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Union of India & Another v/s M.V. Engineering Company

    M.P. No. 228 of 2021
    Decided On, 09 March 2021
    At, High Court of Madhya Pradesh
    By, THE HONOURABLE MR. JUSTICE PRAKASH SHRIVASTAVA & THE HONOURABLE MR. JUSTICE VIRENDER SINGH
    For the Appearing Parties: Atul Choudhary, Anshuman Singh, Advocates.


Judgment Text
Prakash Shrivastava, J.

1. By this petition filed under Article 227 of the Constitution, the petitioners have challenged the order dated 05.01.2021 whereby the petitioners application being IA No.02/2020 for stay of execution of the arbitral award has been rejected.

2. The brief facts are that the Arbitrator was appointed under Section 11(6) of the Arbitration and Conciliation Act (hereinafter referred to as the Act ) and on conclusion of the arbitration proceedings, the Arbitrator had passed the award dated 07.09.2014. The petitioners being aggrieved with the said award have filed the application under Section 34 of the Act. In the meanwhile, the respondent had filed the application under Order 21 Rule 11 of the CPC for execution of the award wherein notices were issued to the petitioners and after entering appearance in the execution proceedings, petitioners had filed the application under Order 21 Rule 99 and 101 read with Section 151 of the CPC on 23.12.2020 with a prayer to keep the execution proceedings in abeyance or stayed till the petitioners application under Section 34 of the Act is decided. The Executing Court by the impugned order dated 05.01.2021 has rejected the said application.

3. Learned counsel appearing for the petitioners submits that the executing court has committed an error in rejecting the petitioners application without appreciating the correct legal position. He has submitted that in the present case, unamended Section 36 of the Act will apply and there will be automatic stay of the award pending the application under Section 34 of the Act.

4. Learned counsel for the respondent has opposed the prayer and has submitted that as per the interpretation which has been given by the Supreme Court, unamended Section 36 of the Act does not provide for automatic stay and that in view of the amendment in 2015 made in Section 36 of the Act, there is no automatic stay of the impugned award on filing the application under Section 34 of the Act.

5. I have heard the learned counsel for the parties and perused the record.

6. In the present case, the award has been passed on 07.09.2014. The unamended Section 36 as it stood at the time of passing of the award reads as under:

"36. Enforcement. - Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court."

7. Section 36 of the Act was amended by Arbitration & Conciliation (Amendment) Act, 2015. The amended provision clarifies that where an application to set aside the arbitral award is made under Section 34, the filing of such application itself would not render the award unenforceable unless the appropriate orders are passed by the Court granting stay of the operation of the award in terms of sub-section (3) thereof. Subsection (3) provides for grant of stay of the award after recording reasons and subject to such conditions as the court deems fit.

8. By virtue of Section 87 as introduced by the Arbitration & Conciliation (Amendment) Act, 2019, it has been provided that the Amendment Act of 2015 will not apply to arbitral proceedings commenced before the commencement of Amendment Act of 2015 and court proceedings arising out of or in relation to such arbitral proceedings whether commenced prior or after the commencement of the Amendment Act.

9. The Supreme Court in the matter of National Aluminum Company Ltd. (NALCO) vs. Pressteel & Fabrications (P) Ltd., (2005) AIR SC 1514 had considered the unamended Section 34 and taking note of the language of the provision held that an award when challenged under Section 34 within the time stipulated therein becomes unexecutable but while holding so it was expressed that such a provision defeats the very object of alternate dispute resolution system. In Fiza Developers and Inter-trade Pvt. Ltd. Vs AMCI (India) Pvt. Ltd., (2009) 17 SCC 796, the Supreme Court taking note of the judgment in the case of NALCO(supra) had reiterated that until the disposal of the application under Section 34 of the Act, there is an implied prohibition of the enforcement of arbitral award.

10. In subsequent judgment in the case of Board of Control for Cricket in India (BCCI) vs. Kochi Cricket Private Limited and others, (2018) 6 SCC 287, the Supreme Court taking note of the view expressed in the case of NALCO(supra) has held that Section 36 as amended should apply to Section 34 application filed before the commencement of the Amendment Act.

11. The Three Judge Bench of the Supreme Court in the matter Hindustan Construction Company Limited and another vs. Union of India and others,2019 SCOnLineSC 1520 has considered the earlier judgments and has held that the judgment in the case of NALCO(supra) and Fiza Developers(supra) do not lay down the law correctly and they are per incuriam and has made it clear that automatic stay of the award as laid down in these decisions is incorrect. It has further been held that Section 36 even as originally enacted is not meant to do away with Article 36(2) of the UNCITRAL Model Law. In Hindustan Construction Company Limited (supra), it has been held that -

