G H PAM DEVELOPMENTS PRIVATE LTD. versus STATE OF WEST BENGAL on 12 July 2019

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SUPREME COURT REPORTS[2019] 9 S.C.R. 252

[2019] 9 S.C.R.

PAM DEVELOPMENTS PRIVATE LTD.

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v.

STATE OF WEST BENGAL

(Civil Appeal No.5432 of 2019)

BJULY 12, 2019

[R. F. NARIMAN AND VINEET SARAN, JJ.]

Arbitration and Conciliation Act, 1996 – Code of CivilProcedure, 1908 – Effect of s. 36 of the Arbitration Act, vis-a-visthe provisions of Or. XXVII, r. 8A of CPC – Respondent-State invitedCtender relating to the work of ‘Special Repair Programme 2000-2001 for different stretches of National Highway-II’ – The bid ofappellant was accepted and an agreement was registered – Thework under the agreement was completed – The appellant raised itsclaims and dues before the State – The claims of the appellant wereDnot paid – Appellant filed an application u/s. 11(6) of the Act, 1996– Arbitrator allowed claims of the appellant – Aggrieved, theRespondent-State filed application u/s.34 of the Act, 1996 beforethe High Court – Thereafter, appellant filed an execution applicationbefore the High Court – Executing Court by order dated 3.10.2018attached the sum of Rs. 2.75 crores and clarified that in the eventEthere was no stay of operation of the award, it was open to theappellant to pray for release of the said amount – In the meantime,the respondent filed stay application u/s. 36(2) of the Act, 1996and order of the unconditional stay was passed relying on theprovisions of Or. XXVII, r. 8A of CPC – Relying on the order of theFunconditional stay, the Executing Court dismissed the executionpetition – On appeal, held: The Arbitration Act is a special Actwhich provides for quick resolution of disputes between the partiesand s.18 of the Act makes it clear that the parties shall be treatedwith equality – Once the Act mandates so, there cannot be any specialtreatment given to the Government as a party – As such, under theGscheme of the Arbitration Act, no distinction is made nor anydifferential treatment is to be given to the Government, whileconsidering an application for grant of stay of a money decree inproceedings u/s. 34 of the Arbitration Act – The reference to CPC

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in s.36 of the Arbitration Act is only to guide the Court as to whatconditions can be imposed, and the same have to be consistent withthe provisions of the Arbitration Act – Insofar Or. XXVII, r.8A ofCPC is concerned, r.8A only provides exemption from furnishingsecurity, which would not restrict the Court from directing depositof the awarded amount and part thereof – Thus, order of the HighCourt granting unconditional stay of the arbitration award notsustainable in the eyes of the law – Accordingly, order dated03.10.2018 of the Executing Court restored and as already directed,it is open for the appellant-award holder to pray for release of theattached amount.

Code of Civil Procedure, 1908 – Or.XXVII, r.8A – Applicationof – Held: The archaic r. 8A of Order XXVII, CPC has no applicationor reference in the present times, even if it is assumed that theprovisions of Or.XXVII, r.8A of CPC are to be applied, the samewould only exempt the Government from furnishing security, whereasu/Or. XLI, r. 5 of CPC, the Court has the power to direct for full orpart deposit and/or to furnish security of the decretal amount –r.8A only provides exemption from furnishing security, which wouldnot restrict the Court from directing deposit of the awarded amountand part thereof.

Allowing the appeals, the Court

Conclusion

Allowing the appeals, the Court

HELD: 1. Sub-Section (3) of Section 36 of the ArbitrationAct mandates that while considering an application for stay filedalong with or after filing of objection under Section 34 of theArbitration Act, if stay is to be granted then it shall be subject tosuch conditions as may be deemed fit. The said sub-section clearlymandates that the grant of stay of the operation of the award is tobe for reasons to be recorded in writing “subject to such conditionsas it may deem fit”. The proviso makes it clear that the Court hasto “have due regard to the provisions for grant of stay of a moneydecree under the provisions of the Code of Civil Procedure”. Thephrase “have due regard to” would only mean that the provisionsof CPC are to be taken into consideration, and not that they aremandatory. While considering the phrase “having regard to”,this Court in the case of Shri Sitaram Sugar Company Limited.v.

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[2019] 9 S.C.R.

