Arbitration Award Attains Status Of Civil Court Decree After Three Months If No Challenge Is Posed: J&K High Court

This transformation grants the award immediate executability at the discretion of the award holder, it added.

A bench of Justice Rahul Bharti observed,

“… Amended section 36(1) very correctly envisages holding back from an arbitration award the deemed status of a decree of a civil court till the expiry of time available for challenging an award under section 34…. In case no challenge comes to be posed against an arbitration award within given period, the very next moment a given award self earns de jure status”.

Background of the Case:

The dispute arose from a contract agreement for the construction of storage accommodation at the Air Force Station in Udhampur, with a total contract value of ₹28,90,00,000. The contractor faced various challenges during the execution of the project, leading to claims for reimbursement due to losses incurred. The matter was referred to arbitration, where sole arbitrator Sh. R. P. Tripathi delivered an award on May 18, 2023, allowing several claims made by the contractor.

Following the award, the Union of India filed a petition under Section 34 of the Arbitration & Conciliation Act, 1996, challenging the arbitral award. The petitioner sought an interim stay on the operation of the award, which was granted by the court on November 6, 2023, subject to the condition that the awarded amount be deposited within four weeks.

Subsequently, the contractor pressed for the release of the deposited awarded amount, which totaled ₹2,08,86,887. The respondent's counsel cited previous judgments from the High Court of Calcutta to support their plea for the release of funds, arguing that the stay order had prejudiced their position.

In his release application the respondent contractor urged the court to release the award amount, offering to furnish a bank guarantee as security to ensure the return of the amount if the award is later set aside.

Observations Of The Court:

Adjudicating upon the matter Justice Rahul Bharti made several critical observations while interpreting the amended Section 36:

1. Definition and Context of Enforcement and Execution: The court underscored the legal definitions of "enforcement" and "execution," emphasizing that the execution of a law or judgment involves putting it into effect.
2. Incubation Period of an Unchallenged Award: Under Section 36(1), an arbitration award attains the status of a civil court decree after three months if no challenge is posed. This transformation grants the award immediate executability at the discretion of the award holder.

“It needs to be kept in mind that an execution of a decree of a court attaining finality is an irreversible legal process under the CPC and that will apply equally to an award deemed to be decree under section 36(1) of A&C Act, 1996”, the bench remarked.

1. Conditional and Unconditional Stay of Awards: The court distinguished between scenarios where awards are challenged and stayed unconditionally versus conditionally. An unconditionally stayed award loses its enforceability until the Section 34 challenge is resolved. Conversely, a conditionally stayed award may still allow for certain benefits to the award holder, provided the conditions are met.
2. Discretionary Powers of the Court: The court highlighted its discretion in deciding whether to enforce an un-stayed award, ensuring the award challenger's earnestness and not merely delaying tactics. The court can impose conditions to protect both parties' interests during the pendency of the challenge.The bench added,“Option to avail the release of benefit or not under the challenged un-stayed award will always be subject to exercise of discretion by an award bearer/holder”.
3. Non-Appealable Nature of Certain Orders: An order granting or refusing a stay on the award's operation is not appealable under Section 37, ensuring the enforcement mechanism remains within the court's control until the final adjudication of the Section 34 proceedings.
4. Release of Award Amount: Addressing the respondent's application for the release of the deposited award amount, the court noted that the previous direction for deposit served no party's interest if it remained idle. The court leaned towards allowing the release of the award amount under specific conditions to balance the equities​

In light of these observations the court allowed the respondent's plea for the release of the deposited amount, subject to the furnishing of an unconditional bank guarantee from a nationalized bank equivalent to the award amount plus interest accrued.

The promoters of the respondent company were also directed to provide individual undertakings to abide by any future court directions regarding the reimbursement of the released amount.

Case Title: Union Of India Vs M/s Onkar Nath Bhalla and Sons Contractor Pvt. Ltd.

Citation: 2024 LiveLaw (JKL) 202

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