NPAC’s Arbitration Review: Is Government Entitled to Special Treatment under the Arbitration Act?

NPAC’s Arbitration Review: Is Government Entitled to Special Treatment under the Arbitration Act?

Rishi Kumar Dugar

Whether an unconditional stay of the award be granted under Section 36 (Enforcement) of the Arbitration and Conciliation Act 1996 (1996, Act) when the applicant is Government? The Supreme Court considered this issue in, Pam Developments Pvt. Ltd. vs. State of West Bengal (Civil Appeal No.5433 of 2019).

The agreement between the parties pertained to repair of different stretches of Hooghly Highway Division in Hooghly District, West Bengal. Disputes arose between the parties; appellant raised various claims before executive engineer of public works, when claims remained unpaid, the matter was referred to arbitration.

Arbitration proceedings went on for around seven years; Pursuant to which an award was passed, allowing some of appellant’s claims. As per the award appellant was entitled to Rs. 2,87,11,553/- with interest @18% p.a.  While the respondent State challenged the award under Sec.34 (Application for setting aside arbitral award), during the intervening period, the 1996, Act was amended, thereby making it necessary for respondent to file a stay application under Section 36. 

Respondent’s stay application was dismissed for default and the executing court passed an order attaching sum of Rs. 2.75 Crores lying to the credit of the respondent State with Reserve Bank of India.  

Interestingly, the respondent instead of filing an application seeking to recall the aforesaid order filed a fresh stay application. The impugned order granted an unconditional stay relying on provisions of the Code of Civil Procedure, 1908 (CPC) Order XXVII, Rule 8A (No security to be required from Government or a public officer in certain cases). 

The Supreme Court held that it was not the legislature’s intent that, when judgment debtor is the government, the award would become unenforceable immediately on filing of an application under Sec. 34 as the award would be stayed merely as a matter of course. 

That the reference to CPC in Section 36 is to guide the Court on what conditions can be imposed and the 1996, Act as a special act must be applied first and CPC would be applicable only to the extent that it is consistent with the 1996, Act.

Further, the bar envisaged under Order XXVII, Rule 8A is only with regard to security being provided as mentioned in Rules 5 and 6 of Order XLI of CPC. However, the same cannot be stretched to be interpreted that a decretal amount cannot be asked to be deposited in appeal.  It was observed that Order XXVII, Rule 8A was introduced in 1937 during the British Raj and that the same would not be applicable in today’s times with a democratic government in place.

The Supreme Court held that while CPC may provide for differential treatment of government in certain cases, the 1996, Act is a special act which mandates that parties to arbitration are treated equally, no special treatment can be given to the government when considering an application for stay of award.

The author is an Advocate practicing in the Madras High Court.

Members of the Nani Palkivala Arbitration Arbitration Centre (NPAC) will be writing a weekly column for Bar & Bench analyzing the latest developments on the law of arbitration.

Bar and Bench - Indian Legal news