Government Entity Can't Be Given Differential Treatment While Staying Operation Of Arbitral Award : Supreme Court

Recently, the Supreme Court disapproved of a High Court's decision to exempt a government entity from depositing other amounts in addition to the arbitral award amount as a condition precedent for seeking a stay on the enforcement of the award just because the government entity was not a flight risk.

The bench comprising Chief Justice DY Chandrachud,Justices JB Pardiwala and Manoj Misra observed that the law qua arbitration proceedings cannot be differently applied merely because of the status of the respondent-entity as a statutory undertaking.

The bench drew reference from the case of Pam Developments Private Limited v State of West Bengal (2019), where it was held that “no distinction is made nor any differential treatment is to be given to the Government while considering an application for grant of stay of a money decree in proceedings under Section 34 of the Arbitration Act.”

The Court heard a plea filed by the appellant who had secured an arbitral award against the government entity/respondent. The appellant had secured Rs. 21,07,66,621 towards the claims against the respondent, additionally the respondent was directed to pay an interest to the appellant as well as the cost amounting to Rs. 3,20,86,405.

The plea was preferred by the appellant against the High Court's decision to stay the operation of the arbitral award by asking the respondent-government entity to only deposit the award amount as a condition for the stay on the enforcement of the award without requiring them to deposit amount pertaining to interest and cost.

The High Court reasoned that since the respondent is a government entity, therefore it need not require to deposit the interest and cost amount because it was not under a flight risk owing to its sizeable operation.

Rejecting the High Court's reasoning, the Judgment authored by the Chief Justice noted that “the High Court ought not to have based its decision on the condition for the grant of stay on the status of the respondent as a statutory authority.”

According to the Court, “The Arbitration Act is a self-contained code – it does not distinguish between governmental and private entities. Hence, the decision of the Court cannot be influenced by the position of the party before it and whether it is a fly-by-night operator. Moreover, an assessment as to whether a party is reliable or trustworthy is subjective. Many private entities, too, may rely on the size of their undertaking, its success, public image, or other factors to argue that they are not fly-by-night operators. In the absence of any provision of law in this regard, it would be inappropriate for courts to apply this standard while adjudicating the conditions upon which a stay of an award may be granted. Similarly, the form of security required to be furnished should not depend on whether a party is a statutory or other governmental body or a private entity.”

“Governmental entities must be treated in a similar fashion to private parties insofar as proceedings under the Arbitration Act are concerned, except where otherwise indicated by law. This is because the parties have entered into commercial transactions with full awareness of the implications of compliance and non-compliance with the concerned contracts and the consequences which will visit them in law. Hence, the argument that the High Court was correct in directing the respondent to furnish bank guarantees in relation to the amount awarded because it is a statutory body is rejected.”, the court added.

Given the aforesaid, the Court allowed the appeal and modified the High Court's decision.

Appearance:

Senior Advocate Shyam Divan appeared for the appellant

Senior Advocate CA Sundaram appeared for the respondent

Case Title: International Seaport Dredging Pvt Ltd Versus Kamarajar Port Limited, Civil Appeal No 12097 of 2024

Click here to read/download the judgment