Section 36 of the Arbitration Act has been amended by Act number 3 of 2016 with retrospective effect from 23.10.2015. In view of the preamended provision of Section 36 of ...
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1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5432 OF 2019
[ARISING OUT OF SPECIAL LEAVE PETITION [C] NO. 7383 OF 2019]
PAM DEVELOPMENTS PRIVATE LTD. …..APPELLANT
VERSUS
STATE OF WEST BENGAL ……RESPONDENT
WITH
CIVIL APPEAL NO. 5433 OF 2019
[ARISING OUT OF SPECIAL LEAVE PETITION [C] NO. 7790 OF 2019]
PAM DEVELOPMENTS PRIVATE LTD. …..APPELLANT
VERSUS
STATE OF WEST BENGAL ……RESPONDENT
J U D G M E N T
VINEET SARAN, J.
Leave granted.
2.In response to a notice inviting tender issued by the
respondent relating to the work of “Special Repair Programme 2000
2
2001 for different stretches of National High WayII from 622 Kmp
to 625 Kmp, 627 Kmp to 628 Kmp and 630 Kmp to 631 Kmp (vide
Job No.CRF/W.B./70/2000) under the Hooghly High Way Division
No.II in the District of Hooghly (Package No. II)”, the appellant,
alongwith others, had applied. The bid of the appellant was
accepted on 26
th
March 2001, for which an agreement was
registered on 2
nd
April, 2001. After several extensions were granted
by the respondent for the delay which, according to the appellant,
was entirely attributable to the respondent, the work under the
agreement was completed by the appellant on 28.02.2002. Then,
on 26
th
May 2003, the appellant raised its claims and dues before
the Executive Engineer of Public Works (Roads) Department,
Government of West Bengal. The claims of the appellant having not
been paid, an application under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (for short ‘the Arbitration Act’) was filed by
the appellant. By an order dated 14
th
August 2003, the Calcutta
High Court was pleased to appoint Retired Justice Sujit Kumar
Sinha as the Arbitrator to decide the disputes. By his award dated
21st January, 2010, the Arbitrator allowed some claims of the
appellant and held the appellant to be entitled to a sum of
Rs.2,87,11,553/ plus interest at the rate of 18% per annum on a
3
sum of Rs.1,34,06,965/ from the date of the award till the date of
the payment. Challenging the award passed by the Arbitrator, the
respondent State of West Bengal filed an application under Section
34 of the Arbitration Act before the Calcutta High Court. The
appellant filed its affidavit in opposition of the aforesaid, to which
reply had also been filed by the respondent. The matter is still
pending consideration before the Calcutta High Court.
3. Section 36 of the Arbitration Act has been amended by Act
number 3 of 2016 with retrospective effect from 23.10.2015. In
view of the preamended provision of Section 36 of the Arbitration
Act, the respondent had not filed injunction application in the
proceedings under Section 34 of the Arbitration Act. However, in
view of the pronouncement of the judgment by this Court in the
case of Board of Control for Cricket in India vs Kochi Cricket Private
Limited (2018) 6 SCC 287, wherein it was held that the amended
provisions of Section 36 of the Arbitration Act would also apply to
the pending proceedings under Section 34 of the Arbitration Act,
the appellant filed an execution application before the Calcutta
High Court (registered as E. C. No.297 of 2018). The respondent
then sought time to file an application for staying the award.
4
4. In the executing proceedings, on 18.09.2018, the Executing
Court adjourned the matter after recording that “in the event the
operation of the award is not stayed by the adjourned date, the
petitioner shall be entitled to pray for attachment of the said amount
in execution of the said award”. In the meantime, the respondent
filed stay application under the amended Section 36(2) of the
Arbitration Act in the pending proceedings under Section 34 of the
Arbitration Act before the Calcutta High Court. On 27.09.2018, the
stay application of the respondent was dismissed in default.
