Commercial Court Committed Jurisdictional Error By Imposing Pre-Condition To Deposit 50% Of Amount For Stay Against Arbitral Award: Rajasthan HC

The Rajasthan High Court Bench of Justice Sudesh Bansal has held that the Commercial Court has committed jurisdictional error in exercising its discretion arbitrarily, mechanically and injudiciously, while putting the condition to deposit 50% of the awarded amount, for operating stay against arbitral award without assigned justified and sound reasonings. Additionally, the court modified the order in the manner that the stay order will become operative only after furnishing security in the form of FDR of a nationalised bank, equivalent to the 50% of the awarded amount, before the Commercial Court. Brief Facts: The present petition has been filed under Article 227 challenging the order passed by the Commercial Court on an application filed by petitioner under Section 36 of the Arbitration and Conciliation Act, 1996 seeking to stay the arbitral award until decision of application filed under Section 34 of the Act, whereby and whereunder the Commercial Court has stayed execution of arbitral award, subject to deposition of 50% of the awarded amount by the petitioner. The dispute arose with respect to a project of rejuvenation of Amaanishaah Naala, commonly known as “Dravyavati River Rejuvenation Project”. This project was divided into two parts, i.e. Part A- Design Build Phase & Part B- Operation and Maintenance (O&M) for 10 years. The dispute pertains to Part A of the project, which was moduled as “Turnkey Project”. The final financial bid for Part A was settled against Rs.1470.85 Crores. And Part B was for a period of 10 years against Rs. 206.08 Crores. The petitioner contented that the Detailed Project Report (“DPR”) was made part of the contract. And the drawings suggest carrying out continuous construction in the canal, including the submergence areas. But no construction work was carried out in the submergence areas of three dams. However, invoices were raised by the respondent to make payment showing that the construction work in the submergence areas, has also been done without any break. Thereafter, the respondent raised issues of withholding payments of invoices in respect of construction work in the submergence areas before the Dispute Adjudication Board (“DAB”) but it was rejected by the DAB. Then, the respondent invoked the arbitration clause, in respect of subject matter of claim raised before the DAB and filed an Arbitration Application before the Rajasthan High Court. The High Court constituted an Arbitral Tribunal to adjudicate the dispute. The Arbitral Tribunal passed an arbitral award in favour of the respondent. Aggrieved by this, the petitioner challenged the award under Section 34 of the Act before the Commercial Court to set aside the award. The Commercial Court stayed the execution of the award on condition of deposition of 50% of the awarded amount by the petitioner. Then the petitioner filed a writ petition to challenge the order passed by the Commercial Court. Observation of the court: The court noted that the petitioner has succeeded in establishing a strong prima facie case in its favour. The Commercial Court is also convinced about a strong prima facie case in favour of the petitioner, that's why the execution of the arbitral award has been stayed. However, the Commercial Court has not assigned justified and sound reasonings for putting a condition against the petitioner to deposit 50% of the awarded amount, for operating stay against arbitral award. Therefore, the court held that the Commercial Court ex-facie failed to ponder over the aspect that as to why the petitioner may not be permitted to furnish sufficient security, instead of asking for deposition of amount in cash before the Court. Additionally, the court held that the Commercial Court has committed jurisdictional error in exercising its discretion arbitrarily, mechanically and injudiciously, while putting the condition of pre-deposit of 50% of awarded amount. Then, the court held that the Commercial Court, in the peculiar facts and circumstances of the present case, ought to have permitted the petitioner to furnish security instead of insisting on deposition of 50% of the awarded amount in cash before the Court. To this extent, the Commercial Court has committed jurisdictional error in the exercise of its discretionary powers, that too, has been saddled upon the petitioner, without application of judicious mind and without assigning proper reasonings. Hence, the impugned order warrants interference/ modification to this extent only. So, the court modified the order in the manner that the stay order will become operative only after furnishing the security by the petitioner in the form of FDR of a nationalised bank, equivalent to the 50% of the awarded amount, before the Commercial Court. Moving further, the court held that it is the fundamental right of every citizen to live in a hygienic and unpolluted environment and the...

Commercial Court Committed Jurisdictional Error By Imposing Pre-Condition To Deposit 50% Of Amount For Stay Against Arbitral Award: Rajasthan HC

Soumya Chakrabarti

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Soumya Chakrabarti

Commercial Court Committed Jurisdictional Error By Imposing Pre-Condition To Deposit 50% Of Amount For Stay Against Arbitral Award: Rajasthan HC

Soumya Chakrabarti

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Soumya Chakrabarti

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