AUnion of India (1990) 3 SCC 223 has held that “the words ‘havingregard to’ in sub-section are the legislative instruction for the generalguidance of the Government in determining the price of sugar. Theyare not strictly mandatory, but in essence directory.”.[Para 17] [266-H; 267-A-C]

B2. In view of this Court, in the present context, the phraseused is ‘having regard to’ the provisions of CPC and not ‘inaccordance with” the provisions of CPC. In the latter case, itwould have been mandatory, but in the form as mentioned in Rule36(3) of the Arbitration Act, it would only be directory or as aguiding factor. Mere reference to CPC in the said Section 36Ccannot be construed in such a manner that it takes away the powerconferred in the main statute (i.e. Arbitration Act) itself. It is tobe taken as a general guideline, which will not make the mainprovision of the Arbitration Act inapplicable. The provisions ofCPC are to be followed as a guidance, whereas the provisions of Dthe Arbitration Act are essentially to be first applied. Since, theArbitration Act is a self-contained Act, the provisions of the CPCwill apply only insofar as the same are not inconsistent with thespirit and provisions of the Arbitration Act. [Para 18] [267-D-F]

3. Arbitration proceedings are essentially alternate disputeEredressal system meant for early/quick resolution of disputes andin case a money decree - award as passed by the Arbitrator againstthe Government is allowed to be automatically stayed, the verypurpose of quick resolution of dispute through arbitration wouldbe defeated as the decree holder would be fully deprived of thefruits of the award on mere filing of objection under Section 34 ofFthe Arbitration Act. The Arbitration Act is a special Act whichprovides for quick resolution of disputes between the partiesand Section 18 of the Act makes it clear that the parties shall betreated with equality. Once the Act mandates so, there cannot beany special treatment given to the Government as a party. AsGsuch, under the scheme of the Arbitration Act, no distinction ismade nor any differential treatment is to be given to theGovernment, while considering an application for grant of stay ofa money decree in proceedings under Section 34 of the ArbitrationAct. The reference to CPC in Section 36 of the Arbitration Act isonly to guide the Court as to what conditions can be imposed,H

and the same have to be consistent with the provisions of theArbitration Act. [Para 24] [270-G-H; 271-A-C]

4. It may be true that the CPC provides for a differentialtreatment to the Government in certain cases, but the same maynot be so applicable while considering a case against theGovernment under the Arbitration Act. For instance, Section 80of CPC provides for a notice of two months to be given beforeany suit is instituted against the Government. Further, it is alsoprovides that no ex-parte injunction order can be passed againstthe Government. Whereas on the other hand, under theArbitration Act no such special provision has been made withregard to arbitration by or against the Government. There is norequirement under the Arbitration Act for a notice of two monthsto be given to the Government before invoking arbitrationproceeding against the Government. Further, Sections 9 and 17of the Arbitration Act also provide for grant of ex-parte interimorders against the Government. [Para 25] [271-C-E]

5. Section 36 of the Arbitration Act also does not providefor any special treatment to the Government while dealing withgrant of stay in an application under proceedings of Section 34 ofthe Arbitration Act. Keeping the aforesaid in consideration andalso the provisions of Section 18 providing for equal treatment ofparties, it would, in view of this Court, makes it clear that thereis no exceptional treatment to be given to the Government whileconsidering the application for stay under Section 36 filed by theGovernment in proceedings under Section 34 of the ArbitrationAct. [Para 26] [271-F-G]

6. Although this Court is of the firm view that the archaicRule 8A of Order XXVII CPC has no application or reference inthe present times, this Court may only add that even if it isassumed that the provisions of Order XXVII Rule 8A of CPC areto be applied, the same would only exempt the Government fromfurnishing security, whereas under Order XLI Rule 5 of CPC,the Court has the power to direct for full or part deposit and/or tofurnish security of the decretal amount. Rule 8A only providesexemption from furnishing security, which would not restrict theCourt from directing deposit of the awarded amount and partthereof. [Para 27] [271-G-H; 272-A]

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ASuperintendent & Legal Remembrancer, State of WestBengal v. Corporation of Calcutta (1967) 2 SCC 170– followed.

Board of Control for Cricket in India v. Kochi CricketPrivate Limited (2018) 6 SCC 287 : [2018] 2 SCR 829;BShri Sitaram Sugar Company Limited. v. Union of India(1990) 3 SCC 223 : [1990] 1 SCR 909 – relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5432of 2019D

From the Judgment and Order dated 13.12.2018 of the High Courtat Calcutta in G.A. No. 2680 of 2018 in A.P. No. 212 of 2010

With

Civil Appeal No. 5433 of 2019.E

Saurav Agarwal, Priyankar Saha, Sarad Kumar Singhania,Ms. Rashmi Singhania, Rajat Kapoor, Anshuman Chowdhury,Ms. G. Goyal, Subhasish Bhowmick, Advs. for the Appellant.

Anand Grover, Sr. Adv., Ms. Chitra Lekha Das, Suhaan Mukerji,FMs. Astha Sharma, Amit Verma, Prastut Dalvi, Ms. Dimple Nagpal(for PLR Chambers & Co.), Advs. for the Respondent.

The Judgment of the Court was delivered by VINEET SARAN, J. 1. Leave granted.