Consequently, on 03.10.2018, which was the adjourned date fixed
by the Executing Court in E.C. No.297 of 2018, the Executing Court
passed an order attaching the sum of Rs. 2.75 Crores lying to the
credit of the respondentState of West Bengal with the Reserve
Bank of India. It was further clarified that in the event there was
no stay of operation of the award by the adjourned date
(04.12.2018), it would be open to the appellant (award holder) to
pray for release of the said amount. Relying on an order dated
05.09.2018 of a coordinate bench of the High Court wherein an
unconditional stay of award had been granted to the State
Government and the SLP against such order had been dismissed in
5
limine, the Executing Court dismissed the execution petition filed
by the appellant.
5. Without filing the application for recall of the order dated
27.09.2018, whereby the stay application of the respondent had
been dismissed in default, the respondent filed a fresh application
for stay of the award, in which the impugned order dated
13.12.2018 of unconditional stay was passed after relying on the
provisions of Order XXVII Rule 8A, Code of Civil Procedure (for
short ‘CPC’). Challenging the said order, the present Appeal has
been filed.
6. The submission of Shri Saurav Agarwal, learned counsel for
the appellant is twofold. Firstly, that the provision of Order XXVII
Rule 8A CPC would not be applicable to the present case, and as
such the Court ought not to have considered the same while
deciding the application for stay of the award under Section 36 of
the Arbitration Act. Secondly, it has been submitted that even if
the provision of Order XXVII Rule 8A are to be taken into account,
then too the Courts should not pass an order of unconditional stay
of award and could still direct deposit of the awarded amount.
7. The contention of the learned counsel for the appellant is that
as per the amended Section 36 of the Arbitration Act, filing of an
6
application under Section 34 of the Arbitration Act shall not by
itself render the award unenforceable unless the stay of the
operation of the award is granted by the Court in accordance of the
provisions of subSection (3) of Section 36. It is submitted that
under subSection (3) of Section 36, it is provided that “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.”
According to the learned counsel for the appellant, the proviso to
the said Section merely provides that the application for grant of
stay is to be considered after “having due regard to the provisions
for grant of stay of money decree under the provisions of CPC”. It is
thus been submitted by the learned counsel for the appellant that
under subSection (3) of Section 36, the CPC would be applicable
“subject to” the provisions of subSection (2) of Section 36.
According to the learned counsel, the phrase “subject to” the
conditions, would mean that it is obligatory for the Court to impose
such conditions at it may deem fit, if it decides to grant a stay of the
award, meaning thereby the grant of stay is to be conditional. It is
further contended that the proviso to the said Section merely states
that the Court shall “have due regard” to the provisions of CPC,
which would mean that the Court will take the said provisions of
7
the CPC into consideration as a guiding principle and the same
would not be mandatory. Learned counsel for the appellant has
contended that the Arbitration Act is a complete code in itself and
the stay application has to be considered as per the provisions of
Section 36 of the Arbitration Act, having due regard to the
provisions of CPC, which would not be same as “in accordance
with” the provisions of CPC. It is vehemently urged that the
provisions of Order XXVII Rule 8A CPC, which is an exception in
the CPC, should not be brought into the Arbitration Act as it would
then result in limiting the effect of Section 36 of the Arbitration Act
itself. According to the learned counsel, the provisions of Order XLI
Rule 5 CPC alone have to be considered by the Court as general
guidelines while deciding the application for stay filed under Section
36 of the Arbitration Act.
8. Learned counsel for the appellant submitted that the
Arbitration Act does not provide for any special treatment to the
Government while considering the application for stay under
Section 36, and the provision of Order XXVII Rule 8A CPC would
not be attracted while deciding an application for stay filed under
Section 36 of the Arbitration Act. According to the learned counsel,
under CPC the Government is treated differently, which is not the
8
case in the Arbitration Act. As an illustration, it has been stated
that two months notice under Section 80 CPC is provided for before
any suit is filed against the Government, which is not so in the case
of arbitration proceedings. He has also contended that Section 18
of the Arbitration Act expressly provides for equal treatment of all
parties involved, which would include the Government as a party.
