The State Of West Bengal & Ors vs M/S. Bbm Enterprise
2023 Latest Caselaw 1660 Cal/2

                     IN THE HIGH COURT AT CALCUTTA
                     Ordinary Original Civil Jurisdiction
                              Original Side
                           (Commercial Division)


Present :-
The Hon'ble Justice Moushumi Bhattacharya


                            IA No. GA 1 of 2023

                                       in

                            AP 808 of 2022

                     The State of West Bengal & Ors.

                                       Vs.

                          M/s. BBM Enterprise


For the State                      :          Mr. Priyankar Saha, Adv.

                                              Mr. Paritosh Sinha, Adv.

                                              Mr. Arindam Mandal, Adv.

                                              Mr. Shourya Samanta, Adv.



For the respondent                :           Mr. Sakya Sen, Adv.

                                              Ms. N. Adhya, Adv.


Last Heard on                     :           20.07.2023


Delivered on                      :           25.07.2023
                                        2

Moushumi Bhattacharya, J.

1. The present application has been made by the award-holder/ respondent

in AP no. 808 of 2022. The award-holder seeks to withdraw an amount of Rs. 9

crores which was directed to be secured by the award-debtor / petitioner in AP

No. 808 of 2022. The AP was filed by the award-debtor for stay of the arbitral

award dated 2.7.2022

2. The award-debtor also applied for setting aside of the arbitral award in

A.P. 746 of 2022 and by an order dated 17.1.2023 the Court recorded the

award-debtor's submission that it will deposit Rs. 9 crores within 6 weeks from

the date of the order and that the award would be stayed consequent to such

deposit being made. The award-debtor made the deposit on 16th March, 2023.

3. The respondent / award-debtor resists the prayer of the award-holder for

withdrawing the amount of Rs. 9 crores on primarily two grounds. First, that

there is no provision under The Arbitration and Conciliation Act, 1996 for

allowing such a prayer and second, the Court has to come to a prima facie view

of the award before passing such an order. The award-debtor also says that the

present application cannot be entertained since the application for stay of the

award was disposed of by the order dated 17.1.2023.

4. Learned counsel appearing for the applicant / award-holder and the

respondent / award-debtor in the present application (GA 1 of 2023) have

argued in support of their respective contentions and relied on decisions.

5. The decision of the Court is as follows.

Whether permitting an award-holder to withdraw the secured amount requires

statutory sanction:

6. Under the present statutory position, the status of an award-holder is

that of a decree holder [Section 36(1)]. Section 36 of The Arbitration and

Conciliation Act, 1996, makes an arbitral award final and binding on the

parties and persons claiming under them subject to the provisions of Part I of

the Act. The exception is contained in section 36(2) where the Court has

discretion to grant an order of stay of the operation of the arbitral award in

accordance with the guidelines provided under section 36(3) subject to a

separate application being made by the award-debtor for stay of operation of

the arbitral award.

7. The clog in the wheels of enforcement of arbitral awards was brought into

the Act w.e.f 23.10.2015. The position pre-amendment for enforcement of an

arbitral award under section 36 is reproduced below :

"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."

8. After the amendment of 2016, section 36(1) and (2) was transformed as

under :

"36. (1).Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub- section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were a decree of the court.

(2). Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose."

9. A comparison of the positions before and after the amendment of 2016

(w.e.f. 23.10.2015) would show that an arbitral award was presumed to be

enforceable subject to the filing and fate of an application for setting aside of

the award. The amendment brought in two significant changes. First, it de-

coupled enforcement and setting aside of an award by the opening words of

section 36(2). Second, it gave a temporary leg-room to the award-debtor to

apply for stay of the award subject to the discretion exercised by the Court.

10. The discretionary space of the Court would be apparent from section 36 (2)

which sets the tone of the departure from the pre-amendment position in the

clarification that mere filing of an application for stay shall not by itself render

the award unenforceable unless the Court grants an order of stay of the

Arbitral award (underlined for emphasis).

11. Therefore, the effect of the amendment is not far to seek; the march of

the award towards enforcement continues un-deterred unless brakes are put in

that movement by the award-debtor who applies for stay and the Court grants

that stay upon on suitable conditions. The sub-text is that the award-holder

must be given the fruits of the victory unless the Court finds that the

enjoyment may be deferred subject to the award-debtor securing the award

pending a shot at having the award set aside. The construction of section 36(2)

as it stands today is in step with the power of the Court to permit an award-

holder to withdraw the money secured by the award-debtor. It is a step in aid

of and in keeping with the statutory intention of giving primacy to the finality of

an arbitral award.

12. Thus, section 35 read with section 36 of the Act make it clear that there

is no requirement for a specific statutory provision to allow an award-holder to

withdraw the secured amount. The sections themselves provide for such an

order to be passed in appropriate cases. The attending circumstances would

become relevant if the Court exercises its discretion for passing such an order.

Events subsequent to the stay of the award would be material in this respect.

13. In the present case, the subsequent events pleaded in the application

constituting a change in circumstances after the order of stay of the award are

as follows. Proceedings were initiated against the award-holder under section

13(2) of the SARFAESI Act, 2002. There are debts which are due and payable

by the award-holder to the Bank. The award-holder is also facing a severe

shortage of working capital which is preventing the award-holder to participate

in any new tenders. These circumstances are sufficient to justify release of the

amount secured by the award-debtor; Ref : unreported judgment in State of

West Bengal vs. Dilip Kumar Saha in APO No. 95 of 2021 and in State of West

Bengal vs. Dilip Kumar Chatterjee in AP 557 of 2012.