2. In response to a notice inviting tender issued by the respondentGrelating to the work of “Special Repair Programme 2000-2001 fordifferent stretches of National High Way-II from 622 Kmp to 625Kmp, 627 Kmp to 628 Kmp and 630 Kmp to 631 Kmp (vide JobNo.CRF/W.B./70/2000) under the Hooghly High Way Division No.IIin the District of Hooghly (Package No. II)”, the appellant,alongwith H

others, had applied. The bid of the appellantwas accepted on 26[th] March2001, for which an agreement was registered on 2[nd] April, 2001. Afterseveral 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 on28.02.2002. Then, on 26[th] May 2003, the appellant raised its claims anddues before the Executive Engineer of Public Works (Roads) Department,Government of West Bengal. The claims of the appellant having notbeen paid, an application under Section 11(6) of the Arbitration andConciliation Act, 1996 (for short ‘the Arbitration Act’) was filed by theappellant. By an order dated 14[th] August 2003, the Calcutta High Courtwas pleased to appoint Retired Justice Sujit Kumar Sinha as the Arbitratorto decide the disputes. By his award dated 21st January, 2010, theArbitrator allowed some claims of the appellant and held the appellant tobe entitled to a sum of Rs.2,87,11,553/- plus interest at the rate of 18%per annum on a sum of Rs.1,34,06,965/- from the date of the award tillthe date of the payment. Challenging the award passed by the Arbitrator,the respondent State of West Bengal filed an application under Section34 of the Arbitration Act before the Calcutta High Court. The appellantfiled its affidavit in opposition of the aforesaid, to which reply had alsobeen filed by the respondent. The matter is still pending considerationbefore the Calcutta High Court.

3. Section 36 of the Arbitration Act has been amended by Actnumber 3 of 2016 with retrospective effect from 23.10.2015.In view ofthe pre-amended provision of Section 36 of the Arbitration Act, therespondent had not filed injunction application in the proceedings underSection 34 of the Arbitration Act. However, in view of thepronouncement of the judgment by this Court in the case of Board ofControl for Cricket in India vs Kochi Cricket Private Limited(2018)6 SCC 287, wherein it was held that the amended provisions of Section36 of the Arbitration Act would also apply to the pending proceedingsunder Section 34 of the Arbitration Act, the appellant filed an executionapplication before the Calcutta High Court (registered as E. C. No.297of 2018). The respondent then sought time to file an application for stayingthe award.

4. In the executing proceedings, on 18.09.2018, the ExecutingCourt adjourned the matter after recording that “in the event theoperation of the award is not stayed by the adjourned date, the AB

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Apetitioner shall be entitled to pray for attachment of the said amountin execution of the said award”. In the meantime, the respondentfiled stay application under the amended Section 36(2) of the ArbitrationAct in the pending proceedings under Section 34 of the Arbitration Actbefore the Calcutta High Court. On 27.09.2018, the stay application ofthe respondent was dismissed in default. Consequently, on 03.10.2018,Bwhich was the adjourned date fixed by the Executing Court in E.C.No.297 of 2018, the Executing Court passed an order attaching the sumof Rs. 2.75 Crores lying to the credit of the respondent-State ofWestBengal with the Reserve Bank of India. It was further clarified that inthe event there was no stay of operation of the award by the adjournedCdate (04.12.2018), it would be open to the appellant (award holder) topray for release of the said amount. Relying on an order dated 05.09.2018of a coordinate bench of the High Court wherein an unconditional stayof award had been granted to the State Government and the SLP againstsuch order had been dismissed inlimine, the Executing Court dismissedthe execution petition filed by the appellant.D

5. Without filing the application for recall of the order dated27.09.2018, whereby the stay application of the respondent had beendismissed in default, the respondent filed afresh application for stay ofthe award, in which the impugned order dated 13.12.2018 of unconditionalstay was passed after relying on the provisionsof Order XXVII Rule8A,ECode of Civil Procedure (for short ‘CPC’). Challenging the said order,thepresent Appeal has been filed.

6. The submission of Shri Saurav Agarwal, learned counsel forthe appellant is two-fold. Firstly, thatthe provision of Order XXVII Rule8A CPC would not be applicable to the present case, and as such theFCourt ought not to have considered the same while deciding the applicationfor 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 8Aare to be taken into account,then too the Courts should not pass an orderof unconditional stay of award and could still direct deposit of the awardedGamount.

7. The contention of the learned counsel for the appellant is thatas per the amended Section 36 of the Arbitration Act, filing of anapplication under Section 34 of the Arbitration Act shall not by itselfrender the award unenforceable unless the stay of the operation of the H