9. In the alternative, learned counsel for the appellant has
submitted that even if the provisions of Order XXVII Rule 8A are to
be taken into account, then also the Courts ought not to pass an
order of unconditional stay of the award, and could still direct
deposit of the awarded amount or part thereof, as the said Rule 8A
only exempts the Government from furnishing security, which
would not mean that the Courts are mandated to pass an
unconditional stay of the award. In support of his submissions, the
learned counsel for the appellant has relied upon various decisions
of this Court as well as 246
th
report of the Law Commission, which
shall be considered at the time of dealing with the arguments.
10. Per contra, Shri Anand Grover, learned Senior Counsel
appearing for the respondent State of West Bengal has contended
that the proceedings contemplated under the Arbitration Act are
twofold. Chapters V and VI deal with the conduct of arbitral
9
proceedings, whereas Chapters VII, VIII and IX of the Arbitration
Act deal with proceedings after the award. According to him,
Section 36 of the Arbitration Act (falling in Chapter VIII) which deals
with the enforcement of the award, is the relevant provision. Sub
Section (1) specifies that the award shall be enforced in accordance
with the provisions of the CPC in the same manner as if it was a
decree of the Court, which would be subject to the provisions of
subSection (2). According to the learned Senior Counsel, the
phrase used in subSection (3) that “subject to such conditions”
would make it clear that the Court has complete discretion, though
judicially guided, to grant a stay subject to such conditions that it
may deem fit and for the reasons to be recorded in writing. It is
contended that the phrase used “have due regard to” in the proviso
to subSection (3) would apply to all provisions of the CPC including
a money decree. It is thus been contended that by virtue of Section
36(3) of the Arbitration Act, all the relevant provisions of the CPC
namely Order XLI Rule 5 and Order XXVII Rule 8A would come into
play.
11. Shri Grover has further submitted that while considering the
stay of money decree, Order XXVII Rule 8A would directly be
applicable, read with Order XLI Rule 5. He has emphasised on the
10
use of word “shall” in the proviso to Section 36(3) of the Arbitration
Act, which according to him makes a provision of CPC mandatorily
to be applied while considering the application for stay under
Section 36. The phrase “subject to such conditions” used in Section
36(3) of the Arbitration Act is only with regard to discretion
exercised by the High Court in deciding the stay application and
reasons to be recorded and no conditions as specified in the
Statute. He has thus contended that the phrase “having due regard
to” in the proviso to Section 36(3) would mean the same to be
mandatory because of the use of word shall in the opening part of
the proviso.
12. It has also been urged that Order XXVII Rule 8A deals with
operation of stay in respect of suits against Government, which is
distinct from private parties. Since, the Government is always
considered to be solvent and expected to honour the decree against
it, unlike private parties, the Government cannot avoid the
enforcement of final decree against it and thus the award
necessarily requires to be stayed in the case of a Government being
the judgment debtor. He has further submitted that under Order
XLI Rule 5(3), substantial loss has to be shown by the party
applying for stay unless such order is made and in the case of the
11
Government, since a large number of arbitration proceedings are
made against it, cumulatively they would result in substantial loss.
The submission thus is that Order XLI Rule 5(5) requires the
applicant to make a deposit or furnish security, failing which, stay
would not be granted, but in view of the provisions of Order XXVII
Rule 8A the Government would be exempted from furnishing any
security or making any deposit. According to the learned counsel,
the furnishing of security is the genus and making of deposit is a
species and when the security itself is not required to be deposited
by the Government under Order XXVII Rule 8A, there would be no
requirement of the Government being made to deposit the money,
when the genus (security) itself is not to be furnished by the
Government.
13. We have heard learned counsel for the parties at length and
perused the material on record. For proper appreciation of the facts
of this case, the relevant provisions of the Arbitration and
Conciliation Act, 1996 and Code of Civil Procedure, 1908 are
reproduced hereunder:
The Arbitration and Conciliation Act,
1996.
12
“Section 18. Equal treatment of
parties. – The parties shall be treated
with equality and each party shall be
given a full opportunity to present his
case.”
1
“Section 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 subsection (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 subsection (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
1 Subs. by Act 3 of 2016, sec. 19, for section 36, for section 36 (w.r.e.f. 23102015). Section 36, before
substitution, stood as under:
“36. Enforcement.—Where the time for making an application to set aside
the arbitral award under section 34 has expired, or such application having
been made, it has been refused, the award shall be enforced under the Code of
Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of
the Court.”
