Security Offered By An Award-Debtor For Stay Of Arbitral Award Must Be ‘Clean, Unblemished With Good Exchange Value’: Calcutta High Court

The Calcutta High Court has recently held that the security furnished by an award-debtor for stay of an arbitral award must be “clean, unblemished and with good exchange value.”

Sarat Chatterjee & Co. (“applicants”) had argued that that an earlier division-bench judgement of 2015, had already secured 10,000 metric tonnes of Coke equating to more than the total security value of the award of Rs 18.21 crores in favour of the Munisubrata (“respondents”), and that the Court could now affect the sale of the aforesaid coke, in lieu of the security payable.

In refuting the arguments of the applicants, while expressing its insecurity about the security proposed by them, a single-bench of Justice Moushumi Bhattacharya held:

The Court is empowered to impose conditions on the award-debtor who seeks stay of an Award and must look to the provisions of the CPC for taking recourse to the principles for grant of stay of a decree or order. The Court must simply ensure that the security offered by the award-debtor has good currency value and is not an empty reassurance given by the award-debtor on a speculated value of unsold goods. The limited protection by the Division Bench for sale of the 10,000 MTs of Met Coke in 2015 cannot be resurrected after years to urge that the award-holder stands secured to the extent of the projected sale value of the goods amounting to Rs. 45 crores. Besides the uncertainties listed above, the 10,000 MTs of Met Coke has admittedly not been sold till date and even the sale was mired in litigation.

Brief facts of the case

The present applications were moved for the unconditional stay of an arbitral award, of approx. Rs 18.21 crores granted in favour of the claimants, due to the inability of the applicants to deliver 10,000 metric tonnes of Met Coke of a similar valuation to the respondent.

It was argued by counsel for the petitioner, that the entire awarded sum had already been secured in favour of the respondent pursuant to an earlier division bench order of 2015, and that there was no obligation on the applicant to furnish any further security for stay of the impugned award, as the same would amount to a double-benefit to the respondent/award-holder.

On the other hand, counsel or the respondent argued that the applicant had not made any prayer for unconditional stay of the award, and that the 10,000 MTs of Coke being offered by the applicants was not theirs to begin with, notwithstanding the uncertainty of it all being sold in order to realise the awarded amount.

Findings of the Court

In perusing the division-bench judgement being referred to by the applicants, the Court was of the opinion that the same could not translate to “security” under the meaning of Section 36(3) of the Arbitration & Conciliation Act, 1996 (“1996 Act”).

It was observed that the 2015 judgement laid down that the sale of 10,000 MTs of coke would only be an interim measure till final disposal of the suit, and that there was no clarity on who would enjoy rightful title over the aforesaid goods.

Court further noted that, while the impugned arbitral award found that Munisubrata was entitled to recover Rs 18.21 crores from the applicant, the 2015 judgement only offered a limited protection to Munisubrata, being an unpaid seller in respect of the goods, on a prima facie basis, and left the issue open, to be examined at trial.

In further examining Section 36(3) of the 1996 Act, read with Order XLI Rule 5 of the Civil Procedure Code, the Bench opined that an Appellate Court could not stay the execution of a decree, unless the appellant “furnishes the security for the due performance of such decree or order and which may ultimately be binding upon the appellant / applicant who seeks stay of the decree.”

It was held:

“In order words, the security must be such as to inspire the Court’s confidence that the award-debtor will stand by the security and make good the Award if the application for setting aside of the Award is ultimately rejected. The security, simply put, must command good exchange value and cannot be such as to undermine the object of section 36(3) read with the first proviso to the 1996 Act and Order XLI Rule 5 (3) and (5) of the CPC. The petitioner award-debtor / Sarat is brandishing precisely a type of security which fails to clear the threshold test for stay of an award, that is, a security with a clean track record and good future prospects.”

Finally, in examining whether any contentions for unconditional stay of arbitral award under the second proviso to Section 36(3) could be canvassed, the Bench was of the opinion that although the applicant had not sought for an unconditional stay on grounds of fraud or corruption, “the prayer for utilising the sale value of 10,000 MTs of Met Coke amounts to that very relief.”

Accordingly, in holding that the present application was one for stay of an award simpliciter, and not for unconditional stay, the Bench directed the applicants to deposit the sum of approx. Rs 18.21 crores by way of cash and a bank guarantee, before the Registrar (Original Side) within a period of 8 weeks, in the absence of which the respondents were given liberty to apply for execution of the impugned award.

Case: Sarat Chatterjee and Co. (VSP) Private Limited v Sri Munisubrata Agri International Limited (Formerly known as LMJ International Ltd.) and Anr.

Coram: Justice Moushumi Bhattacharya

Citation: 2023 LiveLaw (Cal) 259

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