A Single Judge Bench of Calcutta High Court comprising Justice Moushumi Bhattacharya held that there is no bar in the Code of Civil Procedure or under the Arbitration Act, 1996, in accepting immovable property as security for stay of decree.
Background
This case was related to an application under Section 36(3) of the Arbitration & Conciliation Act, 1996 (the Act) for the stay of an Award dated 4th March, 2019. The petitioner/ award-holder before this Court was the respondent in the arbitration proceedings. The short question which arises in this application is whether Section 36(3) of the Act relating to enforcement of awards, contemplates any form of security other than cash and bank guarantee for stay of the award where the award impugned is for payment of money.
The dispute between the parties relates to the supply of cement by the respondent to the petitioner where the petitioner was appointed as the clearing and forwarding agent by virtue of an understanding arrived at between the parties. The respondent alleged that it supplied the material to the petitioner for which the respondent was to get a certain sum of money. The petitioner on the other hand, disputed the aforesaid and that any amount was outstanding from the petitioner to the respondent.
The claim of the respondent in the arbitration was for an amount of Rs.67,04,681/-. It is a matter of record that the sole Arbitrator was appointed by the Managing Director of the respondent and the respondent was awarded the entire amount of the claim, i.e., Rs.67,04,681/- together with an award of interest at the rate of 8% from 28th January, 2017.
Submissions made by the Counsels
[1] Petitioner
Mr. Mainak Bose, learned counsel appearing for the petitioner, offers a piece of land measuring 19 cottah at Sankrail, Howrah, as security for seeking stay of the impugned award. The particulars of the security offered would appear from a supplementary affidavit affirmed by the petitioner which also indicates the present market value of the land, namely, Rs.65,00,000/-(Rupees Sixty Five Lakhs). The valuation as of 17th March, 2021 has been done by the Directorate of Registration and Stamp Revenue and the e-assessment slip pertaining to the valuation has been made a part of the supplementary affidavit.
The petitioner has also stated in the affidavit that the said plot of land is free from all encumbrances, is butted and bounded on all sides and that there is no manner of encroachment whatsoever on the said land as on the date on which the affidavit has been affirmed
The petitioner has also stated that the land has not been let out and is presently in the exclusive possession of the petitioner. Learned counsel submits that the petitioner does not presently have sufficient liquidity or financial means to offer as cash security or by way of bank guarantee and prays that the title deed of the said piece of land be deposited with the Registrar of this Court in satisfaction of the requirement under Section 36(3) of the Act.
[2] Respondent
Mr. Arik Banerjee, learned counsel appearing for the respondent/award-holder, submitted that there is no scope for an applicant to furnish any other form of security besides cash security for stay of an award. Counsel relies on various decisions of the Supreme Court and the High Courts by which litigants were asked to deposit either 100% cash security or a proportion thereof for stay of an arbitral award. Counsel submits that the proviso to Section 36(3) is only a guideline given to a Court for considering the provisions of The Code of Civil Procedure in relation to grant of stay of a money decree and that the Court is not bound by the CPC.
Judgement and observation
Court after taking into consideration the submissions of counsel, the issue which is required to be adjudicated in this application is whether Section 36(3) of the 1996 Act read with the proviso thereto contemplates acceptance of any other form of security besides cash or a bank guarantee for stay of an arbitral award.
For a proper understanding of the provision in question, Section 36(3) is set out :
“36(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: Provided 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 a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908). ”
From the above it was made clear that the section does not mention the word “security” and only indicates that the Court may impose suitable terms for stay of the award. The proviso supplements the subsection to the extent of suggesting a statutory reference point for an order under 36(3).
While emphasizing that the intention behind seeking security is simply to furnish an effective cushion for the decree-holder in case the challenge to the decree fails, the held that cash security is not sine qua non under the statutes.
It was observed by the Bench that:
"the language of Section 36(3) imparts discretion to the Court for deciding the conditions which may be imposed and the only stated requirement is that the Court must indicate its reasons in writing for granting an order of stay of the award in question. "The intent of the provision relating to stay of a money decree is that the applicant who seeks stay of a decree must furnish some sort of effective cushion for the decree-holder to fall back on in the event the challenge to the decree fails," it added.
Court observed that :
Order XLI Rule1(3) of the Code provides that in cases of appeal against a decree for payment of money, the Appellate Court may allow the appellant to deposit the amount disputed in the appeal or furnish such security in respect thereof as the Court may think fit.
Order XXI Rule 26(3) mandates that before making an order of stay of execution or for restitution of property or the discharge of the judgment-debtor, the Court shall require such security from, or impose such conditions upon, the judgment-debtor as it thinks fit.
Order XXI Rule 29 continues in the same vein to provide that the Court may on such terms, as it thinks fit, stay execution of a decree until the pending suit has been decided.
Court relied on Sihor Nagar Palika Bureau v. Bhabhlubhai Virabhai & Co., (2005) 4 SCC 1, where it was held that security in the form of immovable property could be acccepted to the satisfaction of the Trial Court. In the instant case, the Petitioner had moved an application under Section 36 of the Arbitration Act for stay of an arbitral award.
The Court took a sympathetic view and the Bench states that,
"This Court must respond to such submission by taking into account the afflicted state of the economy which has affected millions in the country in the aftermath of the pandemic. This Court would have taken a different view had the petitioner requested for a total go-by of the security requirement and asked for stay of the award without offering security in any form."
Case Details
Case Title: Nitu Shaw v. Bharat Hitech (Cements) Pvt. Ltd.
Bench :Justice Moushumi Bhattacharya
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