CPC Provisions Govern Stay Of Execution Proceedings Initiated Under Section 36(1) Of Arbitration Act: Orissa High Court

The High Court noted that the Arbitration Act provides in Section 35 that an arbitral award is final and binding, subject to the provisions of this Part, on the parties and those claiming under them. Section 36 delineates the enforcement process which states that once the time for challenging the arbitral award under Section 34 has elapsed, the award shall be enforceable akin to a court decree under the Code of Civil Procedure, 1908 (5 of 1908), unless an application for stay of the award's operation is granted under subsection (3).

Subsection (3) of Section 36 permits courts to stay the operation of an arbitral award upon application, with conditions as deemed appropriate.

Under the Code of Civil Procedure, 1908, the High Court referred to Order 21, Rule 26 which governs the stay of execution of decrees, allowing courts to order stays pending applications and imposing conditions upon judgment-debtors. Order 41, Rules 1(3), 4, and 5 address the procedure for appeals.

Interpreting Section 36(3) of the Arbitration Act, the Supreme Court in Pam Developments Private Limited v. State of West Bengal and Board of Control for Cricket in India v. Kochi Cricket Private Limited clarified that while courts should consider the provisions of the Code of Civil Procedure, 1908, for guidance in granting stays, these provisions do not supersede the Arbitration Act's main provisions but serve as guiding principles.

Therefore, the High Court held that the enforcement and appeal mechanisms under the Arbitration Act coupled with the procedural frameworks outlined in the Code of Civil Procedure, 1908 provide a comprehensive framework for the finality, enforcement, and appellate processes concerning arbitral awards.

The High Court noted that the proviso in section 36(3) of the Arbitration Act which mandates "due regard" to the provisions of granting a stay on a money decree under the C.P.C. signifies that the C.P.C. provisions are to be considered but not necessarily mandated. It noted that the Arbitration Act's provisions take precedence with the C.P.C. guidelines followed as advisory. It held that an application for executing an arbitral award under section 36(1) of the Arbitration Act can only be made after the deadline for challenging the award under section 34 of the Arbitration Act has passed. The bench held that Section 36(2) of the Arbitration Act does not apply to execution proceedings initiated under section 36(1) where requests to suspend the award's operation must be made during the section 34 application's pendency.

The bench noted that in Order 41 Rule 5(2) of the C.P.C. if an execution proceeding is initiated before the time for appealing against a section 34 application's order expires, the judgment debtor may approach the decree-passing court for execution suspension. Similarly, if the judgment debtor appeals under section 37 of the Act against a Commercial Court order under section 34, an application under Order 41 Rule 5(1) may be filed with the Appellate Court to suspend the decree execution, as no specific provision akin to section 36(2) exists under the Arbitration Act for staying the Commercial Court's impugned order.

Considering the provisions in Order 41 Rule 5(3) of the C.P.C., the High Court held that a stay on executing an appealable decree may not be granted unless the Court is satisfied: a) significant harm could occur without the stay; b) the application was filed without undue delay; and c) the applicant furnished appropriate security for the decree's due fulfillment.

The bench held that:

(i) The phrase used in the proviso under sub-section 3 of Section 36 of the Act, 1996 “have due regard to the provisions of grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908)” only mean that the provisions of C.P.C. are to be taken into consideration and not that they are mandatory.

(ii) The provisions of the Act, 1996 are essentially to be first applied, whereas the provisions of C.P.C. for execution are to be followed as a guidance.

(iii) An application for execution of arbitral award in terms of section 36(1) of the Act, 1996 can only be filed after expiry of the time for making an application to set aside the arbitral Award under section 34 of the Act, 1996.

(iv) Section 36(2) of the Act, 1996 is not applicable to execution proceeding initiated under Section 36(1) of the Act, 1996 and such application for stay operation of arbitral Award can only be filed before the Court during pendency of the Application filed under Section 34 of the Act, 1996.

(v) In terms of sub-section (3) of section 36 of the Act, 1996, upon filing of an Application under subsection (2) for stay of the operation of the arbitral Award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such Award for reasons to be recorded in writing.

(vi) There is no such specific provision under the Act, 1996 to file application before the executing Court to stay the operation of execution proceeding. Hence, provisions under the C.P.C. are to be followed for the said purpose.

(vii) The Judgment Debtor has to move an application under Order 21 Rule 26(1) of C.P.C. for staying the execution of decree. On moving so, the executing Court may stay the execution for a reasonable time to enable the Judgment Debtor to apply to the Court by which the decree was passed or to the Court having appellate jurisdiction.

(viii) As prescribed under sub-rule (2) of Rule 5 under Order 41 of CPC, before expiration of the time allowed for appeal against the order passed on an application under Section 34 of the Act, 1996, if an execution proceeding is initiated, the Judgment Debtor may move before the concerned Court, which passed the decree, for stay of the execution proceeding.

(ix) If the Judgment Debtor prefers an Appeal under Section 37 of the Act, 1995 against the order passed by the Commercial Court in a Section 34 proceeding, he/it may move an application under Order 41 Rule 5(1) before the Appellate Court for stay of execution of decree, as there is no such specific provision under the Act, 1996, alike section 36(2), for stay of the impugned order passed by the Commercial Court.

(x) In view of the provisions enshrined under subrule (3) of Rule 5 under Order 41 of CPC , no order for stay of execution of an appealable decree shall be made by the Court under subrule (1) or sub-rule (2) unless it is satisfied-

1. that substantial loss may result to the party applying for stay of execution unless the order is made;

2. that the application has been made without unreasonable delay; and

3. that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him.

Background:

The matter pertained to a dispute which arose from a contract for civil construction and other works at the Birla Institute of Management and Technology (Petitioner) premises in Bhubaneswar, Odisha. Alleging breaches and delays by M/s. Fiberfill Interiors & Constructions, U.P. (Opposite Party), the Petitioner invoked arbitration which resulted in an arbitral award partly in favor of both parties. Thereafter, the Petitioner approached the applications under Section 34 of the Arbitration Act in the Court of District Judge. The District Judge dismissed the applications. Feeling aggrieved, the Petitioner approached the High Court.

The Opposite Party contended that the arbitral award, upheld by the Supreme Court, must be executed without delay. It argued that the Petitioner's attempts to delay execution through pending appeals and review petitions were unjustified, as the courts have conclusively upheld the award. It argued that the Petitioner's applications for clarification and restoration were dismissed, and the execution should proceed as per the final decisions of the courts. The Opposite Party maintained that the Petitioner's actions were aimed at evading payment of the award amount.

In response, the Petitioner contended that the executing court should have exercised discretion under Section 36(2) of the Arbitration Act to stay execution pending final decisions on pending appeals and review. It argued that the arbitral award's finality was yet to be determined due to ongoing legal challenges. The Petitioner argued that the executing court's refusal to stay execution was erroneous and undermined the ongoing legal processes, including the pending appeal under section 37 of the Arbitration Act and the review petition before the Supreme Court.

Case Title: Birla Institute of Management & Technology (BIMTECH), Gothapatna, Bhubaneswar vs M/s. Fiberfill Interiors & Constructions, U.P.

Case Number: W.P.(C) No.4189 of 2024

Advocate for the Petitioner: Mr. Ramachandra Panigrahy

Advocate for the Opposite Party: Mr. Santosh Dwibedy

Date of Judgment: 16.07.2024

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