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Kolkata Metropolitan Development Authority v/s South City Projects (Kolkata) Ltd. & Another

    G.A. No. 1 of 2020 & Arbitration Petition No. 351 of 2020

    Decided On, 03 February 2021

    At, High Court of Judicature at Calcutta

    By, THE HONOURABLE MR. JUSTICE DEBANGSU BASAK

    For the Appearing Parties: Sirsanya Bandhopadhyay, Sanchari Chakraborty, Abhrajit Mitra, Satadeep Bhattacharyya, Saptarshi Datta, Saamidheni Das, Advocates.



Judgment Text

1. The petitioner has applied under Section 36(2) of the Arbitration and Conciliation Act, 1996 for stay of operation of the award dated June 22, 2020 as modified on August 14, 2020.

2. The respondent has waived its right to use any affidavit dealing with the allegations made in the petition. Learned Senior Advocate appearing for the respondents has invited the Court to dispose the application on the basis of the materials made available on record.

3. Learned Senior Advocate appearing for the respondent has referred to the provisions of Section 36(3) of the Act of 1996 and Order 41 Rule 5(3) of the Code of Civil Procedure, 1908. He has contended that, the Court has no discretion but to direct the petitioner to furnish security on the full arbitral award. He has submitted that, the Court however has a discretion so far as the quality of the security that may be directed to be furnished in the sense that, the Court may direct furnishing security by cash or by any other means. However, according to him, the entirety of the awarded amount should be directed to be secured. In support of such contentions, learned Senior Advocate appearing for the respondent has relied upon the Arbitration and Conciliation (Amendment) Ordinance, 2020, (Srei Infrastructure Finance Limited v. Candor Gurgaon Two Developers and Projects Pvt. Ltd.,2018 SCCOnlineCal 10225), an order dated September 14, 2018 passed by the Hon'ble Supreme Court of India in Srei Infrastructure Finance Limited v. Candor Gurgaon Two Developers and Projects Pvt. Ltd., order dated July 16, 2018 of the Hon'ble Supreme Court in Manish v. Godawari Marathawada Irrigation Development Corporation and (State of West Bengal & Ors. v. Dilip Kumar Chatterjee,2020 SCCOnlineCal 1666).

4. Learned Senior Advocate appearing for the petitioner has submitted that, the petitioner has a right of withdrawal of the amount directed to be secured. In support of such contentions, he has relied upon (M/s. Mehta Teja Singh and Company v. Grindlays Bank Limited,1982 2 SCC 199) and (Kanpur Jal Sansthan & Anr. v. Bapu Constructions, (2015) 5 SCC 267).

5. Learned Senior Advocate appearing for the respondent has relied upon a list of dates in support of his contentions. He has submitted that, the respondent is entitled to the entire awarded amount. The respondent should be permitted to withdraw the cash security that the petitioner may deposit, upon the respondent furnishing requisite security thereof.

6. Learned Junior Standing Counsel appearing for the petitioner has submitted that, the Court has sufficient power and discretion under Section 36 of the Act of 1996 to require such amount of security or deposit as the Court deems appropriate to stay the execution of an award pending consideration of an application under Section 34 of the Act of 1996. In support of such contention, he has relied upon (Pam Developments Private Limited v. State of West Bengal, (2019) 8 SCC 112). He has submitted that, the petitioner herein is a statutory authority established under the provisions of the West Bengal Town and Country Planning and Development) Act, 1979. The Court should exercise discretion in favour of the petitioner. According to him, all the authorities cited by the respondent on account of exercise of discretion are at the stage of Section 37 of the Act of 1996 when, the Courts have already filtered the award once. Such is not the case herein. The Court is yet to decide on the merits of the award.

7. The respondent had invited bids for development of residential complex-cum-office complex at two separate sites in East Kolkata Area through joint venture with the petitioner on December 18, 2006. A prebid meeting had been held between the parties on January 4, 2007. The parties had entered into a memorandum of understanding of joint venture on December 17, 2007. On December 7, 2010, the Government had cancelled the lease granted in favour of the petitioner. On April 19, 2018, the State Government had executed a lease in favour of the petitioner with various restrictions. Disputes and differences had arisen between the parties. The respondent had applied under Section 11 of the Act of 1996. The Court had appointed an arbitrator on May 3, 2017. The arbitrator had passed an award on June 22, 2020 awarding a sum of Rs. 11,41,40,000/- as the principal amount together with interest at the rate of 15 per cent per annum from December 17, 2007 till the date of the award. The arbitrator had awarded damages by way of expenses incurred amounting to Rs. 62, 33,172/-. The arbitrator had awarded interest amounting to Rs. 22,43,943/-. The arbitrator had awarded nominal damages at Rs. 100. The award dated June 22, 2020 had been modified on August 14, 2020.

