Kolkata Metropolitan ... vs South City Projects (Kolkata) ...
2021 Latest Caselaw 102 Cal/2

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                           IA GA 1 of 2020
                        A.P. No. 351 of 2020
                 IN THE HIGH COURT AT CALCUTTA
                  Ordinary Original Civil Jurisdiction
                             Original Side

      KOLKATA METROPOLITAN DEVELOPMENT AUTHORITY
                           v.
       SOUTH CITY PROJECTS (KOLKATA) LTD. AND ANR.


For the Petitioner         : Mr. Sirsanya Bandhopadhyay, Advocate
                             Ms. Sanchari Chakraborty, Advocate

For the Respondents        : Mr. Abhrajit Mitra, Sr. Advocate
                             Mr. Satadeep Bhattacharyya, Advocate
                             Mr. Saptarshi Datta, Advocate
                             Ms. Saamidheni Das, Advocate

Hearing concluded on      : January 29, 2021
Judgment on                : February 3, 2021


DEBANGSU BASAK, J. :-

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.
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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, 2018 SCC Online Cal

10225 (Srei Infrastructure Finance Limited v. Candor Gurgaon

Two Developers and Projects Pvt. Ltd.), 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 2020 SCC Online Cal 1666 (State of

West Bengal & Ors. v. Dilip Kumar Chatterjee).
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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 1982 Volume 2 Supreme Court Cases 199 (M/s. Mehta Teja

Singh and Company v. Grindlays Bank Limited) and 2015 Volume

5 Supreme Court Cases 267 (Kanpur Jal Sansthan & Anr. v. Bapu

Constructions).


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 2019
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Volume 8 Supreme Court Cases 112 (Pam Developments Private

Limited v. State of West Bengal). 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 pre-

bid 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
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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 sub- rule (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-à-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 record 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.

[DEBANGSU BASAK, J.]