Government under the Arbitration Act

As per Section 36 of the Arbitration and Conciliation Act, 1996 i.e. 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.

Whether an unconditional stay of the award be granted under Section 36 of the Arbitration and Conciliation Act 1996 (1996, Act) when the applicant is Government? The Supreme Court considered this issue in, Pam Developments Pvt. Ltd. vs. State of West Bengal (Civil Appeal No.5433 of 2019).

The brief facts of the case are as follows:

The agreement between the parties pertained to repair of different stretches of Hooghly Highway Division in Hooghly District, West Bengal. Disputes arose between the parties; the appellant raised various claims before the executive engineer of public works when claims remained unpaid, the matter was referred to arbitration.

Arbitration proceedings went on for around seven years. In reference to that, an award was passed, allowing some of the appellant’s claims. As per the award, the appellant was entitled to Rs. 2,87,11,553/- with interest @18% p.a.  While the respondent State challenged the award under Section 34 (Application for setting aside arbitral award), during the intervening period, 1996, Act was amended, thereby making it necessary for the respondent to file a stay application under Section 36.

Respondent’s stay application was dismissed for default and the executing court passed an order attaching sum of Rs. 2.75 Crores lying to the credit of the respondent State with Reserve Bank of India.

Interestingly, the respondent instead of filing an application seeking to recall the aforesaid order filed a fresh stay application. The impugned order granted an unconditional stay relying on provisions of the Code of Civil Procedure, 1908 (CPC) Order XXVII, Rule 8A (No security to be required from Government or a public officer in certain cases).

The Supreme Court held that it was not the legislature’s intent that, when judgment debtor is the government, the award would become unenforceable immediately on the filing of an application under Section 34 as the award would be stayed merely as a matter of course.

That the reference to CPC in Section 36 is to guide the Court on what conditions can be imposed and 1996, Act as a special act must be applied first and CPC would be applicable only to the extent that it is consistent with 1996, Act.

Further, the bar envisaged under Order XXVII, Rule 8A is only with regard to security being provided as mentioned in Rules 5 and 6 of Order XLI of CPC. However, the same cannot be stretched to be interpreted that an amount including the principal and interest cannot be asked to be deposited in appeal.  It was observed that Order XXVII, Rule 8A was introduced in 1937 during the British Raj and that the same would not be applicable in today’s times with a democratic Government in place.

The Supreme Court held that while CPC may provide for differential treatment of Government in certain cases, 1996, Act is a special act which mandates that parties to the arbitration are treated equally; no special treatment can be given to the Government when considering an application for stay of an award under Section 36.