award is granted by the Court in accordance of the provisions of sub-Section(3)of Section 36.It is submitted that under sub-Section (3) ofSection 36, it is provided that “the court maysubject to such conditionsas it may deem fit, grant stay of the operation of such award forreasons to be recorded in writing.” According to the learned counselfor the appellant, the proviso to the saidSection merely provides that theapplication for grant of stay is to be considered after “having due regardto the provisions for grant of stay of money decree under theprovisions of CPC”. It is thus been submitted by the learned counselfor the appellant that under sub-Section (3) of Section 36, the CPC wouldbe applicable “subject to” the provisions of sub-Section (2) of Section36. According to the learned counsel, the phrase “subject to” theconditions, would mean that it is obligatory for the Court to impose suchconditions 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 furthercontended that the proviso to the saidSection merely states that the Courtshall”have due regard” to the provisions of CPC, which would meanthat the Court will take the said provisions of the CPC into considerationas a guiding principle and the same would not be mandatory. Learnedcounsel for the appellant has contended that the Arbitration Act is acomplete code in itself and the stay application has to be considered asper the provisions of Section 36 of the Arbitration Act, having due regardto the provisions of CPC, which would not be same as “in accordancewith” the provisions of CPC.It is vehemently urged that the provisionsof Order XXVII Rule 8A CPC, which is an exception in the CPC, shouldnot be brought into the Arbitration Act as it would then result in limitingthe effect of Section 36 of the Arbitration Act itself. According to thelearned counsel, the provisions of Order XLI Rule 5 CPC alone have tobe considered by the Court as generalguidelines while deciding theapplication for stay filed under Section 36 of the Arbitration Act.

8. Learned counsel for the appellant submitted that the ArbitrationAct does not provide for any special treatment to the Government whileconsidering the application for stay under Section 36, and the provisionof Order XXVII Rule 8A CPC would not be attracted while deciding anapplication for stay filed under Section 36 of the Arbitration Act.According to the learned counsel, under CPC the Government is treateddifferently, which is not the case in the Arbitration Act. As an illustration,it has been stated that two months noticeunder Section 80 CPC is provided AB

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Afor before any suit is filed against the Government, which is not so in thecase of arbitration proceedings. He has also contended that Section 18of the Arbitration Act expressly provides for equal treatment of all partiesinvolved, which would include the Government as a party.

9. In the alternative, learned counsel for the appellant has submittedBthat even if the provisions of Order XXVII Rule 8A are to be taken intoaccount, then also the Courtsought not to pass an order of unconditionalstay of the award, and could still direct deposit of the awarded amountor part thereof, as the said Rule 8A only exempts the Government fromfurnishing security,which would not mean that the Courts are mandatedto pass an unconditional stay of the award.In support of his submissions,Cthe learned counsel for the appellant has relied upon various decisions ofthis Court as well as 246[th] report of the Law Commission, which shall beconsidered at the time of dealing with the arguments.

10. Per contra, Shri Anand Grover, learnedSenior Counselappearing for the respondent State of West Bengal has contended thatDthe proceedings contemplated under the Arbitration Act are two-fold.Chapters V and VI deal with the conduct of arbitral proceedings, whereasChapters VII, VIII and IX of the Arbitration Act deal with proceedingsafter the award. According to him, Section 36 of the Arbitration Act(falling in Chapter VIII) which deals with the enforcement of the award,Eis the relevant provision. Sub-Section (1) specifies that the award shallbe enforced in accordance with the provisions of the CPC in the samemanner as if it was a decree of the Court, which would be subject to theprovisions of sub-Section (2). According to the learned Senior Counsel,the phrase used in sub-Section (3) that “subject to suchconditions”would make it clear that the Court has complete discretion,Fthough judicially guided, to grant a stay subject to such conditions that itmay deem fit and for the reasons to be recorded in writing. It is contendedthat the phrase used “have due regard to” in the proviso to sub-Section(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 ArbitrationGAct, all the relevant provisions of the CPC namely Order XLI Rule 5and Order XXVII Rule 8A would come into play.

11. Shri Grover has further submitted that while considering thestay of money decree, Order XXVII Rule 8A would directly be applicable, read with Order XLI Rule 5. He has emphasised on the use of word“shall” in the proviso to Section 36(3) of the Arbitration Act, whichaccording to him makes a provision of CPC mandatorily to be appliedwhile considering the application for stay under Section 36. The phrase“subject to such conditions” used in Section 36(3) of the ArbitrationAct is only with regard to discretion exercised by the High Court indeciding the stay application and reasons to be recorded and no conditionsas specified in the Statute. He has thus contended that the phrase“having due regard to” in the proviso to Section 36(3) would mean thesame to be mandatory because of the use of word shall in the openingpart of the proviso.

12. It has also been urged that Order XXVII Rule 8A deals withoperation of stay in respect of suits against Government, which is distinctfrom private parties. Since, the Government is always considered to besolvent and expected to honour the decree against it, unlike private parties,the Government cannot avoid the enforcement of final decree against itand thus the award necessarily requires to be stayed in the case of aGovernment being the judgment debtor. He has further submitted thatunder Order XLI Rule 5(3), substantial loss has to be shown by theparty applying for stay unless such order is made and in the case of theGovernment, since a large number of arbitration proceedings are madeagainst it, cumulatively they would result in substantial loss. Thesubmission thus is that Order XLI Rule 5(5) requires the applicant tomake a deposit or furnish security, failing which, stay would not be granted,but in view of the provisions of Order XXVII Rule 8A the Governmentwould be exempted from furnishing any security or making any deposit.According to the learned counsel, the furnishing of security is the genusand making of deposit is a species and when the security itself is notrequired to be deposited by the Government under Order XXVII Rule8A, there would be no requirement of the Government being made todeposit the money, when the genus (security) itself is not to be furnishedby the Government.