8. The respondent herein had filed an application under Section 34 of the Act of 1996 challenging the award dated June 22, 2020 as modified on August 14, 2020. The petitioner had thereafter applied for stay of execution of the award by way of the present application.

9. The parties have referred to Section 36(3) of the Act of 1996 which is as follows :-

"36. Enforcement -

............

(3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing."

10. The parties have also referred to Order 41 Rule 5(3) of the Code of Civil Procedure, 1908 which is as follows :-

"5. Stay by Appellate Court. -

............

(3) No order for stay of execution shall be made under subrule (1) or sub-rule (2) unless the Court making it is satisfied -

(a) that substantial loss may result to the party applying for stay of execution unless the order is made;

(b) that the application has been made without unreasonable delay; and

(c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him."

11. Section 36 of the Act of 1996 is under Chapter VIII of the Act of 1996. Chapter VIII of the Act of 1996 has dealt with finality and enforcement of arbitral awards. Section 36 of the Act of 1996 has provided for the enforcement of the arbitral awards. Under sub-section (1) of Section 36, an arbitral award can be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of a Court where the time for making an application for arbitration award under Section 34 of the Act of 1996 has expired and subject to the provisions of sub-section (2) of Section 36. Sub-Section (2) of Section 36 has recognised that, an application for setting aside of the arbitral award by itself shall not render the award unenforceable, unless the Courts grants an order of stay of the operation of the arbitral award in accordance with the provisions of sub-section (3) of Section 36 of the Act of 1996, on a separate application made for such purpose. Sub-Section (3) of Section 36 of the Act of 1996 has provided that, the Court may subject to such conditions as it may deem fit, grant stay of operation of such award for reasons to be recorded in writing. Prior to the Arbitration and Conciliation (Amendment) Ordinance, 2020 sub-section (3) of Section 36 of the Act of 1996 had a proviso. The proviso to such sub-section has stipulated that, the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of money decree under the provisions of the Code of Civil Procedure, 1908. The Arbitration and Conciliation (Amendment) Ordinance, 2020 has added one more proviso to sub-section (3) of Section 36 of the Act of 1996. It has added the following proviso :-

"Provided further that where the Court is satisfied that a prima facie case is made out.-

(a) that the arbitration agreement or contract which is the basis of the award: or

(b) the making of the award. was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award."

Explanation.- For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015."

12. The second proviso to sub-section (3) of Section 36 of the Act of 1996 has stipulated that, the Court on a prima facie finding that the arbitration agreement or the contract which is the basis of the award, or the making of the award had been induced or affected by fraud or corruption, stay such award unconditionally pending disposal of the challenge under Section 34 of the Act of 1996.

13. Pam Developments Private Limited (supra) has considered the provisions of Section 36(3) in the context of an arbitral award against a State Government for payment of money. It has considered the interplay of the provisions of Section 36(3) of the Act of 1996, Order 27 Rule 8A of the Code of Civil Procedure, 1908 and Order 41 Rule 5(3) of the Code of Civil Procedure, 1908. It has held as follows :-

"19. In this backdrop, we have now to consider the effect of Section 36 of the Arbitration Act, vis- -vis the provisions of Order 27 Rule 8-A CPC. Sub-section (3) of Section 36 of the Arbitration Act mandates that while considering an application for stay filed along with or after filing of objection under Section 34 of the Arbitration Act, if stay is to be granted then it shall be subject to such conditions as may be deemed fit. The said sub-section clearly mandates that the grant of stay of the operation of the award is to be for reasons to be recorded in writing "subject to such conditions as it may deem fit". The proviso makes it clear that the Court has to "have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure". The phrase "have due regard to" would only mean that the provisions of CPC are to be taken into consideration, and not that they are mandatory. While considering the phrase "having regard to", this Court in Shri Sitaram Sugar Co. Ltd. v. Union of India [Shri Sitaram Sugar Co. Ltd. v. Union of India, (1990) 3 SCC 223] has held that: (SCC p. 245, para 30)

"30. The words "having regard to" in sub-section are the legislative instruction for the general guidance of the Government in determining the price of sugar. They are not strictly mandatory, but in essence directory".