The award-debtor will not face any prejudice if the award-holder is permitted to

withdraw the amount :

14. The prayer for withdrawal of the money deposited as security by the

award-debtor is in consonance with the object of the amendment to the Act

which has been stated above. Such an order will of course be refused if it

would render the award-debtor without a remedy. This can only be where the

award-holder departs with the money without ensuring a security-cover for the

award-debtor in case the latter succeeds in having the award set aside.

15. The object of the amendment in the Act in granting stay of an award

cannot be to make the award-holder wait for an uncertain and indefinite period

of time to enjoy the fruits of the award. This is particularly so where the award-

holder proves its bona fides not only by way of bringing significant subsequent

events to the Court but also undertakes to secure the award-debtor in the

event the award is set aside. In the present case, the award-holder undertakes

to replace the amount to be withdrawn by way of a bank guarantee of an

equivalent amount. The award-debtor will hence be completely secured in the

event it succeeds in the application for setting aside of the award. No

inconceivable prejudice, whether immediate or in the future, will hence be

caused to the award-debtor if the Award-debtor succeeds in setting aside of the

Award.

Allowing the award-holder to withdraw the secured amount does not require a

prima facie finding :

16. Section 36(2) which gives discretion to a Court to stay an award does not

require a prima facie case to be made out by the award-debtor. The absence of

such a requirement in section 36(2), assumes significance when compared to

the language of the second proviso to section 36(3) which requires the Court to

come to a prima facie finding that the making of the award or the arbitration

agreement which is the basis of the award was induced or effected by fraud or

corruption before granting the unconditional stay of the award.

17. The award-debtor's argument on the prima facie case to be made out by

the award-holder for the release of the money also impinges on the strict

boundaries of a section 34 application for setting aside of an award. The

legality of the award can only be gone into in an application for setting aside of

an award under section 34 of the Act. The Court is not required to go into the

merits of the award for granting stay of the award under section 36(2), as

opposed to a prima facie finding on the award under the second proviso to

section 36(3) of the Act.

18. A prima facie finding, by its very definition means a first-blush-look at

the factual context of the matter for consideration whether an award may be

stayed under section 36(2). The Court simply looks at the bona fides of the

award-debtor in having a way to secure the award. Hence, the inescapable

conclusion is that the award-holder is not required to make out a prima facie

case for withdrawal of the security given by the award-debtor. The

sustainability of the award under the grounds provided under section 34 of the

Act is to be thrashed out only later at the time of considering the application

under section 34 of the Act.

Can the award-holder's application for withdrawal of the money not be made by

way of a separate application?

19. Learned counsel appearing for the award-debtor argues that the award-

holder's application for withdrawal of the money could only have been made in

the application for stay of the award. It is further submitted that since that

application was disposed of by the order dated 17.1.2023, the present

application cannot be made by way of a fresh application.

20. The argument is fallacious since the application for stay of the award is

only filed for a limited purpose of the Court to consider whether the award

needs to be stayed pending hearing of the application for setting aside of the

award. The application is disposed of on a Court coming to a decision as to

whether the award is required to be stayed on the conditions to be imposed by

the Court under section 36(2) and (3) of the Act.

21. The application for release of the secured amount to the award-holder is

unconnected to a prayer for stay and is entirely different in cause and purpose.

The award-holder must also show that intervention of events subsequent to the

stay of the award calls for a decision as to whether the award-holder could be

given some sort of interim relief in the form of withdrawing the secured

amount. Thus, there must be a time gap between the two applications to allow

the intervening facts to come in.

22. It is also relevant to point out that a Court considering an application for

stay of an award under section 36(2) does not lose hold over the question of

enforcement of award since the question of stay is only an issue to be decided

on a temporary basis - on the road to setting aside / enforcement of the award.

The lis between the award-holder and the award-debtor continues until the

award is given finality or is set aside by the Court. The continuation of the lis is

substantially different, for instance, from a suit or a writ petition being

disposed of by a Court and one of the parties thereafter coming to the Court

with a fresh cause of action.

23. In the case of section 36 of the 1996 Act, the Court retains jurisdiction to

pass further orders while in the second instance the Court becomes functus

officio. K.A. Ansari vs. Indian Airlines Limited; (2009) 2 SCC 164 is an example

of the latter, namely, a writ petition where the Supreme Court held that it is

not open to the Court to reopen the proceedings by a miscellaneous application

for a fresh cause of action. Moreover, the Division Bench in its order dated

29.11.2021 in State of West Bengal vs. Dilip Kumar Saha held that an order

may be modified on subsequent events. The principles underlying Order XXXIX

Rule 4 of The Code of Civil Procedure, 1908 where an injunction may be varied

can be imported in a case, such as the present one, where the Court can

exercise jurisdiction for modification of the earlier order in appropriate cases on

changed circumstances. (Ref : State of West Bengal vs. Dilip Kumar Saha in

APO 95 of 2021).

24. The present application is hence found to be maintainable for the above

reasons. This Court is of the view that the award-holder is not under any

obligation statutorily or otherwise to file an application for release of the money

in the application filed by the award-debtor for stay of the award.

25. GA 1 of 2023 is accordingly allowed for these reasons. The award-holder

is permitted to withdraw the amount of Rs. 9 crores upon furnishing a bank

guarantee of an equivalent amount with the Registrar, Original Side. The

award-holder shall furnish the bank guarantee before withdrawing the money

which shall be from a Bank which is a constituent of the RBI. The award-

holder shall be at liberty of taking steps within such time as is found to be

reasonable. The award-debtor shall be at liberty to take steps for listing of the

application for setting aside of the award. GA 1 of 2023 is disposed of in terms

of the above. The Bank guarantee shall be kept renewed till disposal.

Urgent photostat certified copies of this judgment, if applied for, be

supplied to the parties upon fulfillment of requisite formalities.

(Moushumi Bhattacharya, J.)