13. We have heard learned counsel for the parties at length andperused the material on record. For proper appreciation of the facts ofthis case, the relevant provisions of the Arbitration and Conciliation Act,1996 and Code of Civil Procedure, 1908are reproduced hereunder:

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The Arbitration and Conciliation Act, 1996.

“Section 18. Equal treatment of parties. – The parties shallbe treated with equality and each party shall be given a fullopportunity to present his case.”

1"Section 36.Enforcement. –

(1) Where the timefor making an application to set aside thearbitral award under section 34 has expired, then, subject tothe provisions of sub-section (2), such award shall be en-forced in accordance with the provisions of the Code of CivilProcedure, 1908 (5 of 1908), in the same manner as if it werea decree of the court.

(2) Where an application to set aside the arbitral award hasbeen filed in the Court under section 34, the filing of such anapplication shall not by itself render that award unenforceable,unless the Court grants an order of stay of the operation ofthe said arbitral award in accordance with the provisions ofsub-section (3), on a separate application made for thatpurpose.

(3) Upon filing of an application under sub-section (2) forstay of the operation of the arbitral award, the Court may,subject to such conditions as it may deem fit, grant stay of theoperation of such award for reasons to be recorded in writing:

Provided that the Court shall, while considering the applicationfor grant of stay in the case of an arbitral award for paymentof money, have due regard to the provisions for grant of stayof a money decree under the provisions of the Code of CivilProcedure, 1908(5 of 1908).”

1 Subs. by Act 3 of 2016, sec. 19, for section 36, for section 36 (w.r.e.f. 23-10-2015).Section 36, before substitution, stood as under:

“36. Enforcement. —Where the time for making an application to set asidethe arbitral award under section 34 has expired, or such application havingbeen made, it has been refused, the award shall be enforced under the Code ofCivil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree ofthe Court.”

CODE OF CIVIL PROCEDURE, 1908.

“Order XXVII, Rule 8A

8A. No security to be required from Government or a publicofficer in certain cases.—No such security as is mentioned inrules 5 and 6 of Order XLI shall be requiredfrom theGovernmentor, where the Government has undertaken thedefence of the suit, from any public officer sued in respect ofan 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 memorandumsigned by the appellant or his pleader and presented to theCourt or to such officer as it appoints in this behalf. Thememorandum shall be accompanied by a copy of the judgment:

Provided that where two or more suits have been tried togetherand a common judgment has been delivered therefore andtwo or more appeals are filed against any decree covered bythat judgment, whether by the same appellant or by differentappellants, the Appellate Court may dispense with the filingof more than one copy of the judgments.

(2) Contents of memorandum.—The memorandum shall setforth, concisely and under distinct heads, the grounds ofobjection to the decree appealed from without any argumentor narrative; and such grounds shall be numberedconsecutively.

(3) Where the appeal is against a decree for payment of money,the appellant shall, within such time as the Appellate Courtmay allow, deposit, the amount disputed in the appeal orfurnish such security in respect thereof as the Court may thinkfit.”

“Order XLI, Rule 5

Stay by Appellate Court.—

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Court may order, nor shall execution of a decree be stayed byreason only of an appeal having been preferred from thedecree; but the Appellate Court may for sufficient cause orderstay of execution of such decree.

Explanation.—An order by the Appellate Court for the stayof execution of the decree shall be effective from the date ofthe communication of such order to the Court of first instance,but an affidavit sworn by the appellant, based on his personalknowledge, stating that an order for the stay of execution ofthe decree has been made by the Appellate Court shall,pending the receipt from the Appellate Court of the order forthe stay of execution or any order to the contrary, be actedupon by the Court of first instance.

(2) Stay by Court which passed the decree.—Where anapplication is made for stay of execution of an appealabledecree before the expiration of the time allowed for appealingtherefrom, the Court which passed the decree may on sufficientcause being shown order the execution to be stayed.

(3) No order for stay of execution shall be made under sub-rule (1) or sub-rule (2) unless the Court making it is satisfied—

(a) that substantial loss may result to the party applyingfor stay of execution unless the order is made; (b)that the application has been made withoutunreasonable delay; and

(c) that security has been given by the applicant for thedue performance of such decree or order as may ultimatelybe binding upon him.

(4) Subject to the provisions of sub-rule (3), the Court maymake an ex parte order for stay of execution pending thehearing of the application.

(5) Notwithstanding anything contained in the foregoing sub-rules, where the appellant fails to make the deposit or furnishthe security specified in sub-rule (3) of rule 1, the Court shallnot make an order staying the execution of the decrees.”

