Recently, the Delhi High Court in the case of Bhandari Engineers & Builders Pvt. Ltd. Vs. Maharia Raj Joint Venture & Ors, took a pro enforcement approach in order to facilitate and expedite execution proceedings. The court introduced the format for disclosure of Assets by the judgment-debtor. On previous occasions the Supreme Court and various High Courts have emphasised...
Recently, the Delhi High Court in the case of Bhandari Engineers & Builders Pvt. Ltd. Vs. Maharia Raj Joint Venture & Ors, took a pro enforcement approach in order to facilitate and expedite execution proceedings. The court introduced the format for disclosure of Assets by the judgment-debtor. On previous occasions the Supreme Court and various High Courts have emphasised on expeditious enforcement of awards so that a decree holder is not deprived of the fruits of the award. In fact, the recent trend has shown that 100% deposit of the award amount is the norm for granting stay on the operation of the award. However, the Arbitration and Conciliation (Amendment) Ordinance 2020 (the ordinance) has put these developments on a back burner and taken us back to the "automatic stay era" which was a major hurdle in enforcement of awards.
The ordinance may also act as a road block in smooth execution of awards as the judgment debtor may obtain an unconditional stay on the execution of an award by alleging fraud or corruption. Prima facie finding by the court that the award or the arbitration agreement was induced by fraud or corruption is a pre requisite for granting an unconditional stay on operation of the award until the challenge to the award is decided. Undoubtedly, this will result in delaying the enforcement of arbitral awards. The judgment debtor will be inclined to resist the enforcement proceedings on the ground that the underlying contract was pyramided on fraud and corruption. Another contention that may be frequently raised by the judgment debtor for seeking unconditional stay on the enforcement of award is that the award has an element of fraud and corruption.
The newly added proviso in Section 36(3) of the Act suffers from the following infirmities:
Firstly, the newly added proviso in Section 36(3) of the Act leaves scope for interpretation in the definition of fraud and corruption. Secondly, this would encourage the judgment debtor to misuse the amendment by taking grounds of fraud and corruption for obtaining an unconditional stay. Thirdly, the Section 34 already provides the public policy provision which covers the ambit of fraud and corruption. Fourthly, the essence of "no automatic stay" brought in through the 2015 Amendment Act would be negated because of this ordinance.
The authors have analysed the judgments delivered by the Indian courts in relation to stay on the enforcement of awards under the Arbitration and Conciliation Act, 1996 and the subsequent amendments thereto:
Pre-2015 Amendment--The Arbitration and Conciliation Act, 1996:
- 18 December, 2003; In National Aluminium Co. Ltd. Vs. Pressteel & Fabrications (P.) Ltd., the Supreme Court held that when a part challenges an arbitral award under section 34 within the time stipulated therein, it becomes unexecutable and no discretion is left with the court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. It further observed that the execution of the award would be automatically suspended once the application for challenging the said award is filed under Section 34 of the Act.
- 18 December, 2008; In the case of Malwa Strips Pvt Ltd v Jyoti Ltd., the Supreme Court opined in a case purely under Order XLI Rule 5 of CPC (i.e. for stay of a decree). That, if an exceptional case has been made for unconditional staying execution of a pure money decree, the judicial discretion to grant unconditional stay can be exercised. Thus, for unconditional stay a strong and exceptional case should be made and there is no blanket prohibition on an appellate court unconditionally staying a money decree.
This principle is applicable to Section 36 of the Act as expressed in the current Section 36 itself, reads thus; "...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."
- 4 September, 2013; Pressteel & Fabrications was reaffirmed in the case of AFCONS Infrastructure Ltd. v. Board of Trustees of the Port of Mumbai, the Bombay High Court held that there must be an automatic stay on execution until the time for filing Section 34 petition is expired or rejected. The executing court cannot impose any condition while admitting Section 34 petition including for deposit of the amount awarded. The court further held that even a Section 9 application for protection of the decretal amount would not lie.
Post-2015 Amendment-:
- 14 March, 2018; The Bombay High Court has beyond doubt clarified the position of Section 36 Sub-Clause 3, in the case of Ecopack India Paper Cup Pvt Ltd v Sphere International. The court firmly opined that Section 36(3) clearly implicit that the court considering a stay of an arbitral award for money must have "due regard to" the provisions of the CPC (i.e. Order XLI Rule 1 Sub-Rule 3 and Rule 5) and also expressed that Section 36 doesn't lack all discretion to grant an unconditional stay if the circumstances otherwise so warrant.
