Court May Permit Award-Holder To Withdraw Security Deposited By Award-Debtor Pending Challenge To Arbitral Award U/S 34: Calcutta High Court

The Calcutta High Court has recently allowed an application filed by the State of West Bengal, as an award-holder in AP 808 of 2022, under the Arbitration and Conciliation Act, 1996 (“1996 Act”) to withdraw a security of Rs 9 crore furnished by BBM Enterprises (“award debtor”) in lieu of the arbitral award, during the pendency of setting aside proceedings on the impugned award, initiated by the award-debtor.In holding that an award-holder required no statutory sanction or a separate application in the stay proceedings for withdrawing the secured amount, a single-bench of Justice Moushumi Bhattacharya directed the State to furnish a bank guarantee of an equivalent amount to the Registrar, Original Side, Calcutta High Court, before withdrawing the amount, and opined that withdrawal of the amount would not prejudice the rights of the award-debtor, during the pendency of the setting-aside proceedings. It was held: “This Court is of the view that the award-holder is not under any obligation statutorily or otherwise to file an application for release of the money in the application filed by the award-debtor for stay of the award. GA 1 of 2023 is accordingly allowed for these reasons. The award-holder is permitted to withdraw the amount of Rs. 9 crores upon furnishing a bank guarantee of an equivalent amount with the Registrar, Original Side. The award-holder shall furnish the bank guarantee before withdrawing the money which shall be from a Bank which is a constituent of the RBI. The award holder shall be at liberty of taking steps within such time as is found to be reasonable. The award-debtor shall be at liberty to take steps for listing of the application for setting aside of the award. GA 1 of 2023 is disposed of in terms of the above. The Bank guarantee shall be kept renewed till disposal.”On an earlier occasion, in the setting-aside proceedings (AP 746 of 2022), the Court had been pleased to order the award-holder to deposit a secured amount of Rs 9 crore in lieu of the impugned award, and had noted that the award would be stayed consequent to such a deposit being made.The present application for withdrawal of the security amount was initiated by the award-holder, in lieu of changed circumstances since the order of stay had been passed on 17.01.2023.The claim of withdrawal was resisted by the award-debtor on the lines that i) there existed no provision under 1996 Act for allowing such a prayer and ii) Court would have to come to a prima facie view on the award before passing such orders. It was also submitted that the present application could not be entertained as the stay application had already been disposed of by the court at an earlier date. Statutory sanction not needed for withdrawal of security amount; falls under discretion of CourtIn deciding upon whether the award-holder would require a separate sanction to be able to withdraw a secured amount in the presence of an order of stay and during the pendency of setting-aside proceedings, the Court looked at Section 36 of the 1996 Act, and opined that the status of an award-holder in the Act is the same as that of a decree-holder, with the only exception being under Section 36(2), which gave a Court the discretion to grant an order of stay, subject to Section 36(3) and a separate application made by the award-debtor for stay of the award.The Court looked at the pre and post-amendment changes in Section 36 of the 1996 Act, and opined that no specific sanction would be required in the present case, since under Section 36 post-amendment, the enforcement and setting aside of award had been ‘de-coupled’, and that under the current regime, the Court possessed discretionary power in interpreting Section 36(2) insofar as merely filing an application for stay of an arbitral award, would not be seen to tantamount to an order for setting aside or for stay. It was opined:The amendment brought in two significant changes. First, it decoupled enforcement and setting aside of an award by the opening words of section 36(2). Second, it gave a temporary leg-room to the award-debtor to apply for stay of the award subject to the discretion exercised by the Court. The discretionary space of the Court would be apparent from section 36 (2) which sets the tone of the departure from the pre-amendment position in the clarification that mere filing of an application for stay shall not by itself render the award unenforceable unless the Court grants an order of stay of the Arbitral award. Therefore, the effect of the amendment is not far to seek; the march of the award towards enforcement continues un-deterred unless brakes are put in that movement by the award-debtor who applies for stay and the Court grants that stay upon on suitable conditions. The sub-text is that the award-holder must be given the fruits of the victory unless the Court finds that the enjoyment may be deferred subject to the award-debtor securing the award pending a shot at having the award set aside. The...

Court May Permit Award-Holder To Withdraw Security Deposited By Award-Debtor Pending Challenge To Arbitral Award U/S 34: Calcutta High Court

Srinjoy Das

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