20. In our view, in the present context, the phrase used is "having regard to" the provisions of CPC and not "in accordance with" the provisions of CPC. In the latter case, it would have been mandatory, but in the form as mentioned in Rule 36(3) of the Arbitration Act, it would only be directory or as a guiding factor. Mere reference to CPC in the said Section 36 cannot be construed in such a manner that it takes away the power conferred in the main statute (i.e. the Arbitration Act) itself. It is to be taken as a general guideline, which will not make the main provision of the Arbitration Act inapplicable. The provisions of CPC are to be followed as a guidance, whereas the provisions of the Arbitration Act are essentially to be first applied. Since, the Arbitration Act is a self-contained Act, the provisions of CPC will apply only insofar as the same are not inconsistent with the spirit and provisions of the Arbitration Act.

............

29. Although we are of the firm view that the archaic Rule 8-A of Order 27 CPC has no application or reference in the present times, we may only add that even if it is assumed that the provisions of Order 27 Rule 8-A CPC are to be applied, the same would only exempt the Government from furnishing security, whereas under Order 41 Rule 5 CPC, the Court has the power to direct for full or part deposit and/or to furnish security of the decretal amount. Rule 8-A only provides exemption from furnishing security, which would not restrict the Court from directing deposit of the awarded amount and part thereof."

14. Kanpur Jal Sansthan & Anr. (supra) has considered an order passed in an appeal under Section 37 of the Act of 1996. In the facts of that case, challenge to the award under Section 34 of the Act of 1996 had failed. In the appeal under Section 37 of the Act of 1996, the appellant had filed an application for stay on which the Appeal Court directed furnishing full security and permitted the respondent in the appeal to withdraw 50% of the same. The Court has held that, once a challenge under Section 34 of the Act of 1996 fails, the award becomes enforceable as a decree. Appeal against the order rejecting a challenge under Section 34 of the Act of 1996 lies to the appellate Court under Order 41 of the Code of Civil Procedure, 1908. Order 41 Rule 5 of the Code of Civil Procedure, 1908 in principle is applicable to an appeal preferred under Section 37 of the Act of 1996.

15. The parties in this lis is still at the Section 34 stage and therefore, the ratio as has been laid down in Kanpur Jal Sansthan & Anr. (supra).

16. The Calcutta High Court had decided Srei Infrastructure Finance Limited (supra) on July 19, 2018 which was prior to Pam Developments Private Limited (supra). The order of the Supreme Court in Srei Infrastructure Finance Limited (supra) had been passed prior to Pam Developments Private Limited (supra). Again, the order of the Supreme Court in Manish (supra) had been passed prior to Pam Developments Private Limited (supra). The Supreme Court in Srei Infrastructure Finance Limited (supra) and Manish (supra) have not expressed any view or laid down any law with regard to the provisions of Section 36(3) of the Act of 1996.

17. In Dilip Kumar Chatterjee (supra), this Court in an application under Section 36(2) of the Act of 1996 had directed security of a substantial portion of the award. The entirety of the awarded amount had not been directed to be secured.

18. The petitioner herein has not relied upon Order 27 Rule 8A of the Code of Civil Procedure, 1908 and claimed that, the petitioner is immune from furnishing any security. The petitioner has contended that, it will furnish such security as may be directed by the Court. The petitioner has contended that, given the status of the petitioner as a body incorporated under a statute of the State, the petitioner cannot be said to be a legal entity without substance and incapable of meeting any decreetal obligations. Keeping the status of the petitioner in view, the Court may be pleased to exercise discretion in directing security that may be furnished with regard to the award.

19. Section 36(3) of the Act of 1996 has mandated that, upon the Court considering an application under Section 36(2) for stay of operation of the arbitral award, the Court may grant stay of operation of such award, subject to such conditions as it may deem fit. The Court has to give reasons for granting the order of stay on the conditions so imposed. The first proviso to Section 36(3) of the Act of 1996 has mandated that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of money decree under the provisions of the Code of Civil Procedure, 1908. The second proviso to Section 36(3) of the Act of 1996 as has been inserted by the Arbitration and Conciliation (Amendment) Ordinance, 2020, stipulates that, where the Court is satisfied that a prima facie case has been made with the arbitration agreement or the contract which is the basis of the award or the making of the award had been induced or effected by fraud or corruption it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.