13
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).”
CODE OF CIVIL PROCEDURE, 1908.
“Order XXVII, Rule 8A
8A. No security to be required from
Government or a public officer in
certain cases.—No such security as is
mentioned in rules 5 and 6 of Order XLI
shall be required from the Government or,
where the Government has undertaken
the defence of the suit, from any public
officer sued in respect of an act alleged to
be done by him in his official capacity.”
“Order XLI, Rule 1
Form of appeal – What to accompany
memorandum. – (1) Every appeal shall
be preferred in the form of a memorandum
signed by the appellant or his pleader and
presented to the Court or to such officer as
it appoints in this behalf. The
memorandum shall be accompanied by a
copy of the judgment:
Provided that where two or more suits
have been tried together and a common
judgment has been delivered therefore
and two or more appeals are filed against
any decree covered by that judgment,
whether by the same appellant or by
different appellants, the Appellate Court
may dispense with the filing of more than
one copy of the judgments.
(2) Contents of memorandum. — The
memorandum shall set forth, concisely
and under distinct heads, the grounds of
14
objection to the decree appealed from
without any argument or narrative; and
such grounds shall be numbered
consecutively.
(3) Where the appeal is against a decree
for payment of money, the appellant shall,
within such time as the Appellate Court
may allow, deposit, the amount disputed
in the appeal or furnish such security in
respect thereof as the Court may think
fit. ”
“Order XLI, Rule 5
Stay by Appellate Court.—
(1) An appeal shall not operate as a stay
of proceedings under a decree or order
appealed from except so far as the
Appellate Court may order, nor shall
execution of a decree be stayed by reason
only of an appeal having been preferred
from the decree; but the Appellate Court
may for sufficient cause order stay of
execution of such decree.
Explanation.—An order by the Appellate
Court for the stay of execution of the
decree shall be effective from the date of
the communication of such order to the
Court of first instance, but an affidavit
sworn by the appellant, based on his
personal knowledge, stating that an order
for the stay of execution of the decree has
been made by the Appellate Court shall,
pending the receipt from the Appellate
Court of the order for the stay of execution
or any order to the contrary, be acted
upon by the Court of first instance.
(2) Stay by Court which passed the
decree.—Where an application is made for
stay of execution of an appealable decree
15
before the expiration of the time allowed
for appealing therefrom, the Court which
passed the decree may on sufficient cause
being shown order the execution to be
stayed.
(3) No order for stay of execution shall be
made under subrule (1) or subrule (2)
unless the Court making it is satisfied—
(a) that substantial loss may result to
the party applying for stay of execution
unless the order is made;
(b) that the application has been made
without unreasonable delay; and
(c)that security has been given by the
applicant for the due performance of such
decree or order as may ultimately be
binding upon him.
(4) Subject to the provisions of subrule (3),
the Court may make an ex parte order for
stay of execution pending the hearing of
the application.
(5) Notwithstanding anything contained in
the foregoing subrules, where the
appellant fails to make the deposit or
furnish the security specified in subrule
(3) of rule 1, the Court shall not make an
order staying the execution of the
decrees.”
(emphasis supplied)
14. Section 36 of the Arbitration Act was amended/substituted
vide Act 3 of 2016 with retrospective effect from 23.10.2015. Sub
Section (3) of Section 36 of the Arbitration Act was introduced on
the recommendation of 246
th
Law Commission Report which reads
as under:
16
AUTOMATIC STAY OF ENFORCEMENT OF
THE AWARD UPON ADMISSION OF
CHALLENGE
43. Section 36 of the Act makes it clear
that an arbitral award becomes
enforceable as a decree only after the time
for filing a petition under section 34 has
expired or after the section 34 petition has
been dismissed. In other words, the
pendency of a section 34 petition renders
an arbitral award unenforceable. The
Supreme Court, in National Aluminum Co.
