{"file_name": "2024_10_1503_1512_EN.pdf", "text": "[2024] 10 S.C.R. 1503 : 2024 INSC 827\n\nInternational Seaport Dredging Pvt Ltd \nv. \nKamarajar Port Limited \n\n(Civil Appeal No. 12097 of 2024)\n\n24 October 2024\n\n[Dr Dhananjaya Y Chandrachud,* CJI, \nJ.B. Pardiwala and Manoj Misra, JJ.]\n\nIssue for Consideration\n\nMatter pertains to the correctness of the order passed by the High \nCourt granting stay on the execution of the award conditional on \nthe respondent furnishing a bank guarantee.\n\nHeadnotes†\n\nArbitration  and  Conciliation  Act  1996  –  ss.36,  34  –  Arbitral \naward  –  Stay  on  enforcement  –  Dispute  between  parties  – \nInvocation of arbitration agreement – Arbitral award passed \ndirecting  the  respondent  to  pay  the  appellant  certain  sum \nwith  9%  interest  which  would  be  increased  to  12%  p.a.  if \nnot paid within three months and certain amount as costs – \nApplications  u/s.33  for  correction  of  the  award  by  both  the \nparties – Arbitral tribunal dismissed the application filed by \nthe respondent, however allowed the application filed by the \nappellant – Respondent challenged the arbitral award u/s.34 \nand moved an application for stay of execution – High Court \ngranted a stay on the execution of the award conditional on \nthe respondent furnishing a bank guarantee – Correctness:\n\nHeld:  Law  qua  arbitration  proceedings,  cannot  be  any  different \nmerely  because  of  the  status  of  the  respondent  as  a  statutory \nundertaking – High Court ought not to have based its decision on \nthe condition for the grant of stay on the status of the respondent \nas  a  statutory  authority  –  Arbitration  Act  is  a  self-contained \ncode,  it  does  not  distinguish  between  governmental  and  private \nentities – Hence, the decision of the Court cannot be influenced \nby the position of the party before it and whether it is a fly-by-night \noperator  –  In  the  absence  of  any  provision  of  law,  it  would  be \ninappropriate for courts to apply this standard while adjudicating \n\n* Author\n\n\f1504 \n\n[2024] 10 S.C.R.\n\nthe conditions upon which a stay of an award may be granted – \nSimilarly, the form of security required to be furnished should not \ndepend  on  whether  a  party  is  a  statutory  or  other  governmental \nbody or a private entity – Governmental entities must be treated in \na similar fashion to private parties insofar as proceedings under the \nArbitration Act are concerned, except where otherwise indicated by \nlaw – Parties have entered into commercial transactions with full \nawareness of the implications of compliance and non-compliance \nwith the concerned contracts and the consequences which would \nvisit them in law – Thus, the submission that the High Court was \ncorrect in directing the respondent to furnish bank guarantees in \nrelation  to  the  amount  awarded  because  it  is  a  statutory  body, \nrejected  –  Under  Ord.  XLI  r.5  CPC,  the  Court  has  the  power \nto  direct  full  or  part  deposit  and/or  the  furnishing  of  security  in \nrespect of the decretal amount–Thus, order of the High Court to \nbe  modified  –  Respondent  to  deposit  an  amount  quantified  at \n75% of the decretal amount, inclusive of interest, on or before the \nstipulated date before the High Court – Conditional on the deposit \nof the said amount, there shall be a stay on the enforcement of \nthe arbitral award. [Paras 12, 15, 17]\n\nCase Law Cited\n\nPam Developments Private Limited v. State of West Bengal [2019] \n9 SCR 252 : (2019) 8 SCC 112; Toyo Engineering Corpn. v. Indian \nOil Corpn. Ltd., 2021 SCC OnLine SC 3455 – referred to.\n\nList of Acts\n\nArbitration and Conciliation Act 1996; Arbitration and Conciliation \n(Amendment) Act, 2015; Builidng and other Construction Worker’s \nWelfare Cess Act 1996; Code of Civil Procedure, 1908.\n\nList of Keywords\n\nStay  on  execution  of  award;  Bank  guarantee;  Arbitral  award; \nStay  on  enforcement; Arbitration  agreement;  Correction  of  the \naward; Arbitration  proceedings;  Statutory  undertaking;  Grant  of \nstay;  Statutory  authority; Arbitration Act,  a  self-contained  code;   \nFly-by-night  operator;  Governmental  body;  Private  entity; \nGovernmental entities; Commercial transactions; Statutory body; \nFull or partial deposit; Furnishing of security in respect of decretal \namount.\n\nDigital Supreme Court Reports\f[2024] 10 S.C.R.  \n\n1505\n\nCase Arising From\n\nCIVIL APPELLATE JURISDICTION: Civil Appeal No. 12097 of 2024\n\nFrom the Judgment and Order dated 09.09.2024 of the High Court \nof Judicature at Madras in AN No. 4236 of 2024\n\nAppearances for Parties\n\nShyam  Divan,  Sr. Adv.,  Ms.  Shally  Bhasin,  Chaitanya  Safaya, \nPrateek Yadav, Adith Deshmukh, S. S. Shroff, Advs. for the Appellant.\n\nC A Sundaram, Sr. Adv., Ms. Rohini Musa, Adv. for the Respondent.\n\nJudgment / Order of the Supreme Court\n\nJudgment\n\nDr Dhananjaya Y Chandrachud, CJI.\n\n1. \n\nLeave granted.\n\n2.  The appeal arises from an interim order dated 9 September 2024 of \na Single Judge of the High Court of Judicature at Madras in A No \n4236 of 2024 in Arb OP (Com Div) No 335 of 2024.\n\n3.  The  respondent  issued  a  Letter  of  Award  for  executing  Capital \nDredging  Phase-III  at  Kamarajar  Port  to  the  appellant  for  an \napproximate sum of Rs 274 crores. On 12 August 2015, the parties \nentered  into  a  contract  for  the  following  work  to  be  conducted  by \nthe appellant: \n\na.  Capital  dredging  of  Container  Berth  and  Multi  Cargo  Berths \n\nand their approaches; \n\nb.  Capital  dredging  of  Coal  Berth  3  &  Coal  Berth  4  and  their \n\napproaches; \n\nc.  Removal  of  onshore  boulders  and  transportation  to  the \n\ndesignated area; \n\nd.  Removal  of  offshore  boulders  and  transportation  to  the \n\ndesignated area; \n\ne.  Removal of offshore identified debris/wrecks; and\n\nf. \n\nEnvironmental monitoring. \n\n4.  These  tasks  were  to  be  completed  on  or  before  11  April  2017. \nThereafter, disputes arose between the parties. The appellant invoked \n\nInternational Seaport Dredging Pvt Ltd v. Kamarajar Port Limited\f1506 \n\n[2024] 10 S.C.R.\n\nthe arbitration agreement. The arbitral proceedings commenced and \nthe three-member arbitral tribunal made an award on 7 March 2024 \ndirecting the respondent to:\n\na.  Pay the appellant a sum of Rs 21,07,66,621 towards the claims \n\nthat were allowed in its favour; \n\nb.  Pay the appellant interest on the amount awarded at the rate \nof nine per cent per annum from 15 November 2017 until the \ndate of the award if the payment was made within three months, \nand, if not, at the rate of twelve per cent per annum from the \ndate of the award till the date of payment; and \n\nc.  Pay the appellant Rs 3,20,86,405 by way of costs.\n\n5.  Both parties filed applications under Section 33 of the Arbitration and \nConciliation Act 19961for correction of the award and for additional \narbitral awards. The arbitral tribunal dismissed the application filed by \nthe respondent. It allowed the application filed by the appellant only \nto the extent of increasing the costs awarded to it by Rs 12,00,000 to \nreflect the fees paid to the arbitral tribunal subsequent to the parties \nfiling their memo of costs.\n\n6.  The respondent challenged the arbitral award under Section 34 of the \nArbitration Act and moved an application for stay of execution. The \nHigh Court, by its impugned judgment and order dated 9 September \n2024,  granted  a  stay  on  the  execution  of  the  award  conditional \non  the  respondent  furnishing  a  bank  guarantee  in  the  sum  of  \nRs 21,07,66,621 within a period of eight weeks.\n\n7.  The judgment of the High Court has been assailed by the original \nclaimant of the arbitral proceeding (i.e., the appellant in this case) \nwhose  contention  is  that  since  the  award  operates  as  a  money \ndecree under Section 36 of the Arbitration Act, the High Court was \nnot justified in directing merely the furnishing of a bank guarantee \nin  relation  to  the  principal  amount.  The  appellant  contends  that \nthe respondent ought to have instead been directed to deposit the \namount awarded to it as a condition for the grant of a stay on the \nexecution of the award. \n\n1 \n\n “Arbitration Act”\n\nDigital Supreme Court Reports\f[2024] 10 S.C.R.  \n\n1507\n\n8.  Mr Shyam Divan, senior counsel appearing on behalf of the appellant, \nhas urged that: (i)A body of precedent has emerged from this Court \nin  terms  of  which  the  sanctity  of  arbitration  must  be  preserved  by \nrequiring the deposit of the amount awarded as a condition for the \nstay on the enforcement of the award; (ii) The amended provisions \nof  the Arbitration Act  require  that  while  considering  an  application \nfor stay of an award for the payment of money, due regard has to \nbe had to the provisions of the Code of Civil Procedure 19082; and \n(iii)The award of Rs 21,07,66,621 covered ten claims of which three \nwere awarded in full and seven in part. The High Courtwhile ordering \na stay, has essentially furnished only two reasons. The first reason \npertains to the question of cess, while the only other reason is that \nthe respondent is not “a fly by operator”. \n\n9.  