(emphasis supplied)

14. Section 36 of the Arbitration Act was amended/substitutedvide Act 3 of 2016 with retrospective effect from 23.10.2015.Sub-Section(3) of Section 36 of the Arbitration Act was introduced on therecommendation of 246[th] Law Commission Report which reads asunder:- AUTOMATIC STAY OF ENFORCEMENT OF THE AWARDUPON ADMISSION OF CHALLENGE

43. Section 36 of the Act makes it clear that an arbitral awardbecomes enforceable as a decree only after the time for filinga petition under section 34 has expired or after the section34 petition has been dismissed. In other words, the pendencyof a section 34 petition renders an arbitral awardunenforceable. The Supreme Court, in National AluminumCo. Ltd. V. Pressteel& Fabrications, (2004) 1 SCC 540 heldthat by virtue of section 36, it was impermissible to pass anOrder directing the losing party to deposit any part of theaward into Court. While this decision was in relation to thepowers of the Supreme Court to pass such an order undersection 42, the Bombay High Court in Afcons InfrastructureLimited v. The Board of Trustees, Port of Mumbai 2014 (1)Arb LR 512 (Bom) applied the same principle to the powersof a Court under section 9 of the Act as well. Admission of asection 34 petition, therefore, virtually paralyzes the processfor the winning party/award creditor.

44. The Supreme Court, in National Aluminium, has criticizedthe present situation in the following words:

“However, we do notice that this automatic suspension of theexecution of the award, the moment an applicationchallenging the said award is filed under section 34 of theAct leaving no discretion in the court to put the parties onterms, in our opinion, defeats the very objective of thealternate dispute resolution system to which arbitrationbelongs. We do find that there is a recommendation made bythe concerned Ministry to the Parliament to amend section34 with a proposal to empower the civil court to pass suitableinterim orders in such cases. In view of the urgency of suchamendment, we sincerely hope that necessary steps would be A

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taken by the authorities concerned at the earliest to bringabout the required change in law.”

45. In order to rectify this mischief, certain amendments havebeen suggested by the Commission to section 36 of the Act,which provide that the award will not become unenforceableBmerely upon the making of an application under section 34.

In essence, the Law Commissionhas categorically recommendedthat there should be no automatic stay of the arbitral award. While sorecommending, the Law Commission report makes no exception for theGovernment.On the basis of the said report of the Law Commission,theCold Section 36 was substituted in 2016,with retrospective effect from23.10.2015.

15. The amended Section 36 of the Arbitration Act provides for:

(a) after expiry of making an application to set aside the arbitralaward (i.e. 90 days from the award) the award shall be enforced as if itDwas a decree of the Court; (b) filing of an application under Section 34shall not by itself render the award unenforceable; (c) upon an applicationfor 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) whilepassing any stay order the Court is to “have due regard” to the provisionsEof CPC for grant of stay of money decree.

16. The backbone of the submissions on behalf of the respondent-State of West Bengal is that under the provisions of Order XXVII Rule8A of the CPC, no security shall be required from the Government incase of there being a money decree passed against the Government,Fand the execution of which is prayed for.If such submission of therespondent is accepted then the same would mean that mere filing of anobjection under Section 34 of the Arbitration Act by a Government shallrender the award unenforceable as the stay order would be passed in amechanical manner and as a matter of course, without imposing anycondition against the Government-judgment debtor. If the contention isGaccepted, the effect would be that insofar as the Government isconcerned, the unamended provision of Section 36 of the ArbitrationAct would automatically come into force.

17. In this backdrop, we have now to consider the effect of Section36 of the Arbitration Act, vis-a-vis the provisions of Order XXVII RuleH8A of CPC. Sub-Section (3) of Section 36 of the Arbitration Act mandates

that while considering an application for stay filed along with or afterfiling of objection under Section 34 of the Arbitration Act, if stay is to begranted then it shall be subject to such conditions as may be deemedfit.The said sub-section clearly mandates that the grant of stay of theoperation of the award is to be for reasonsto be recorded in writing“subject to such conditions as it may deem fit”.The proviso makes itclear that the Court has to “have due regard to the provisions forgrant of stay of a money decree under the provisions of the Codeof Civil Procedure”. The phrase “have due regard to” would onlymean that the provisions of CPC are to be taken into consideration,andnot that they are mandatory.While considering the phrase “having regardto”, this Court in the case of Shri Sitaram Sugar Company Limited.v.Union of India(1990)3 SCC 223 has held that “the words ‘havingregard to’ in sub-section are the legislative instruction for the generalguidance of the Government in determining the price of sugar. Theyare not strictly mandatory, but in essence directory.”.