Ltd. V. Pressteel & Fabrications, (2004) 1
SCC 540 held that by virtue of section 36,
it was impermissible to pass an Order
directing the losing party to deposit any
part of the award into Court. While this
decision was in relation to the powers of
the Supreme Court to pass such an order
under section 42, the Bombay High Court
in Afcons Infrastructure Limited v. The
Board of Trustees, Port of Mumbai 2014
(1) Arb LR 512 (Bom) applied the same
principle to the powers of a Court under
section 9 of the Act as well. Admission of
a section 34 petition, therefore, virtually
paralyzes the process for the winning
party/award creditor.
44. The Supreme Court, in National
Aluminium, has criticized the present
situation in the following words:
“However, we do notice that this
automatic suspension of the execution of
the award, the moment an application
challenging the said award is filed under
section 34 of the Act leaving no discretion
in the court to put the parties on terms, in
our opinion, defeats the very objective of
the alternate dispute resolution system to
17
which arbitration belongs. We do find
that there is a recommendation made by
the concerned Ministry to the Parliament
to amend section 34 with a proposal to
empower the civil court to pass suitable
interim orders in such cases. In view of
the urgency of such amendment, we
sincerely hope that necessary steps would
be taken by the authorities concerned at
the earliest to bring about the required
change in law.”
45. In order to rectify this mischief,
certain amendments have been suggested
by the Commission to section 36 of the
Act, which provide that the award will not
become unenforceable merely upon the
making of an application under section 34.
In essence, the Law Commission has categorically
recommended that there should be no automatic stay of the arbitral
award. While so recommending, the Law Commission report makes
no exception for the Government. On the basis of the said report of
the Law Commission, the old Section 36 was substituted in 2016,
with retrospective effect from 23.10.2015.
15. The amended Section 36 of the Arbitration Act provides for:
(a) after expiry of making an application to set aside the arbitral
award (i.e. 90 days from the award) the award shall be enforced as
if it was a decree of the Court; (b) filing of an application under
Section 34 shall not by itself render the award unenforceable; (c)
18
upon an application for grant of stay of the award, the Court has
the discretion to grant stay, which may be subject to such
conditions as it may deem fit; (d) while passing any stay order the
Court is to “have due regard” to the provisions of CPC for grant of
stay of money decree.
16. The backbone of the submissions on behalf of the
respondentState of West Bengal is that under the provisions of
Order XXVII Rule 8A of the CPC, no security shall be required from
the Government in case of there being a money decree passed
against the Government, and the execution of which is prayed for. If
such submission of the respondent is accepted then the same
would mean that mere filing of an objection under Section 34 of the
Arbitration Act by a Government shall render the award
unenforceable as the stay order would be passed in a mechanical
manner and as a matter of course, without imposing any condition
against the Government judgment debtor. If the contention is
accepted, the effect would be that insofar as the Government is
concerned, the unamended provision of Section 36 of the
Arbitration Act would automatically come into force.
17. In this backdrop, we have now to consider the effect of
Section 36 of the Arbitration Act, visavis the provisions of Order
19
XXVII Rule 8A of CPC. SubSection (3) of Section 36 of the
Arbitration Act mandates that while considering an application for
stay filed along with or after filing of objection under Section 34 of
the Arbitration Act, if stay is to be granted then it shall be subject
to such conditions as may be deemed fit. The said subsection
clearly mandates that the grant of stay of the operation of the award
is to be for reasons to be recorded in writing “subject to such
conditions as it may deem fit”. The proviso makes it clear that the
Court has to “have due regard to the provisions for grant of stay of a
money decree under the provisions of the Code of Civil Procedure”.
The phrase “have due regard to” would only mean that the
provisions of CPC are to be taken into consideration, and not that
they are mandatory. While considering the phrase “having regard
to”, this Court in the case of Shri Sitaram Sugar Company Limited.
v. Union of India (1990) 3 SCC 223 has held that “the words ‘having
regard to’ in subsection are the legislative instruction for the general
guidance of the Government in determining the price of sugar. They
are not strictly mandatory, but in essence directory.”.
18. 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
20
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. 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 the CPC will apply only insofar as
the same are not inconsistent with the spirit and provisions of the
Arbitration Act.
