In a recent ruling in the matter of M/s. Balmer Lawrie & Co. Ltd. v/s M/s. Shilpi Engineering Pvt. Ltd., the Court addressed key legal issues concerning the stay of an arbitral award, particularly focusing on the conditions under Section 36(3) of the Arbitration and Conciliation Act, 1996. The decision touches upon the criteria for granting a stay of execution and the deposit of the awarded amount, as well as the interplay between the Arbitration Act and procedural rules from the Civil Procedure Code. The case primarily revolves around the Applicant's request for recalling an earlier order and for a stay on the execution of the arbitral award.
Background and Legal Context:
The Applicant, in this matter, sought the recall of an order passed in September 2019 that had disposed of a commercial notice of motion concerning an arbitral award. The Applicant argued that the order was mistakenly recorded as disposing of the motion, when, in fact, it was merely an extension of time for filing pleadings. The Court, recognizing the error, recalled the order and restored the motion to the file.
The central issue at hand involved the Applicant's request for a stay on the execution of the arbitral award, which had been passed by a sole arbitrator in July 2018. The Applicant had already provided a bank guarantee for the entire awarded amount in execution proceedings filed before the Calcutta High Court. In light of this, the Court was asked to decide whether the previously furnished bank guarantee could be considered sufficient for the stay, or whether a fresh deposit of the full awarded amount was required.
The Legal Framework: Section 36(3) and Case Precedents
Section 36(3) of the Arbitration and Conciliation Act, 1996 provides that an arbitral award can be stayed by the Court on certain conditions. The Applicant contended that as they had already furnished a bank guarantee before the Calcutta High Court, they should not be required to deposit the entire awarded sum again in the present proceedings. They relied on the Supreme Court’s judgment in Pam Developments Private Limited v. State of West Bengal (2019) to support their argument that Section 36 does not necessitate a strict application of the provisions of the Civil Procedure Code.
Further, the Applicant cited Toyo Engineering Corporation & Anr. v. Indian Oil Corporation Limited (2021) and decisions from the Calcutta High Court to argue that providing a bank guarantee could be considered sufficient security for the stay. They argued that the Court should exercise discretion in a more lenient manner, taking into account the circumstances of the case.
On the other hand, the Respondent's counsel argued that there is no distinction in the discretion exercised under Section 36(3) of the Arbitration Act and Section 37 in appeal proceedings. Citing multiple decisions of the Supreme Court and the Delhi High Court, they emphasized that, in cases where an arbitral award is in the form of a money decree, the deposit of 100% of the awarded amount is a prerequisite for granting a stay.
Court's Analysis and Ruling:
The Court considered several factors in its analysis, noting that the standard practice in cases involving monetary arbitral awards is to require the party seeking a stay to deposit the entire awarded sum, unless compelling circumstances dictate otherwise. The Court found that there was no financial hardship or compelling reason to deviate from this norm in the present case.
Despite the fact that the Applicant had already furnished a 100% bank guarantee before the Calcutta High Court, the Court held that such a guarantee, provided in the context of execution proceedings, was not a sufficient substitute for a deposit under Section 36(3). The Court emphasized that the furnishing of the bank guarantee in a different jurisdiction (the Calcutta High Court) did not automatically apply to proceedings in this Court. Additionally, the Court took the view that a bank guarantee is not the same as a cash deposit, which ensures that the Respondent's rights are adequately secured.
In line with precedents, the Court held that a stay of the award could only be granted if the Applicant deposited the awarded amount with interest as determined by the Sole Arbitrator. The Court also made it clear that the Respondent would be at liberty to seek withdrawal of the awarded amount once it was deposited, and such an application would be considered on its merits.
Conclusion:
The Court's decision underscores the importance of adhering to the procedural requirements for securing a stay of an arbitral award under Section 36(3) of the Arbitration and Conciliation Act, 1996. The ruling highlights that, in the absence of exceptional circumstances, the requirement to deposit 100% of the awarded amount remains a key condition for granting a stay. While bank guarantees can play an important role in securing an award, they do not necessarily replace the need for a full deposit when seeking a stay of execution.
This decision reaffirms the judicial approach towards maintaining the integrity of arbitral awards and protecting the interests of the party in whose favor the award has been passed, while ensuring that any stay of execution does not unduly delay the enforcement of the award. The Court's discretion in granting stay is thus governed by established principles that prioritize fairness and clarity in the enforcement of arbitral awards.
Arbitration and Conciliation Act, 1996