20. Under Section 36(3) of the Act of 1996, therefore, a Court when faced with an application for stay of an award for payment of money, consider grant of stay on such terms and conditions that it deems fit having due regard to the provisions for grant of stay under the Code of Civil Procedure, 1908. While exercising powers under Section 36(3) of the Act of 1996 the Court is not bound by the provisions of Order 41 Rule 5 of the Code of Civil Procedure, 1908. The rigours of Order 41 Rule 5 of the Code of Civil Procedure, 1908 do not visit the Court exercising powers under Section 36(3) of the Act of 1996. Under Section 36(3) of the Act of 1996 the Court can require the party to furnish such security as the Court may deem appropriate. However, the Court has to give reasons for its order of security. Principles for grant of stay under Section 37 of the Act of 1996 are not attracted and cannot be applied under Section 36(3) of the Act of 1996 as in Section 36(3) the Court is still considering a challenge under Section 34 of the Act of 1996 to the award while under Section 37 of the Act of 1996 the challenge had resulted in a decree of Court.

21. In the facts of the present case, the petitioner has not contended that it has come within the purview of the second proviso to Section 36(3) of the Act of 1996 and therefore is entitled to an unconditional stay. The award that the petitioner has sought stay on, is an award for payment of money. Therefore, the Court has to consider the quantum and quality of security that the petitioner is required to furnish for obtaining stay of execution of the decree. The Court has to record reasons for issuing the directions for security.

22. Pam Developments Private Limited (supra) has held that, a State Government will not enjoy an automatic stay of execution of an award in view of the provisions of Order 27 Rule 8A of the Code of Civil Procedure, 1908. The petitioner has not claimed such privilege in the facts of the present case. Pam Developments Private Limited (supra) has held that, the Court retains the discretion to grant stay on such conditions as it may deem fit with regard to an award directing payment of money. It has recognised that the Court has the power to direct for full or part deposit and/or to furnish security of the decreetal amount. The Court did not direct security for the entirety of the awarded amount in the facts of that case.

23. In the facts of the present case, the arbitral award dated June 22, 2020 as modified on August 14, 2020 has directed payment of money on six heads. Out of the six heads, only one head is on account of principal. The balance heads are on account of interest, damages, and cost. In the facts of the present case, since the petitioner is an entity incorporated under the provisions of a statute, it would be appropriate to direct the petitioner to secure the principal sum awarded by the award dated June 22, 2020 as modified on August 14, 2020 that is for a sum of Rs. 11,41,40,000/-. The respondent has not brought any material on recor

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d to suggest that unless the entire award is secured the respondent would be unable to execute the award eventually or that the assets of the petitioner are insufficient to meet the amount awarded. The petitioner is at liberty to furnish cash security or any other security for such sum. In the event, the petitioner furnishes security other than cash, then, such security must be to the satisfaction of the Registrar Original Side. 24. The respondent has sought a direction for permission to withdraw the amount of security that the petitioner may deposit in terms of this order. 25. In M/s. Mehta Teja Singh and Company (supra), the Supreme Court had allowed the decree holder to withdraw the amount on furnishing a bank guarantee to the satisfaction of the High Court. The Supreme Court had allowed withdrawal of the money in an appeal pending under Section 37 of the Act of 1996. In the present case, the parties are yet to reach the Section 37 stage. 26. Considering the fact that, the petitioner has been allowed to furnish security by means other than cash, the question of allowing the respondent to withdraw such security does not arise. Moreover, allowing the respondent to withdraw the security would give rise to the question of restitution in the event the petitioner succeeds in its challenge to the award. 27. In view of the above discussions above, the petitioner will furnish security for the sum of Rs. 11,41,40,000/- within eight weeks from date. In the event, the petitioner furnishes security other than cash, then such security will be to the satisfaction of the Registrar Original Side. There will be unconditional stay of the award dated June 22, 2020 as modified on August 14, 2020 for a period of eight weeks from date. In the event, security as directed is furnished, the stay granted will continue till the disposal of the application under Section 34 of the Act of 1996. In the event of failure of the petitioner to furnish security, the respondent will be at liberty to execute the award in accordance with law. 28. Ia No. GA 1 of 2020 in AP 351 of 2020 is disposed of accordingly.
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