Mr  C  A  Sundaram,  senior  counsel  appearing  on  behalf  of  the \nrespondent, submits that: (i)The amended provisions of the statute \nincorporate provisions of the CPC in regard to ordering a stay of an \naward which contains provisions for the payment of money; (ii)Under \nOrder  XLI  Rule  5  of  the  CPC,  the  requirement  is  for  furnishing  of \nsecurity and the deposit of money should not, therefore, be regarded \nas a default option; (iii)The High Court had due regard to the fact that \nthe respondent is a statutory body and correctly held that security \nshould be furnished in the form of a bank guarantee; (iv) As such the \nimpugned judgment should not be interfered with under Article 136 \nof the Constitution; and (v) The body of precedents which Mr Divan \nrelied on pertains to appeals under Section 37 of the Arbitration Act.\n\n10.  Section 36(2) of the Arbitration Act indicates that where an application \nto set aside an arbitral award has been filed under Section 34, the \nfiling  of  such  an  application  shall  not,  by  itself,  render  that  award \nunenforceable, unless the Court grants a stay on the enforcement of \nthe arbitral award in terms of sub-section (3). The provision indicates \nthat  a  separate  application  must  be  made  for  this  purpose.  Sub-\nsection (3) of Section 36 stipulates that where such an application \nhas been filed, the Court may, subject to such conditions as it may \ndeem fit, grant stay of the operation of the award for reasons to be \nrecorded in writing. Following the amendments brought about by the \nArbitration and Conciliation (Amendment) Act 2015, the first proviso \n\n2 \n\n “CPC”\n\nInternational Seaport Dredging Pvt Ltd v. Kamarajar Port Limited\f1508 \n\n[2024] 10 S.C.R.\n\nto sub-section (3) stipulates that the Court shall, while considering \nan application for grant of stay in the case of an arbitral award for \npayment of money, have due regard to the provisions related to the \ngrant of stay of a money decree under the CPC. The second proviso \nprovides for a situation in which the Court may grant unconditional \nstay. Section 36(3) and its provisos are reproduced below:\n\n“36. Enforcement – \n\n…\n\n(3) Upon filing of an application under sub-section (2) for \nstay of the operation of the arbitral award, the Court may, \nsubject to such conditions as it may deem fit, grant stay \nof the operation of such award for reasons to be recorded \nin writing:\n\nProvided  that  the  Court  shall,  while  considering  the \napplication for grant of stay in the case of an arbitral \naward for payment of money, have due regard to the \nprovisions for grant of stay of a money decree under \nthe  provisions  of  the  Code  of  Civil  Procedure,  1908 \n(5 of 1908).\n\nProvided  further  that  where  the  Court  is  satisfied  that  a \nPrima facie case is made out that, –\n\n(a)   the  arbitration  agreement  or  contract  which  is  the \nbasis of the award; or\n\n(b)   the making of the award,\n\nwas  induced  or  effected  by  fraud  or  corruption,  it  shall \nstay  the  award  unconditionally  pending  disposal  of  the \nchallenge under section 34 to the award.\n\nExplanation.—For  the  removal  of  doubts,  it  is  hereby \nclarified  that  the  above  proviso  shall  apply  to  all  court \ncases arising out of or in relation to arbitral proceedings, \nirrespective  of  whether  the  arbitral  or  court  proceedings \nwere commenced prior to or after the commencement of \nthe Arbitration  and  Conciliation  (Amendment) Act,  2015 \n(3 of 2016).”\n\n(emphasis supplied)\n\nDigital Supreme Court Reports\f[2024] 10 S.C.R.  \n\n1509\n\n11. \n\nIn  the  present  case,  there  is  an  arbitral  award  to  the  tune  of \napproximately  Rs  21  crores  in  favour  of  the  appellant.  