Stay Or Not To Stay - An Enigma Of An Arbitral Award

Section 34 of the A&C Act establishes the legal basis for challenging the legitimacy of an arbitral award. It gives parties the right to plead that an award be set aside for a of reasons, such as lack of jurisdiction, irregularities in the procedure, or violation of public policy, by submitting a petition to the relevant court whereas Section 36 of the A&C Act talks about the enforcement of the arbitral award. It states that unless the court grants a separate application for stay, the award remains enforceable even after an application to set it aside, is filed. The court must take into account provisions for staying money decrees for monetary awards and may, under certain circumstances, grant a stay on the award's enforcement. The court's decision must be documented in writing. In addition, the court will unconditionally stay the award until the challenge is resolved if it appears that fraud or corruption had an impact on the arbitration agreement or the passing of the award.

The reasoning of such queries resonates in a catena of judgments pronounced by the Hon'ble Supreme Court of India in National Aluminum Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd. (2004) 1 SCC 540, and Fiza Developers and Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd., (2009) 17 SCC 796, held that an automatic stay on an arbitral award kick in the moment it is challenged, making it impossible to enforce. Nevertheless, the automatic stay provided by Section 36 of the A&C Act was not interpreted by these two rulings, nor did they take into account the second part of the section, which deals with the enforcement of a final and binding award as a court decree under the Code of Civil Procedure.

In Hindustan Construction Company Limited and Anr. v. Union of India and Ors., (2019) SCC OnLine SC 1520, the Hon'ble Supreme Court ruled that the purpose of the A&C Act would be defeated if automatic stays were to become the norm, depriving the holders of arbitral awards of their productivity from the moment an application under Section 34 is filed. Additionally, Section 9 of the A&C Act lends support to the idea that there is no such thing as an automatic stay because it allows parties to request temporary relief prior to the enforcement of an award, and the 2015 Amendment Act expounded on this notion. Therefore, the idea of automatic stays was eliminated when the judgment explained that, when interpreting Section 36 in its entirety, the A&C Act, 1996, contains no reference to automatic stays. The A&C Act's fundamental tenets and purpose are violated whenever an application is filed under Section 34, and this peculiarity has been eliminated by the ruling at hand. It was decided that Section 87 of the A&C Act, which discussed the automatic stay of an arbitral award, was added in accordance with Article 14 of the Indian Constitution by the 2019 Amendment Act. This judgment of the Supreme Court acts as a beneficial step in fortifying the Indian Arbitration Regime and establishing our nation as a strong arbitration hub.

Section 34 of the A&C Act brought to the fore the system of automatic stays, upon filing of a Petition, challenging the arbitral award, as was introduced by Section 87 of the A&C Act. The same was struck down by the Supreme Court. What Section 87 wanted to do was to bring to a halt the enforcement of an arbitral award, the moment an arbitral award was challenged. The aim of the Section was to help the parties to challenge sham and illegal awards but it became a hindrance to the award holders to reap the fruits of the award and ultimately became an obstacle in the burgeoning of the Act. The arbitrariness in the actions of the state is prevented by the right to equality flowing from the Constitution and this was swayed by the imposition of Section 87's automatic stays causing unnecessary hardships and inconvenience to the award holders holding a valid arbitral award. They were not entitled to the productivity of their awards like other litigants were, which left them open to unforeseen financial risks. Automatic stays are not necessary because parties may request interim reliefs prior to the enforcement of an award under Section 9 of the A&C Act. Furthermore, the 2015 Amendment Act eliminated any confusion regarding the automatic stay's application, demonstrating the legislature's intention to discontinue such practice. Consequently, Section 87 conflicted with these clauses, creating ambiguity and irregularities in the law's implementation, hence it was declared as void.

It was pithily put by Justice Nariman (Retd.) that the arbitration amendment of the year 2019 had various inadequacies as the Section 87 invalidated the judgment of the Hon'ble Supreme Court in BCCI v. Kochi Cricket Private Limited, (2018) 6 SCC 287, wherein it was held that the arbitration amendment of 2015 to Section 36 would apply to the arbitration proceedings commenced on or after 23.10.2015 and the arbitration-court proceedings filed on or after 23.10.2015, even though the proceedings of arbitration had started before the amendments were brought into force. Hence, Section 87 of the A&C created a lot of chaos and confusion by totally unsettling the judgement in BCCI (supra).

The is no concept of automatic stay in the arbitration landscape as it prevents an arbitral award-holder from reaping the benefits of their award, which is typically acquired after years of litigation. A stay application is required to be filed before the court which is dealing with the challenge to an arbitral award and only then the executing court will be constrained to stay its hands away and not in the absence of a stay order, as the stay without a stay order will put the A&C Act into a back burner and would be in the teeth of the law. It is seen that the executing courts tend to stay their hands away in the absence of a stay order which is not the correct approach as the executing court has no hindrance not to execute the arbitral award in the absence of a stay order and it is only when an order granting stay is passed can the executing court confine its powers of not executing the award. A stay granted by the court has to be passed reasonably if the court is of the prima facie view that the arbitral award is manifestly arbitrary, grossly perverse, and against the fundamental norms of the law of the land. An arbitral award is challenged by the award debtor sometimes to prolong the process of arbitration which is dangerous for the burgeoning of arbitration in the country as the goal of the A&C Act is to make India a hub of arbitration and it is never meant to mirror litigation.

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