"25. To state that an award when challenged under Section 34 becomes unexecutable merely by virtue of such challenge being made because of the language of Section 36 is plainly incorrect. As has been pointed out hereinabove, Section 36 was enacted for a different purpose. When read with Section 35, all that Section 36 states is that enforcement of a final award will be under the CPC, and in the same manner as if it were a decree of the Court. In fact, this is how Section 36 has been read by a three-judge bench in Leela Hotels Ltd. V. Housing and Urban Development Corporation Ltd., (2012) 1 SCC 302 as follows:

"45. Regarding the question as to whether the award of the learned arbitrator tantamounts to a decree or not, the language used in Section 36 of the Arbitration and Conciliation Act, 1996, makes it very clear that such an award has to be enforced under the Code of Civil Procedure in the same manner as it were a decree of the court. The said language leaves no room for doubt as to the manner in which the award of the learned arbitrator was to be accepted."

26. To read Section 36 as inferring something negative, namely, that where the time for making an application under Section 34 has not expired and therefore, on such application being made within time, an automatic-stay ensues, is to read something into Section 36 which is not there at all. Also, this construction omits to consider the rest of Section 36, which deals with applications under Section 34 that have been dismissed, which leads to an award being final and binding (when read with Section 35 of the Arbitration Act, 1996) which then becomes enforceable under the CPC, the award being treated as a decree for this purpose.

27. This also finds support from the language of Section 9 of the Arbitration Act, 1996, which specifically enables a party to apply to a Court for reliefs after the making of the arbitration award but before it is enforced in accordance with Section 36. The decisions in NALCO (supra) and Fiza Developers and Intra-trade Pvt. Ltd. (supra) overlook this statutory position. These words in Section 9 have not undergone any change by reason of the 2015 or 2019 Amendment Acts.

28. Interpreting Section 9 of the Arbitration Act, 1996, a Division Bench of the Bombay High Court in Dirk India Pvt. Ltd. v. Maharashtra State Power Generation Company Ltd.,2013 SCC Online(Bom) 481 held that:

"13 ....The second facet of Section 9 is the proximate nexus between the orders that are sought and the arbitral proceedings. When an interim measure of protection is sought before or during arbitral proceedings, such a measure is a step in aid to the fruition of the arbitral proceedings. When sought after an arbitral award is made but before it is enforced, the measure of protection is intended to safeguard the fruit of the proceedings until the eventual enforcement of the award. Here again the measure of protection is a step in aid of enforcement. It is intended to ensure that enforcement of the award results in a realisable claim and that the award is not rendered illusory by dealings that would put the subject of the award beyond the pale of enforcement.

29. This being the legislative intent, the observation in NALCO (supra) that once a Section 34 application is filed, there is no discretion left with the Court to pass any interlocutory order in regard to the said Award flies in the face of the opening words of Section 9 of the Arbitration Act, 1996, extracted above.

30. Thus, the reasoning of the judgments in NALCO (supra), and Fiza Developers and Intra-trade Pvt. Ltd. (supra) being per incuriam in not noticing Sections 9, 35 and the second part of Section 36 of the Arbitration Act, 1996, do not commend themselves to us and do not state the law correctly. The fact that NALCO (supra) has been followed in National Buildings Construction Corporation Ltd. v. Lloyds Insulation India Ltd. (supra) does not take us any further, as National Buildings Construction Corporation Ltd. (supra) in following NALCO (supra), a per incuriam judgement, also does not state the law correctly. Thus, it is clear that the automatic-stay of an award, as laid down by these decisions, is incorrect. The resultant position is that Section 36 - even as originally enacted - is not meant to do away with Article 36(2) of the UNCITRAL Model Law, but is really meant to do away with the two bites at the cherry doctrine in the context of awards made in India, and the fact that enforcement of a final award, when read with Section 35, is to be under the CPC, treating the award as if it were a decree of the court."

The Supreme Court in paragraph 35 of the judgment in the case of Hindustan Construction Company Limited (supra) has further held that the amended Section 36 being clarificatory in nature merely restates the position that the unamended Section 36 does not stand in the way of the law as to grant of stay of a

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money decree under the provisions of the CPC. In this regard, it has been held in para 35 as under: "35. Given the fact that we have declared that the judgments in NALCO (supra), National Buildings Construction Corporation Ltd. (supra) and Fiza Developers (supra) have laid down the law incorrectly, it is also clear that the amended Section 36, being clarificatory in nature, merely restates the position that the unamended Section 36 does not stand in the way of the law as to grant of stay of a money decree under the provisions of the CPC." 12. Since in the present case, application under Section 34 of the Act was filed prior to the Amendment Act of 2015, therefore, unamended provisions are required to be looked into and considering the interpretation which has been given to unamended Section 34 by the Supreme Court in the case of Hindustan Construction Company Limited(supra), we are of the opinion that contrary plea of the petitioner in this regard cannot be accepted. The view taken by the learned court below does not suffer from any error. Hence, no case for interference is made out. The petition is accordingly dismissed.
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