It has been a decade since the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) came into force and fundamentally altered arbitration in India. One of the most important changes the 2015 amendment brought in was the insertion of a new section 36, which removed automatic stays of awards upon the filing of a challenge under Section 34.Post the 2015 amendment, unconditional...
It has been a decade since the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) came into force and fundamentally altered arbitration in India. One of the most important changes the 2015 amendment brought in was the insertion of a new section 36, which removed automatic stays of awards upon the filing of a challenge under Section 34.
Post the 2015 amendment, unconditional stays of arbitral awards are rare, especially when the award directs payment to the successful party. The Supreme Court recently reiterated this principle in Popular Caterers v Ameet Mehta and Others[1], where it observed that unless the arbitration agreement, contract, or award is induced by fraud or misrepresentation, an unconditional stay should be granted only in exceptional circumstances. In fact, in this case, the Supreme Court set aside an order granting an unconditional stay of an award. It directed that the stay would be subject to the Respondent depositing the principal amount of the award.
This shift in the law has left courts with a different question to answer, one whose importance is directly proportional to the award amount. What should a stay cost?
A decade later, two judgments of the Bombay High Court, both arising out of the Mumbai Metro Rail project, provide valuable insight into how the courts deal with applications to stay arbitral awards.
MMRDA v. MMOPL
In Mumbai Metropolitan Regional Development Authority v Mumbai Metro One Private Limited[2], the Bombay High Court was seized of an application by the Mumbai Metropolitan Development Authority (MMRDA) seeking an unconditional stay of a one thousand crore rupee award against it in favour of Mumbai Metro One Private Limited (MMOPL). The award under challenge was the majority award of a three-member Tribunal, with the third member dissenting.
MMRDA sought an unconditional stay of the award, essentially arguing that the majority award was so perverse that no reasonable person could have reached the findings it did. MMRDA argued that the Tribunal had allowed claims for rent recovery, which it could not have, since determining the quantum of rent lies within the exclusive jurisdiction of the Small Causes Court; hence, the issue was non-arbitrable. MMRDA also argued that the amounts awarded for additional costs and losses lacked any basis. MMOPL, on the other hand, strongly defended the majority award.
The Court noted that its jurisdiction under Section 36 of the Arbitration Act is discretionary, and that each case must be examined on its own facts. Further, the Court highlighted the need for caution when granting stays of arbitral awards, especially unconditional stays, as doing so routinely would defeat the legislative purpose of the 2015 Amendment. The Court also recognised that unless the underlying agreement or the making of the award had been affected by fraud or corruption, the Court should examine the record and exercise its discretion in a reasonable manner.
In the case at hand, the Court found that the award did not suffer from any such perversity or illegality to justify an unconditional stay of the award. The Court found that the Tribunal had, at least prima facie, appreciated the evidence reasonably, and that the appropriate stage for MMRDA's arguments would be the final hearing of the Petition. The Court also recognised that merely because MMRDA is an agency of the government, the principles governing stays and deposits could not be diluted.
The Court eventually held that if MMRDA deposited the entire award amount in the Court by 15th July 2025, the operation of the award would be stayed. MMOPL was granted liberty to withdraw the amount, if deposited, subject to furnishing a bank guarantee for the entire amount.
However, the Bombay High Court judgment was challenged in the Supreme Court in Mumbai Metropolitan Region Development Authority v Mumbai Metro One Private Limited[3], and the Apex Court, considering the quantum of the award, reduced the deposit to 50 percent of the award amount.
MMRCL v. L&T–STEC JV
A few months later, the Bombay High Court heard another application concerning an arbitral award related to the Mumbai Metro project. In Mumbai Metro Rail Corporation Limited v L&T-STEC JV Mumbai[4] the Mumbai Metro Rail Corporation Ltd (MMRCL) sought an unconditional stay on a 250 Crore Rupee award passed in favour of L&T-STEC JV. Similar to MMRDA, MMRCL sought an unconditional stay, alleging perversity and illegality. Specifically, MMRCL argued that the Tribunal completely disregarded the evidence of the Engineer-in-charge of the project, who, it was submitted, was an expert witness.
However, as in MMRDA v MMOPL, the Bombay High Court declined to grant an unconditional stay. The Court found that the Tribunal had rightly found that the Engineer-in-charge was not an independent expert witness since he was on MMRCL's payroll. The Court also emphasised that an award that follows a contractually agreed pre-arbitral process should be given higher credence. It noted that even the dissenting award found MMRCL liable to pay 134 Crores to L&T-STEC JV.
The Court eventually held that the execution of the award would be stayed only if the entire awarded amount with accrued interest was deposited within eight weeks.
Analysis
The orders of the Bombay High Court in MMRDA v MMOPL and MMRCL v L&T-STEC JV reveal that the Courts attempt to adhere to the spirit of the amended Section 36 of the Arbitration Act by insisting on deposits to stay awards, unless exceptional circumstances exist. At the same time, the Courts protect the award debtor's interests by requiring the award holder to furnish security if it intends to withdraw the deposit. This ensures that the award retains its value and, if the challenge is dismissed, the award holder does not have to run from pillar to post to execute it.
Another aspect that becomes clear is that, while considering applications to stay arbitral awards, Courts do not encourage or entertain detailed arguments on the merits of the matter. An unconditional stay would be considered only if the award is ex facie perverse or illegal.
Thirdly, while the Court can grant a stay subject to a deposit of only a percentage of the award amount, this is an exception and would require the parties to demonstrate cogent reasons for it. For example, the award amount being exceptionally large, as in MMRDA v MMOPL, led the Supreme Court to reduce the deposit to 50 percent of the award amount.
The Bombay High Court judgments in MMRDA v MMOPL and MMRCL v L&T-STEC JV offer a clear picture of the way Courts approach applications to stay arbitral awards post the 2015 amendment to Section 36 of the Arbitration Act. A stay on the operation of an award is discretionary, detailed arguments on merits are discouraged, and the award is nearly always subject to a deposit of the award amount or a substantial percentage of it. However, the Courts, by requiring the award holder to furnish security to withdraw the deposit, strike a balance between the interests of the award debtor and the award holder.
The approach of the Courts after the 2015 amendment to the Arbitration Act is in line with the intention the Legislature had when promulgating the amendment. Unfortunately, the problem of challenges to arbitral awards pending for years after admission remains. If India is to become a truly preferred destination for international arbitration, pendency must be addressed. Parties that arbitrate in India need confidence that their disputes will be resolved in a reasonable time.
Author is an Advocate. Views Are Personal.