act indicates that where an application to set aside

an arbitral award has been filed under Section 34, the filing of such an application

shall not, by itself, render that award unenforceable, unless the Court grants a stay

2 “

CPC”

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on the enforcement of the arbitral award in terms of sub- section (3). The provision

indicates that a separate application must be made for this purpose. Sub- section

(3) of Section 36 stipulates that where such an application has been filed, the

Court may, subject to such conditions as it may deem fit, grant stay of the

operation of the award for reasons to be recorded in writing. Following the

amendments brought about by the Arbitration and Conciliation (Amendment) Act

2015, the first proviso to sub- section (3) stipulates that the Court shall, while

considering an application for grant of stay in the case of an arbitral award for

payment of money, have due regard to the provisions related to the grant of stay

of a money decree under the CPC. The second proviso provides for a situation in

which the Court may grant unconditional stay. Section 36(3) and its provisos are

reproduced below:

“36. Enforcement –

…

(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).

Provided further that where the Court is satisfied that a

Prima facie case is made out that, –

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(a) the arbitration agreement or contract which is

the basis of the award; or

(b) the making of the award,

was induced or effected by fraud or corruption, it shall

stay the award unconditionally pending disposal of the

challenge under section 34 to the award.

Explanation.—For the removal of doubts, it is hereby

clarified that the above proviso shall apply to all court

cases arising out of or in relation to arbitral

proceedings, irrespective of whether the arbitral or

court proceedings were commenced prior to or after

the commencement of the Arbitration and Conciliation

(Amendment) Act, 2015 (3 of 2016).”

(emphasis supplied)

11. 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.

3

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. It held that while the

substance of the claims of the parties could only be determined in the proceedings

under Section 34 of the Arbitration Act, it was prima facie satisfied that the arbitral

3

“Cess Act”

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tribunal had erred in not considering the claim of the respondent. Apart from

discussing this claim, which was in the amount of approximately Rs 3 crores, the

High Court did not address the other claims of the appellant which were allowed

by the arbitral tribunal. The amount awarded in relation to the remaining claims is

approximately Rs 18 crore.

12. 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, in our view, cannot be any different merely because of the

status of the respondent as a statutory undertaking.

13. In this regard, it is necessary to advert to a decision of a two- Judge Bench of this

Court in Pam Developments Private Limited v State of West Bengal

4 where it

was observed:

“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

4

(2019) 8 SCC 112

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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.”

14. The Court also observed:

“26. Arbitration proceedings are essentially alternate

dispute redressal system meant for early/quick

resolution of disputes and in case a money decree —

award as passed by the arbitrator against the

Government is allowed to be automatically stayed, the

very purpose of quick resolution of dispute through

arbitration would be defeated as the decree- holder

would be fully deprived of the fruits of the award on

mere filing of objection under Section 34 of the

Arbitration Act. The Arbitration Act is a special Act which

provides for quick resolution of disputes between the

parties and Section 18 of the Act makes it clear that

the parties shall be treated with equality. Once the

Act mandates so, there cannot be any special

treatment given to the Government as a party. As

such, under the scheme of the Arbitration Act, no

distinction is made nor any differential treatment is

to be given to the Government, while considering an

application for grant of stay of a money decree in

proceedings under Section 34 of the Arbitration Act.

As we have already mentioned above, the reference to

CPC in Section 36 of the Arbitration Act is only to guide

the court as to what conditions can be imposed, and the

same have to be consistent with the provisions of the

Arbitration Act.

…

28. Section 36 of the Arbitration Act also does not

provide for any special treatment to the Government

while dealing with grant of stay in an application under

proceedings of Section 34 of the Arbitration Act.

Keeping the aforesaid in consideration and also the

provisions of Section 18 providing for equal treatment of

parties, it would, in our view, make it clear that there is

no exceptional treatment to be given to the

Government while considering the application for

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stay under Section 36 filed by the Government in

proceedings under Section 34 of the Arbitration

Act.”

(emphasis supplied)

15. Bearing in mind the above principles, we are of the view that 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. Moreover, an assessment as to whether a party is reliable or trustworthy

is subjective. Many private entities, too, may rely on the size of their undertaking,

its success, public image, or other factors to argue that they are not fly-by-night

operators. In the absence of any provision of law in this regard, it would be

inappropriate for courts to apply this standard while adjudicating the conditions

upon which a stay of an award may be granted. Similarly, the form of security

required to be furnished should not depend on whether a party is a statutory or

other governmental body or a private entity. Governmental entities must be treated

in a similar fashion to private parties insofar as proceedings under the Arbitration

Act are concerned, except where otherwise indicated by law. This is because the

parties have entered into commercial transactions with full awareness of the

implications of compliance and non- compliance with the concerned contracts and

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the consequences which will visit them in law. Hence, 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.

16. In Toyo Engineering Corpn. v. Indian Oil Corpn. Ltd.,

5

this Court reiterated the

same principle in the following terms:

“3. This Court repeatedly having held that Order XLI

Rule 5 principles are to be followed in these cases, we

find that largely because public corporations are

involved, discretion continues to be exercised not on

principles under Order XLI Rule 5 but only because

large amounts exist and that Government Corporations

have to pay these amounts under Arbitral Awards.

Both these considerations are irrelevant, as has been

pointed out by us earlier.”

17. 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. In modification of the direction of the

High Court in the impugned judgment dated 9 September 2024, we direct that:

(i) 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; and

(ii) 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.

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2021 SCC OnLine SC 3455

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18. The impugned judgment of the High Court shall stand modified in the above terms.

The appeal is allowed accordingly.

19. Pending applications, if any, stand disposed of.

…..…..…....…........……………….…........CJI.

[Dr Dhananjaya Y Chandrachud]

……..…..…....…........……………….…........J.

[J B Pardiwala]

……..…..…....…........……………….…........J.

[Manoj Misra]

New Delhi;

October 24, 2024

-S-