18. In our view, in the present context, the phrase used is ‘havingregard to’ the provisions of CPC and not ‘in accordance with” theprovisions of CPC. In the latter case, it would have been mandatory, butin the form as mentioned in Rule 36(3) of the Arbitration Act, it wouldonly be directory or as a guiding factor. Mere reference to CPC in thesaid Section 36 cannot be construed in such a manner that it takes awaythe power conferred in the main statute (i.e. Arbitration Act) itself. It isto be taken as a general guideline, which will not make the main provisionof the Arbitration Act inapplicable. The provisions of CPC are to befollowed as a guidance, whereas the provisions of the Arbitration Actare essentially to be first applied. Since, the Arbitration Act is a self-contained Act, the provisions of the CPC will apply only insofar as thesame are not inconsistent with the spirit and provisions of the ArbitrationAct.

19. A Full Bench of the Calcutta High Court, while consideringthe question as to whether in an appeal preferred by the Government,the Government is entitled to get stay of execution of decree impugnedby taking aid of Order XXVII Rule 8A of the CPC, even if the conditionsmentioned in Clauses (a) and (b) of sub-rule (3) of Rule 5 of Order XLIare not complied with, held as follows:

“36. In order to resolve the aforesaid controversy, one mustexamine the legislative intent for incorporating Order 27, Rule A

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8A in the Code. The aforesaid provision was engrafted toexempt the Government to furnish security as a guaranteefor due performance of a decree as mentioned in Rules 5 and6 of Order XLI. Notwithstanding such exemption,discretionary power of the Court to grant stay of executionof a decree can be exercised in favour of the AppellantGovernment only if it satisfies the Court as to the existence ofclauses (a) and (b) of Rule 5(3) of Order XLI. As “substantialloss” to the appellant is a condition precedent to grant stay,execution of a money decree is ordinarily not stayed sincesatisfaction of a money decree does not amount to irreparableinjury to the appellant as the remedy of restitution is availableto him in the event the appeal is allowed. [See,Sihor NagarPalika Bureau v. BhabhlubhaiVirabhai, 2005 (4) SCC 1, para6]. Under such circumstances, when the court chooses toexercise its discretion in favour of the appellant State to grantstay of execution of a money decree it must be balance theequities between the parties and ensure that no undue hardshipis caused to a decree holder due to stay of execution of suchdecree. Hence, in appropriate cases, the Court in its discretionmay direct deposit of a part of the decretal sum so that thedecree holder may with draw the same without prejudice andsubject to the result of the appeal. Such direction for depositof the decretal sum is not for the purpose of furnishingsecurity for due performance of the decreebut an equitablemeasure ensuring part satisfaction of the decree withoutprejudice to the parties and subject to the result of the appealas a condition for stay of execution of the decree.

37. To hold that the Court is denuded of such equitablediscretion while granting stay of execution of a money decreein favour of the Government, would cause grave hardship todeserving decree holders who in the facts of a given casemay be entitled to enjoy part satisfaction of the decree withoutprejudice and subject to the result of the appeal as a conditionfor stay of execution of the entire decree.

38. Hence, it is opined although Order 27, Rule 8A may exemptthe appellant Government from the mandatory obligation offurnishing security in terms of Rule 1(3) for seeking stay of execution of a money decree as under Rule 5(5) of OrderXLI, the said provision cannot be said to operate as an absoluteclog on the discretion of the court to direct the deposit of thedecretal amount as a condition for grant of stay of executionof the decree in appropriate cases more particularly whensuch direction is coupled with the liberty to the decree holderto withdraw a portion thereof in part satisfaction of the decreewithout prejudice and subject to the result of the appeal.”

We find no reason to disagree with such view taken by the FullBench of the Calcutta High Court and are thus in agreement with thesame.

20. Even otherwise a plain reading of Order XXVII Rule 8A ofCPC would make it clear that the same is only regarding security asmentioned in Rule 5 and 6 of Order XLI CPC, which is not to bedemanded from the Government while considering the stay applicationfiled by the Government. It, however, does not provide that the decretalamount cannot be required to be deposited in the appeal against a moneydecree.

21. It is also noteworthy that when Order XXVII Rule 8A ofCPC was incorporated in the year 1937, at that time Rule 5 of OrderXLI CPC had only four sub-Rules. Sub Rule (5) in Rule 5 of Order XLIwas inserted by Act 104 of 1976 w.e.f. 01.02.1977. Prior to that, it wassub-Rule (3) (c) of Rule 5 aforesaid which provided that no order forstay of execution was to be made unless the Court was satisfied thatsecurity 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 thetime of grant of stay that Rule 8A of Order XVII CPC was incorporatedto give certain protection to the Government by providing for norequirement of security from the Government. It was probably for thereason that the Government is always considered to be solvent, thuswas exempted from providing security under Rule 8A of Order XXVIIof CPC. However, in 1976 Sub Rule (5) to Rule 5 of Order XLI CPCwas inserted, which reads as follows:

(5) Notwithstanding anything contained in the foregoing sub-rules, where the appellant fails to make the deposit or furnishthe security specified in sub-rule (3) of rule 1, the Court shallnot make an order staying the execution of the decrees.”

