The Supreme Court has held that the government cannot be given any exceptional treatment while considering the application for the stay of an arbitral award under Section 36, in an appeal filed by it under Section 34 of the Arbitration and Conciliation Act.

The bench of Justice R F Nariman and Justice Vineet Sharan, set aside the judgement of the Calcutta High Court in the matter of Pam Developments Pvt Ltd v. The State of West Bengal, which granted unconditional stay of an arbitral award against the government, relying upon Order XXVII Rule 8A of Code of Civil Procedure.

Section 36 of the Arbitration and Conciliation Act, 1996, states that a mere application of stay filed under Section 34, does not by itself render an arbitral award unenforceable, unless the court passes an order to that effect. It is also provided that the court has to “give due regard” to the provisions of the Code of Civil Procedure while granting a stay of a money decree. On the other hand, Order XXVII Rule 8A of CPC provides that the government need not provide any security when it seeks a stay of a money decree in appeal.

The issues in the case revolved around the applicability of Order XXVII Rule 8A of Code of Civil Procedure while ordering an unconditional stay of arbitral awards against the government. The bench considered whether the court could pass an order of unconditional stay over arbitral awards against the government solely relying upon the provisions of the Code of Civil Procedure.

 The bench observed that the term “giving due regard” in the provisions of Section 36 is purely recommendatory in nature. It means that the court can take the provisions of the Code of Civil Procedure into consideration but, its application is not mandatory. It has to be taken as a general guideline only and that in itself does not make the main provisions of the Arbitration Act inapplicable.  

Further, the bench observed that the Arbitration and Conciliation Act is a special legislation which provides for quick resolution of disputes between the parties through alternative means. Section 18 of the Act, states that all the parties to a dispute shall be treated with equality and hence, the government cannot be given exceptional treatment while considering for an application of a money decree for proceedings under Section 34 of the said Act. Order XXVII Rule 8A of the Code of Civil Procedure does not exempt the government from making deposits. Court noted that Section 36 was amended in 2016 on the basis of the 246th Law Commission report which had categorically recommended that there should be no automatic stay of an arbitral award. It was also observed that the Law Commission did not recommend the making of any exception for the Government.

The Court noted that the provisions of the Code of Civil Procedure can be referred for guidance and that the provisions of the Arbitration Act are to be applied first. It was clarified that the provisions of the Code of Civil Procedure will apply only to the extent that they are not inconsistent with the spirit and provisions of the Arbitration and Conciliation Act. Rule 8A only provides an exemption in furnishing security. It does not restrict the court from directing the government to make a deposit of full award or a part there of. It was also noted that the provisions incorporated during the British Raj, which gave certain safeguards to the government, would not be applicable in today’s time when we have a democratic government. Hence, it was held that ordering an unconditional stay solely relying upon the provisions of the Code of Civil Procedure would be against the spirit of Section 36 of the Arbitration and Conciliation Act.

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