Arbitration Act| Alleged Liquidity Crunch Of Award Debtor Not Sufficient Cause Under Order XXI Rule 26 CPC To Grant Stay Of Enforcement Of Award: Delhi High Court

The Delhi High Court has ruled that alleged liquidity crunch of the award debtor cannot be a sufficient cause under Order XXI Rule 26(1) of the Code of Civil Procedure, 1908 (CPC) to grant stay of the enforcement proceedings in relation to an arbitral award. The bench of Justice Yogesh Khanna made the observation while hearing a plea seeking modification of the court’s order in the execution petition filed by the award holder, where the court had directed the award debtor to deposit the entire award amount of Rs.165 crores. The award debtor sought to modify the court’s order so as to enable him to furnish bank guarantee instead of cash deposit, on the ground that the same shall lead to liquidity crunch in its company. The court remarked that deferring the payment of the award amount would be harsh to the award holder. It further concluded that bank guarantee cannot be utilised by the decree holder to compensate its loss, and that the plea qua the liquidity crunch equally applied to the decree holder. Observing that the application for stay of award was pending with the Appellate Court under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act), the bench said that its order directing deposit of the entire award amount was a conscious order and it cannot be modified for reasons of liquidity crunch. In the execution proceedings initiated by the award holder/ petitioner, B L Kashyap and Sons Ltd, the Delhi High Court in its order dated 30.05.2023 directed the award debtor/ respondent, Emaar India Ltd, to deposit the entire award amount of Rs.165 crores. Emaar India filed an application before the High Court seeking modification of the order dated 30.05.2023. It sought a stay of the enforcement proceedings for a reasonable period so as to enable it to obtain a stay on the execution of the award by way of the Section 34 petition, which was pending before the Appellate Court. In the alternative, Emaar India requested that it be allowed to secure the arbitral amount by way of an unconditional and irrevocable bank guarantee or any solvent non cash security. Emaar India contended that the court had every power to pass such an order under Order XXI Rule 26 (1) CPC. It claimed that if it was directed to make a deposit of such huge sum it shall lead to a liquidity crunch in its company and its business would come to a standstill. Referring to the facts of the case, the court remarked that admittedly there was a money decree in favour of petitioner, B L Kashyap and Sons, not only for the dues of work done but also for compensation of machinery and material which the petitioner/ award holder was not allowed to lift from the concerned site. “Its running bills were allegedly to the tune of Rs.150 crores, which allegedly were never prayed. Now after years the petitioner has been awarded its dues then deferring such payments to him would rather be harsh,” the court said. The court concluded that the bank guarantee cannot be utilised by the decree holder to compensate its loss, adding that the arguments of the award debtor, Emaar India, qua liquidity crunch equally applied to the award holder. The bench thus held that the alleged liquidity crunch cannot be a sufficient cause under Order XXI Rule 26(1) CPC to grant stay. The bench referred to the decision of the top court in Assistant Collector of Central Excise vs Dunlop India Ltd. & Ors. (1985) 1 SCC 260, where it was observed that liquid cash is necessary for the running of every enterprise. The Apex Court in the case had ruled that mere furnishing of the bank guarantee would not meet the ends of justice and no business of any kind can be run on mere bank guarantees. The High Court added that the order dated 30.05.2023 directing the award debtor to deposit the entire award amount was a conscious order and now it cannot be modified for reasons of liquidity crunch. Noting that Emaar India’s application for stay of award was pending before the Appellate Court under Section 34 of the A&C Act, the court said, “Scope of Order XXI Rule 26 (1) is only to enable a judgment debtor to apply to the Appellate Court and till such time the Court may stay the decree, unconditionally or with conditions. Since now the application for stay is pending with the Appellate Court, it would not be desirable on facts, that this Court should interfere in its realm.” The bench further took note of the Madras High Court’s decision in G. Arumugam vs. P. Jayaraman 2014 (1) CTC 246, where it was held that once the matter is seized by the Appellate Court, the judgment debtor should approach only the Appellate Court for stay and not the Trial Court or the executing court. The court also referred to its decision in Power Mech Projects Ltd. vs. Sepco Electric Power Construction Corporation 2020:DHC:1126 where a similar direction to deposit 100% of the dues was passed by the court and such order...

Arbitration Act| Alleged Liquidity Crunch Of Award Debtor Not Sufficient Cause Under Order XXI Rule 26 CPC To Grant Stay Of Enforcement Of Award: Delhi High Court

Parina Katyal

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