The Calcutta High Court Bench comprising Justice Moushumi Bhattacharya has 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. 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 and held that cash security is not sine qua non under the statutes.
Background
This is 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 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 of learned counsel appearing for the 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.
Submissions of learned counsel appearing for the respondent
Mr. Arik Banerjee, learned counsel appearing for the respondent/award-holder, submits 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 Reasoning
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 is 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 sub-section to the extent of suggesting a statutory reference point for an order under 36(3).
The words used are that the Court may consider the statutory provisions in Code of Civil Procedure (CPC) relating to stay of a money decree without any reference to any specific provision. What are these provisions?
Order XLI (‘Appeals from Original Decrees’) Rule1(3) 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 (underlined for emphasis). Second, Order XXI (‘Execution of Decrees and Orders’) Rule 26 –
“When Court may stay execution”. Sub-Rule (3) mandates that before making an order of stay of execution or for restitution of property or the discharge of the judgmentdebtor, 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. The proviso to Order XXI Rule 29 clarifies that if the decree is one for payment of money, the Court shall record its reasons for granting stay of the decree without requiring security.
The decisions cited by learned counsel for the respondent proceed on the particular facts of the case before the concerned Court and cannot hence serve as the settled position in law for stay of arbitral awards under 36(3). For instance, in Assistant Collector of Central Excise, Chandan Nagar, West Bengal versus Dunlop India Ltd. and Ors. the Supreme Court considering the facts of the case, was of the view that the Government cannot run on bank guarantees and liquid cash was hence required to be deposited by Dunlop India Limited. Hindustan Construction Company Limited and Another versus Union of India and Others is not relevant for the proposition which is in issue in the present case except for a general advisory with regard to execution of awards. Pam Developments Private Limited versus State of West Bengal : (2019)8 Supreme Court Cases 112 was for the proposition whether the Government should be exempted from furnishing security under Order XXVII Rule 8-A of the CPC.
On the other hand, Sihor Nagar Palika Bureau versus Bhabhlubhai Virabhai & Co.; (2005) 4 SCC 1 noted that security in the form of immovable property could be accepted to the satisfaction of the Trial Court. The decision of the Delhi High Court in Steel Authority of India vs. Tata Projects took into account the prevailing circumstances by reason of Covid and its impact on the economy. In essence, the decisions relied upon by counsel do not establish, in clear and unequivocal terms, that furnishing of security for stay of an arbitral award must always be in cash or bank guarantee or that a Court would have no discretion in deciding as to the sufficiency of the security.
Court stated that there shall be an order of stay of the arbitral award dated 4th March, 2019 on the petitioner depositing the title deed of the land in question as fully described in the supplementary affidavit within 22nd March, 2021 with the Registrar, Original Side of this Court. This order shall automatically stand vacated in the event of default on the part of the petitioner in respect of the aforesaid direction.
Case Details
Case Title: Nitu Shaw v. Bharat Hitech (Cements) Pvt. Ltd.
Bench: Justice Moushumi Bhattacharya
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