[Arbitration Act] No Automatic Stay On Award Upon Filing Of Appeal U/S 34 Within Time: Allahabad High Court Reiterates

Following the judgment of the Supreme Court in Board of Control for Cricket in India Vs. Kochi Cricket Pvt. Ltd. and others and Hindustan Construction Company Limited and others Vs. Union of India and others, the Allahabad High Court has reiterated that automatic stay on the operation of arbitral award is not granted merely by filing appeal under Section 34 of the Arbitration and Conciliation Act, 2016.

Section 36 of the Arbitration and Conciliation Act, 2016 introduced vide the amending act of 2015, provides for enforcement of awards. Section 36(2) of the Act provides that where application under Section 34 has been filed within time, an application for stay may be moved by the judgment debtor for stay of the award during the pendency of the application. Section 36(3) empowers the Court to grant the interim stay if it deems fit.

In Board of Control for Cricket in India Vs. Kochi Cricket Pvt. Ltd. and others, the Apex Court has held that Section 36 does not automatically guarantee stay on the arbitral award when the application under Section 34 of the Act has been filed within time. It was also held that amended Section 36 should apply to Section 34 applications filed before the commencement of the Amendment Act.

However, this position was clarified by the Apex Court in M/s Shree Vishnu Constructions. Vs. The Engineer in Chief Military Engineering Services and others, where it was held that the Section 36 will apply prospectively, i.e., the proceedings under Section 24 which have commenced after the amendment.

Justice Piyush Agrawal observed that in Hindustan Construction Company Limited and others Vs. Union of India and others, the Supreme Court had held that filing of appeal under Section 34 of the Act, within time, does not automatically stay the arbitral award.

Parties entered into arbitration upon dispute regarding payment of rent. Vide award dated 19.7.2017, Sole Arbitrator passed the award in favour of respondent-landlord. Thereafter, petitioner filed application under Section 34 of the Arbitration and Conciliation Act, 1996 before the Commercial Court, Gautam Buddha Nagar which was rejected.

Subsequently, petitioner approached the High Court under Section 37 of the Act. Upon dismissal of the appeal, petitioner approached the Supreme Court. The Apex Court also dismissed petitioner's appeal.

During the pendency of the application under Section 34 of the Act, respondent executed a sale deed for the rented property. The same was challenged by the petitioner and the challenge was rejected, the First Appeal against the said order was admitted. Meanwhile, an execution case was filed wherein order was passed in favour of the contesting respondent and petitioner was ordered to pay Rs. 8,58,795/-. This order was challenged by the petitioner before the High Court.

Counsel for petitioner argued that since there was automatic stay on the award, mesne profit of Rs. 15000 with compound interest @ 10 % from 20.8.2017 till handing over of the possession awarded by the Sole Arbitrator was not payable by him. The calculation of the mesne profit was also disputed by the petitioner.

Per contra, counsel for respondent argued that since the petitioner did not vacate the property till 2024, he was liable to pay the mesne profit and penal interest awarded by the Sole Arbitrator. It was also submitted that the award had attained finality. It was also argued that the petitioner had brought any material on record to show that interim order was granted by the Court in Section 34 proceedings, and there was no automatic stay granted in favour by filing of Section 34 application within time.

Perusing the aforesaid judgments of the Supreme Court, Justice Piyush Agrawal held

“In the present case, the application under Section 34 of the Arbitration Act was filed by the petitioner in the year 2017, which is much after the enforcement of the amended Act in the year 2015, therefore, the argument of the counsel for the petitioner that merely on filing of the application under Section 34 of the Arbitration Act, against the award in question was automatically stayed, is misplaced and cannot be accepted.”

The Court held that since the petitioner had not vacated the property in accordance with the arbitral award, the respondent was entitled to mesne profit.

Accordingly, the petition was dismissed.

Case Title: M/s LR Print Solutions v. M/s Exflo Sanitation Pvt Ltd. and 2 others [MATTERS UNDER ARTICLE 227 No. - 8387 of 2024]

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