19. A Full Bench of the Calcutta High Court, while considering
the question as to whether in an appeal preferred by the
Government, the Government is entitled to get stay of execution of
decree impugned by taking aid of Order XXVII Rule 8A of the CPC,
even if the conditions mentioned in Clauses (a) and (b) of subrule
(3) of Rule 5 of Order XLI are not complied with, held as follows:
“36. In order to resolve the aforesaid
controversy, one must examine the
legislative intent for incorporating Order
27, Rule 8A in the Code. The aforesaid
provision was engrafted to exempt the
Government to furnish security as a
21
guarantee for due performance of a decree
as mentioned in Rules 5 and 6 of Order
XLI. Notwithstanding such exemption,
discretionary power of the Court to grant
stay of execution of a decree can be
exercised in favour of the Appellant
Government only if it satisfies the Court as
to the existence of clauses (a) and (b) of
Rule 5(3) of Order XLI. As “substantial
loss” to the appellant is a condition
precedent to grant stay, execution of a
money decree is ordinarily not stayed
since satisfaction of a money decree does
not amount to irreparable injury to the
appellant as the remedy of restitution is
available to him in the event the appeal is
allowed. [See, Sihor Nagar Palika Bureau
v. Bhabhlubhai Virabhai, 2005 (4) SCC 1,
para 6]. Under such circumstances, when
the court chooses to exercise its discretion
in favour of the appellant State to grant
stay of execution of a money decree it
must be balance the equities between the
parties and ensure that no undue
hardship is caused to a decree holder due
to stay of execution of such decree.
Hence, in appropriate cases, the Court in
its discretion may direct deposit of a part
of the decretal sum so that the decree
holder may with draw the same without
prejudice and subject to the result of the
appeal. Such direction for deposit of the
decretal sum is not for the purpose of
furnishing security for due performance of
the decree but an equitable measure
ensuring part satisfaction of the decree
without prejudice to the parties and
subject to the result of the appeal as a
condition for stay of execution of the
decree.
22
37. To hold that the Court is denuded of
such equitable discretion while granting
stay of execution of a money decree in
favour of the Government, would cause
grave hardship to deserving decree
holders who in the facts of a given case
may be entitled to enjoy part satisfaction
of the decree without prejudice and
subject to the result of the appeal as a
condition for stay of execution of the entire
decree.
38. Hence, it is opined although Order 27,
Rule 8A may exempt the appellant
Government from the mandatory
obligation of furnishing security in terms
of Rule 1(3) for seeking stay of execution
of a money decree as under Rule 5(5) of
Order XLI, the said provision cannot be
said to operate as an absolute clog on the
discretion of the court to direct the deposit
of the decretal amount as a condition for
grant of stay of execution of the decree in
appropriate cases more particularly when
such direction is coupled with the liberty
to the decree holder to withdraw a portion
thereof in part satisfaction of the decree
without prejudice and subject to the result
of the appeal.”
We find no reason to disagree with such view taken by the Full
Bench of the Calcutta High Court and are thus in agreement with
the same.
20. Even otherwise a plain reading of Order XXVII Rule 8A of
CPC would make it clear that the same is only regarding security as
mentioned in Rule 5 and 6 of Order XLI CPC, which is not to be
23
demanded from the Government while considering the stay
application filed by the Government. It, however, does not provide
that the decretal amount cannot be required to be deposited in the
appeal against a money decree.
21. It is also noteworthy that when Order XXVII Rule 8A of CPC
was incorporated in the year 1937, at that time Rule 5 of Order XLI
CPC had only four subRules. Sub Rule (5) in Rule 5 of Order XLI
was inserted by Act 104 of 1976 w.e.f. 01.02.1977. Prior to that, it
was subRule (3) (c) of Rule 5 aforesaid which provided that no
order for stay of execution was to be made unless the Court was
satisfied that security had been given by the applicant for
performance of the decree. It was in such context when only
security had to be been given at the time of grant of stay that Rule
8A of Order XVII CPC was incorporated to give certain protection to
the Government by providing for no requirement of security from
the Government. It was probably for the reason that the
Government is always considered to be solvent, thus was exempted
from providing security under Rule 8A of Order XXVII of CPC.