The  High \nCourt, while issuing a direction for furnishing of a bank guarantee, \ndealt with only one of the claims which was awarded by the arbitral \ntribunal,  namely,  that  which  pertained  to  the  refund  of  the  cess \nunder the Building and Other Construction Workers’ Welfare Cess \nAct 1996.3 In this regard, the High Court observed that the Deputy \nChief Labour Commissioner, by its order dated 6 November 2019, \nheld  that  the  Cess Act  was  not  applicable  to  the  appellant  which \nwas therefore not required to pay cess under that statute. It noted \nthat the arbitral tribunal had, however, rendered an award in which \nit directed the respondent to pay the appellant this amount, which \nhad  already  been  paid  by  the  respondent  to  the  appellant.  It  held \nthatwhile  the  substance  of  the  claims  of  the  parties  could  only  be \ndetermined in the proceedings under Section 34 of the Arbitration Act, \nit was prima facie satisfied that the arbitral tribunal had erred in not \nconsidering the claim of the respondent. Apart from discussing this \nclaim, which was in the amount of approximately Rs 3 crores, the \nHigh Court did not address the other claims of the appellant which \nwere allowed by the arbitral tribunal. The amount awarded in relation \nto the remaining claims is approximately Rs 18 crore.\n\n12.  The High Court granted a stay on the operation of the award subject \nto  the  respondent  furnishing  a  bank  guarantee  for  the  principal \namount awarded to the appellant, i.e. Rs 21,07,66,621. It held that \nit  was  not  inclined  to  issue  orders  in  relation  to  the  interest  and \nthe costs awarded to the appellant because “the petitioner is not a  \nfly-by operator and is a statutory undertaking.” The law qua arbitration \nproceedings, in our view, cannot be any different merely because of \nthe status of the respondent as a statutory undertaking.\n\n13. \n\nIn this regard, it is necessary to advert to a decision of a two-Judge \nBench of this Court in Pam Developments Private Limited v State \nof West Bengal4 where it was observed:\n\n“20. In our view, in the present context, the phrase used \nis  “having  regard  to”  the  provisions  of  CPC  and  not  “in \naccordance  with”  the  provisions  of  CPC.  In  the  latter \n\n3 \n\n4 \n\n “Cess Act”\n\n[2019] 9 SCR 252 : (2019) 8 SCC 112\n\nInternational Seaport Dredging Pvt Ltd v. Kamarajar Port Limited\f1510 \n\n[2024] 10 S.C.R.\n\ncase,  it  would  have  been  mandatory,  but  in  the  form  as \nmentioned  in  Rule  36(3)  of  the Arbitration Act,  it  would \nonly be directory or as a guiding factor. Mere reference to \nCPC in the said Section 36 cannot be construed in such a \nmanner that it takes away the power conferred in the main \nstatute (i.e. the Arbitration Act) itself. It is to be taken as a \ngeneral guideline, which will not make the main provision \nof the Arbitration Act inapplicable. The provisions of CPC \nare to be followed as a guidance, whereas the provisions of \nthe Arbitration Act are essentially to be first applied. Since, \nthe Arbitration Act is a self-contained Act, the provisions of \nCPC will apply only insofar as the same are not inconsistent \nwith the spirit and provisions of the Arbitration Act.”\n\n14.  The Court also observed:\n\n“26.  Arbitration  proceedings  are  essentially  alternate \ndispute redressal system meant for early/quick resolution of \ndisputes and in case a money decree — award as passed \nby the arbitrator against the Government is allowed to be \nautomatically stayed, the very purpose of quick resolution \nof  dispute  through  arbitration  would  be  defeated  as  the \ndecree-holder would be fully deprived of the fruits of the \naward on mere filing of objection under Section 34 of the \nArbitration Act. The Arbitration Act is a special Act which \nprovides  for  quick  resolution  of  disputes  between  the \nparties  and  Section  18  of  the Act  makes  it  clear  that \nthe parties shall be treated with equality. Once the Act \nmandates so, there cannot be any special treatment \ngiven to the Government as a party. As such, under \nthe  scheme  of  the  Arbitration  Act,  no  distinction  is \nmade nor any differential treatment is to be given to \nthe Government, while considering an application for \ngrant of stay of a money decree in proceedings under \nSection 34 of the Arbitration Act. As we have already \nmentioned above, the reference to CPC in Section 36 of \nthe Arbitration Act  is  only  to  guide  the  court  as  to  what \nconditions  can  be  imposed,  and  the  same  have  to  be \nconsistent with the provisions of the Arbitration Act.\n\n…\n\nDigital Supreme Court Reports\f[2024] 10 S.C.R.  \n\n1511\n\n28. Section 36 of the Arbitration Act also does not provide \nfor any special treatment to the Government while dealing \nwith  grant  of  stay  in  an  application  under  proceedings  of \nSection 34 of the Arbitration Act. Keeping the aforesaid in \nconsideration and also the provisions of Section 18 providing \nfor equal treatment of parties, it would, in our view, make it \nclear that there is no exceptional treatment to be given \nto  the  Government  while  considering  the  application \nfor stay under Section 36 filed by the Government in \nproceedings under Section 34 of the Arbitration Act.”\n\n(emphasis supplied)\n\n15.  Bearing  in  mind  the  above  principles,  we  are  of  the  view  that  the \nHigh  Court  was  in  error  in  not  even  prima  facie  considering  the \nfact that apart from the issue of cess, there was an arbitral award \nin favour of the appellant in regard to other claims as well. Further, \nthe High Court ought not to have based its decision on the condition \nfor the grant of stay on the status of the respondent as a statutory \nauthority. The Arbitration Act is a self-contained code – it does not \ndistinguish between governmental and private entities. Hence, the \ndecision  of  the  Court  cannot  be  influenced  by  the  position  of  the \nparty  before  it  and  whether  it  is  a  fly-by-night  operator.  Moreover, \nan  assessment  as  to  whether  a  party  is  reliable  or  trustworthy  is \nsubjective. Many private entities, too, may rely on the size of their \nundertaking, its success, public image, or other factors to argue that \nthey are not fly-by-night operators. In the absence of any provision \nof  law  in  this  regard,  it  would  be  inappropriate  for  courts  to  apply \nthis standard while adjudicating the conditions upon which a stay of \nan award may be granted. Similarly, the form of security required to \nbe furnished should not depend on whether a party is a statutory or \nother governmental body or a private entity. Governmental entities \nmust  be  treated  in  a  similar  fashion  to  private  parties  insofar  as \nproceedings under the Arbitration Act are concerned, except where \notherwise indicated by law. This is because the parties have entered \ninto commercial transactions with full awareness of the implications \nof compliance and non-compliance with the concerned contracts and \nthe consequences which will visit them in law. Hence, the argument \nthat the High Court was correct in directing the respondent to furnish \nbank guarantees in relation to the amount awarded because it is a \nstatutory body is rejected. \n\nInternational Seaport Dredging Pvt Ltd v. Kamarajar Port Limited\f1512 \n\n[2024] 10 S.C.R.\n\n16. \n\nIn Toyo Engineering Corpn. v.  Indian Oil Corpn. Ltd.,5 this Court \nreiterated the same principle in the following terms: \n\n“3. This Court repeatedly having held that Order XLI Rule \n5 principles are to be followed in these cases, we find that \nlargely because public corporations are involved, discretion \ncontinues to be exercised not on principles under Order \nXLI Rule 5 but only because large amounts exist and that \nGovernment  Corporations  have  to  pay  these  amounts \nunder  Arbitral  Awards.  Both  these  considerations  are \nirrelevant, as has been pointed out by us earlier.”\n\n17.  Under  Order  XLI  Rule  5  of  the  CPC,  the  Court  has  the  power  to \ndirect full or part deposit and/or the furnishing of security in respect \nof the decretal amount. Bearing in mind the principles which must \nguide the Court, we are of the view that the order of the High Court \nrequires modification. In modification of the direction of the High Court \nin the impugned judgment dated 9 September 2024, we direct that:\n\n(i)  The  respondent  shall  deposit  an  amount  quantified  at  75% \nof  the  decretal  amount,  inclusive  of  interest,  on  or  before  30 \nNovember 2024 before the High Court; and\n\n(ii)  Conditional on the deposit of the aforesaid amount within the \nperiod stipulated above, there shall be a stay on the enforcement \nof the arbitral award.\n\n18.  The  impugned  judgment  of  the  High  Court  shall  stand  modified  in \n\nthe above terms. The appeal is allowed accordingly.\n\n19.  Pending applications, if any, stand disposed of.\n\nResult of the case: Appeal Allowed.\n\n†Headnotes prepared by: Nidhi Jain\n\n5 \n\n 2021 SCC OnLine SC 3455\n\nDigital Supreme Court Reports\f"}