- 15 March, 2018; The Apex Court in the case of Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd, ruled two major issues limited to the scope of applicability of the 2015 Amendment Act.
- the amendment applied prospectively (i.e. Section 26 of the 2015 Amendment Act);
(ii) Section 36 (2) of the Act would apply retrospectively i.e. even to the cases which were pending on 23rd October, 2015.
- 12 July, 2019; The Supreme Court declined the unconditional stay granted to the Government by the Calcutta High Court in the case of Pam Developments Pvt. Ltd. v. State of WB.
Particularly, the Apex Court observed that in purview of Section 18 of the Act, "that the parties shall be treated with equality", the Act mandates, so rightly, that the Government shall not be offered with special treatment anymore while considering an application for grant of stay of a money decree in proceedings under Section 34 read with Section 36 for application of stay. With these observations, the Supreme Court held that the granting of unconditional stay to the Government would defeat the purpose of Section 36 of the Act and the Arbitration Act should conquest over the CPC provisions. Thus, the CPC provisions are only guiding principle to the Section 36 of the Act.
- 27 November, 2019; In Hindustan Construction Company Limited & Anr. v. Union of India & Ors., the Supreme Court laid down the correct position of law pertaining to the scope of applicability of the 2015 Amendment Act. The Supreme Court struck down Section 87 (inserted by the 2019 Amendment) on the ground that it was "manifestly arbitrary".
- 17 February, 2020; In the case of Power Mech Projects Ltd. vs Sepco Electric Power, the Delhi High Court has firmly observed the wide ambit of the mandate, as to deposition of the 100% arbitral award before staying the enforcement of the Award or before challenging petition under Section 34 of the Act.
POSITION UNDER THE MSMED ACT, 2006:
Unlike the provisions of Section 36 of the Arbitration and Conciliation Act, 1996, the MSMED Act, 2006, requires a mandatory pre-deposit of 75% under Section 19 of the Act. The Landmark judgments to this effect pronounced by the Indian courts are reproduced here under:
- 25 November, 2016; In M/s. ICSA (India Limited) v. M/s. Swastik Wires, the court held that the deposit has to be made while filing of application under Section 34 of the Arbitration and Conciliation Act, 1996, otherwise the application is not maintainable.
The further applicability of Section 19 in the cases of contractual arbitration is being clarified by this judgment;
10. May 8, 2020; The Delhi Court opined in the case of AVR Enterprises v. Union of India, that if Section 19 was to apply to every decree, award or order, then there was no requirement of Legislature to provide the expression "made either by the Council, or any institution or centre providing alternate dispute resolution services to which reference has been made by the Council" Therefore, it held that Section 19 would apply only to proceedings initiated under Section 18 (i.e. reference to MSME Facilitation Council) of the MSMED Act and not in cases of private arbitration.
CONCLUDING REMARKS
Under the existing act, the court had the power to grant a stay on the operation of the award pending the challenge to the award after recording reasons in writing. The ordinance will only be used as a roadblock by the judgment debtor in the enforcement proceedings. Further, this ordinance will also open flood gates for litigation wherein the judgment debtors will take grounds of fraud or corruption to resist the enforcement proceedings and to avoid the condition of deposit of the awarded amount for stay of operation of award.
Moreover, it will be interesting to see how the term "Prima Facie" would be interpreted by the courts. The ordinance seems to be retrospective in nature from a bare perusal of the explanation appended therein and the same may be challenged in the court of law.
We can only hope that in future courts adopt the view expressed by the Supreme Court of India in Enviro-Legal Action v. Union of India:
"In consonance with the principle of equity, justice and good conscience Judges should ensure that the legal process is not abused by the litigants in any manner. The court should never permit a litigant to perpetuate illegality by abusing the legal process. It is the bounden duty of the court to ensure that dishonesty and any attempt to abuse the legal process must be effectively curbed and the court must ensure that there is no wrongful, unauthorised or unjust gain for anyone by the abuse of the process of the court. One way to curb this tendency is to impose realistic costs, which the respondent or the defendant has in fact incurred in order to defend himself in the legal proceedings. The courts would be fully justified even imposing punitive costs where legal process has been abused. No one should be permitted to use the judicial process for earning undeserved gains or unjust profits. The court must effectively discourage fraudulent, unscrupulous and dishonest litigation."
Views are personal.
(Authored by Tariq Khan is a Practicing Lawyer and Gaurav Dadhich, 4th Year Student of Rizvi Law College)