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AThe same provides for making of deposit or furnishing security bythe decree holder seeking stay. It would thus mean that after 1977, theAppellate Court had the power to direct for deposit of the decretal amount,which was earlier limited only to furnishing of security under sub-Rule(3) of Rule 5 of Order XLI CPC. It is noteworthy that after insertion ofsub-Rule (5), there was no amendment to Order XXVII Rule 8A CPCBto exempt the State Government for making such deposit, which wouldmean that Rule 8A does not exempt the Government from makingdeposit,which the Court has the power to now direct under Order XLIRule 5(5) CPC.22. Further, it is to be noticed that Order XXVII Rule 8A of CPCCwas inserted in 1937 when the British Crown was ruling our country.The same was brought in during the period of British Raj to protect theinterest of the then Government (Crown). While considering a case wherethe State of West Bengal was carrying on trade as owner and occupierof a market in Calcutta (now Kolkata) without obtaining a license asDrequired under Section 218 of Calcutta Municipal Act, 1951,a ConstitutionBench of this Court in the case of Superintendent & LegalRemembrancer, State of West Bengal v. Corporation of Calcutta(1967) 2 SCC 170 considered the question as to whether this Courtshould adopt the rule of construction accepted by the Privy Council ininterpreting Statute vis-a-vis the Crown and held that “There are manyEreasons why the said rule of construction is inconsistent with andincongruous in the present set-up we have no Crown, the archaicrule based on the prerogative and perfection of the Crown has norelevance to a democratic republic; it is inconsistent with the ruleof law based on the doctrine of equality.”F23. In our considered view, the provision which was incorporatedin the year 1937 during the British Raj, giving certain safeguards to theGovernment (which was thenthe British Crown) would not be applicablein today’s time, when we have a democratic Government.

24. Arbitration proceedings are essentially alternate disputeGredressal system meant for early/quick resolution of disputes and in casea money decree-award as passed by the Arbitrator against theGovernment is allowed to be automatically stayed, the very purpose ofquick resolution of dispute through arbitration would be defeated as thedecree holder would be fully deprived of the fruits of the award on mereHfiling of objection under Section 34 of the Arbitration Act. The Arbitration Act is a special Act which provides for quick resolution of disputesbetween the parties and Section 18 of the Act makes it clear that theparties shall be treated with equality.Once the Act mandates so, therecannot be any special treatment givento the Government as a party. Assuch, under the scheme of the Arbitration Act, no distinction is made norany differential treatment is to be given to the Government, whileconsidering an application for grant of stay of a money decree inproceedings under Section 34 of the Arbitration Act. As we have alreadymentioned above, the reference to CPC in Section 36 of the ArbitrationAct is only to guide the Court as to what conditions can be imposed, andthe same have to be consistent with the provisions of the ArbitrationAct.

25. It may be true that the CPC provides for a differential treatmentto the Government in certain cases, but the samemay not be so applicablewhile considering a case against the Government under the ArbitrationAct. For instance, Section 80 of CPC provides for a notice of two monthstobe given before any suit is instituted against the Government.Further, itis also provides that no ex-parte injunction order can be passed againstthe Government. Whereas on the other hand, under the Arbitration Actno such special provision has been made with regard to arbitration by oragainst the Government. There is no requirement under the ArbitrationAct for a notice of two monthsto be given to the Government beforeinvoking arbitration proceeding against the Government. Further, Sections9 and 17 of the Arbitration Act also provide for grant of ex-parte interimorders against the Government.

26. Section 36 of the Arbitration Act also does not provide for anyspecial treatment to the Government while dealing with grant of stay inan application under proceedings of Section 34 of the Arbitration Act.Keeping the aforesaid in consideration and also the provisions of Section18 providing for equal treatment of parties, it would, inour view, make itclear that there is no exceptional treatment to be given to the Governmentwhile considering the application for stay under Section 36 filed by theGovernment in proceedings under Section 34 of the Arbitration Act.

27. Although we are of the firm view that the archaic Rule 8A ofOrder 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 OrderXXVII Rule 8A of CPC are to be applied, the same would only exemptthe Government from furnishing security, whereas under Order XLI

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ARule 5 of CPC, the Court has the power to directfor full or part depositand/or to furnish security of the decretal amount. Rule 8A only providesexemption from furnishing security, which would not restrict the Courtfrom directing deposit of the awarded amount and part thereof.

28. For the foregoing reasons, we are of the opinion that theBimpugned order passed by the Calcutta High Court granting unconditionalstay of the arbitration award dated 21.01.2010, cannot be sustained inthe eye of law. Accordingly, we allow these appeals and quash theorder dated 13.12.2018 passed by the Calcutta High Court and restorethe 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).CAs already directed by order dated 03.10.2018, it shall be open for thepetitioner-award holder to pray for release of the attached amount.

29. No order as to costs.

DAnkit Gyan

Appeals allowed.

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