However, in 1976 Sub Rule (5) to Rule 5 of Order XLI CPC was
inserted, which reads as follows:
(5) Notwithstanding anything contained in
the foregoing subrules, where the
24
appellant fails to make the deposit or
furnish the security specified in subrule
(3) of rule 1, the Court shall not make an
order staying the execution of the
decrees.”
The same provides for making of deposit or furnishing security
by the decree holder seeking stay. It would thus mean that after
1977, the Appellate Court had the power to direct for deposit of the
decretal amount, which was earlier limited only to furnishing of
security under subRule (3) of Rule 5 of Order XLI CPC. It is
noteworthy that after insertion of subRule (5), there was no
amendment to Order XXVII Rule 8A CPC to exempt the State
Government for making such deposit, which would mean that Rule
8A does not exempt the Government from making deposit, which
the Court has the power to now direct under Order XLI Rule 5(5)
CPC.
22. Further, it is to be noticed that Order XXVII Rule 8A of CPC
was inserted in 1937 when the British Crown was ruling our
country. The same was brought in during the period of British Raj
to protect the interest of the then Government (Crown). While
considering a case where the State of West Bengal was carrying on
trade as owner and occupier of a market in Calcutta (now Kolkata)
without obtaining a license as required under Section 218 of
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Calcutta Municipal Act, 1951, a Constitution Bench of this Court
in the case of Superintendent & Legal Remembrancer, State of West
Bengal v. Corporation of Calcutta (1967) 2 SCC 170 considered the
question as to whether this Court should adopt the rule of
construction accepted by the Privy Council in interpreting Statute
visavis the Crown and held that “There are many reasons why the
said rule of construction is inconsistent with and incongruous in the
present setup we have no Crown, the archaic rule based on the
prerogative and perfection of the Crown has no relevance to a
democratic republic; it is inconsistent with the rule of law based on
the doctrine of equality.”
23. In our considered view, the provision which was incorporated
in the year 1937 during the British Raj, giving certain safeguards to
the Government (which was then the British Crown) would not be
applicable in today’s time, when we have a democratic Government.
24. 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
26
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.
25. It may be true that the CPC provides for a differential
treatment to the Government in certain cases, but the same may
not be so applicable while considering a case against the
Government under the Arbitration Act. For instance, Section 80 of
CPC provides for a notice of two months to be given before any suit
is instituted against the Government. Further, it is also provides
that no exparte injunction order can be passed against the
27
Government. Whereas on the other hand, under the Arbitration Act
no such special provision has been made with regard to arbitration
by or against the Government. There is no requirement under the
Arbitration Act for a notice of two months to be given to the
Government before invoking arbitration proceeding against the
Government. Further, Sections 9 and 17 of the Arbitration Act also
provide for grant of exparte interim orders against the Government.
26. 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 stay under Section 36 filed by the Government in
proceedings under Section 34 of the Arbitration Act.
27. Although we are of the firm view that the archaic Rule 8A of
Order XXVII CPC has no application or reference in the present
times, we may only add that even if it is assumed that the
provisions of Order XXVII Rule 8A of CPC are to be applied, the
same would only exempt the Government from furnishing security,
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whereas under Order XLI Rule 5 of CPC, the Court has the power to
direct for full or part deposit and/or to furnish security of the
decretal amount. Rule 8A only provides exemption from furnishing
security, which would not restrict the Court from directing deposit
of the awarded amount and part thereof.
28. For the foregoing reasons, we are of the opinion that the
impugned order passed by the Calcutta High Court granting
unconditional stay of the arbitration award dated 21.01.2010,
cannot be sustained in the eye of law. Accordingly, we allow these
appeals and quash the order dated 13.12.2018 passed by the
Calcutta High Court and restore the order dated 03.10.2018 of the
Executing Court passed in E.C No. 297 of 2018 (Pam Development
Pvt. Ltd. vs. State of West Bengal). As already directed by order
dated 03.10.2018, it shall be open for the petitioneraward holder to
pray for release of the attached amount.
29. No order as to costs.
………………………..J.
[R. F. Nariman]
………………….…….J.
[Vineet Saran]
New Delhi
July 12, 2019
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Legal Notes
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